a2110q_1q2008.htm

Commission File No.: 000-51285

---------

a21, INC.

(Exact Name of Small Business Issuer as Specified in its Charter)

DELAWARE 74-2896910

----------------------- ---------------------

(State or Other Jurisdiction of (I.R.S. Employer

Incorporation or Organization) Identification Number)

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

TABLE OF CONTENTS
		Page
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)		3
Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007		3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007		5
Condensed Consolidated Statement of Changes in Capital Deficit for the three months ended March 31, 2008		6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007		7
Notes to Condensed Consolidated Financial Statements		9
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)		25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		29
ITEM 4. CONTROLS AND PROCEDURES		29

PART II – OTHER INFORMATION		30
ITEM 1. LEGAL PROCEEDINGS		30
ITEM 1A. RISK FACTORS		30
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES		30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		30
ITEM 5. OTHER INFORMATION		30
ITEM 6. EXHIBITS		31

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

	March 31,		December 31,
	2008		2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,087	$	2,090
Accounts receivable, net allowance for doubtful accounts of $222 and $237, at March 31, 2008 and December 31, 2007, respectively		2,819		3,008
Inventory		939		874
Prepaid expenses and other current assets		452		437
Total current assets		5,297		6,409

Property, plant and equipment, net		6,706		6,832
Goodwill		8,826		8,778
Intangible assets, net		4,826		4,921
Restricted cash		750		750
Other		2,206		2,431
Total assets	$	28,611	$	30,121

LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	2,678	$	2,761
Royalties payable		1,194		1,232
Wages payable		232		278
Deferred revenue		428		389
Restructure liability		94		138
Other		101		99
Total current liabilities		4,727		4,897

LONG-TERM LIABILITIES
Senior secured convertible notes payable, net – related party		15,500		15,500
Secured notes payable, net – related party (ArtSelect Sellers)		2,555		2,555
Loan payable from sale-leaseback of building, less current portion		7,330		7,347
Other		71		67
Total liabilities		30,183		30,366

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

	March 31,			December 31,
	2008			2007
COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST		553			1,071

CAPITAL DEFICIT
Common stock; $.001 par value; 200,000,000 shares authorized; 91,843,222 and 90,740,851 shares issued and 88,163,447 and 87,061,076 shares outstanding at March 31, 2008 and December 31, 2007, respectively		92			91
Treasury stock (at cost, 3,679,775 shares)		---			---
Additional paid-in capital		26,696			26,121
Accumulated deficit		(29,368	)		(27,961	)
Accumulated other comprehensive income		455			433
Total capital deficit		(2,125	)		(1,316	)

Total liabilities and capital deficit	$	28,611		$	30,121


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

	Three Months Ended
	March 31,
	2008			2007
REVENUE
Licensing revenue	$	2,615		$	3,168
Product revenue		2,492			2,956
TOTAL REVENUE		5,107			6,124

COSTS AND EXPENSES
Cost of licensing revenue (excludes related amortization of $272 and $279 for three months ended March 31, 2008 and 2007, respectively)		952			950
Cost of product revenue (excludes related amortization of $45 and $44 for three months ended March 31, 2008 and 2007, respectively)		1,334			1,397
Selling, general and administrative		3,160			3,663
Restructure costs, including severance		39			---
Depreciation and amortization		587			619
TOTAL OPERATING EXPENSES		6,072			6,629

OPERATING LOSS		(965	)		(505	)

Interest expense		(441	)		(442	)
Warrant expense		---			(1	)
Other income, net		19			13

NET LOSS BEFORE INCOME TAX EXPENSE		(1,387	)		(935	)

Income tax expense		(20	)		(27	)

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS	$	(1,407	)	$	(962	)

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS PER SHARE, BASIC AND DILUTED	$	(0.02	)	$	(0.01	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED		87,247,398			84,084,622

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

	COMMON STOCK				TREASURY STOCK
	NUMBER OF SHARES		AMOUNT		NUMBER OF SHARES			AMOUNT		ADDITIONAL PAID-IN CAPITAL		ACCUMULATED DEFICIT			ACCUMULATED OTHER COMPREHENSIVE INCOME		TOTAL

Balance at December 31, 2007		90,741	$	91		(3,680	)	$	---	$	26,121	$	(27,961	)	$	433	$	(1,316	)
Share-based compensation		---		---		---			---		58		---			---		58
Issuance of common stock upon the conversion of SuperStock Seller Preferred stock		926		1		---			---		517		---			---		518
Vesting of restricted stock compensation		176		---		---			---		---		---			---		---
Net loss		---		---		---			---		---		(1,407	)		---		(1,407	)
Foreign currency translation adjustment		---		---		---			---		---		---			22		22
Comprehensive loss		---		---		---			---		---		---			---		(1,385	)
Balance at March 31, 2008		91,843	$	92		(3,680	)	$	---	$	26,696	$	(29,368	)	$	455	$	(2,125	)

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

FOR THE THREE MONTHS ENDED MARCH 31,	2008			2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,407	)	$	(962	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		587			619
Amortization of finance costs		27			27
Loss on disposal of equipment		-			38
Change in fair value of warrant obligation		-			(18	)
Share-based compensation		58			170

Changes in assets and liabilities:
Accounts receivable		189			147
Prepaid expenses and other current assets		(42	)		21
Inventory		(65	)		79
Accounts payable and accrued expenses		(237	)		(807	)
Deferred revenue		39			131
Other		(1	)		73
NET CASH USED IN OPERATING ACTIVITIES		(852	)		(482	)

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

FOR THE THREE MONTHS ENDED MARCH 31,	2008			2007

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property, plant and equipment		(26	)		(4	)
Investment in software		(113	)		(68	)
Investment in photo collection		(5	)		(208	)
Other		-			(3	)
NET CASH USED IN INVESTING ACTIVITIES		(144	)		(283	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of stock options		-			29
Net proceeds from the exercise of stock warrants		-			19
Payment of SuperStock seller promissory note payable		-			(33	)
Other		(17	)		31
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(17	)		46

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS		10			4
NET DECREASE IN CASH		(1,003	)		(715	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,090			5,455

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,087		$	4,740

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Foreign income taxes paid	$	20	$	25
Interest paid		38		191

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Conversion of SuperStock Seller Preferred stock into common stock (see Note F)		518		1,182
Cashless exercise of warrants for common stock		-		19
Accrued purchase price payable		26		78

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

The unaudited condensed consolidated financial statements of a21, Inc. (“a21”, “the Company”, “we”) 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 a21’s financial position at March 31, 2008, 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 annual report on Form 10-K for the year ended December 31, 2007, as filed with the SEC.

a21, Inc. (the “Company”) was incorporated in the State of Texas in October 1998, under the name Saratoga Holdings I, Inc. In April 2002, we changed our name from Saratoga Holdings I, Inc. to a21, 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, our UK subsidiary SuperStock Ltd. 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.

Through 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.

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 an accumulated deficit of $29.4 million at March 31, 2008 that raise substantial doubt about our ability to continue as a going concern, and we will need to raise cash from equity or debt financings to fund our operations. However, there can be no assurance that sufficient additional capital needed to sustain operations will be obtained by us. 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. Our independent registered public accounting firm’s audit report on our consolidated financial statements as of and for the year ended December 31, 2007 included a paragraph to emphasize the substantial doubt about the Company’s ability to continue as a going concern. At March 31, 2008, we had cash of $1.1 million and working capital of $571,000.

Our future plans, assuming we have sufficient funds to do so, include further developing our distribution channels for SuperStock while improving the leveraging of SuperStock’s owned and licensed image content, introducing new products and customer channels in the stock photography space, gaining new

key customer relationships for ArtSelect while introducing new products and customer channels, and seeking integration cost reduction opportunities where feasible across the Company. In addition, we continue to review 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 or that our operations will become profitable.

The consolidated financial statements include all of our accounts including our primary operating subsidiaries, SuperStock and ArtSelect. The minority interest in the consolidated balance sheets at March 31, 2008 and December 31, 2007, represents the interest of the holders of preferred shares of SuperStock (“SuperStock Seller Preferred”), which are exchangeable into a21 common shares. All significant inter-company balances and transactions have been eliminated.

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. Persuasive evidence of an arrangement exists and the price is fixed or determinable at the time the customer agrees to the terms and conditions of the license agreement. We maintain a credit department and credit policies that set credit limits and ascertain customer credit worthiness, thus reducing our risk of credit loss. Based on our policies and procedures, as well as our historical experience, we are able to determine that the likelihood of collection is reasonably assured prior to recognizing revenue. These first three general revenue recognition criteria have been met at or prior to the time of delivery of the imagery, regardless of the format or delivery medium. Delivery occurs upon making digital images available for download by the customer, or upon shipment of CD, analog film and transparencies. 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, $428,000 and $389,000 is recorded as deferred revenue as of March 31, 2008 and December 31, 2007.

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

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. Cost of product sales reflects payments made to suppliers of art content, framing materials, and shipment and handling costs.

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 significantly from those estimates. The recoverability of the carrying values of long-lived assets, including goodwill and identifiable intangible assets represent sensitive estimates subject to change.

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.

We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At March 31, 2008 and December 31, 2007, 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. This consists of restricted cash funded by us to secure a letter of credit in the amount of $750,000 at March 31, 2008 and December 31, 2007.

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.

Inventory is valued at the lower of cost or market and is determined on the first-in, first-out (FIFO) basis. Inventories include raw materials and finished goods. Raw materials include prints, mats, frames, molding, and packaging material. Finished goods consist of pre-framed art and compact disk products produced for resale. The requirements for any provisions of estimated losses for obsolete, excess, or slow-moving inventories are reviewed periodically.

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.

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 company match was made during 2008 or 2007.

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 capital deficit. Gains and losses, which are denominated in currency other than a subsidiary’s local currency and re-measured in the subsidiary’s local currency, are recognized in the condensed consolidated statements of operations.

The land and building in Jacksonville, Florida with our SuperStock and corporate offices 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 are recorded at cost. Depreciation of property and equipment is computed by the straight-line method over the assets' estimated lives. The estimated applicable life for furniture, fixtures, and equipment is 7 years; the applicable, estimated life of photography and computer equipment is 5 to 7 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.

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.

We test goodwill for impairment at least annually, or more often if deemed necessary based on certain circumstances. The Company’s impairment test performed on October 1, 2007, concluded that no impairment of goodwill existed. As circumstances change, it is reasonably possible that future goodwill impairment tests could result in a loss from impairment to goodwill, which would be included in the determination of net income or loss.

Intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS 144 (as defined below). Intangible assets with definite lives are amortized using either the straight-line method or based on expected usage of the asset, depending on the nature of the asset over their expected useful life.

The Company capitalizes software development costs for modifications to various web site components and management information systems that result in additional functionality in accordance with AICPA Statement of Position (SOP), 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Software development costs are amortized on a straight-line basis over four years.

We evaluate our long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), pursuant to which an impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its undiscounted cash flows. 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 during the three months ended March 31, 2008.

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 and tax credit carry-forwards 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 a temporary difference. The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense, if applicable.

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 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 months ended March 31, 2008 and 2007, the basic and diluted net loss attributed to common stockholders per share is the same since the effect from the potential exercise of 9,734,900 and 15,361,229 outstanding stock options and warrants as of March 31, 2008 and 2007, or the vesting of 720,139 and 1,968,181 shares of restricted stock, respectively, would have been anti-dilutive.

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. There were no stock options granted during the three months ended March 31, 2008.

	Stock Options
	Shares			Weighted Average Exercise Price

Balance, December 31, 2007		5,967,013		$	0.35

Granted		---			---
Exercised		---			---
Forfeited		(2,632,913	)	$	0.30
Balance, March 31, 2008		3,334,100		$	0.32


Exercisable, December 31, 2007		5,228,677		$	0.35

Exercisable, March 31, 2008		2,656,416		$	0.32

Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life	Number Exercisable

$	0.09		230,000	3 months		150,000
$	0.28		1,000,000	43 months		722,916
$	0.30		1,139,100	11 months		956,000
$	0.34		165,000	33 months		165,000
$	0.46		425,000	40 months		425,000
$	0.65		200,000	41 months		150,000
$	0.83		175,000	38 months		87,500
			3,334,100	25 months		2,656,416

The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2008, was $0. This amount represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the first quarter of 2008 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 March 31, 2008.

Share-based compensation expense of $58,000 was recognized during the three months ended March 31, 2008, for the fair value of restricted shares and options that vested during the period. As of March 31, 2008, there was $289,000 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 about 2 years.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. In February 2008, the FASB deferred the effective date of SFAS 157 by one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). On January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements” (“SFAS 157”), except as it applies to those nonfinancial assets and nonfinancial liabilities for which the effective date has been delayed by one year. The adoption of SFAS 157 did not have a material effect on our financial position or results of operations.

On January 1, 2008, we adopted the provisions of SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The fair value option: (i) may be applied instrument by instrument, with a few exceptions, such as investments accounted for by the equity method; (ii) is irrevocable (unless a new election date occurs); and (iii) is applied only to entire instruments and not to portions of instruments. We did not elect to report any additional assets or liabilities at fair value and accordingly, the adoption of SFAS 159 did not have a material effect on our financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes the principles and requirements for how an acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008, with early adoption prohibited. We are currently evaluating the impact SFAS 141(R) will have upon adoption on our accounting for acquisitions. However, under the previous guidance, any changes in valuation allowances as a result of income from acquisitions, for certain deferred tax assets would serve to reduce goodwill, whereas under the new standard, any changes in the valuation allowance related to income from acquisitions currently or in prior periods will serve to reduce income taxes in the period in which the reserve is reversed. In addition, under SFAS 141(R), transaction related expenses, which were previously capitalized as “deal costs”, will be expensed as incurred.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards that require (i) non-controlling interests to be reported as a component of equity, (ii) changes in a parent’s ownership interest while the parent retains its controlling interest to be accounted for as equity transactions, and (iii) any retained non-controlling equity investment upon the deconsolidation of a subsidiary to be initially measured at fair value. SFAS 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008, with early adoption prohibited. We are currently evaluating the effect, if any, which the adoption of SFAS 160 may have on our financial position, results of operations.

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

SuperStock non-compete covenants	$	116	$	(116	)	$	---	$	---		34
SuperStock software		876		(202	)		---		674		36 – 60
Ingram license agreements		1,142		(787	)		193		548		60
Ingram non-compete agreements		430		(398	)		21		53		36
Ingram customer relationships		420		(341	)		52		131		36
Ingram distribution agreements		270		(219	)		34		85		36
Ingram trademark		220		(220	)		---		---		24
ArtSelect trade name		80		---			---		80		N/A
ArtSelect software		1,377		(552	)		---		825		48
ArtSelect customer relationships		2,800		(370	)		---		2,430		210
Intangible assets	$	7,731	$	(3,205	)	$	300	$	4,826

Amortization expense during the three months ended March 31, 2008 and 2007 totaled $241,000 and $264,000, respectively. Approximate remaining annual amortization expense is as follows for each of the following years: 2008: $634,000, 2009: $632,000, 2010: $422,000, 2011: $203,000 and 2012: $198,000.

Minority interest represents 328,974 shares of SuperStock Seller Preferred (which does not include the converted shares of SuperStock Seller Preferred described below) held by the former owners of SuperStock at March 31, 2008, which is exchangeable for 986,922 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 a liquidation preference. In the event of a liquidation, it is senior to the common stock of SuperStock and has distribution rights to the greater of $839,000 or 3% 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 March 22, 2008, we issued 926,331 shares of a21 common stock upon the conversion of 308,777 shares of SuperStock Seller Preferred with a respective adjustment to equity of $518,000, 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.

NOTE H – DEBT FINANCINGS

The following table summarizes the future maturities of long-term debt obligations at March 31, 2008 (in thousands):

	Total		2008		2009		2010		2011
Senior Secured Convertible Notes	$	15,500		---	$	---		---	$	15,500
Secured Notes (ArtSelect)		2,555		---		2,555		---		---
Total:	$	18,055		---	$	2,555		---	$	15,500

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, the exchange of Notes totaling $215,000 to retire warrants to purchase 637,500 shares of a21’s common stock, the 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 and are convertible into 23,846,149 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. 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 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 or 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 the Company, 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.

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.

On January 31, 2008, we entered into a waiver agreement with the holders of a majority of the outstanding principal amount of the Secured Convertible Notes, to waive quarterly cash interest payments until March 31, 2008. Instead of paying the interest for such periods in cash, the agreement provides that we will settle quarterly interest payments due in January and April 2008 with new notes in the aggregate principal amount equal to the interest due, having substantially the same terms as the original notes. We would resume paying quarterly interest in cash beginning with the quarterly interest due in July 2008. As of May 15, 2008, the new notes for the unpaid interest due have not been issued, and we continue to have ongoing discussions with the noteholders.

In partial consideration for the sale of ArtSelect to a21, the stockholders of ArtSelect received $2.4 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 was accrued and added to the principal of the notes. Since the first year, interest has been 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 Convertible Notes described above). The $2.6 million notes, including accrued interest, recorded on our condensed consolidated balance sheet at March 31, 2008, is included in the caption “Secured notes payable, net- related party (ArtSelect Sellers)”.

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 on specified payment terms.

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.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

The Company adopted the provisions of FIN 48 effective January 1, 2007. The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense, if applicable. As of the date of adoption and through March 31, 2008, the Company did not have any unrecognized tax benefits recorded as a provision for the uncertainty of certain tax positions. As such, no estimated interest and penalties on the provision for the uncertainty of certain tax positions is included in the consolidated financial statements. The Company does not currently anticipate any significant changes to the unrecognized tax benefits during the remainder of 2008.

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Without exception, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001. Income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company currently does not have any income tax returns under review.

Our 2005 Stock Incentive Plan (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 a21 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. 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. Stock options issued under the 2005 Plan typically have a five-year term and vest pro-rata over that term except when otherwise adapted to specific terms per executive management agreements and their respective terms. The exercise price typically shall be 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 March 31, 2008, there were 2,028,464 shares available for grant under the 2005 Plan.

Our 2002 Directors, Officers And Consultants Stock Option, Stock Warrant And Stock Award Plan, as amended (the "2002 Plan"), provides for the grant of warrants, options, restricted or unrestricted common stock, and other awards of up to an aggregate of 3,000,000 shares of a21 common stock to our employees, consultants and directors and 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 2002 Plan. 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 typically expire after a ten-year period except when otherwise adapted to specific terms per executive management agreements and their respective terms, and are subject to acceleration upon the occurrence of certain events. The exercise price typically shall be 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 March 31, 2008, there were 2,841,500 shares available for grant under the 2002 Plan.

Certain options and warrants to be granted under the 2005 Plan and 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 granted under the plans will be nonqualified options that are not intended to qualify as ISOs.

As described in Notes D and I above, we have capitalized our facility under the terms of a sale and leaseback transaction. In September 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. Sublease payments of $174,000, and 169,000 were received for the three months ended March 31, 2008 and 2007, respectively. Sublease payments are scheduled as follows for each of the following years: 2008: $526,000, 2009: $722,000 and 2010: $616,000. 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, which was $402,000 and $435,000 as of March 31, 2008, and December 31, 2007, respectively.

In connection with our operating 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.

During 2007, the Company entered into a software development agreement with an unrelated third party to pay approximately $525,000 in fees for the development of a new online stock photography e-commerce website. As of March 31, 2008, all payments due under the agreement have been made, and $559,000 of such fees have been capitalized as software development in process, which is included in intangible assets, net, in the accompanying consolidated balance sheet. The related asset was placed in service during April 2008.

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-K for the year ended December 31, 2007.

The statements contained in this Form 10-Q 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.

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 establishments in Iowa and London.

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-Q.

LICENSING REVENUES. Licensing revenues were $2.6 million for the three months ended March 31, 2008, compared to $3.2 million for the same prior year period. Licensing revenues lower by 17% due to challenging market conditions that have prevailed during 2008 affecting our SuperStock foreign and U.S. based channel sales more significantly than direct sales.

PRODUCT REVENUES. Product revenues were $2.5 million for the three months ended March 31, 2008, compared to $3.0 million for the same prior year period, or 17% lower. Product revenues have been affected by the slow down in the home-buying market and retail consumer spending, which impacts consumer purchasing of home décor products.

COST OF LICENSING REVENUE. Cost of licensing revenue was $952,000 for the three months ended March 31, 2008, compared to $950,000 the same prior year period. As a percentage of licensing revenues, cost of licensing sales was 36% and 30% for the three months ended March 31, 2008 and 2007, respectively. Cost of licensing sales as a percentage of licensing revenues may 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.

COST OF PRODUCT REVENUE. Cost of product revenue was $1.3 million for the three months ended March 31, 2008, compared to $1.4 million the same prior year period. As a percentage of product revenues, cost of product sales was 54% and 47% for the three months ended March 31, 2008 and 2007, respectively. Cost of product sales percentage reflects the variable cost for ArtSelect’s raw materials including prints, mats, frames, molding, and packaging material as well as shipping and handling costs. ArtSelect also incurred higher post-integration costs associated with the consolidation of certain previously outsourced fulfillment operations.

INTEREST EXPENSE. Interest expense was $441,000 for the three months ended March 31, 2008, compared to $442,000 for the same prior year period. Interest relates primarily to the outstanding debt during the three months ended March 31, 2008, compared to the same prior year period along with accounting for the capital lease of our Jacksonville, Florida office space.

NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS. Net loss attributed to common stockholders was $1.4 million or $0.02 per share, for the three months ended March 31, 2008, compared to net loss of $962,000, or $0.01 per share, for the same prior year period. There were approximately 3.2 million more weighted average shares outstanding during the three months ended March 31, 2008, compared to the same prior year period.

As of March 31, 2008, we had $1.1 million of cash and cash equivalents and working capital of $571,000, compared to $2.1 million in cash and cash equivalents and working capital of $1.5 million at December 31, 2007. The decrease in cash is primarily due to overall cash used in operating and investing activities during the three months ended March 31, 2008.

Net cash used in operating activities for the three months ended March 31, 2008 was $852,000, compared to net cash used in operating activities of $482,000 for the same prior year period. The net cash used in operating activities during the three months ended March 31, 2008, was substantially due to the net loss of $1.4 million adjusted by $587,000 for depreciation and amortization. Net cash used in operating activities in the three months ended March 31, 2007, was due primarily to the net loss of $962,000 adjusted for $619,000 for depreciation and amortization, and a decrease in accounts payable and accrued expenses of $807,000.

Net cash used in investing activities for the three months ended March 31, 2008, was $144,000, compared to net cash used in investing activities for the same prior year period, of $283,000. Net cash used in investing activities for the three months ended March 31, 2008, was primarily due to a $113,000 investment in software development. Net cash used in investing activities in the three months ended March 31, 2007, was primarily due to $208,000 investment in SuperStock’s photo collection.

Our future plans, assuming we have sufficient funding to do so, include further developing our distribution channels for SuperStock while improving the leveraging of SuperStock’s owned and licensed image content, introducing new products and customer channels in the stock photography space, gaining new key customer relationships for ArtSelect while introducing new products and customer channels, and seeking integration cost reduction opportunities where feasible across the Company. However, there can be no assurance that these efforts will be successful. We will have to seek additional funding within the next few months to effect our business plan. 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.

We have sustained significant recurring losses and an accumulated deficit of $29.4 million at March 31, 2008, that raise substantial doubt about our ability to continue as a going concern, and will need to raise cash from equity and debt financings to fund our operations within the next few months. 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. Our independent registered public accounting firm’s audit report on our consolidated financial statements as of and for the year ended December 31, 2007, included a paragraph to emphasize the substantial doubt about the Company’s ability to continue as a going concern.

On January 31, 2008, we entered into a waiver agreement with the holders of a majority of the outstanding principal amount of the Secured Convertible Notes, to waive cash quarterly interest payments until March 31, 2008. Instead of paying the interest for such periods in cash, the agreement provides that we will settle quarterly interest payments due in January and April 2008 with new notes in the aggregate principal amount equal to the interest due, having substantially the same terms as the original notes. We will resume paying quarterly interest in cash beginning with the quarterly interest due in July 2008. As of May 15, 2008, the new notes for the unpaid interest due have not been issued, and we continue to have ongoing discussions with the noteholders.

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of March 31, 2008. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2008, these disclosure controls and procedures were effective to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, our Chief Executive Officer and Chief Financial Officer concluded as of the end of the period covered by this quarterly report on Form 10-Q that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

During the period covered by this report, there were no changes in our internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) identified in connection with management’s evaluation of the effectiveness of our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

EXHIBIT NUMBER	DESCRIPTION
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

	3/31/2008		12/31/2007
Photo collection, net	$	1,109	$	1,231
Photographer contracts, net		463		511
Long-term receivable		402		435
Other		232		254
	$	2,206	$	2,431

	Non-vested Shares			Weighted Average Grant-Date Fair Value

Balance, December 31, 2007		929,513		$	0.26

Granted		---			---
Vested		(176,041	)	$	0.28
Cancelled		(33,333	)	$	0.26
Balance, March 31, 2008		720,139		$	0.26

($ in thousands)	March 31, 2008			December 31, 2007

Land and building		7,768			7,768
Office equipment and furnishings		773			765
Technology equipment		599			589
Less: Accumulated depreciation		(2,434	)		(2,290	)
	$	6,706		$	6,832

($ in thousands)
Intangible assets, net at December 31, 2007	$	4,921
Reduction to cumulative foreign currency translation		(5	)
SuperStock software additions, net		102
ArtSelect software additions, net		49
Amortization expense		(241	)
Intangible assets, net at March 31, 2008	$	4,826

($ in thousands)
Three months ended March 31, 2008	Corporate			SuperStock			ArtSelect			Total

Revenue	$	---		$	2,615		$	2,492		$	5,107

Segment operating loss		(780	)		(19	)		(166	)		(965	)

Segment total assets		224			17,220			11,167			28,611

Segment long-lived assets		---			12,563			9,406			21,969

a21, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share amounts)
(unaudited)

($ in thousands)
Goodwill at December 31, 2007	$	8,778
SuperStock earn-out		26
Cumulative foreign currency translation of goodwill		22
Goodwill at March 31, 2008	$	8,826

($ in thousands)
Three months ended March 31, 2007	Corporate			SuperStock			ArtSelect		Total

Revenue	$	---		$	3,168		$	2,956	$	6,124

Segment operating loss		(540	)		(34	)		69		(505	)

Segment total assets		759			21,049			11,473		33,281

Segment long-lived assets		---			13,393			9,732		23,125

	a21, Inc.

Date: May 15, 2008	By: /s/ JOHN Z. FERGUSON
	John Z. Ferguson Chief Executive Officer (Principal Executive Officer)

Date: May 15, 2008	By: /s/ THOMAS COSTANZA
	Thomas Costanza Chief Financial Officer (Principal Financial Officer)

($ in thousands)
2008		44
2009		80
2010		110
2011		144
2012		182
Thereafter		6,831
Total Maturities		7,391
Less: Current Portion		(61	)
Long Term Portion	$	7,330

($ in thousands)
2008		605
2009		822
2010		843
2011		864
2012		885
Thereafter		11,913
Total payments		15,932
Less interest		(8,541	)
Net	$	7,391