The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto presented in this quarterly report and the audited consolidated financial statements and related notes thereto included in our Annual Report filed on Form 10-K for the year ended March 31, 2008.

COMPANY OVERVIEW

Headquartered in Phoenix, Arizona, iLinc Communications, Inc., a Delaware Corporation, is a leading provider of Web conferencing software and services. We develop and sell software that provides real-time collaboration. Our four-product iLinc Suite, comprised of LearnLinc, MeetingLinc, ConferenceLinc and SupportLinc, is an award winning suite that includes a virtual classroom, meeting, webinar and support tool. With our Web collaboration, conferencing and virtual classroom products, we provide what we believe to be simple, reliable and cost effective tools for remote presentations, meetings and online events. Our software is based on a proprietary architecture and code that finds its origins as far back as 1994, in what we believe to be the beginnings of the Web conferencing industry. Versions of the iLinc Suite have been translated into six languages, and it is currently available in version 10. Our customers may choose from several different pricing and licensing options for the iLinc software or iLinc service depending upon their needs. We sell our software solutions to large corporations inside and outside of the Fortune 1000 as well as small to medium size businesses (SMB) and individuals. We market our products using a direct sales force and an indirect distribution channel. Our indirect sales channel consists of agents, distributors, value added resellers and OEM partners. We allow customers to choose between purchasing a perpetual license and subscribing to a term license. Our revenues are a mixture of high margin perpetual and subscription licenses of software, monthly recurring revenues from subscription licenses as well as annual maintenance, hosting and support agreements.

PRODUCTS AND SERVICES

WEB CONFERENCING

The iLinc Suite is a four-product suite of software that addresses the most common business collaboration needs.

LearnLinc is an Internet-based software that is designed for training and education of remote students. With LearnLinc, instructors and students can collaborate and learn remotely providing an enhanced learning environment that replicates and surpasses traditional instructor-led classes. Instructors can create courses and classes, add varied agenda items, enroll students, deliver live instruction and deliver content that includes audio, video and interactive multimedia. In combination with TestLinc, LearnLinc permits users to administer comprehensive tests, organize multiple simultaneous breakout sessions and record, edit, play back and archive entire sessions for future use.

MeetingLinc is an online collaboration software designed to facilitate the sharing of documents, PowerPoint(TM) presentations, graphics and applications between meeting participants without leaving their desks. MeetingLinc allows business professionals, government employees and educators to communicate more effectively and economically through interactive online meetings using Voice-over IP technology to avoid the expense of travel and long distance charges. MeetingLinc allows remote participants to give presentations, demonstrate their products and services, annotate on virtual whiteboards, edit documents simultaneously and take meeting participants on a Web tour. Like all of the Web collaboration products in the Suite, MeetingLinc includes integrated voice and video conferencing services.

ConferenceLinc is a presentation software designed to deliver the message in a one-to-many format providing professional management of Web conferencing events. ConferenceLinc manages events such as earnings announcements, press briefings, new product announcements, corporate internal mass communications and external marketing events. ConferenceLinc is built on the MeetingLinc software platform and code to combine the best interactive features with an easy-to-use interface providing meaningful and measurable results to presenters and participants alike. Its design includes features that take the hassle out of planning and supporting a hosted Web seminar. ConferenceLinc includes automatic email invitations, "one-click join" capabilities, online confirmations, update notifications and customized attendee

registration. With ConferenceLinc, presenters may not only present content, but may also gain audience feedback using real-time polling, live chat, question and answer sessions and post-event assessments. The entire presentation is easily recordable for viewing offline and review after the show with the recorder capturing the content and the audio, video and participant feedback.

SupportLinc is an online technical support and customer sales support software designed to give customer service organizations the ability to provide remote hands-on support for products, systems or software applications. SupportLinc manages the support call volume and enhances the effectiveness of traditional telephone-based customer support systems. SupportLinc's custom interface is designed to be simple to use so as to improve the interaction and level of support for both customers and their technical support agents.

Our Web collaboration software is sold on a perpetual license or periodic license basis. A customer may choose to acquire a one-time perpetual license (the "Purchase Model") or may rent our software on a periodic basis on either a per-seat, per-month or per-minute basis (the "Subscription Model"). Should they choose to acquire the software using the Purchase Model, then they may either elect to host our software behind their own firewall or they may choose to have iLinc host it for them, depending upon their preferences, budget and IT capabilities. Customers who select the Purchase Model, whether hosted by iLinc or the customer, may also subscribe for ongoing customer support and maintenance and software upgrade services, using a support and maintenance contract with terms from one to five years. The annual maintenance and support fee charged is initially based upon a percentage of the purchase price that varies between 12% and 18% of the Purchase Model license fee paid for the perpetual licenses, with the percentage depending upon the contractual length and pre-payment of the annual maintenance and support agreement. If a customer chooses to have iLinc host their Purchase Model licenses, then the customer is also charged an annual hosting fee equal to between 8% and 10% of the Purchase Model license fee that was paid for the perpetual license.

Customers choosing the Subscription Model pay per seat (concurrent connection) on either a per-month or per-year basis depending upon the length and term of the subscription agreement. Hosting and maintenance are included as a part of the monthly or annual rental fees. Customers may also obtain Web conferencing on a per-minute basis using the iLinc On-Demand product. Those choosing the iLinc On-Demand product pay on a monthly basis typically without contractual commitment.

SALES AND MARKETING FOCUS

Our organization continually creates new marketing and sales campaigns that focus in three target markets.

o We target prospects that are using other Web conferencing service providers that are ready to migrate to Web conferencing software. We believe that these organizations appreciate the cost and feature advantages that our technology offers.

o We target organizations that have a natural fit for highly secure Web conferencing software such as government, military, and financial organizations as well as the companies that supply to these entities.

o We continue to cross sell all of our products and services to our existing customers.

Our marketing efforts incorporate public relations, tradeshows, Web events, Web marketing initiatives and direct marketing (mail and email) efforts messaged in campaigns that speak to the needs of our specific target markets. The goal of our marketing strategy is to drive new business into our customer base and then cross sell our synergistic products and drive usage of all products to increase the propensity for our customers to make additional purchases.

We have formed relationships with organizations that market and sell our products and services through their sales distribution channels. The relationships can be categorized into those that act as agents and sell on our behalf and value added resellers (a "VAR") that actively sell our products and provide product support typically to their own existing customer base. As of September 30, 2008, we had over 20 organizations selling our products providing indirect sales in the United States and in countries outside the United States, including Canada, the United Kingdom, The Netherlands, Germany, Spain and Japan. Our VARs execute agreements with us to resell our products to their customers through direct sales and in some cases through integration of our products into their products or service offerings. Our distribution agreements typically have terms of one to three years and are automatically renewed for an additional like term unless either party terminates the agreement for breach or other financial reasons. In most of these agreements, the VAR licenses the product from us and

resells the product to its customers. Under those VAR agreements, we record only the amount paid to us by the VAR as revenue and recognize revenue when all revenue recognition criteria have been met.

PERFORMANCE MEASURES AND INDICATORS

In evaluating our operating performance on a quarterly and annual basis, we consider levels of revenues, gross profit, operating income and net income to be important indicators.

As indicators of future financial performance, we monitor and evaluate non-financial measures, such as number of seats sold, average sales price per transaction, average sales cycle, quota achievement by the direct sales staff, the number of transactions, the percentage each product sold contributes to total revenue, monthly recurring revenue, backlog, total bookings, deferred revenue and the trends indicated by these factors.

External factors that our management considers in analyzing our performance include projected growth rates for our industry and rates of penetration of use of our product categories in the corporate sector. We consider these factors important since they permit us to better project capital needs and growth trends that support our assertions of profitability and cash flow. Analysis of these trends indicates that we are having decreasing success from our direct sales staff for our perpetual licenses, but increasing success in subscription licenses due to market driven forces. That success is likely to translate into increasing recurring revenues over the term of the subscription, and an increasing bottom line as we strive to contain overhead expenses. We expect overhead to decrease in fiscal 2009, due to cost cutting and containment measures carried out in the fourth quarter of fiscal 2008 and continuing through fiscal 2009. We see increasing demand for Web conferencing usage in the business, education and government sectors alike, and we expect these trends to continue over the next three years.

The following table shows certain items from our income statement as a percentage of revenues from continuing operations (in thousands, except percentages):

                                                    THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                       SEPTEMBER 30,                         SEPTEMBER 30,
                                          ------------------------------------------------------------------------------
                                                 2008               2007                2008               2007
                                          ------------------------------------------------------------------------------
                                                                      <C>            <C>  <C>           <C>
Revenues                                                %                    %                 %                  %
   Software licenses......................$       335   21   $   1,218      47  $      920     26   $    2,370    46
   Subscription licenses..................        528   33         440      17         997     28          951    19
   Software maintenance, hosting and
     other services.......................        716   46         931      36       1,582     46        1,786    35
                                          ------------------------------------------------------------------------------
      Total revenues......................      1,579  100       2,589     100       3,499    100        5,107   100
                                          ------------------------------------------------------------------------------

Cost of revenues
   Software licenses......................         16    1          --      --          61      2           67     1
   Subscription licenses..................         74    5          78       3         140      4          181     4
   Software maintenance, hosting and
     other services.......................         81    5         240       9         208      6          451     9
   Amortization of acquired and developed
     software.............................         52    3          52       2         105      3           52     1
                                          ------------------------------------------------------------------------------
      Total cost of revenues..............        223   14         370      14         514     15          751    15
                                          ------------------------------------------------------------------------------

Gross Profit..............................      1,356   86       2,219      86       2,985     85        4,356    85
                                          ------------------------------------------------------------------------------

Operating expenses
   Research and development...............        558   35         547      21       1,089     31          909    18
   Sales and marketing....................        941   60       1,279      49       1,841     53        2,451    48
   General and administrative.............        647   41         579      22       1,260     36        1,242    24
                                          ------------------------------------------------------------------------------
     Total operating expenses.............      2,146  136       2,405      93       4,190    120        4,602    90
                                          ------------------------------------------------------------------------------
Loss from operations......................$      (790) (50)  $    (186)     (7) $   (1,205)   (35)     $  (246)   (5)
                                          ==============================================================================

RESULTS OF OPERATIONS

REVENUES FROM CONTINUING OPERATIONS

Beginning in January 2008, we added a subscription offering to our sales product mix (our new "Software as a Service" or "SaaS" model). Pursuant to that SaaS model, customers are able to subscribe to iLinc's award-winning products on a per month or per year basis. As a result, we recognize revenue from those SaaS subscription agreements on a monthly basis regardless of the contractual term. The expected and announced result of that shift in sales emphasis has been a decline in Software License revenue and an increase in Subscription Service revenue, with a corresponding increase in contractual backlog. Therefore, when comparing revenues by category it is important to take into account our shift from a software license model (with revenue recognized at the time of sale) verses the more prevalent SaaS or subscription model (with revenue recognized over the term of the agreement).

Total revenues generated from continuing operations for the three months ended September 30, 2008 and 2007 were $1.6 million and $2.6 million, respectively, a decrease of $1.0 million or 39% as a result of decreases in software license revenue that was partially offset by an increase in subscription services revenue, mostly as a result of the shift toward the SaaS license model. For the six months ended September 30, 2008 total revenues were $3.5 million, a 31% decrease of $1.6 million from revenues of $5.1 million for the six months ended September 30, 2007.

o Software license revenues decreased $883,000 or 72% from $1.2 million in the three months ended September 30, 2007 to $335,000 in the three months ended September 30, 2008. The decrease was the result of the shift toward our new SaaS model and away from our historical software purchase model, in combination with declines in spending by potential customers as a result of declines in the overall U.S. economy. For the six months ended September 30, 2008, software licenses decreased $1.5 million, or 61% from $2.4 million for the six months ended September 30, 2007 to $920,000.

o Subscription revenues increased $88,000, or 20% from $440,000 in the three months ended September 30, 2007 to $528,000 in the three months ended September 30, 2008. Direct subscriptions increased by $132,000 from $49,000 in the three months ended September 30, 2007 to $181,000 in the three months ended September 30, 2008. Web conferencing per-minute revenue was relatively flat at $251,000 from the three months ended September 30, 2007 to the three months ended September 30, 2008. Indirect subscription revenue decreased by $45,000 from $124,000 to $79,000 as a result of changes in the sales model and focus of one of our reseller partners. Overall, subscription services revenues were up by 5%, or $46,000 from $951,000 when compared to the six months ended September 30, 2007, to $997,000 for the six months ended September 30, 2008. Direct subscriptions increased by $188,000 from $120,000 for the six months ended September 30, 2007 to $308,000 for the six months ended September 30, 2008. Web per-minute decreased slightly by $23,000 from $521,000 for the six months ended September 30, 2007 to $498,000 for the same period in fiscal 2009. Indirect subscriptions decreased $119,000 from $280,000 in the six months ended September 30, 2007 to $161,000 in the six months ended September 30, 2008 as a result of changes in the sales model and focus of one of our reseller partners. With our continued emphasis on our new subscription or SaaS sales model, we expect subscription revenue to continue to increase throughout the remainder of fiscal 2009, software license revenue to remain relatively flat from a sequential quarterly basis, and backlog to continue to grow as we layer on term subscription agreements from a direct and indirect basis.

o Software maintenance, hosting and other services revenues decreased $215,000 or 23% from $931,000 in the three months ended September 30, 2007 to $716,000 in the three months ended September 30, 2008. This decline was due to the cessation in the sale of non-core custom content development services and non-core third party co-location hosting that were a part of a legacy offering, and therefore not as a result in declines in our core Web conferencing maintenance and hosting services. To that end, we recognized increases in maintenance fees of $21,000 and hosting fees of $7,000 from renewals as SaaS model agreements and our customer base continues to expand. In addition, we recognized an increase in training, storage and recording revenues of $19,000. We recognized commissions for audio wholesale of $35,000 for the three months ended September 30, 2008. The increases were partially offset by a decrease in our non-core legacy custom content revenues of $185,000. With the cessation of that subcontractor agreement

concerning non-core custom content development in April 2008 we will not recognize custom content revenues in future periods. In addition, an agreement with one specific customer for co-location hosting expired in July and revenues for that customer decreased $108,000, without likewise the recognition of further non-core collocation revenue in future periods. For the six months ended September 30, 2008, software maintenance, hosting and other services decreased $204,000, or 11% from $1.8 million in the six months ended September 30, 2007 to $1.6 million in the six months ended September 30, 2008. Specifically, we recognized an increase in maintenance of $83,000 from $893,000 to $976,000 and increases in hosting of $38,000 from $214,000 to $252,000 when comparing the six months ended September 30, 2007 to the same period in fiscal 2009. We recognized audio wholesale commissions of $55,000 in the six months ended September 30, 2008. Product training, storage and recording revenues increased by $28,000 from $95,000 in the first six months of fiscal 2008 to $123,000 in the same period in the 2009 fiscal year. The increases were partially offset by a decrease in non-core custom content revenues of $296,000, and non-core co-location hosting revenue of $104,000.

o For the three months ended September 30, 2008, software license revenues were 21% of total revenue, subscription services revenues were 33% of total revenue and software maintenance, hosting and other services revenues were 46% of total revenue, as compared to 47%, 17% and 36%, respectively, for the three months ended September 30, 2007. For the six months ended September 30, 2008, software license revenues were 26% of total revenue, subscription services revenues were 28% of total revenue and software maintenance, hosting and other services revenues were 46% of total revenue, as compared to 46%, 19% and 35%, respectively, for the six months ended September 30, 2007. We expect software license revenues and subscription services revenue to continue to become a larger percentage of total revenues as total revenues increase given our continued focus on our historical software purchase model, and increasing emphasis on our new subscription or SaaS sales and licensing model. We expect sales from off-the-shelf license sales to decline.

COST OF REVENUES FROM CONTINUING OPERATIONS

Cost of software license revenues is driven by the types of software licenses sold. It consists of royalty fees paid on certain off-the-shelf products, if any, sold, and sales rebates to distribution partners on the sale of certain software products. Cost of software license revenues for the three months ended September 30, 2008 and 2007 were $16,000 and $0, respectively, an increase of $16,000. The increase was related to an increase in off-the-shelf courseware revenues. Cost of software license revenue was approximately 1% of total revenues in the quarter ended September 30, 2008 and 0% of total revenues in the quarter ended September 30, 2007. Cost of software license revenues for the six months ended September 30, 2008 and 2007 were $61,000 and $67,000, respectively, a decrease of $6,000, or 9%. Cost of software license revenue was approximately 2% of total revenues in the six months ended September 30, 2008 and approximately 1% of total revenues in the six months ended September 30, 2007. We expect the cost of software license revenues to remain below 3% of total license revenue, as we focus on the sale of our very high margin software license products, and expect cost of revenues to rise only because of royalties which may be due from the sale of off-the-shelf courseware.

While cost of license revenues are low, we record the cost of subscription services revenue using a fully allocated overhead method that includes an allocation of salaries and allocable expenses such as network costs resulting from the delivery of our hosted Web conferencing services. Cost of subscription services revenue for the three months ended September 30, 2008 and 2007 were $74,000 and $78,000, respectively, a decrease of $4,000 or 5%. The decrease was primarily a result of a decrease in salaries and benefits due to a reduction in headcount as we reshaped the organization from the sale of our audio conferencing assets. Cost of subscription services revenue was approximately 5% of total revenues in the three months ended September 30, 2008 and approximately 3% of total revenues in the three months ended September 30, 2007. For the six months ended September 30, 2008 and 2007 cost of subscription services were $140,000 and $181,000, respectively, a decrease of $41,000 or 23%. The decrease was primarily a result of a decrease in salaries and benefits due to a reduction in headcount as we reshaped the organization from the sale of our audio conferencing assets. Cost of subscription services revenue was approximately 4% of total revenues in both six month periods ended September 30, 2008 and 2007. Overall, we expect the cost of subscription services to remain relatively consistent at 3% to 5% of revenues.

Cost of software maintenance, hosting and other services revenue includes an allocation of technical support personnel and facilities costs allocable to those services revenues consisting primarily of a portion of our facilities costs, communications and depreciation expenses. However, by far the largest and most variable component of the cost of software maintenance, hosting and other services historically has arisen from the amount due to our third-party subcontractor which was a fixed proportion of our non-core custom content revenue. The cost of software maintenance, hosting and other services for the three months ended September 30, 2008 and 2007 was $81,000 and $240,000, respectively, a decrease of $159,000 or 66%. The decrease was primarily a result of decreases in non-core custom content revenue and therefore associated decreases in amount due our sub-contractor, which decreased by $137,000 from $137,000 for the three months ended September 30, 2007 to $0 for the three months ended September 30, 2008. Cost of software maintenance, hosting and professional services revenue was approximately 5% and 9% of total revenues in the three months ended September 30, 2008 and 2007, respectively. The cost of software maintenance, hosting and other services for the six months ended September 30, 2008 and 2007 was $208,000 and $451,000, respectively, a decrease of $243,000 or 54%. The decrease was primarily a result of decreases in non-core custom content revenue and therefore associated decreases in amount due our sub-contractor, which decreased by $218,000 from $255,000 for the six months ended September 30, 2007 to $37,000 for the six months ended September 30, 2008. Cost of software maintenance, hosting and professional services revenue was approximately 6% and 9% of total revenues in the three months ended September 30, 2008 and 2007, respectively. We expect that cost of software maintenance, hosting and other services revenue will remain consistent at approximately 5% to 7% of revenues for the remainder of fiscal 2009.

Amortization of acquired and developed software consists of amortization of capitalized software development costs related to iLinc version
9. Amortization of acquired and developed software for both the three months ended September 30, 2008 and 2007 was $52,000. Amortization of acquired and developed software for the six months ended September 30, 2008 and 2007 was $105,000 and $52,000, respectively, as we began amortizing costs related to iLinc version 9 in July, 2007.

GROSS PROFIT

As a result of the foregoing, our gross profit (total revenues less total cost of revenues) decreased from $2.2 million for the three months ended September 30, 2007 to $1.4 million for the three months ended September 30, 2008. We expect to see gross profit increase as revenues increase in dollar amount and as a percentage as revenues rise since most of the cost of sales is fixed in nature, (e.g., facilities and amortization expense).

OPERATING EXPENSES FROM CONTINUING OPERATIONS

Total operating expenses consist of research and development expenses, sales and marketing expenses and general and administrative expenses. We incurred operating expenses of $2.1 million in the three months ended September 30, 2008, a decrease of $259,000 or 11% from $2.4 million in the three months ended September 30, 2007. This decrease is due to decreases in sales and marketing expenses of $338,000 partially offset by increases in general and . . .