This discussion contains statements that constitute forward-looking statements. Such statements can be identified by the use of the forward-looking words "anticipate," "estimate," "project," "likely," "believe," "intend" or "expect" or similar words. When considering such forward-looking statements, you should keep in mind the risk factors noted in the section of this Report entitled "Risk Factors" and other cautionary statements throughout this Report. You should also keep in mind that all forward-looking statements are based on management's existing beliefs about present and future events outside of management's control and on assumptions that may prove to be incorrect.

Aftermarket Enterprises, Inc. ("Aftermarket" with reference to periods or operations prior to the Merger; "AllDigital Holdings" for periods following the Merger) acquired all of the assets and operations of AllDigital, Inc. ("AllDigital") in a reverse triangular merger (the "Merger") that was effected on July 29, 2011. Effective August 25, 2011, Aftermarket Enterprises name was changed to AllDigital Holdings, Inc. AllDigital, Inc. is now AllDigital Holdings, Inc.'s wholly-owned operating subsidiary. As of the date of the Merger, the Company had two business lines: AllDigital, Inc.'s digital media services business and Aftermarket's automotive accessories business. On September 27, 2011, AllDigital Holdings sold the automotive accessories business to the former president of Aftermarket.

In this section, AllDigital Holdings and AllDigital, as a consolidated entity going forward (without Aftermarket's auto accessories business), are referred to as the "Company," "we" or "us." To the extent we need to distinguish the separate corporate histories, businesses or financial results of the two entities, we refer to Aftermarket or AllDigital individually.

Certain Defined Terms

In this Report, we use certain technical terms to describe our business, which terms are important to an understanding of our business, including the following:

? "Apps" are software applications that operate on a Device, and which can act as the front-end of a remotely hosted, cloud-based Digital Service.

? "Devices" are Internet-connected devices, including without limitation smartphones, tablet computers, desktop and laptop computers, game consoles, televisions, home theatre systems, streaming players, "smart" appliances, and digital signage.

? "Digital Services" are remotely hosted, cloud-based software applications intended for use on, interactivity with, and the delivery of digital media to or from, one or more Devices. Examples of Digital Services including NetFlix's Movies On-Demand, Google Maps, Pandora Radio, Amazon's Kindle, and Facebook.

? "Pairing" is the process of setting-up and managing the ongoing data exchange between a Digital Service and a Device. Pairing includes not only the initial process of ensuring the compatibility of the Digital Service with one or more Devices but may also include any or all of the following:

o managing various elements of and processes related to the ongoing data exchange between a Digital Service and a Device, including Device compatibility, security, quality of service, and dynamic updates;

o procuring and managing high-speed and scalable cloud-based storage;

o applying real-time business rules, work flows, and processes to data assets (e.g., such as converting master video files into formats compatible with the target Device) and Digital Services (e.g., user authentication); and

o acting as the origin for data exchange between the Digital Service and Device.

AllDigital Overview

AllDigital was incorporated in the State of California on August 3, 2009 with the primary purpose of developing the first comprehensive offering of software tools and back-end services dedicated to managing the complex Pairing of cloud-based digital media and Digital Services with Internet-connected Devices.

Our products and services provide the software tools and back-end services required by content owners and providers of Digital Services to manage and optimize the ongoing Pairing of digital media and Digital Services with an increasingly diverse and complex offering of Devices. We accomplish this by enabling, and maximizing the performance of, the cloud-based storage, processing and transit of digital media and Digital Services to multiple Devices simultaneously. Our business model primarily targets content owners and providers of Digital Services that need to distribute their digital media and Digital Services to a large, increasingly fragmented, and rapidly growing market of diverse Devices operating on a number of different Device platforms.

For the first six months of 2012, we have continued to expand existing customer relationships, established new customer relationships through word of mouth and partner referrals, continued to develop and mature different elements of the Media i/o platform and overall product portfolio, and worked with selected customers on novel digital media and Digital Service to Device implementations.

General Outlook

Since our inception, there has been significant and growing interest in our services.

We recognized $1,598,276 in revenues for the six months ended June 30, 2012, compared to $1,091,711 in revenues for the same period in 2011. Our customers to date have largely been a result of direct sales, word of mouth, or partner referrals.

We believe Digital Services are not only rapidly proliferating, but are becoming increasingly critical to enterprise core business applications, implemented to achieve a wide variety of objectives, driving new business models and business strategies, and changing the way AllDigital's customers store and originate data and software applications.

Many of the Digital Service and App pioneers (such as Facebook, Netflix and Pandora) have made, and must continue to make, significant, ongoing investments in order to keep their services Paired to hundreds of different types of Devices. Smaller and emerging companies typically lack the scale and expertise to compete. AllDigital was founded to enable its customers to outsource the complex process of Pairing a Digital Service to a Device to a trusted, third party service provider.

We expect that the need for Digital-Service-to-Device software tools and back-end services will accelerate significantly over the next 2-3 years, which acceleration we anticipate will be driven by the convergence of the following two key market dynamics: (1) The market for Devices is substantial and rapidly growing, and, (2) Digital Services are increasingly critical to enterprise core business applications, are implemented to achieve a wide variety of objectives and are rapidly proliferating.

We also believe the growth of the Digital Services market will not be sustainable without the creation of third party service providers that offer to market players the software tools and back-end services necessary to the ongoing Pairing of reliable, secure and high-speed Digital Services to various Devices and Device platforms.

Our ability to successfully generate future revenues is dependent on a number of factors, including (i) the availability of capital to continue to develop, operate and maintain our proprietary Media i/o platform and other products, (ii) the ability to commercialize our portfolio of products to content owners, Digital Services providers, and other enterprises, and (iii) our ability to develop channel and other partnerships with other organizations within and outside the digital media services industry. We may encounter setbacks related to these activities.

Results of Operations - Three Months Ended June 30, 2012 and 2011

The following discussions are based on the consolidated balance sheets as June 30, 2012 (unaudited) and December 31, 2011 and statements of operations for the three months ended June 30, 2012 and 2011(unaudited) and notes thereto.

The tables presented below, which compare AllDigital's results of operations from one period to another, present the results for each period and the change in those results from one period to another in both dollars and percentage change. The columns present the following:

? The first two data columns in each table show the dollar results for each period presented.

? The columns entitled "Dollar variance" and "% variance" show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when net sales increase from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative in both columns.

Three Months Ended June 30, 2012 (Unaudited) Compared to Three Months Ended June 30, 2011 (Unaudited)

                                                                              Dollar
                                       For the three months ended            variance             % variance
                                                June 30,                     favorable            favorable
                                         2012               2011           (unfavorable)        (unfavorable)
Net sales                           $      646,427       $   651,882      $        (5,455 )                (0.8 %)
Cost of sales                              599,696           357,157             (242,539 )               (67.9 %)
Gross profit                                46,731           294,725             (247,994 )               (84.1 %)

Operating expenses
Selling, marketing and
advertising                                201,054            34,750             (166,304 )              (478.6 %)
General and administrative                 359,415           230,144             (129,271 )               (56.2 %)
Total operating expenses                   560,469           264,894             (295,575 )              (111.6 %)

Operating income (loss)                   (513,738 )          29,831             (543,569 )            (1,822.2 %)

Other income (expense)
Interest income                                407               241                  166                  68.9 %
Interest expense                               (85 )         (12,616 )             12,531                  99.3 %
Other income                                   521                 -                  521                     -
Total other income (expense)                   843           (12,375 )             13,218                 106.8 %

Profit (loss) before provision
for income taxes                          (512,895 )          17,456             (530,351 )            (3,038.2 %)
Provision for income taxes                       -               800                  800                 100.0 %
Net income (loss)                   $     (512,895 )     $    16,656      $      (529,551 )            (3,179.3 %)

Net Sales. Net sales decreased by $5,455, or 1% in the second quarter of 2012 compared to the second quarter of 2011, primarily due to $51,046 decrease in non-recurring projects offset by $45,591 increase in recurring monthly maintenance and support contracts with new and existing customers.

Gross Profit. Gross profit decreased by $247,994, or 68%, in the second quarter of 2012 compared to the second quarter of 2011. The decrease in gross profit primarily resulted from the decrease in net sales referenced under Net Sales above, approximately $171,000 in salaries and related expenses for new engineering and software development personnel for current and upcoming projects, and approximately $68,000 more for 3rdparty contracted resources as we transitioned to more in-house personnel.

Selling, Marketing and Advertising Expenses.Selling, marketing and advertising expenses increased by $166,304, or 479%, in the second quarter of 2012 compared to the second quarter of 2011. 73% of the increase was due to increased salary and payroll related expenses, primarily due to the addition of one new employee in August 2011 and one in September 2011, 17% was due to increased outside services, 6% was due to increased advertising expense, 3% was due to increased travel, and 1% was due to other selling expenses.

General and Administrative Expenses. General and Administrative expenses increased by $129,271, or 56%, in the second quarter of 2012 compared to the second quarter of 2011. The increase was primarily due to increases of $94,937 in salary and payroll related expenses, an increase of $20,894 in rent, an increase of $12,500 in software expenses, an increase of $6,514 in depreciation expense, an increase of $4,086 in audit expense, and an increase of $2,922 in other expenses, offset by a decrease of $9,671 in consulting and outside services, and a decrease of $2,911 in legal expenses.

Interest Expense. Interest expense decreased by $12,531 in the second quarter of 2012 as compared to the second quarter of 2011. The decrease was primarily due to $12,466 in interest expense related to the Notes in the second quarter of 2011 compared to $0 in the second quarter of 2012. There were no Notes in the second quarter of 2012.

Results of Operations - Six Months Ended June 30, 2012 and 2011

The following discussions are based on the consolidated balance sheets as June 30, 2012 (unaudited) and December 31, 2011 and statement of operations for the six months ended June 30, 2012 and 2011(unaudited) and notes thereto.

The tables presented below, which compare AllDigital's results of operations from one period to another, present the results for each period and the change in those results from one period to another in both dollars and percentage change. The columns present the following:

? The first two data columns in each table show the dollar results for each period presented.

? The columns entitled "Dollar variance" and "% variance" show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when net sales increase from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative in both columns.

Six Months Ended June 30, 2012 (Unaudited) Compared to Six Months Ended June 30, 2011 (Unaudited)

                                                                     Dollar
                                 For the six months ended           variance           % variance
                                         June 30,                   favorable           favorable
                                   2012             2011          (unfavorable)       (unfavorable)
Net sales                      $   1,598,276     $ 1,091,711     $       506,565                46.4 %
Cost of sales                      1,242,975         628,472            (614,503 )             (97.8 %)
Gross profit                         355,301         463,239            (107,938 )             (23.3 %)

Operating expenses
Selling, marketing and
advertising                          387,533          66,920            (320,613 )            (479.1 %)
General and administrative           828,910         366,266            (462,644 )            (126.3 %)
Total operating expenses           1,216,443         433,186            (783,257 )            (180.8 %)

Operating income (loss)             (861,142 )        30,053            (891,195 )          (2,965.4 %)

Other income (expense)
Interest income                          852             407                 445               109.3 %
Interest expense                         (85 )       (22,091 )            22,006                99.6 %
Other income                             521               -                 521                   -
Total other income (expense)           1,288         (21,684 )            22,972               105.9 %

Profit (loss) before
provision for income taxes          (859,854 )         8,369            (868,223 )         (10,374.3 %)
Provision for income taxes             2,400           1,600                (800 )             (50.0 %)
Net income (loss)              $    (862,254 )   $     6,769     $      (869,023 )         (12,838.3 %)

Net Sales. Net sales increased by $506,565, or 46% in the first six months of 2012 compared to the first six months of 2011, primarily due to recognition of percentage of completion related to our contracts with three of our largest customers, completion of projects with new customers, and recurring monthly maintenance and support contracts with new and existing customers.

Gross Profit. Gross profit decreased by $107,938, or 23%, in the first six months of 2012 compared to the first six months of 2011. The decrease in gross profit primarily resulted from approximately $335,000 in salaries and related expenses for new engineering and software development resources for current and upcoming projects, and approximately $248,000 more for 3rd party contracted resources as we transitioned to more in-house personnel.

Selling, Marketing and Advertising Expenses. Selling, marketing and advertising expenses increased by $320,613, or 479%, in the first six months of 2012 compared to the first six months of 2011. 70% of the increase was due to increased salary and payroll related expenses, primarily due to the addition of one new employee in August 2011 and one in September 2011, 10% was due to increased advertising expense, 9% was due to increased outside services, 7% was due to increased travel, and 4% was due to other selling expenses.

General and Administrative Expenses. General and Administrative expenses increased by $462,644, or 126%, in the first six months of 2012 compared to the first six months of 2011. The increase was primarily due to increases of $234,238 in salary and payroll related expenses, an increase of $42,194 in rent expense, an increase of $36,293 in legal expense, an increase in bad debt expense of $34,072 related to one customer, an increase of $29,343 in accounting expense, an increase of $22,446 in software maintenance and support, an increase of $15,071 in depreciation and amortization, an increase of $11,952 in equipment expense, an increase of $11,808 for phones expense, an increase of $10,369 in consultants and outside services, and an increase of $14,858 in other expenses.

Interest Expense. Interest expense decreased by $22,006 in the first six months of 2012 as compared to the first six months of 2011. The decrease was primarily due to $21,781 in interest expense related to the Notes in the first six months of 2011 compared to $0 in the first six months of 2012. There were no Notes in the first six months of 2012.

Liquidity and Capital Resources

As of June 30, 2012, we had current assets of $844,685, including $612,064 in cash and cash equivalents.

Cash decreased $386,789 from $998,853 at December 31, 2011 to $612,064 at June 30, 2012, due primarily to net cash used in operating activities of $351,529 in the first six months of 2012. Net cash used in operating activities consisted of $862,254 in operating loss, $62,096 increase in prepaid expenses, and $56,042 increase in account receivable, offset by $284,217 increase in accounts payable and accrued expenses, $170,672 increase in deferred revenue, $162,294 in noncash adjustments, and $11,680 decrease in deferred costs. Net cash provided by operating activities was $69,485 for six months ended June 30, 2011.

$35,260 cash was used in investing activities in the first six months of 2012. $26,760 was used for the purchase of furniture, computer equipment and building signs and $8,500 was used for the purchase of a domain name. $54,688 was used in investing activities for the purchase of computer equipment and software in the first six months of 2011.

No cash was provided by financing activities in the first six months of 2012. In November 2010, AllDigital commenced an offering of up to $500,000 in convertible promissory notes in a bridge financing in order to raise funds primarily to pay the legal, audit and other transaction costs directly related to the completed Merger transaction with Aftermarket. The final $200,000 of the $500,000 bridge financing was provided in the first six months of 2011. Amounts raised in the bridge financing were converted into common stock and warrants as part of the approximately $1,000,000 offering conducted by Aftermarket that closed immediately prior to the merger.

We monitor our financial resources on an ongoing basis and may adjust planned business activities and operations as needed to ensure that we have sufficient operating capital. We evaluate our capital needs, and the availability and cost of capital on an ongoing basis and expect to seek capital when and on such terms as deemed appropriate based upon an assessment of then-current liquidity, capital needs, and the availability and cost of capital. Given our early stage of operations, we do not expect that bank or other institutional debt financing will be available. We expect that any capital we raise will be through the issuance of equity securities, warrants or similar securities. We believe that we will be able to obtain financing when and as needed, but may be required to pay a high price for capital.

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, and all of the other information set forth in this Report before deciding to invest in shares of our common stock. In addition to historical information, the information in this Report contains forward-looking statements about our future business and performance. Our actual operating results and financial performance may be different from what we expect as of the date of this Report. The risks described in this Report represent the risks that management has identified and determined to be material to our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially harm our business operations and financial condition.

We are in an early stage of operations and may be unable to generate significant revenue in the future.

AllDigital Holdings was incorporated in 2006, and AllDigital was incorporated in 2009. Both have been operating for only a limited period of time and are in an early stage of operations. We may be unable to expand revenue at the rate anticipated. If we do not generate significant revenue in the future, or if costs of expansion and operation exceed revenues, we will not be profitable. We may be unable to execute our business plan, generate significant revenue or significant profits.

We have a limited operating history and cannot ensure the long-term successful operation of our business or the execution of our business plan.

We have a limited operating history, and as such, investors have no meaningful track record by which to evaluate our future performance. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies in new and rapidly evolving markets. We may be unable to accomplish any of the following, which would materially impact our ability to implement our business plan:

? establishing and maintaining broad market acceptance of our products, services and platform, and converting that acceptance into direct and indirect sources of revenue;

? establishing and maintaining adoption of our technology on a wide variety of Devices and Device platforms;

? timely and successfully developing new products, services, service and platform features, and increasing the functionality and features of our existing products, services, platform and technology;

? developing products and services that result in a high degree of customer satisfaction and a high level of end-customer usage;

? successfully responding to competition, including competition from emerging technologies and solutions;

? developing and maintaining strategic relationships to enhance the distribution, features, content and utility of our products, services, platform and technology; and

? identifying, attracting and retaining talented technical and creative services staff at reasonable market compensation rates in the markets in which we employ.

Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully accomplish these tasks, our business will be harmed.

We will likely need to raise additional capital in order to continue and grow our operations, and we may be unable to obtain additional capital on reasonable terms, or at all.

We generated negative cash flows from operations during the six months ended June 30, 2012, have a working capital deficiency at June 30, 2012 and have limited cash. If we continue to use cash in our operations, we will need to raise capital. Given our early stage of operations, we do not expect that bank or other institutional debt financing will be available. We expect that any capital we raise will be through the issuance of equity securities, warrants or similar securities. We have no commitments from any parties to provide capital and may not be able to raise capital on reasonable terms, or at all. If we need, and are unable to raise, capital, we will be required to significantly curtail our marketing efforts and may be required to cease operations.

We will be unable to implement our business plan if we cannot raise sufficient capital and may be required to pay a high price for capital.

We had current assets of $844,685 and current liabilities of $956,973, for negative net working capital of $112,288, as of June 30, 2012. We will need to obtain additional capital to implement our business plan and meet our financial obligations as they become due. We may not be able to raise the additional capital needed or may be required to pay a high price for capital. Factors affecting the availability and price of capital may include the following:

? the availability and cost of capital generally;

? our financial results;

? the experience and reputation of our management team;

? market interest, or lack of interest, in our industry and business plan;

? the trading volume of, and volatility in, the market for our common stock;

? our ongoing success, or failure, in executing our business plan;

? the amount of our capital needs; and

? the amount of debt, options, warrants, and convertible securities we have outstanding.

We may be unable to meet our current or future obligations or to adequately exploit existing or future opportunities if we cannot raise sufficient capital. If we are unable to obtain capital for an extended period of time, we may be forced to discontinue operations.

We do not currently have a full production version of our Media i/o platform and certain related services in commercial operation.

To date, we have only designed, developed, tested and operated a pilot version of our Media i/o platform. We have not yet developed, tested and/or operated the production version of our Media i/o platform and certain related services in full commercial operation, and may be unable to so. In addition, once developed and tested, our Media i/o platform and certain related services may not perform as expected when placed into commercial use, which would significantly harm our results of operations and financial condition.

Because of our early stage of operations and limited resources, we may not have in place various processes and protections common to more mature companies and may be more susceptible to adverse events.

We are in an early stage of operations and have limited resources. As a result, we may not have in place systems, processes and protections that many of our competitors have or that may be essential to protect against various risks. For example, we have in place only limited resources and processes addressing human resources, timekeeping, data protection, business continuity, personnel redundancy, and knowledge institutionalization concerns. As a result, we are at . . .