Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

(Amendment No.1)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended: June 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File No.: 000-51285

a21, INC.

(Name of Small Business Issuer in its Charter)

DELAWARE	74-2896910
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

7660 CENTURION PARKWAY, JACKSONVILLE, FLORIDA 32256

(Principal Executive Office)

Issuer's telephone number, including area code: (904) 565-0066

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common stock, par value $0.001 per share

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the past 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

There were 83,305,846 shares of a21's common stock outstanding on August 17, 2006.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to Quarterly Report on Form 10-QSB/A is to restate the unaudited financial statements of a21, Inc. (the “Company”, “we”, or “our”) for the fiscal period ended June 30, 2006, filed with the Securities and Exchange Commission (“SEC”) on August 21, 2006 to reflect a reduction in selling, general and administrative expenses and a decrease to warrant expense. In connection with our adoption of SFAS 123(R) during 2006, we previously recognized stock compensation expense during the three and six months ended June 30, 2006 as if all options granted were fully vested at grant date rather than over the requisite service (vesting) period as proscribed by SFAS 123(R), resulting in an over expensing of related stock compensation of $277,000 and $658,000 for the three and six months ended June 30, 2006. Also, during the period ended June 30, 2006, we had erroneously reversed compensation cost totaling $69,000 previously recognized during the quarter ended March 31, 2006 for restricted stock grants that had vested, and recognized no compensation cost for restricted stock grants that vested with a value of $18,000 during the quarter ended June 30, 2006. Finally, during May and June 2006 we modified and accelerated the vesting of options to purchase our common stock held by two former executives as part of their separation agreements with the Company. The fair value of these modifications was $70,000 which should have been recognized as additional stock based compensation expense during the three and six months ended June 30, 2006. These errors resulted in a net over expensing of stock compensation expense of $120,000 and $501,000 for the three and six months ended June 30, 2006.

In connection with our April 2006 $15.5 million financing, we previously recorded an increase of $56,000 to Additional Paid-In Capital for the fair value of warrants cancelled in exchange for the issuance of notes payable, in error. The excess of fair value of the warrants returned and cancelled over the value of the notes issued of $46,000, plus an additional $10,000 decrease in fair value of the warrant liability prior to the exchange, totaling $56,000, should have been recorded as a reduction of warrant expense for the three and six months ended June 30, 2006. Also, during the quarter ended June 30, 2006, we had recorded the value of our convertible preferred stock issued as part of the price to purchase ArtSelect, Inc. at $4.83 million, based on an erroneous preliminary estimate. The actual value was ultimately determined to be $3.15 million.

Finally, there was an error in our calculation of the weighted average number of common shares outstanding, basic and diluted for the six months ended June 30, 2006 of 77,569,680 previously reported, which should have been 74,817,306.

The following table illustrates the effect on net loss and loss per share of the corrections of errors to stock based compensation expense, warrant expense and weighted average shares:

$ in thousands, except per share amounts	Three months ended June 30, 2006			Six months ended June 30, 2006
Net loss, as previously reported	$	(2,270	)	$	(4,686	)
Stock based employee compensation, as previously reported		(259	)		(1,310	)
Stock based employee compensation, as restated		(139	)		(809	)
Net stock based employee compensation adjustment		120			501
Warrant income (expense), as previously reported		118			(147	)
Warrant income (expense), as restated		174			(91	)
Net warrant income adjustment		56			56
Net loss, as restated		(2,094	)		(4,129	)
Basic and diluted loss per share, as previously reported	$	(0.03	)	$	(0.06	)
Basic and diluted loss per share, as restated	$	(0.03	)	$	(0.06	)

The following table illustrates the effect on goodwill and convertible preferred stock of the correction of the error in estimating the value of our convertible preferred stock issued for the acquisition of ArtSelect, Inc.:

$ in thousands	As of June 30, 2006
Goodwill, as previously reported	$	7,478
Goodwill, as restated	$	5,798
Convertible Preferred Stock, as previously reported	$	4,830
Convertible Preferred Stock, as restated	$	3,150

The Items which are amended and restated herein for the correction of these errors are:

Part I, Item 1 - Consolidated Financial Statements;

Part I, Item 1 - Consolidated Financial Statements: Note O - Restatements and related changes to: Note B[1] - Basis of Presentation and Going Concern, Note B[21] - Comprehensive Income (Loss) and Accumulated Other Comprehensive Income, Note B[22] - Share Based Payments, Note C - Acquisitions, Note F - Goodwill and Other Intangible Assets, Note I - Operating Segments, Note J - Debt Financings, Note L - Convertible Preferred Stock and Stockholders’ Equity, and Note M - Commitments and Other Matters

Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations;

Part I, Item 3 - Controls and Procedures

Part II, Item 6 - Exhibits

In addition, unrelated to the correction of the errors described above, certain applicable notes to the condensed consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations have been added or modified in order to clarify certain disclosures herein including:

1. Part I, Item 1 - Consolidated Financial Statements: Note B[21] - Comprehensive Income (Loss) and Accumulated Other Comprehensive Income, Note B[22] - Share Based Payments, Note J - Debt Financings, and Note L - Convertible Preferred Stock and Stockholders’ Equity.

2.Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except as otherwise noted herein, this Amendment No. 1 to Quarterly Report on Form 10-QSB/A does not reflect events occurring after the August 21, 2006 filing of our Quarterly Report on Form 10-QSB in any way, except as required to reflect the effects of this restatement of our financial statements for the periods presented, as deemed necessary in connection with the completion of restated financial statements.

The remaining Items contained within this Amendment No. 1 to our Quarterly Report on Form 10-QSB/A consist of all other Items originally contained in our Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2006 though some items have been updated to conform to the disclosure contained in our Quarterly Report on Form 10-QSB for the period ending September 30, 2006. These changes do not substantially change the previous disclosure and are being made for the purposes of consistency. These remaining Items are largely not amended hereby, but are included for the convenience of the reader. In order to preserve the nature and character of the disclosures set forth in such Items as originally filed, except as expressly noted herein, this report continues to speak as of the date of the original filing, and we have not updated the disclosures in this report to speak as of a later date. While this report primarily relates to the historical periods covered, events may have taken place since the original filing that might have been reflected in this report if they had taken place prior to the original filing.

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005
Condensed Consolidated Statement of Changes in Stockholders Equity for the six months ended June 30, 2006
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
ITEM 3. CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS

a21, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts)
(unaudited)


	June 30,		December 31,
	2006		2005
	(Restated - See Note O)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	7,018	$	1,194
Accounts receivable, net allowance for doubtful accounts of $66 and $57		2,831		1,840
Inventory		852		156
Prepaid expenses and other current assets		708		277
Total current assets		11,409		3,467

Property, plant and equipment, net		8,135		7,602
Photo collection, net		1,655		1,715
Goodwill		5,798		2,263
Contracts with photographers, net		824		929
Deferred rent receivable		553		541
Intangible assets, net		9,416		3,882
Restricted cash		750		---
Other		110		115
Total assets	$	38,650	$	20,514

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, unsecured	$	---	$	1,050
Accounts payable		1,717		850
Accrued compensation		540		154
Accrued expenses		1,008		569
Royalties payable		1,356		1,180
Warrant obligation		63		187
Deferred revenue		237		151
Other		112		272
Total current liabilities		5,033		4,413

LONG-TERM LIABILITIES
Senior secured convertible notes payable, net - related party		15,500		---
Senior secured notes payable, net - related party		2,368		---
Loan payable from sale-leaseback of building, less current portion		7,425		7,438
Senior secured notes payable, net - related party		---		2,316
Other		119		126

Total liabilities		30,445		14,293

F-1

a21, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
($ in thousands, except per share amounts)
(unaudited)


	June 30,			December 31,
	2006			2005
	(Restated - See Note O)
COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST		2,590			2,800

CONVERTIBLE PREFERRED STOCK, $.001 par value; 3,150 shares issued and outstanding		3,150			---

STOCKHOLDERS' EQUITY
Preferred stock; $.001 par value; 100,000 shares authorized; no shares and 14,480 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively		---			---
Common stock; $.001 par value; 100,000,000 shares authorized; 81,735,620 and 74,115,012 shares issued; and 78,055,845 and 70,435,237 shares outstanding, at June 30, 2006 and December 31, 2005, respectively		82			74
Treasury stock (at cost, 3,679,775 shares)		---			---
Additional paid-in capital		20,356			17,583
Deferred compensation		---			(115	)
Accumulated deficit		(18,314	)		(14,185	)
Accumulated comprehensive income		341			64
Total stockholders' equity		2,465			3,421

Total liabilities and stockholders' equity	$	38,650		$	20,514


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-2

a21, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands except per share amounts)

(unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2006			2005			2006			2005
		(Restated - See Note O)						(Restated - See Note O)

Revenue	$	4,511		$	2,327		$	7,446		$	4,639

COSTS AND EXPENSES
Cost of revenue (excludes related amortization for three months of $383 and $174, six months of $766 and $348)		1,701			716			2,604			1,428
Selling, general and administrative		3,819			1,954			6,624			3,520
Depreciation and amortization		830			359			1,433			712
TOTAL OPERATING EXPENSES		6,350			3,029			10,661			5,660

OPERATING LOSS		(1,839	)		(702	)		(3,215	)		(1,021	)

Interest expense		(447	)		(332	)		(800	)		(729	)
Warrant income (expense)		174			---			(91	)		---
Other income (expense), net		18			49			(23	)		(217	)


NET LOSS		(2,094	)		(985	)		(4,129	)		(1,967	)

Disproportionate deemed dividends		---			---			(157	)		---

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS	$	(2,094	)	$	(985	)	$	(4,286	)	$	(1,967	)

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS PER SHARE, BASIC AND DILUTED	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.05	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED		77,566,527			40,112,391			74,817,306			39,129,773

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-3

a21, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN

STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)

	PREFERRED STOCK					COMMON STOCK					TREASURY STOCK														ACCUMULATED
																ADDITIONAL									OTHER
	NUMBER OF					NUMBER OF					NUMBER OF					PAID-IN			DEFERRED			ACCUMULATED			COMPREHENSIVE
	SHARES			AMOUNT		SHARES			AMOUNT		SHARES			AMOUNT		CAPITAL			COMPENSATION			DEFICIT			INCOME		TOTAL
																(Restated See Note O)						(Restated See Note O)

Balance at December 31, 2005		14		$	--		74,115		$	74		(3,680	)	$	---	$	17,583		$	(115	)	$	(14,185	)	$	64	$	3,421

Stock options exercised		---			---		678			1		---			---		100			---			---			---		101
Stock warrants exercised		---			---		4,000			4		---			---		1,196			---			---			---		1,200
Issuance of common stock upon the conversion of preferred stock issued as part of the purchase price of Ingram Publishing Limited		(14	)		---		2,523			3		---			---		(3	)		---			---			---		---
Stock based compensation		---			---		---			---		---			---		809			---			---			---		809
Stock issuance for brokers’ cost in connection with issuance of Senior Secured Convertible Issuance		---			---		107			---		---			---		62			---			---			---		62
Warrants issued in connection with ArtSelect acquisition		---			---		---			---		---			---		375			---			---			---		375
Issuance of common stock upon the conversion of SuperStock seller preferred stock		---			---		375			---		---			---		210			---			---			---		210
Reversal of deferred compensation		---			---		---			---		---			---		(115	)		115			---			---		---
Cancellation of restricted stock due to executive separation		---			---		(62	)		---		---			---		---			---			---			---		---
Shares payable settlement costs		---			---		---			---		---			---		139			---			---			---		139
Net loss		---			---		---			---		---			---		---			---			(4,129	)		---		(4,129	)
Foreign currency translation adjustment		---			---		---			---		---			---		---			---			---			277		277

Balance at June 30, 2006		---		$	---		81,736		$	82		(3,680	)	$	---	$	20,356		$	---		$	(18,314	)	$	341	$	2,465

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-4

a21, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
($ in thousands)
(unaudited)

FOR THE SIX MONTHS ENDED JUNE 30,	2006			2005
	(Restated - See Note O)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,129	)	$	(1,967	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,433			712
Amortization of finance costs		11			24
Loss on disposal of equipment		76			16
Change in fair value of warrant obligation		137			---
Gain on exchange of debt for cancelled warrants		(46	)		---
Stock option compensation		722			369
Compensation from the issuance of restricted stock		87			---
Deferred compensation		---			(249	)
Amortization of debt discount		---			106
Loss on extinguishment of debt		---			371
Settlement of claim expense paid with common stock		139			---
Other		74			20

Changes in assets and liabilities:
Accounts receivable		(418	)		(349	)
Prepaid expenses and other current assets		(483	)		---
Inventory		60			(35	)
Accounts payable and accrued expenses		852			(181	)
Deferred revenue		87			---
Foreign income tax payable		(170	)		---
Other		1			(36	)
NET CASH USED IN OPERATING ACTIVITIES		(1,567	)		(1,199	)

F-5

a21, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
($ in thousands)
(unaudited)

FOR THE SIX MONTHS ENDED JUNE 30,	2006			2005
	(Restated - See Note O)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ArtSelect, net of cash acquired of $231		(4,476	)		---
Investment in property, plant and equipment		(284	)		(261	)
SuperStock earn-out		(206	)		---
Investment in photo collection		(195	)		(9	)
Restricted cash for lease deposit		(750	)		---
Other		(9	)		---
NET CASH USED IN INVESTING ACTIVITIES		(5,920	)		(270	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured convertible notes payable - related party, net		15,285			---
Payment of senior secured notes payable - related party		(2,250	)		2,250
Payment of convertible subordinated notes payable		---			(1,250	)
Payment of unsecured notes payable		(1,050	)		---
Net proceeds from the exercise of stock options		100			---
Net proceeds from the exercise of stock warrants		1,200			---

Payment of promissory note payable		(33	)		(33	)
Other		37			3
NET CASH PROVIDED BY FINANCING ACTIVITIES		13,289			970

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALANTS		22			96
NET INCREASE (DECREASE) IN CASH		5,824			(403	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,194			717

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,018		$	314

F-6

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Foreign income taxes paid	$	178	$	---
Interest paid		635		405

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of convertible preferred stock as part of ArtSelect acquisition		3,150	$	---
Issuance of senior secured note payable as part of ArtSelect acquisition		2,350		---
Issuance of warrants as part of ArtSelect acquisition		375		---
Issuance of common stock for financing costs		62		---
Issuance of senior convertible debt in exchange for cancellation of warrants		215		---
Debt discount recorded for the issuance of warrants in connection with unsecured note payable and convertible subordinated notes payable		---		10
Deferred compensation		---		369
Accrued purchase price payable		85		62
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

F-7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE A - FINANCIAL STATEMENT PRESENTATION AND THE DESCRIPTION OF BUSINESS

The unaudited condensed consolidated financial statements of a21, Inc. (“a21”, “the Company”, “we”) herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position at June 30, 2006, and the results of operations for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. Results of operations for interim periods are not necessarily indicative of those to be achieved for full fiscal years. These condensed consolidated financial statements should be read in conjunction with our audited financial statements included in our amended annual report on Form 10-KSB/A for the year ended December 31, 2005 filed with the SEC.

a21, Inc. was incorporated in the State of Texas in October 1998, under the name Saratoga Holdings I, Inc. In February 2004, we completed the acquisition of all of the voting common stock, representing 83% of the outstanding equity, of SuperStock, Inc. In October 2005, we completed the acquisition of all of the outstanding stock of Ingram Publishing Limited, and in May 2006, we completed the acquisition of ArtSelect, Inc. through the merger of a wholly owned subsidiary into ArtSelect. On July 31, 2006, we changed our state of incorporation from Texas to Delaware (See Note N).

Through our subsidiary SuperStock, we aggregate visual content from photographers, photography agencies, archives, libraries and private collections and license the visual content to our customer base consisting of four major groups: creative (advertising and design agencies), editorial (publishing and media entities), corporate (in-house communications departments and outside corporate communications firms) and consumers (the general public). SuperStock products are sold directly and through a global network of distributors.

Our subsidiary ArtSelect supplies home and office framed and unframed wall décor to retailers, catalogers, membership organizations and consumers through both online and traditional retail and wholesale distribution channels in the United States.

F-8

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] Basis of presentation / Going Concern:

The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. We have sustained significant recurring losses and at June 30, 2006 had an accumulated deficit of $18.3 million that raise substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm included a going concern explanatory paragraph in their report in connection with their audit of our consolidated financial statements for the year ended December 31, 2005. We will need to raise cash from equity and debt financings to fund any additional acquisitions, and may need to raise cash in such manner to fund our operations. If we are unable to secure the required funding, we may not be able to implement our business plan and may not be able to conduct business as a going concern. See Note J describing recent $15.5 million financing. At June 30, 2006, we had cash of $7.0 million and working capital of $6.4 million.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing as may be required and ultimately to attain profitable operations and positive cash flows. Our future plans include the development of our distribution channel, the leveraging of owned and licensed image content, and the production and acquisition of new in-demand image content to be made available to both direct and distribution customers. Additionally, we are in discussions with several potential acquisition targets that, if successful, could result in an enhanced market position and incremental cash flow from operations. However, there can be no assurance that these efforts will be successful. We also continue to incur operating expenses to enhance our market position and expand our product offering by producing or acquiring newer, in-demand image content for our customers. We may have to seek additional funding sooner than expected. There can be no assurance that sufficient additional capital needed to sustain operations will be obtained by us or that our operations will become profitable.

[2] Principles of consolidation:

The condensed consolidated financial statements include all of our accounts including our primary operating subsidiaries, SuperStock (U.S.), ArtSelect (U.S.) (acquired on May 15, 2006), and SuperStock Limited (UK), which includes Ingram Publishing (acquired during October 2005). The minority interest in the consolidated balance sheets at June 30, 2006 and December 31, 2005 represents the interest of the holders of preferred shares of SuperStock (“SuperStock Seller Preferred”), which are exchangeable into common shares of a21, Inc. All significant intercompany balances and transactions have been eliminated.

F-9

[3] Revenue recognition:

Revenue is recognized when the following criteria are met: evidence of an arrangement exists, the price is fixed or determinable, collectibility is reasonably assured and delivery has occurred or services have been rendered.

Licensing fee revenue is recorded at invoiced amounts except in the case of licensing rights through distributors, where revenue is recorded at our share of invoiced amounts. Distributors typically earn and retain a percentage of the license fee according to their contract, and we record the remaining license fee as revenue. We also sell subscriptions of certain images for terms ranging from one to twelve months. Subscription revenue is recognized over the respective term of the subscription agreement and, accordingly, $237,000 and $151,000 is recorded as deferred revenue as of June 30, 2006 and December 31, 2005, respectively.

Revenue from product sales is recognized when the product is shipped and title is transferred to the customer. Revenue sold via ArtSelect’s website and/or related sub-domains is recognized on a gross basis. Revenue sold through customers’ distribution channels is recognized net of related costs. We base our estimates for sales returns on historical experience.

[4] Cost of revenue:

Cost of licensing fee revenue reflects royalties on revenue generated from images licensed under contracts with photographers. Royalties are expensed in the period that they are incurred. Cost of revenue excludes amortization of revenue generating assets. ArtSelect cost of product sales reflects payments made to suppliers of art content, framing materials, and shipment and handling costs.

[5] Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The recoverability of the carrying values of long-lived assets, including goodwill and identifiable intangible assets, represents sensitive estimates subject to change.

[6] Fair value of financial instruments:

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and short-term debt, which approximate fair value because of their short maturities. The carrying amount of long-term debt approximates fair value due to the market rate of interest incurred by us. The fair value of our notes payable to stockholders and an affiliated company are not reasonably determinable based on the related party nature of the transactions.

F-10

[7] Cash and cash equivalents:

We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At June 30, 2006 and December 31, 2005, we had no investments with maturities greater than three months. We are required to maintain a security deposit in accordance with our lease agreement for the SuperStock facility. Cash as of June 30, 2006 and December 31, 2005 excludes the certificate of deposits pledged as security deposit. This consists of restricted cash funded by us to secure a letter of credit in the amount of $750,000 at June 30, 2006 and $690,000 pledged by stockholders at December 31, 2005.

[8] Accounts Receivable and Allowance for Doubtful Accounts:

Accounts receivable are trade receivables, net of allowances for doubtful accounts. We estimate our allowance for doubtful accounts based on historical loss ratios, existing economic conditions, and specific account analysis of high-risk accounts. Concentration of credit risk is limited due to the dispersion of customers. No single customer represents more than 10% of the total accounts receivable.

[9] Inventories:

Inventories are valued at the lower of cost or market and are determined on the first-in, first-out (FIFO) basis. For ArtSelect, inventories include raw materials and finished goods. Raw materials include prints, mats, frames, molding, and packaging material. Finished goods consist of preframed art. For SuperStock, inventories include the costs of compact disk products produced for resale categorized as finished goods. The requirements for any provisions of estimated losses for obsolete, excess, or slow-moving inventories are reviewed periodically. At June 30, 2006, our reserve for inventories was $104,000 including a provision of slow moving SuperStock compact disk products of $89,000 recorded during the three months ended June 30, 2006, classified as a cost of sales in the consolidated statement of operations.

[10] Deferred Rent Receivable

During 2004, we entered into an agreement to sublease a significant portion of our headquarters and SuperStock facility for a term of six years with an option to renew for an additional two-year term. Statement of Financial Accounting Standards (“SFAS 13”), “Accounting for Leases”, requires rental income from an operating lease be recognized on a straight-line basis over the non-cancelable lease term. Accordingly, we recognize total contractual minimum lease payments, including scheduled rent increases, as rental income evenly over the lease term. Accrued revenues from contractually scheduled rent increases in excess of amounts currently due are reported as a long-term receivable. We monitor this asset for collection risk and will establish reserves for any amounts deemed not collectible. However, amounts collected in future periods may vary from our expectations.

[11] Defined Contribution Employee Benefit Plan

We maintain defined contribution retirement plans pursuant to Section 401(k) of the Internal Revenue Code (the Plan), in which U.S. employees at least 21 years of age may participate after completing six months of service. Eligible employees may contribute up to a certain percentage of their annual compensation to the Plan, subject to the annual IRS limitations. The Company may match employee contributions on a discretionary basis. No such discretionary matching contributions were made in 2006 or 2005.

F-11

[12] Foreign Currency:

We translate assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, at exchange rates in effect as of the balance sheet date. We translate revenue and expenses at the monthly average rates of exchange prevailing during the year. We include the adjustment resulting from translating the financial statements of such foreign subsidiaries in accumulated other comprehensive income, which is reflected as a separate component of stockholders’ equity. Gains and losses, which are denominated in currency other than a subsidiary’s local currency and remeasured in the subsidiary’s local currency, are recognized in the condensed consolidated statements of operations.

[13] Land and building and property and equipment and depreciation:

Land and building were sold and leased back in a SuperStock transaction accounted for as a financing transaction. The building is being depreciated over the twenty-year term of the related lease. Property and equipment consisting of furniture, fixtures and equipment, photography and computer equipment, and software are recorded at cost. Depreciation of property and equipment is computed by the straight-line method over the assets' estimated lives of furniture, fixtures, and equipment being 7 years, photography and computer equipment ranging from 5 to 7 years, and software ranging from 3 to 5 years.

Expenditures for major additions and improvements are capitalized. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

[14] Photo collection and contracts with photographers:

Expenditures for additions and improvements to the photo collection are capitalized. The photo collection is categorized by type of imagery (fine art, vintage and contemporary). Depreciation of the photo collection is computed by the straight-line method over the assets’ estimated lives of forty years for fine art and vintage images and four years for contemporary images. Upon sale or retirement of any portion of the collection, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.

Contracts with photographers have an average life of ten years including those that are automatically renewable. Amortization of the photographer’s contracts is based on projected revenues expected to be generated over the estimated average ten-year life of the underlying images covered by the respective contracts.

F-12

[15] Goodwill and intangible assets:

We last performed our annual goodwill impairment test as of October 1, 2005 and determined there was no impairment as of that date.

Intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS 144. Intangible assets with definite lives are amortized using the straight-line method over their expected useful life. (See Note F)

[16] Long-lived assets:

We evaluate our long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," pursuant to which an impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. A long-lived asset is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Our consideration of SFAS 144 involves significant assumptions and estimates based on management’s best judgments of current and future circumstances, including currently enacted tax laws, the future weighted-average cost of capital, and our future financial performance. No impairment charges have been incurred for the three and six months ended June 30, 2006 and 2005.

[17] Other income (expense):


($ in thousands)	Three months ended June 30,						Six months ended June 30,
	2006			2005			2006			2005

Currency transaction (loss) gain	$	83		$	52		$	95		$	105
Loss on extinguishment of debt		---			---			---			(371	)
Expense from foreign sales tax credit		(44	)		---			(71	)		---
Other		(21	)		(3	)		(47	)		49
	$	18		$	49		$	(23	)	$	(217	)

F-13

[18] Income taxes:

We recognize deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax bases of assets and liabilities, and for the expected future tax benefit to be derived from offsetting the net operating loss against loss and tax credit carryforwards against taxable income, if any. We established a valuation allowance to reflect the likelihood of realization of deferred tax assets. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The difference in basis of the investment in foreign subsidiary relates to goodwill which is not deductible.

[19] Net loss attributed to common stockholders per share:

We calculate net loss attributed to common stockholders per share in accordance with the provisions of SFAS No. 128, "Earnings per Share”. SFAS No. 128 requires a dual presentation of "basic" and "diluted" income (loss) per share on the face of the condensed consolidated statements of operations. Basic income (loss) per share is computed by dividing the net loss attributed to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of common stock.

For the three and six months ended June 30, 2006 and 2005, the basic and diluted net loss attributed to common stockholders per share is the same since the effect from the potential exercise of 15,473,193 and 33,532,590 outstanding stock options and warrants as of June 30, 2006 and 2005, respectively, would have been antidilutive.

For the three and six months ended June 30, 2006, 4,625,139 shares of common stock issuable upon the conversion of the SuperStock Seller Preferred have been excluded. For the three and six months ended June 30, 2005, 5,000,151 shares of common stock issuable upon the conversion of the SuperStock Seller Preferred have been excluded.

[20] Reclassifications:

Certain reclassifications have been made to the 2005 period financial statements to conform to the 2006 period presentation.

[21] Comprehensive Income (Loss) and Accumulated Other Comprehensive Income:

Other accumulated comprehensive income consists of net loss and net unrealized foreign currency translation adjustments and is presented in the condensed consolidated balance sheets as a component of stockholders’ equity.

Comprehensive income (loss) was as follows:

($ in thousands)	Six Months Ended June 30,
	2006			2005

Net loss	$	(4,129	)	$	(1,967	)
Foreign currency translation adjustments		277			96
Total comprehensive loss	$	(3,852	)	$	(1,871	)

F-14

[22] Share based payments:

We have a 2005 Stock Option Plan and a 2002 Stock Option Plan, which are described in our consolidated financial statements for the year ended December 31, 2005 filed on Form 10-KSB/A. Prior to January 1, 2006 we accounted for our stock-based compensation plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Accordingly, no compensation cost was recognized for options granted to employees and directors at exercise prices, which equaled or exceeded the market price of our Common Stock at the date of grant. In addition, for certain options with modifications of terms which resulted in variable accounting, compensation cost was recognized by marking the option’s value to market at each reporting period. Stock-based employee compensation cost (benefit) was recognized as a component of selling, general and administrative expense in the Statement of Operations. For the three and six months ended June 30, 2005, there was no stock-based compensation expensed for employees.

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R), using the modified-prospective transition method. Under that transition method, employee compensation cost recognized in 2006 includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123 and (ii) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

F-15

As a result of adopting SFAS 123(R) on January 1, 2006, our net loss for the three and six months ended June 30, 2006, is approximately $121,000 and $722,000 higher, respectively, than if we had continued to account for share-based compensation under APB 25. The adoption of this standard had no impact on our provision for income taxes due to the valuation allowance for our U.S. deferred tax assets due to our lack of operating history. Total compensation cost for share based payment arrangements recognized for the three and six month periods ended June 30, 2006 was $139,000 and $809,000, respectively. SFAS 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows.

The following table illustrates the effect on net loss and loss per share if we had applied the fair value recognition provisions of SFAS 123 to options granted to employees under our stock option plans during the three and six months ended June 30, 2005 (unaudited):

$ in thousands, except per share amounts	Three months ended June 30, 2005			Six months ended June 30, 2005
Net loss	$	(985	)	$	(1,967	)
Stock based employee compensation included in net loss		---			---
Less: Stock-based employee compensation using the fair value method		(39	)		(61	)

Pro forma net loss	$	(1,024	)	$	(2,028	)

Loss per share - basic and diluted
As reported	$	(0.02	)	$	(0.05	)
Pro forma	$	(0.03	)	$	(0.05	)

The above pro forma disclosures are provided for 2005 because employee stock options were not accounted for using the fair-value method during that period. No pro forma disclosure has been presented for the three and six months ended June 30, 2006 as share-based payments to employees have been accounted for under SFAS 123(R)’s fair-value method for such periods. The fair value of each option is measured at the grant date using a Black-Scholes option-pricing model, which requires the use of a number of assumptions including volatility, risk-free interest rate, and expected dividends. The following weighted average assumptions were used for stock options granted during the three and six months ended June 30, 2005: no annual dividends; expected volatility of 80%; risk free interest rate of 3.00%, and expected life of 5 years.

F-16

As a result of the February 9, 2006 stockholder approval of our 2005 Stock Plan, although the exercise price of $0.30 was greater than the prevailing market price of the underlying common stock when originally granted during 2005, for GAAP purposes the grant date used to measure fair value of 4,108,060 stock options valued at $1.1 million was the February 9, 2006 stockholder approval date, at which time the market price of the underlying common stock was $0.37. The weighted-average grant-date fair value of these option grants was $0.28 per share. The weighted average fair value of all options granted during the six months ended June 30, 2006 was $0.32 per share. The fair value of options granted is estimated using the Black-Scholes option pricing model. The following assumptions were used for stock options granted during the three and six months ended June 30, 2006, respectively: no annual dividends; expected volatility of 117%; risk free interest rate ranging from 3.50% to 4.00%; expected life ranging from 3 to 5 years. Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for the most recent two years. We believe this method produces an estimate that is representative of our expectations of the future volatility over the expected term of our options. We currently have no reason to believe future volatility over the expected life of these options is likely to differ materially from historical volatility. The weighted-average expected life is based upon share option exercises, pre and post vesting terminations and share option term expiration. The risk-free interest rate is based on the U.S. treasury security rate estimated for the expected life of the options at the date of grant.

During May and June 2006, we modified and accelerated the vesting for options to purchase 200,000 shares of our common stock held by certain former executives as part of their separation agreements with the Company. The fair value of the modifications of $70,000 has been recognized as incremental compensation expense during the six months ended June 30, 2006. This amount is included in the $809,000 of total compensation cost discussed above.

SFAS 123(R) requires the estimation of forfeitures when recognizing compensation expense and that this estimate of forfeitures be adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized compensation expense to be recognized in future periods. We have estimated our forfeitures to be 5% based primarily on our historical forfeiture rate.

Additional information relative to our employee options outstanding at June 30, 2006 is summarized as follows (unaudited):

The following summarizes our stock option activity for the six months ended June 30, 2006:

	Stock Options
	Shares			Weighted Average Exercise Price

Balance, December 31, 2005		4,547,623		$	0.32

Granted		4,783,060		$	0.34
Exercised		(802,850	)	$	0.18
Forfeited		(424,772	)	$	0.30
Cancelled		(66,668	)	$	0.15
Balance, June 30, 2006		8,036,393		$	0.35


Exercisable, December 31, 2005		4,547,623		$	0.32

Exercisable, June 30, 2006		6,314,811		$	0.33

F-17

The options to acquire 802,850 common shares exercised include certain options exercised on a cashless basis, resulting in the issuance of 678,447common shares.

The following table summarizes information about stock options outstanding at June 30, 2006:

Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Number Exercisable

$0.15	54,167	1 year	54,167
$0.25	1,256,500	1 year	1,256,500
$0.30	5,485,726	3 ½ years	4,562,894
$0.34	165,000	4 1/2 years	41,250
$0.46	400,000	5 years
$0.50	160,000	1 year	160,000
$0.83	275,000	5 years	---
$1.00	120,000	1 year	120,000
$1.50	120,000	1 year	120,000
	8,036,393	3 years	6,314,811

The aggregate intrinsic value of options outstanding and exercisable at June 30, 2006 was $343,000 and $306,000, respectively. This amount represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the second quarter of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2006. The total intrinsic value of options exercised during the six months ended June 30, 2006 was $356,000.

Prior to January 1, 2006 the Company had granted 3,190,000 non-plan restricted shares to certain members of management that included 838,750 shares not fully vested as of that date. During the six months ended June 30, 2006, 671,250 of such shares vested and the fair value of the vested shares of $18,000 and $87,000 has been recognized as compensation expense during the three and six months ended June 30, 2006, respectively. The following is a summary of the status of and changes to the Company’s non-vested shares as of and for the six months ended June 30, 2006:


	Non-vested Shares			Weighted Average Grant-Date Fair Value

Balance, December 31, 2005		838,750		$	0.14

Granted		---		$	---
Vested		(671,250	)	$	0.13
Forfeited		(62,500	)	$	0.12
Balance, June 30, 2006		105,000		$	0.19

F-18

At June 30, 2006, there was $732,000 of total unrecognized compensation cost related to non-vested share based compensation arrangements, including options and restricted stock grants. That cost is expected to be recognized over a weighted-average period of 15 months. The total fair value of options and restricted stock grants that vested during the six months ended June 30, 2006 was $809,000.

[23] Advertising

Advertising expenses were $218,000 and $252,000 for the three months ended June 30, 2006 and 2005, respectively. Advertising expenses of $393,000 and $354,000 were expensed for the six months ended June 30, 2006 and 2005, respectively. Advertising costs are charged to expense as incurred.

NOTE C - ACQUISITIONS

In consideration, the stockholders of ArtSelect received $4.5 million of cash, $2.35 million in secured notes, and $3.15 million of a21 convertible preferred stock valued at $3.15 million. The selling stockholders of ArtSelect also received warrants to purchase 750,000 shares of a21’s common stock at $1.00 per share valued at $0.50 each or $375,000, exercisable for common stock. We have also incurred approximately $205,000 in related transaction costs, which has been recorded as purchase capital. Final adjustments will be made to the purchase price after finalization of ArtSelect’s closing balance sheet expected by December 31, 2006

($ in thousands)
Cash	$	4,500
Convertible preferred stock		3,150
Seller secured notes		2,350
Warrants		375
Capitalized transaction costs		205
	$	10,580

The seller notes bear interest at 6% per year and mature on the earlier to occur of a change of control or May 15, 2009. The first year of interest on the notes will be accrued and added to the principal of the notes. After the first year, interest will be payable quarterly, in arrears. The notes are secured by substantially all the assets of ArtSelect (provided that, with respect to up to $3.0 million of the assets of ArtSelect, the notes are junior to the previously issued $15.5 million Senior Secured Notes described in Note J).

The convertible preferred stock fair value was determined using the as-if converted value $3.15 million. The convertible preferred stock has certain liquidation preferences and, pursuant to an exchange agreement entered into with each of the holders of preferred stock, after a21 increases the number of its authorized shares of common stock, is exchangeable for a21’s common stock at a minimum price per share of $0.75, subject to adjustment pursuant to weighted average anti-dilution provisions contained in the transaction documents.

On May 16, 2006, the holders of convertible preferred stock elected to exchange all of the convertible preferred stock for an aggregate of 4,200,000 shares of a21’s common stock at a the minimum conversion price of $0.75 per share. Pursuant to the terms of the exchange agreement with such holders, the exchange stock was issued by a21 in August 2006 after we reincorporated in Delaware, pursuant to which a21 increased the number of authorized shares of its common stock in part to accommodate such exchange.

F-19

The Warrants expire four years from the closing date of the acquisition. The fair value of the warrants has been determined using a Black-Scholes model by applying the following assumptions: risk-free interest rate, 4.9%; volatility, 129%; underlying stock price, $0.64; exercise price, $1.00; term, 4 years.

The aggregate purchase price was approximately $10.6 million. The following summarizes the preliminary fair values assigned to the assets acquired and liabilities assumed at the date of acquisition, which are subject to adjustment to reflect the final purchase price allocation.

($ in thousands)
Tangible assets	$	2,587
Specifically identifiable intangible assets*		6,000
Goodwill		3,258
Liabilities assumed		(1,265	)
	$	10,580

* - preliminary estimate; subject to completion of formal valuation by independent expert.

PROFORMA EFFECT OF ACQUISITIONS

As previously disclosed in our Form 10-KSB/A filed for the year ended December 31, 2005, in October 2005, the Company’s UK-based SuperStock Limited subsidiary completed the acquisition of all of the outstanding stock of Ingram Publishing Limited (“Ingram”) from its stockholders.

The results of operations of ArtSelect and Ingram have been included in the consolidated financial statements of the Company since May 16, 2006 and October 12, 2005, respectively. The unaudited proforma information below presents the results of operations as if the acquisitions of ArtSelect and Ingram had occurred on the first day of the periods presented. The unaudited proforma information is presented for informational purposes only and is not intended to represent or be indicative of the results of operations of the combined companies had these events occurred at the beginning of the period presented nor is it indicative of future results:

($ in thousands, except per share amounts)	Six months ended June 30,
	2006			2005
Total revenue	$	12,040		$	12,305

Net loss		(4,277	)		(1,837	)

Net loss per share, basic and diluted	$	(0.06	)	$	(0.05	)

Proforma weighted average number of common shares outstanding, basic and diluted		74,817,306			39,129,773

F-20

NOTE D - INVENTORIES

The major components of inventories are summarized as follows:

($ in thousands)	June 30, 2006		December 31, 2005

Framed art materials		575		---
Framed art finished product		186		---
Compact disk product		91		156
	$	852	$	156

NOTE E - PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment are summarized as follows:

($ in thousands)	June 30, 2006			December 31, 2005

Land and building		7,768			7,768
Office equipment and furnishings		652			375
Technology equipment		467			430
Software		685			147
Less: Accumulated depreciation		(1,437	)		(1,118	)
	$	8,135		$	7,602

Land and building were sold and leased back in a transaction accounted for as a financing transaction. The building is being depreciated over the twenty-year term of the related lease.

Depreciation expense was $187,000 and $166,000 for the three months ended June 30, 2006 and 2005, respectively. Depreciation expense was $327,000 and $334,000 for the six months ended June 30, 2006 and 2005, respectively.

NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is comprised of $3.3 million of goodwill associated with the acquisition of ArtSelect, $1.3 million of goodwill associated with the acquisition of SuperStock, and $1.3 million of goodwill associated with the acquisition of Ingram. Superstock and Ingram are both included in the “Superstock” segment in Note I below.

($ in thousands)
Goodwill at December 31, 2005	$	2,263
SuperStock earnout		136
Cumulative foreign currency translation of Ingram goodwill		141
ArtSelect goodwill		3,258
Goodwill at June 30, 2006	$	5,798

F-21

Identifiable intangible assets, net of amortization at June 30, 2006 are as follows:

($ in thousands)	Cost		Accumulated Amortization			Foreign Currency Translation		Net		Average Useful Life (in months)

SuperStock non-compete covenants	$	116	$	(68	)	$	---	$	48		48
Ingram license agreements		2,440		(366	)		123		2,197		60
Ingram non-compete agreements		790		(198	)		35		627		36
Ingram customer relationships		420		(105	)		19		334		36
Ingram distribution agreements		270		(68	)		12		214		36
Ingram trademark		220		(82	)		8		146		24
ArtSelect intangible assets*		6,000		(150	)		---		5,850		60
Intangible assets	$	10,256	$	(1,037	)	$	197	$	9,416

* - preliminary estimate; completion of formal valuation by independent expert and any purchase accounting adjustments are expected by December 31, 2006. We estimate the most significant ArtSelect intangible asset to be customer relationships.

Amortization expense during the three months ended June 30, 2006 and 2005 totaled $431,000 and $7,000, respectively. Amortization expense during the six months ended June 30, 2006 and 2005 totaled $711,000 and $15,000, respectively.

Approximate remaining annual amortization expense is as follows for each of the following years: 2006: $1.2 million, 2007: $2.3 million, 2008: $2.1 million, 2009: $1.7 million, and 2010: $1.6 million.

($ in thousands)
Intangible assets, net at December 31, 2005	$	3,882
Cumulative foreign currency translation		245
ArtSelect intangible assets		6,000
Amortization expense		(711	)
Intangible assets, net at June 30, 2006	$	9,416

NOTE G - PHOTO COLLECTION AND CONTRACTS WITH PHOTOGRAPHERS

The photo collection as of June 30, 2006 and December 31, 2005 was $2.8 million and $2.6 million, respectively. The book value of the photo collection, net of accumulated amortization was $1.7 million at June 30, 2006 and December 31, 2005, respectively. Amortization expense was $131,000 and $124,000 for the three months ended June 30, 2006 and 2005, respectively. Amortization expense was $255,000 and $246,000 for the six months ended June 30, 2006 and 2005, respectively. Approximate remaining annual amortization expense is as follows for each of the following years: 2006: $266,000, 2007: $542,000, 2008: $148,000, 2009: $68,000, and 2010: $39,000.

Contracts with photographers as of June 30, 2006 and December 31, 2005, was $1.3 million. The book value of contracts with photographers, net of accumulated amortization was $824,000 and $929,000 as of June 30, 2006 and December 31, 2005, respectively. Amortization expense was $53,000 and $52,000 for the three months ended June 30, 2006 and 2005, respectively. Amortization expense was $105,000 and $102,000 for the six months ended June 30, 2006 and 2005, respectively. Approximate remaining annual amortization expense is as follows for each of the following years: 2006: $104,000, 2007: $208,000, 2008: $169,000, 2009: $124,000, and 2010: $61,000.

F-22

NOTE H - MINORITY INTEREST

Minority interest represents 1,541,713 shares of SuperStock Seller Preferred held by the former owners of SuperStock at June 30, 2006, which is exchangeable for 4,625,139 shares of a21’s common stock. The SuperStock Seller Preferred has no voting rights, pays no dividend, and, except for exchange rights into common stock, it has no other special rights except liquidation. In liquidation, it is senior to the common stock of SuperStock and has distribution rights to the greater of $4.0 million or 16% of the total liquidation distributions after creditors. The minority interest is valued as if it had been exchanged into a21’s common stock at the closing price on the day of the acquisition.

On June 30, 2006, we issued 375,012 shares of a21 common stock upon the conversion of 125,004 shares of the preferred stock of SuperStock, Inc.

Subsequent to June 30, 2006, on July 20, 2006, we issued 600,000 shares of a21 common stock upon the conversion of 200,000 shares of the preferred stock of SuperStock, Inc.

NOTE I - OPERATING SEGMENTS

Effective with the ArtSelect acquisition during May 2006, we operate in the following segments: Corporate, SuperStock, and ArtSelect. No customer represented 10% or more of our total revenue in the periods presented.

80% and 75% of our total revenues were based domestically in the U.S. for the three and six months ended June 30, 2006, respectively. 85% and 71% of our total assets were based domestically in the U.S. as of June 30, 2006 and December 31, 2005, respectively.

The following table presents information about our segment activity as of June 30, 2006 and 2005, and for the three and six months then ended.

($ in thousands)
Three months June 30, 2006		Corporate			SuperStock			ArtSelect			Total

Revenue	$	---		$	3,023		$	1,488		$	4,511

Segment operating loss		(973	)		(801	)		(65	)		(1,839	)

Segment total assets		498			26,696			11,456			38,650

Segment long-lived assets	$	---			16,091			9,737			25,828

Six months June 30, 2006		Corporate			SuperStock			ArtSelect			Total

Revenue	$	---		$	5,958		$	1,488		$	7,446

Segment operating loss		(1,951	)		(1,199	)		(65	)		(3,215	)

Prior to the ArtSelect acquisition, we had operated domestically and internationally. No customer represented 10% or more of our total revenue in the periods presented. The following table presents information about our domestic and international activity as of June 30, 2005 and for the three and six months then ended.

Three months June 30, 2005		Domestic			International			Total

Revenue	$	1,977		$	350		$	2,327

Segment operating loss		(948	)		(37	)		(985	)

Segment total assets		15,925			428			16,353

Six months June 30, 2005		Domestic			International			Total

Revenue	$	3,944		$	695		$	4,639

Segment operating loss		(1,923	)		(44	)		(1,967	)

The domestic segment information for the three and six months ended June 30, 2005, respectively, includes $417,000 and $900,000 of revenue and $292,000 of accounts receivable attributable to foreign distributors that are SuperStock customers. The international segment information reflects the operation of foreign subsidiaries.

F-23

NOTE J - DEBT FINANCINGS

$15.5 Million Senior Secured Convertible Notes

During April 2006, we entered into a securities purchase agreement (“Purchase Agreement”) with certain purchasers and Queequeg Partners, LP, as agent (“Agent”), whereby we issued $15.5 million of 5% Senior Secured Convertible Notes (“Senior Convertible Notes”).We received net proceeds of $11.7 million in cash, after the repayment of certain outstanding debt of $3.3 million, exchange of Notes totaling $215,000 to retire warrants to purchase 637,500 shares of a21’s common stock, repayment of total interest due of $216,000, and the payment of a finder’s fee of $100,000. Queequeg Partners L.P. and Queequeg, Ltd. (each of which are affiliated with Ahab Capital Management, Inc., which was a 10% beneficial owner of a21’s common stock prior to April 27, 2006) (collectively “Ahab”), and StarVest Partners, LP (“StarVest”), which was a 10% beneficial owner of a21’s common stock prior to April 27, 2006, purchased a portion of the Notes sold in this transaction. As part of this transaction, we released $690,000 of certificate of deposits (“CDs”), which had been pledged by Ahab to secure the letter of credit issued by SuperStock in connection with its capital lease for our facility in Jacksonville, Florida and replaced the deposit with new CDs from the net proceeds of the financing.

The Senior Convertible Notes are secured by substantially all of our assets. They are convertible into 23,846,154 of a21’s common stock at a minimum conversion price of $0.65 per share, subject to adjustment as provided in the Senior Convertible Notes after we increase the number of authorized shares of our common stock. In addition, the conversion price of the Senior Convertible Notes may be adjusted based on a weighted average anti-dilution formula in the event of issuances of a21’s common stock at a price per share below $0.65. The minimum conversion price is set at $0.50 per share on a diluted basis. The interest on the Senior Convertible Notes is payable quarterly in arrears, and the principal will be due and payable on March 31, 2011. If the 45-day volume weighted average price of a21’s common stock equals or exceeds $1.00 per share, the Senior Convertible Notes will automatically be converted into a21’s common stock under certain conditions.

The Senior Convertible Notes include customary events of default, including the failure to pay any principal or interest when due, the breach of any covenant, term or condition of the Senior Convertible Notes, the breach of any representation or warranty in the Purchase Agreement, Senior Convertible Notes or other documents executed in connection with the transactions contemplated thereby, defaults in the performance of any other indebtedness of greater than $500,000, the insolvency or bankruptcy of a21, and the SEC issuing a stop trade order or suspension of trading relating to a21’s common stock. Upon the occurrence of an event of default, each Note will become due and payable, either upon notice from the agent for the holders of Senior Convertible Notes at the direction of the holders of a majority of the outstanding principal amount of the Senior Convertible Notes or automatically, depending on the particular event of default.

F-24

Pursuant to the terms of the Purchase Agreement, for so long as StarVest beneficially owns at least 8,000,000 shares of a21’s common stock, StarVest has the right to name a designee to our Board of Directors. In addition, for so long as at least 40% of the aggregate principal amount of the Senior Convertible Notes is outstanding, we may not, without the prior written consent of the Agent, engage in certain activities or transactions, including, but not limited to, declaring dividends, liquidating, dissolving, effecting a reorganization or change of control, or incurring certain indebtedness. The Purchase Agreement also provides that the purchasers have a pro-rata “first right of refusal” to provide up to 25% of the amount of any additional financing the amount of which will be in excess of $2.0 million.

We also entered into a Registration Rights Agreement dated April 27, 2006, between a21 and the Agent, on its own behalf and on behalf of the holders of the Senior Convertible Notes. Pursuant to the Registration Rights Agreement, if the SEC has not declared effective a registration statement for the sale of the underlying shares of a21’s common stock by January 22, 2007, we will be obligated to pay the holder of the Senior Convertible Notes liquidated damages as provided in the Registration Rights Agreement up to a maximum of 24% of the proceeds of the Senior Convertible Notes.

We have evaluated the terms of the Senior Convertible Notes to determine whether at issuance the conversion feature should be separated and measured at fair value under SFAS No. 133 “Derivative Instruments and Hedging Activities” (“SFAS 133”) and EITF Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). The instrument should not be accounted for as “conventional convertible debt”, as defined EITF 00-19, as a result of the conversion price reset provisions described above. We determined that the embedded conversion feature is not required to be separated and accounted for as a liability or equity. With respect to the registration rights and the liquidated damages described above, we have determined that a discount on an unregistered share of the Company’s common stock subject to the registration rights agreement associated with the Senior Convertible Notes would exceed the liquidated damages.

As a result, we further evaluated whether the Senior Convertible Notes contained a beneficial conversion feature to be accounted for under EITF Issue No. 98-5 “Accounting for Convertible securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”) and EITF Issue No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”. At the commitment date of the Senior Convertible Notes, as defined, the initial conversion price of $0.65 per share exceeded the quoted market price of the Company’s common stock, therefore at issuance the embedded conversion feature was not beneficial.

In connection with the transactions described above, we repaid the $2.25 million 12% Senior Secured Note, dated as of February 22, 2005 and the $1.05 million 12% unsecured promissory notes dated February 29, 2004, and the interest due under these notes of $184,000 was paid on April 27, 2006 using a portion of the proceeds from the issuance of the Senior Convertible Notes equal to the full amount of the principal and interest due.

F-25

In connection with the repayment of the indebtedness described above, the following common stock purchase warrant agreements were terminated: Warrants expiring on February 21, 2007, granting the right to purchase 300,000 shares of a21’s common stock, at an exercise price of $0.188 per share, which was issued in connection with certain repaid Notes; and Warrants expiring on February 21, 2007, granting the right to purchase 337,500 shares of a21’s common stock, at an exercise price of $0.377 per share, which were also issued in connection with certain Notes. These Warrants, which were previously accounted for as a warrant liability and had a fair value of approximately $261,000 on April 27, 2006, were returned to us and canceled in consideration of us issuing a portion of the Senior Convertible Notes in the aggregate principal amount equal to $215,000 (which is equal to the product of (i) the difference between the closing market price of a21’s common stock on March 30, 2006 ($0.62) and the exercise price of the warrants, and (ii) the number of shares of a21’s common stock issuable upon exercise of the warrants). The difference between the fair value of the warrants received and the amount of the Senior Convertible Notes issued, of approximately $46,000, is included as a reduction of warrant expense in our consolidated statement of operations for the three and six months ended June 30, 2006.

Senior Secured Notes - ArtSelect Sellers

In partial consideration for the sale of ArtSelect to a21, the stockholders of ArtSelect received $2.35 million in secured notes. The seller notes bear interest at 6% per year and mature on the earlier to occur of a change of control or May 15, 2009. The first year of interest on the notes will be accrued and added to the principal of the notes. After the first year, interest will be payable quarterly, in arrears. The notes are secured by substantially all the assets of ArtSelect (provided that, with respect to up to $3.0 million of the assets of ArtSelect, the notes are junior to the previously issued $15.5 million Senior Notes). The $2.4 million balance, including accrued interest, recorded on our condensed consolidated balance sheet at June 30, 2006 is included in the caption “Secured notes payable, net- related party”.

Warrant Liability

Pursuant to the provisions of EITF 00-19, we recorded the value of certain warrants as a current liability, with subsequent changes in fair value to be reflected in the consolidated statement of operations. The classification of the warrants was determined based upon the terms of the warrants relative to respective registration rights agreement. As of June 30, 2006 and December 31, 2005, the warrants were valued at $63,000 and $187,000, respectively. The change in valuation for the six months ended June 30, 2006 was an expense of $137,000. This expense was offset by the $46,000 of income resulting from the cancellation of warrants valued at $261,000 exchanged for Senior Convertible Notes of $215,000, as described above, resulting in non-operating warrant income (expense) of $174,000 and ($91,000) for the three and six months ended June 30, 2006.

NOTE K - LOAN PAYABLE ON BUILDING

During June 2004, we completed the sale and leaseback of the land and an approximately 73,000 square foot building in which our headquarters is located in Jacksonville, Florida. The facility was sold for $7.7 million and resulted in net proceeds of $7.5 million, of which $4.0 million was used to repay a bank note that was secured by a first mortgage on the facility and $1.6 million was used to repay other indebtedness to the selling stockholders of SuperStock. The building was leased back for a term of twenty years. The lease provides us with two five-year renewal options at specified payments.

Based on the terms of the leasing arrangement, the transaction does not qualify for sale recognition and has been accounted for as a financing transaction pursuant to SFAS No. 98, "Accounting for Leases". Accordingly, the accompanying financial statements reflect the net proceeds from the sale of the land and building as a loan payable with an effective interest rate of 10.1%. The building is included in property and equipment and is being depreciated on a straight-line basis over the twenty-year term of the lease.

The following table summarizes our annual maturities under the loan payable on building:


($ in thousands)
2006	$	12
2007		35
2008		55
2009		80
2010		110
Thereafter		7,158
		7,450
Less: Current Portion		(25	)
Long Term Portion	$	7,425

The current portion of the loan payable is included in other current liabilities.

NOTE L - CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

[1] Common and Preferred stock (See Note N):

At June 30, 2006 we were authorized to issue 100,000 shares of its $.001 par value preferred stock at face value $100 per share, which has the rights, preferences, and privileges as determined by our Board of Directors. See Note N describing our reincorporation from Texas to Delaware and the subsequent increase in our authorized common and preferred stock.

On March 6, 2006, we received $1.2 million in connection with the exercise of warrants to purchase 4,000,000 shares of a21’s common stock held by one of a21’s significant stockholders. The stockholder previously acquired the warrants from another of our significant stockholders, through a prior transaction. In connection with the exercise of the warrants, we set the exercise price of the warrants to $0.30 per unregistered share, which was approximately 10% less than what the exercise price would have been pursuant to the original terms of the warrants, but higher than the minimum $0.25 per unregistered share as stated in the warrant modification agreement. This accommodation was granted by us in order to facilitate the transaction. As a result of the repricing of the warrants, we recorded a deemed dividend of $157,000, increasing the net loss attributed to common stockholders.

In partial consideration for the acquisition of the outstanding stock of Ingram, the stockholders of Ingram also received 14,480 shares of a21’s preferred stock. On March 14, 2006, we issued 2,522,648 shares of a21 common stock upon the conversion of the preferred stock by the holders thereof. The preferred shares were converted into a21 common stock at a price per share of the a21 common stock of $0.574, the average of the closing price of the a21’s common stock for the 20 trading day period ending on March 13, 2006. At June 30, 2006 and December 31, 2005, there were none and 14,480 shares of preferred stock issued and outstanding, respectively.

In partial consideration for the sale of ArtSelect to a21, the stockholders of ArtSelect received 10,000 shares of a21 convertible preferred stock valued at $3.15 million, determined using the as-if converted value. On May 16, 2006, the holders of convertible preferred stock elected to exchange all of the convertible preferred stock for an aggregate of 4,200,000 shares of a21’s common stock at a per share price of $0.75. Pursuant to the terms of the exchange agreement with such holders, the exchange stock is issuable by a21 after the Company reincorporates in Delaware, and, in connection therewith, increases the number of authorized shares of its common stock, in part, to accommodate such exchange. The trading price of a21’s common stock was $.83 at the closing date of the ArtSelect acquisition, which was the commitment date of the convertible preferred stock, compared to the conversion price of $0.75 per share, resulting in a contingent beneficial conversion value of $336,000 on the May 16, 2006 acquisition date. The conversion is contingent on the increase in authorized shares. Once this occurs, we will record a deemed dividend of $336,000.

F-26

On June 30, 2006, we issued 375,012 shares of a21 common stock upon the conversion of 125,004 shares of SuperStock Seller Preferred with a respective adjustment to equity of $210,000 representing the allocable, original fair value of the SuperStock Seller Preferred as if it had been exchanged into a21’s common stock at the closing price on the day of the acquisition. On July 20, 2006, we issued 600,000 shares of a21 common stock upon the conversion of 200,000 shares of the SuperStock Seller Preferred with a respective adjustment to equity of $336,000 representing the allocable, original fair value of the SuperStock Seller Preferred as if it had been exchanged into a21’s common stock at the closing price on the day of acquisition.

In connection with the July 2006 settlement of certain claims made by a stockholder and three of his affiliates against the Company, we will issue 450,000 shares of our common stock in exchange for a general release of all claims such persons may have had against us. We have recognized the related fair value of such shares of $139,000 as settlement expense included in general operating expense in our Statement of Operations, with a corresponding increase to additional paid in capital during the three and six months ended June 30, 2006. The fair value was determined based upon the prevailing common stock trading market price per share at the time the agreement was reached.

[2] Stock options and warrants:

Stock options and warrants have been granted to officers, directors and employees based upon employment agreements and other grants at the discretion of the Board of Directors. Warrants have been granted through other financing and investment agreements with certain of our investors.

As discussed above, on March 6, 2006, we received $1.2 million in connection with the exercise of common stock warrants.

In connection with the warrants canceled as part of the consideration paid to us in the $15.5 Million Senior Secured Convertible Note financing, a net adjustment to additional paid in capital of $56,000 was made to reflect the change in warrant liability resulting from the cancellation of such warrants.

In partial consideration of the acquisition of ArtSelect by a21, the stockholders of ArtSelect received warrants to purchase 750,000 shares of a21’s common stock at $1.00 per share valued at $0.50 each or $375,000, exercisable for common stock.

On February 16, 2006, an information statement was mailed or furnished to our stockholders in connection with the authorization and approval by a majority of the Board of Directors of the 2005 Plan at a meeting held on March 10, 2005 and the subsequent adoption of such corporate action by written consent on February 9, 2006 of a majority of our stockholders. Such adoption constitutes the approval and consent of the action. The 2005 Plan provides for the grant of options, stock appreciation rights (“SARs”), performance share awards, restricted stock and unrestricted stock of up to an aggregate of 6,000,000 shares of common stock to officers, employees and independent contractors of ours or our affiliates. If any award expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject thereto is again available for grant under the 2005 Plan. Stock options issued under the 2005 Plan typically have a five-year term and vest prorata over periods generally ranging from one to three years except as otherwise provided in accordance with specific agreements. The exercise price typically is no less than the fair market value of a share of a21’s common stock on the date of grant of the options. See Note B[22]. As of June 30, 2006, there were shares available for grant under the 2005 Plan of 1,620,292.

F-27

Pursuant to our 2002 Directors, Officers And Consultants Stock Option, Stock Warrant And Stock Award Plan, as amended (the "2002 Plan"), 3,000,000 shares of a21 common stock are reserved for issuance. The 2002 Plan authorizes our board of directors to issue warrants, options, restricted or unrestricted common stock, and other awards to our employees, consultants and directors and our affiliates. Certain options and warrants to be granted under the 2002 Plan are intended to qualify as Incentive Stock Options (“ISOs”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, while other options and warrants granted under the 2002 Plan will be nonqualified options or warrants which are not intended to qualify as ISOs. A committee selected by our Board of Directors has the authority to approve option grants and the terms, which include the option price and the vesting terms. Options granted under the 2002 Plan expire after a ten-year period and are subject to acceleration upon the occurrence of certain events. As of June 30, 2006 and December 31, 2005 there were 496,264 shares available for grant under the 2002 Plan.

[3] Deferred Compensation:

Grants of a21 restricted common stock made prior to January 1, 2006 to certain directors and officers totaling 3,190,000 shares, valued at fair value per the respective market trading prices at the time of the grants, resulted in unamortized deferred compensation of $115,000 included in the consolidated balance sheet for the unvested portion of such compensation at December 31, 2005. The deferred compensation was reversed upon the adoption of SFAS 123(R) effective January 1, 2006.

NOTE M - COMMITMENTS AND OTHER MATTERS

[1] Employment agreements:

On July 20, 2006, our Board of Directors increased the base salary of our Chairman and Chief Executive Officer to $175,000 per year. He was also granted an option to purchase 650,000 shares of our common stock at a purchase price of $0.65 per share. These options will be accounted for under the fair value method under SFAS 123R with a charge to the consolidated statement of operations. The strike price of such options was above the market trading value at the time of the grant. The options are exercisable as to 25% of the total shares represented thereby on each of October 31, 2006, April 30, 2007, October 31, 2007, and April 30, 2008. The stock options granted shall vest immediately upon a change in control as defined.

On July 20, 2006, our Board of Directors increased the base salary of our Vice President and Chief Financial Officer to $135,000 per year. He was also granted an option to purchase 200,000 shares of our common stock at a purchase price of $0.65 per share. These options issued will be accounted for under the fair value method under SFAS 123R with a charge to the consolidated statement of operations. The options are exercisable as to 25% of the total shares represented thereby on each of December 31, 2006, June 30, 2007, December 31, 2007, and June 30, 2008. The stock options granted shall vest immediately upon a change in control as defined.

We appointed an interim President and Chief Operating Officer whom is also a member of our Board of Directors. We entered into an employment agreement with him pursuant to which, effective June 19, 2006, he will receive a salary of $20,000 per month and a one-time bonus of $30,000. He was granted options to purchase 400,000 shares of a21’s common stock, exercisable at $0.46 per share, all of which will vest on December 31, 2006 and expire on June 19, 2011. The fair value of these options of approximately $120,000 is being accounted for a compensation expense under SFAS 123R over the vesting period. The employment agreement has a term of six months and may be terminated by either party without cause on 30 days written notice to the other party. In addition, we may terminate the employment agreement immediately for cause, as defined in the employment agreement.

F-28

The Company terminated its employment of its then President on June 19, 2006. Pursuant to the terms of a termination agreement between the Company and its then President, dated June 29, 2006, he resigned from the a21 and SuperStock Board of Directors and from any other positions he held with our subsidiaries. Pursuant to the termination agreement, we will pay him severance of approximately $53,000, in installments over approximately five months in accordance with our normal bi-monthly payroll cycle. In addition, we accelerated the vesting of 100,000 of his unvested stock options, and also agreed that his vested and unexercised stock options totaling 500,000 shares could be exercised on a cashless basis until their expiration date of September 19, 2006. Pursuant to the agreement he may not sell any shares of a21's common stock, including restricted shares owned or shares owned upon exercise of his vested options prior to their expiration, until June 19, 2007, except that he may sell up to 350,000 shares in a private transaction with a third party. The resignation from our Board of Directors did not result from a disagreement with the Company on any matter relating to our operations, policies, or practices. The modification of vesting of his stock options resulted in additional fair value of approximately $16,000 which was recognized as compensation expense during the three and six months ended June 30, 2006.

The Company terminated its employment of its then Chief Creative Officer on May 25, 2006. Pursuant to the terms of an agreement between the Company and its then Chief Creative Officer, dated June 12, 2006, he agreed that his employment with the Company terminated as of May 25, 2006 and he also resigned from the a21 and SuperStock Board of Directors and from any other positions he held with our subsidiaries. Pursuant to the agreement, we will pay him severance of $120,000, in installments in accordance with our normal payroll practices. In addition, we accelerated the vesting of 62,500 of his unvested shares of restricted stock and 100,000 of his unvested stock options. We also agreed that he may exercise all of his vested stock options totaling 300,000 shares until the earlier of (i) the date such vested stock options would otherwise have expired by their terms, or (ii) May 25, 2007. In addition, he acknowledged and agreed that all right, title and interest in and to the approximately 1,205 images he photographed while an employee of SuperStock are the sole and exclusive property of the SuperStock. The resignation from our Board of Directors did not result from a disagreement with the Company on any matter relating to our operations, policies, or practices. The modification of vesting and the extension of the exercise period of his vested stock options resulted in additional fair value of approximately $54,000, which was recognized as compensation expense during the three and six months ended June 30, 2006.

[2] Lease commitments

As described in Notes E and K above, we have capitalized our facility under the terms of a sale and leaseback transaction. In June 2004, we entered into an agreement to sublease a significant portion of its facility for a term of six years with an option to renew for an additional two-year term. The sublease requires monthly rent payments to us beginning in November 2004 with annual increases through the term of the sublease. The total lease payments in accordance with the terms of the agreement are $3.5 million. Rental income is recognized on a straight-line basis over the term of the sublease, and the excess of rental income recognized over rental payments received is recorded as deferred rent receivable of $553,000 and $541,000 at June 30, 2006 and December 31, 2005, respectively.

In a lease agreement for SuperStock Limited in the UK, we sublet the entire facility to a third party as of June 2002, until the expiration of the lease in 2014. In accordance with the lease agreement, our UK subsidiary would be liable for approximately $90,000 per year under the covenants in the lease in the event the lessee who has sublet the facility is unable to perform under such terms.

F-29

[3] Lease Deposit Arrangement

A security deposit is required under the capital lease agreement for our facility in Florida. On April 27, 2006, as part of the financing transaction (see Note J), we also released the $690,000 certificates of deposit (“CDs”), which had been pledged by Ahab to secure the letter of credit issued by SuperStock in connection with its capital lease. Upon release of the Ahab CDs, we established replacement CDs held in our name and funded by the proceeds of the $15.5 million financing transaction.

The lease deposits of $750,000 are shown as restricted cash non-current assets as of June 30, 2006.

[4] Settlement:

In connection with the July 2006 settlement of certain claims made by a stockholder and three of his affiliates against the Company, we issued 450,000 shares of a21 common stock in exchange for a general release of all claims such persons may have had against us. We have recognized the related value of such shares of $139,000 as settlement expense included in general operating expenses in our Statement of Operations for the three and six months ended June 30, 2006.

[5] Legal:

We are involved in various claims and lawsuits in the ordinary course of business. Management believes that there are no such matters outstanding that would have a material adverse effect on our results of operations and financial position.

NOTE N - SUBSEQUENT EVENTS

On June 19, 2006, a21’s Board of Directors approved a merger agreement pursuant to which, among other things, the Company would merge with and into its wholly owned subsidiary, a21,Inc., a Delaware corporation. On June 23, 2006, we obtained the approval of the terms of the merger agreement by a majority of our outstanding shares of common stock. The reincorporation became effective on July 31, 2006.

Our reincorporation in Delaware has not resulted in any change to our business operations or the location of our principal executive offices. The financial condition and results of operations of the surviving corporation immediately after the consummation of the merger were identical to the Company’s immediately prior to the consummation of the merger. In addition, the board of directors of the surviving corporation consists of those persons who were the Company’s directors immediately prior to the merger and individuals serving as executive officers of the Company immediately prior to the merger continue to serve as executive officers of the surviving corporation after the merger.

Pursuant to the reincorporation, the number of the Company’s authorized shares of common stock was increased to 200,000,000 shares.

F-30

NOTE O - RESTATEMENTS

The consolidated financial statements for the period ending June 30, 2006 contain restatements to reflect a reduction in selling, general and administrative expenses and a decrease to warrant expense. In connection with our adoption of SFAS 123(R) during 2006, we previously recognized stock compensation expense during the three and six months ended June 30, 2006 as if all options granted were fully vested at grant date rather than over the requisite service (vesting) period as proscribed by SFAS 123(R), resulting in an over expensing of stock compensation of $277,000 and $658,000 for the three and six months ended June 30, 2006. Also, during the quarter ended June 30, 2006, we had erroneously reversed compensation cost totaling $69,000 previously recognized during the quarter ended March 31, 2006 for restricted stock grants that had vested, and recognized no compensation cost for restricted stock grants that vested with a value of $18,000 during the quarter ended June 30, 2006. Finally, during May and June 2006 we modified and accelerated the vesting of options to purchase our common stock held by two former executives as part of their separation agreements with the Company. The fair value of these modifications was $70,000 which should have been recognized as additional stock based compensation expense during the three and six months ended June 30, 2006. These errors resulted in a net over expensing of stock compensation expense of $120,000 and $501,000 for the three and six months ended June 30, 2006.

In connection with our April 2006 $15.5 million financing, we previously recorded an increase of $56,000 to Additional Paid-In Capital for the fair value of warrants cancelled in exchange for the issuance of notes payable, in error. The excess of fair value of the warrants returned and cancelled over the value of the notes issued of $46,000, plus an additional $10,000 decrease in fair value of the warrant liability prior to the exchange, totaling $56,000, should have been recorded as a reduction of warrant expense for the three and six months ended June 30, 2006. Also, during the quarter ended June 30, 2006, we had recorded the value of our convertible preferred stock issued as part of the price to purchase ArtSelect, Inc. at $4,830,000, based on an erroneous preliminary estimate. The actual value was ultimately determined to be $3,150,000.

F-31

The following table illustrates the effect on net loss and loss per share of the corrections of errors to based compensation expense, warrant expense, and weighted average shares:

$ in thousands, except per share amounts	Three months ended June 30, 2006			Six months ended June 30, 2006
Net loss, as previously reported	$	(2,270	)	$	(4,686	)
Stock based employee compensation, as previously reported		(259	)		(1,310	)
Stock based employee compensation, as restated		(139	)		(809	)
Net stock based employee compensation adjustment		120			501
Warrant income (expense), as previously reported		118			(147	)
Warrant income (expense), as restated		174			(91	)
Net warrant income adjustment		56			56
Net loss, as restated		(2,094	)		(4,129	)
Basic and diluted loss per share, as previously reported	$	(0.03	)	$	(0.06	)
Basic and diluted loss per share, as restated	$	(0.03	)	$	(0.06	)

The following table illustrates the effect on goodwill and convertible preferred stock of the correction of the error in the estimated the value of the convertible preferred stock issued for the acquisition of ArtSelect, Inc.:

$ in thousands	As of June 30, 2006
Goodwill, as previously reported	$	7,478
Goodwill, as restated	$	5,798
Convertible Preferred Stock, as previously reported	$	4,830
Convertible Preferred Stock, as restated	$	3,150

As a result of the above error corrections, as of and for the six months ended June 30, 2006, additional paid-in capital changed from $20.9 million to $20.4 million, accumulated deficit changed from $(18.9 million) to $(18.3 million), net cash used in operating activities changed from $(1.8 million) to $(1.6 million), and net cash provided by financing activities changed from $13.6 million to $13.3 million.

F-32

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in our condensed consolidated financial statements and the notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis set forth in our Annual Report on Form 10-KSB/A for the year ended December 31, 2005.

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-QSB/A that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements about our expectations, beliefs, intentions or strategies for the future, which are indicated by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “management believes” and similar words or phrases. The forward-looking statements are based on our current expectations and are subject to certain risks, uncertainties, and assumptions. Our actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

OVERVIEW

Through our subsidiary SuperStock, we aggregate visual content from photographers, photography agencies, archives, libraries, and private collections and license the visual content to our customers. SuperStock’s customer base consists of four major groups: creative (advertising and design agencies), editorial (publishing and media entities), corporate (in-house communications departments and outside corporate communications firms) and consumers (the general public). SuperStock’s products are sold directly and through a global network of distributors in over 100 countries. SuperStock’s subsidiary Ingram is a UK-based provider of subscription, CD-ROM and individual royalty free images as well as vector graphics and fonts, vehicle online templates, and print price guides for the worldwide graphics design, printing, sign making, advertising and publishing communities. Our subsidiary ArtSelect supplies home and office framed and unframed wall décor to retailers, catalogers, membership organizations and consumers through both online and traditional retail and wholesale distribution channels. We are headquartered in Jacksonville, Florida, with other operating and sales offices in Iowa, New York City, and London.

RECENT EVENTS

Convertible Debt Financing

During April 2006, we entered into a securities purchase agreement (“Purchase Agreement”) with certain purchasers and Queequeg Partners, LP, as agent (“Agent”), whereby we issued $15.5 million of 5% Senior Secured Convertible Notes (“Senior Convertible Notes”) in consideration for which we received net proceeds of $11.7 million in cash, after the repayment of certain outstanding debt of $3.3 million, exchange of Notes totaling $215,000 to retire warrants to purchase 637,500 shares of a21’s common stock, repayment of total interest due of $216,000, and the payment of a finder’s fee of $100,000. Queequeg Partners L.P. and Queequeg, Ltd. (each of which are affiliated with Ahab Capital Management, Inc., which was a 10% beneficial owner of a21’s common stock prior to April 27, 2006) (collectively “Ahab”), and StarVest Partners, LP (“StarVest”), which was a 10% beneficial owner of a21’s common stock prior to April 27, 2006, purchased a portion of the Notes sold in this transaction. As part of this transaction, we released $690,000 of certificate of deposits (“CDs”), which had been pledged by Ahab to secure the letter of credit issued by SuperStock in connection with its capital lease for our facility in Jacksonville, Florida and replaced the deposit with new CDs from the net proceeds of the financing.

Please refer to our Current Report on Form 8-K dated May 3, 2006 for additional information relating to our Convertible Debt Financing and related transactions.

Acquisition of ArtSelect

On May 16, 2006, we acquired ArtSelect, Inc. ArtSelect supplies home and office framed and unframed wall décor to retailers, catalogers, membership organizations, and consumers through both online and traditional retail and wholesale distribution channels. In consideration, the stockholders of ArtSelect received $4.5 million of cash, $2.35 million in secured notes, and Convertible Preferred Stock valued at $3.15 million. The stockholders of ArtSelect also received warrants to purchase 750,000 shares of a21’s common stock at $1.00 per share (the “Warrants”). Final adjustments will be made to the purchase price after finalization of ArtSelect's closing balance sheet, which is expected to occur by December 31, 2006. The Notes bear interest at 6% per year and mature on the earlier to occur of a change of control and May 15, 2009. The first year of interest on the principal balance of the Notes will be accrued and added to the principal of the Notes. After the first year, interest will be payable quarterly, in arrears. The Notes are secured by substantially all the assets of ArtSelect (provided that, with respect to up to $3.0 million of the assets of ArtSelect, the Notes are junior to the previously issued Senior Notes). The Warrants expire four years from the closing date of the merger.

Pursuant to an exchange agreement entered into with each of the holders of Preferred Stock, after a21 increased the number of its authorized shares of common stock on July 31, 2006, the Preferred Stock was exchanged for an aggregate of 4,200,000 a21’s common stock at the minimum price per share of $0.75.

Please refer to our Current Report on Form 8-K dated May 19, 2006 for additional information relating to our ArtSelect acquisition and related transactions.

Other Matters

As of May 25, 2006, the employment of Haim Ariav, our former Chief Creative Officer and the Chief Creative Officer and President of SuperStock was terminated. On June 12, 2006, Mr. Ariav resigned as a member of our Board of Directors.

As of June 19, 2006, the employment of Thomas V. Butta, our former President and the Chief Executive Officer of SuperStock, was terminated. On June 29, 2006, Mr. Butta resigned as a member of our Board of Directors.

On June 19, 2006, we appointed Philip N. Garfinkle as our interim President and Chief Operating Officer and SuperStock appointed Mr. Garfinkle its interim President and Chief Operating Officer. Mr. Garfinkle is already a member of our Board of Directors.

On July 31, 2006, we reincorporated, pursuant to which we changed our state of incorporation from Texas to Delaware and increased the number of shares of our authorized capital stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared under accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. We have summarized significant accounting policies in Note B to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-QSB/A.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS ENDED JUNE 30, 2005

REVENUES. Revenues were $4.5 million for the three months ended June 30, 2006 compared to $2.3 million for the same prior year period. Approximately 70% of the increase was attributable to the ArtSelect acquisition, which occurred on May 15, 2006, approximately 20% of the increase, was attributable to the Ingram acquisition, which occurred during October 2005, with the balance of the increase attributed to SuperStock.

COST OF REVENUES. Cost of revenues was $1.7 million for the three months ended June 30, 2006 compared to $716,000 the same prior year period. Approximately 70% of the increase was attributable to the ArtSelect acquisition, approximately 10% of the increase was attributable to the Ingram acquisition, with the balance of the increase attributed to SuperStock.

As a percentage of revenues, cost of sales was 38% and 31% for the three months ended June 30, 2006 and 2005, respectively. The increase in cost of sales percentage reflects the weighted impact of higher variable cost for ArtSelect’s raw materials including prints, mats, frames, molding, and packaging material as well as shipping and handling costs. Cost of sales as a percentage of revenues may also vary in any period depending on SuperStock’s relative mix of stock photography distributed that is either licensed from third parties or owned by us.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $3.8 million for the three months ended June 30, 2006 compared to $2.0 million for the same prior year period.

Approximately 45% of the increase was attributable to the ArtSelect acquisition, approximately 15% of the increase was attributable to the Ingram acquisition, approximately 7% of the increase was attributable to the adoption of SFAS 123(R), with the balance of the increase attributed to higher corporate costs including legal and audit incurred to support our corporate governance and regulatory compliance requirements.

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our fiscal year 2006. Share-based compensation expense recognized under SFAS 123(R) for the three months ended June 30, 2006 was $139,000. In accordance with the modified prospective transition method, our condensed consolidated statement of operations for the three months ended June 30, 2005 have not been restated to reflect, and do not include, the impact of SFAS 123(R).

DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $830,000 for the three months ended June 30, 2006 compared to $359,000 for the same prior year period. The increase was primarily attributable to incremental depreciation and amortization expense during the three months ended June 30, 2006 resulting from the ArtSelect and Ingram acquisitions.

INTEREST EXPENSE. Interest expense was was $447,000 for the three months ended June 30, 2006 compared to $332,000 for the same prior year period reflecting higher outstanding debt during the three months ended June 30, 2006 compared to the same prior year period.

WARRANT INCOME. Pursuant to the provisions of Emerging Issues Task Force No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, A Company’s Own Stock” (“EITF 00-19”), during 2005, we recorded the value of certain February 2005 warrants as a current liability, with subsequent changes in fair value to be reflected in the condensed consolidated statement of operations. The classification of the warrants was determined based upon the terms of the warrants relative to registration rights and because the terms did not include a liquidated damages provision. The decrease in valuation, net of amounts related to the warrants canceled as part of the $15.5 million financing, was $174,000 for the three months ended June 30, 2006 and was recorded as non-operating warrant income.

OTHER INCOME, NET. Other income, net was $18,000 for the three months ended June 30, 2006 compared to other income, net of $49,000 for the same prior year period.

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS. Net loss attributed to common stockholders was $2.1 million or $0.03 per share, for the three months ended June 30, 2006 compared to net loss of $985,000, or $0.02 per share, for the same prior year period.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005

REVENUES. Revenues were $7.4 million for the six months ended June 30, 2006 compared to $4.6 million for the same prior year period. Approximately 55% of the increase was attributable to the ArtSelect acquisition, approximately 35% of the increase was attributable to the Ingram acquisition, with the balance of the increase attributed to SuperStock.

COST OF REVENUES. Cost of revenues was $2.6 million for the six months ended June 30, 2006 compared to $1.4 million for the same prior year period. Approximately 60% of the increase was attributable to the ArtSelect acquisition, approximately 20% of the increase was attributable to the Ingram acquisition, with the balance of the increase attributed to SuperStock.

As a percentage of revenues, cost of sales was 35% and 31% for the six months ended June 30, 2006 and 2005, respectively. The increase in cost of sales percentage reflects the weighted impact of higher variable cost for ArtSelect’s raw materials and shipping costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $6.6 million for the six months ended June 30, 2006 compared to $3.5 million for the same prior year period.

Approximately 23% of the increase was attributable to the adoption of SFAS 123(R), approximately 25% of the increase was attributable to the ArtSelect acquisition, approximately 15% of the increase was attributable to the Ingram acquisition, with the balance of the increase attributed to higher corporate costs including legal and audit.

Share-based compensation expense recognized under SFAS 123(R) for the six months ended June 30, 2006 was $809,000. In accordance with the modified prospective transition method, our condensed consolidated statement of operations for the six months ended June 30, 2005 have not been restated to reflect, and do not include, the impact of SFAS 123(R).

DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $1.4 million for the six months ended June 30, 2006 compared to $712,000 for the same prior year period. The increase was primarily attributable to incremental depreciation and amortization expense (primarily of intangible assets) during the six months ended June 30, 2006 resulting from the ArtSelect and Ingram acquisitions.

INTEREST EXPENSE. Interest expense was $800,000 for the six months ended June 30, 2006 compared to $729,000 for the same prior year period. Interest expense for the six months ended June 30, 2006 reflects higher outstanding debt during the three months ended June 30, 2006 compared to the same prior year period. Interest expense for the six months ended June 30, 2005 included incremental amortization of finance costs.

WARRANT EXPENSE. Pursuant to the provisions of EITF 00-19, we recorded the value of certain warrants as a current liability, with subsequent changes in fair value to be reflected in the consolidated statement of operations. The classification of the warrants was determined based upon the terms of the warrants relative to respective registration rights agreement. As of June 30, 2006 and December 31, 2005, the warrants were valued at $63,000 and $187,000, respectively. The change in valuation for the six months ended June 30, 2006 was an expense of $137,000. This expense was offset by the $46,000 of income resulting from the cancellation of warrants valued at $261,000 exchanged for Senior Convertible Notes of $215,000, as described above, resulting in non-operating warrant expense of $91,000 for the six months ended June 30, 2006.

OTHER EXPENSE, NET. Other expense, net was $23,000 for the six months ended June 30, 2006 compared to other expense, net of $217,000 for the same prior year period. The other expense, net for the six months ended June 30, 2005 includes a $371,000 loss on the extinguishment of the convertible subordinated notes payable.

DEEMED DIVIDEND. On March 6, 2006, we received $1.2 million in connection with the exercise of warrants to purchase 4,000,000 shares of a21’s common stock. In connection with the exercise of the warrants, we set the exercise price of the warrants to $0.30 per unregistered share, which is approximately 10% less than what the exercise price would have been pursuant to the original terms of the warrants, but higher than the minimum $0.25 per unregistered share as stated in the warrant modification agreement. This accommodation was granted by us in order to facilitate the transaction. As a result of the repricing of the warrants, we recorded a deemed dividend of $157,000, increasing the net loss attributed to common stockholders.

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS. Net loss attributed to common stockholders was $4.3 million or $0.06 per share, for the six months ended June 30, 2006 compared to net loss of $2.0 million, or $0.05 per share, for the same prior year period.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2006, we had $7.0 million of cash and cash equivalents and working capital of $6.4 million, compared to $1.2 million in cash and cash equivalents and working capital deficit of $946,000 at December 31, 2005. The increase in cash is primarily due to the net proceeds from Convertible Debt Financing offset by the cash used to acquire ArtSelect and cash used in operations during the six months ended June 30, 2006.

Net cash used in operating activities for the six months ended June 30, 2006 was $1.6 million, compared to net cash used in operating activities of $1.2 million for six months ended June 30, 2005. The net cash used in operating activities during the six months ended June 30, 2006 was due primarily to the net loss of $4.1 million adjusted for $809,000 of stock compensation, $1.4 million for depreciation and amortization, and an increase in accounts payable and accrued expenses of $852,000 offset by an increase of accounts receivable of $418,000 and increase in prepaid expenses and other current assets of $483,000. Net cash used in operating activities in the six months ended June 30, 2005 was due primarily to the net loss of $2.0 million and the increase of accounts receivable of $349,000 adjusted for $712,000 of depreciation and amortization, $371,000 for loss on extinguishment of debt and $369,000 compensation for the issuance of restricted stock.

Net cash used in investing activities for the six months ended June 30, 2006 was $5.9 million, compared to net cash used in investing activities the six months ended June 30, 2005 of $270,000. Net cash used in investing activities for the six months ended June 30, 2006 was primarily due to $4.5 million used as partial consideration of the ArtSelect acquisition and $750,000 used to secure a lease security deposit. Net cash used in investing activities in the six months ended June 30, 2005 was primarily due to investments in building, property, and equipment.

Net cash provided by financing activities for the six months ended June 30, 2006 was $13.3 million, compared to net cash provided by financing activities of $970,000 for the same prior year period. Net cash provided by financing activities for the six months ended June 30, 2006 resulted substantially from the $15.3 million Senior Convertible debt financing offset by repayments of $3.3 million of outstanding debt. In addition, we realized proceeds of $1.2 million during the six months ended June 30, 2006 upon the exercise of stock warrants. Net cash provided by financing activities in the six months ended June 30, 2005 was mainly due to the new $2.3 million senior secured notes payable offset by the retirement of the $1.3 million convertible subordinated notes payable.

We have sustained significant recurring losses and at June 30, 2006 had an accumulated deficit of $18.3 million that raise substantial doubt about our ability to continue as a going concern and as such caused our independent registered public accounting firm to included a going concern explanatory paragraph in their report in connection with their audit of our consolidated financial statements for the year ended December 31, 2005. In addition to cash that we need to fund operations in 2006, we will need to raise cash from equity and debt financings to fund any additional acquisitions. If we are unable to secure the required funding, we may not be able to implement our business plan and may not be able to conduct business as a going concern.

During April 2006, we entered into a securities purchase agreement with certain purchasers and Queequeg Partners, LP, as agent , whereby we issued $15.5 million of 5% Senior Secured Convertible Notes in consideration for which we received net proceeds of $11.7 million in cash, after the repayment of certain outstanding debt of $3.3 million, exchange of Notes totaling $215,000 to retire warrants to purchase 637,500 shares of a21’s common stock, repayment of total interest due of $216,000, and the payment of a finder’s fee of $100,000. Queequeg Partners L.P. and Queequeg, Ltd. (each of which are affiliated with Ahab Capital Management, Inc., which was a 10% beneficial owner of a21’s common stock prior to April 27, 2006) , and StarVest Partners, LP , which was a 10% beneficial owner of a21’s common stock prior to April 27, 2006, purchased a portion of the Notes sold in this transaction. As part of this transaction, we released $690,000 of CDs, which had been pledged by Ahab to secure the letter of credit issued by SuperStock in connection with its capital lease for our facility in Jacksonville, Florida and replaced the deposit with new CDs from the net proceeds of the financing.

On May 16, 2006, we acquired ArtSelect, Inc. The stockholders of ArtSelect received consideration including $4.5 million of cash and $2.35 million in secured notes. The Notes bear interest at 6% per year and mature on the earlier to occur of a change of control and May 15, 2009. The first year of interest on the principal balance of the Notes will be accrued and added to the principal of the Notes. After the first year, interest will be payable quarterly, in arrears.

OFF BALANCE SHEET ARRANGEMENTS

We have not entered into any off balance sheet arrangements as of June 30, 2006.

ITEM 3. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective at ensuring that the material information required to be disclosed in the Exchange Act reports is recorded, processed, summarized and reported as required in applicable SEC rules and forms, because of the deficiencies in internal controls over financial reporting which constitute material weaknesses in the design or operation of internal controls that could adversely affect its ability to record, process, summarize and report interim financial data. The material weaknesses identified pertain specifically to the recording of stock based compensation and the recording of the deemed dividend related to warrant repricing.

Because of the ArtSelect acquisition, we have assumed the respective integration of financial controls and reporting requirements of that subsidiary. We have further enhanced our internal resources and processes around our internal control over financial reporting by adding key staff and documenting financial close and reporting plan process during the period ending June 30, 2006.

There were no other changes in our internal control over financial reporting identified in connection with management’s evaluation of the effectiveness of our internal control over the financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION ITEM

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 19, 2006 a21 issued options to purchase 400,000 shares of common stock to Philip N. Garfinkle, an officer and director of a21 in consideration for services to be rendered by Mr. Garfinkle to a21. No fees were paid to any party in connection with the issuance of such securities. We issued the foregoing securities in reliance on Section 4(2) of the Securities Act, based on the identity and number of investors.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Change in State of Organization from Texas to Delaware

On June 19, 2006, a21’s Board of Directors approved a merger agreement pursuant to which, among other things, the Company would merge with and into its wholly owned subsidiary, a21,Inc., a Delaware corporation. On June 23, 2006, we obtained the approval of the terms of the merger agreement by the unanimous written consent of the holders of 40,658,362 shares (or 52.38%) of our outstanding common stock and the reincorporation became effective on July 31, 2006.

Corporate Name and Trading Symbol

Following the merger, we have retained our corporate name “a21, Inc.” Accordingly, our shares continue to trade on the OTC Bulletin Board under the symbol “ATWO”.

Increase in Authorized Capitalization

The Board of Directors has determined that it was in the best interests of the Company and its stockholders to increase the Company’s authorized capitalization. Accordingly, the certificate of incorporation of the surviving corporation provides for an authorized capitalization of 200,000,000 shares of common stock and 100,000 shares of preferred stock.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

EXHIBIT
NUMBER	DESCRIPTION
4.1 (1)	Form of Secured Convertible Term Note dated April 27, 2006 by and among a21, SuperStock and each of the persons listed on the Appendix to the Exhibits
4.2 (1)	Registration Rights Agreement dated April 27, 2006 between a21 and Queequeg Partners, LP, as agent
4.3 (2)	Form of Promissory Note dated May 15, 2006 by and among a21, ASI and each of the persons listed on Exhibit I to the Merger Agreement
4.4 (2)	Form of Warrant dated May 15, 2006 between a21 and each of the persons listed on Exhibit I to the Merger Agreement
10.1 (1)	Securities Purchase Agreement dated April 27, 2006 by and among a21, SuperStock, Queequeg Partners, LP and the purchasers named therein
10.2 (1)	Master Security Agreement dated April 27, 2006 by and among a21, SuperStock and Queequeg Partners, LP, as agent
10.3 (2)	Merger Agreement dated May 15, 2006, by and among a21, Inc., AE Acquisition Corp., ArtSelect, Inc., and the common and preferred stockholders of ArtSelect listed on Schedule I thereto and Udi Toledano as stockholder representative
10.4 (2)	Guaranty of a21 in favor of the holders of the Promissory Notes dated May 15, 2006
10.5 (3)	Employment Agreement between a21, Inc. and Philip N. Garfinkle, dated June 27, 2006
31.1	Certification Of Chief Executive Officer Pursuant To Rule 13A-14[A] Of The Securities Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
31.2	Certification Of Chief Financial Officer Pursuant To Rule 13A-14[A] Of The Securities Exchange Act Of 1934, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
32.1	Certification Of Principal Executive Officer And Principal Financial Officer Pursuant To 18 U.S.C.1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002

(1) Incorporated by reference to our Annual Report on Form 8-K dated April 27, 2006.

(2) Incorporated by reference to our Annual Report on Form 8-K dated May 15, 2006.

(3) Incorporated by reference to our Annual Report on Form 8-K dated June 27, 2006.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	a21, Inc.

Date: December 12, 2006	By: /s/ JOHN Z. FERGUSON
	John Z. Ferguson Chief Executive Officer (Principal Executive Officer)

Date: December 12, 2006	By: /s/ THOMAS COSTANZA
	Thomas Costanza Vice President and Chief Financial Officer (Principal Financial Officer)