Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve risks and uncertainties.
Forward-looking statements generally include words such as "may," "will," "plans," "seeks," "expects," "anticipates," "outlook," "intends," "believes" and words of similar import as well as the negative of those terms. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. All forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to:

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statements regarding the future growth of our wireless product line;

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statements regarding future revenue from our products;

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statements regarding our future success;

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statements regarding our future financings;

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statements regarding future costs;

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statements regarding future research and development efforts;

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statements regarding competition in the market for wireless products;

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statements regarding future patent applications;

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statements regarding future financial results;

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statements regarding future plans to extend our product line.

These statements are based on current expectations and are subject to important factors that could cause actual results to differ materially from those projected in the forward-looking statements. Such important factors include, but are not limited to, those discussed below under "Risk Factors" and elsewhere in this Quarterly Report and in other documents we file with the U.S. Securities and Exchange Commission. When reading the sections titled "Results of Operations" and "Liquidity and Capital Resources," you should also read our unaudited condensed financial statements and related notes included elsewhere herein and our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2008. We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this Quarterly Report.

OVERVIEW

We were incorporated in the State of California in August 1994. We are an independent software vendor ("ISV") focused on providing secure, wireless synchronization of email and personal information management ("PIM") (calendar, contacts, and tasks information) across a variety of wireless devices and email collaboration suites. Our products provide solutions to organizations and businesses supporting Novell GroupWise†, Microsoft Exchange†, Google Enterprise™ and a variety of alternative email collaboration suites such as the Sun Java Communications Suite, the Oracle Collaboration Suite, the Mirapoint Messaging Suite, CommunigatePro, Scalix Enterprise Server, Kerio Messaging Suite, the MDaemon Messaging Suite, FirstClass, and Meeting Maker. We support a variety of wireless device platforms on each of these suites including the BlackBerry®, Apple® iPhone®, iPod® touch, Palm, Windows Mobile®, and Symbian. In July 2006, we became an official BlackBerry ISV Alliance Partner with Research In Motion.
Using our products, our customers can achieve secure wireless mobile access using various handheld wireless devices to manage their email, calendar appointments and address books on any of the email collaboration suites we support. Our products support wireless devices from a wide range of manufacturers and network carriers around the world.

We completed our initial public offering in September 1997, receiving net proceeds of approximately $6.2 million. Prior to our initial public offering, our working capital requirements were met through the sale of equity and debt securities in private placements and, to a lesser extent, product revenue and a line of credit. We have sustained significant operating losses in every fiscal period since inception and expect to incur quarterly operating losses in the future. Our limited operating history makes the prediction of future operating results difficult if not impossible. Future operating results will depend on many factors, including the demand for our products, the level of product and price competition, and our ability to develop and market new products and control costs. There can be no assurance that our revenues will grow or be sustained in future periods or that we will ever achieve profitability.

RESULTS OF OPERATIONS

Three-Month Periods Ended March 31, 2009 and 2008

Revenue

Revenue consists of net revenue from the sale of NotifyLink software licenses, installation fees and the sale of third party software. We recognize the license portion at the point of sale for those sales where VSOE has been established and the service portion ratably over the term of the service contract. For those contracts where VSOE has not been established, the revenue of the entire contract is recognized ratably over the term of the contract.
Maintenance revenue is recognized on a straight-line basis over the term of each contract. Installation revenue is recognized upon completion of trial activity and finalizing the software agreement. Third party software revenue is recognized upon delivery to the customer.

Our revenues increased 28% to $1,423,570 in the three-month period ended March 31, 2009, from $1,111,789 in the three-month period ended March 31, 2008. The increase in revenue was attributed to growth in both domestic and international sales of our NotifyLink product line. Over the past twelve months, we have increased our level of activity in both Europe and other parts of the world. We also believe that the growth in acceptance of cloud computing has led to an increase in sales of our on-demand product.

Our NotifyLink product is comprised of a backend server component and a wireless device client component. We are a provider of secure real time wireless synchronization of email, calendar, contacts and tasks, supporting 13 different email platforms. In addition we support any BlackBerry, Palm, Windows Mobile, and select Symbian wireless devices on all major cellular voice and data networks worldwide. The NotifyLink solution provides users with bi-directional mobile "automatic" synchronization of emails sent to end users' email mailboxes and all emails originated forwarded and replied to from the mobile device will be synchronized with the user's email mailbox. The synchronized information also keeps personal calendars, contacts, and task information continually up to date at both the server and the mobile device level.

We sell our products primarily in the United States directly to business users and resellers. Certain domestic customers have deployed our product to international sites, demonstrating NotifyLink's ability to link our customers' email across international boundaries. We also have limited direct sales internationally and sell primarily through resellers.

Cost of revenue

Cost of revenue consists of the royalty expense to NCR for certain technology utilized in our NotifyLink product and the cost of resale software related to NotifyLink. Cost of revenue decreased to $39,319 in the three-month period ended March 31, 2009, from $49,351 for the three-month period ended March 31, 2008. The decrease in the cost of revenue was primarily due to the write-off of $15,950 of prepaid royalties in the three-month period ended March 31, 2008, pertaining to a product that became obsolete as a result of developments in the market.

Our gross margin increased to 97.2% in the three month period ended March 31, 2009, compared to a gross margin of 95.6% in the three-month period ended March 31, 2008. The major cost component affecting gross margin is royalty expense.
With the exception of the 2008 write-off above, royalty is normally applied at a constant percentage of revenues regardless of volume. The other major costs of our business, consisting of product design and sales/support, are categorized in operating expenses and thus do not impact gross margin.

Research and development

Research and development expenses consist primarily of personnel costs and expenses. Research and development expenses increased to $499,846 for the three-month period ended March 31, 2009, from $376,490 for the three-month period ended March 31, 2008. Virtually all the increase is due to salaries, as we invested heavily in expanding the NotifyLink product line and readying a new product line, NotifySync, that launched in January 2009. Our development efforts were devoted to improving our software product in the area of device management, porting our solution to new devices and creating new products.

We believe that our future success, if any, depends significantly on our ability to continue to enhance our existing wireless products and to develop new products. Therefore, we intend to continue to incur research and development costs for the foreseeable future.

Sales and marketing

Sales and marketing expense consists primarily of personnel, travel costs and sales commissions related to our sales and marketing efforts. We use an internal sales force and a customer support staff to facilitate the NotifyLink sales process. Sales and marketing costs increased to $578,520 for the three-month period ended March 31, 2009, from $487,576 for the three-month period ended March 31, 2008. The increase in sales expense is due to additions to our sales staff and commissions on strong sales activity. There is an inherent mismatch of commission expense to revenue because a majority of our revenue is recognized over the life of the contract, whereas we record commission expense in the month the contract is signed.

We anticipate that sales and marketing expenses will increase in future quarters as we hire additional sales and customer support personnel and attempt to expand our existing and create new distribution channels.

General and administrative

General and administrative expense consists of general management and finance personnel costs, option vesting expense, insurance expense, rent expense, professional fees and other general corporate expenses. General and administrative expenses increased to $399,753 for the three-month period ended March 31, 2009, from $323,424 for the three-month period ended March 31, 2008.
The increase was largely due to non-cash expenses of $20,175 for compensation expense due to option vesting and a $20,000 increase in bad debt reserve on the balance sheet in response to higher accounts receivable levels resulting from stronger sales.

We expect that general and administrative expense may continue to increase in future quarters as we adhere to the requirements mandated by the Sarbanes-Oxley Act and integrate any additional requirements imposed by future regulations.

Six-Month Periods Ended March 31, 2009 and 2008

Revenue

Revenue for the six-month period ended March 31, 2009 increased 27% to $2,772,831 from $2,186,643 for the six-month period ended March 31, 2008. A majority of our revenue in both periods was derived from domestic sources, centering largely on IMAP based email systems and Novell GroupWise environments.
Sales to users of iPhones also improved our revenues over the six-month period ended March 31, 2009.

Cost of revenue

Cost of revenue consists of the royalty expense to NCR for certain technology utilized in our NotifyLink product and the cost of resale software related to NotifyLink. Cost of revenue decreased to $78,767 in the six-month period ended March 31, 2009 from $83,502 for the six-month period ended March 31, 2008, due to the above-referenced write-off of prepaid royalty in the three-month period ended March 31, 2008.

Our gross margin increased to 97.2% in the six-month period ended March 31, 2009, compared to a gross margin of 96.2% in the six-month period ended March 31, 2008. The major cost component affecting gross margin is royalty expense.
With the exception of the 2008 write-off, royalty is normally applied at a constant percentage of revenues regardless of volume. The other major costs of our business, consisting of product design and sales/support, are categorized in operating expenses and thus do not impact gross margin.

Research and development

Research and development expenses consist primarily of personnel costs and expenses. Research and development expenses increased to $979,761 for the six-month period ended March 31, 2009, from $772,172 for the six-month period ended March 31, 2008. Virtually all the increase is due to salaries, as we invested heavily in expanding the NotifyLink product line and readying the new NotifySync product line for launch in January 2009. Our development efforts were devoted to improving our software product in the area of device management, porting our solution to new devices and creating new products.

We believe that our future success, if any, depends significantly on our ability to continue to enhance our existing wireless products and to develop new products. Therefore, we intend to

Sales and marketing

Sales and marketing expenses consist primarily of personnel, travel costs and sales commissions related to our sales effort of the NotifyLink product line. We use an internal sales force and a customer support staff to facilitate the NotifyLink sales process. Sales and marketing costs increased to $1,140,770 for the six-month period ended March 31, 2009, from $901,782 for the six-month period ended March 31, 2008. The increase in sales expense is due to additions to our sales staff and commissions on strong sales activity. There is an inherent mismatch of commission expense to revenue because a majority of our revenue is recognized over the life of the contract, whereas we record commission expense in the month the contract is signed.

We anticipate that sales and marketing expenses will increase in future quarters as we hire additional sales and customer support personnel and attempt to expand our existing referral base and create new distribution channels.

General and administrative

General and administrative expenses consist of general management and finance personnel costs, insurance expense, occupancy costs, professional fees, stock-based compensation expense and other general corporate expenses. General and administrative expenses increased to $729,673 for the six-month period ended March 31, 2009 from $646,780 for the six-month period ended March 31, 2008. The increase in expenses was due in part to non-cash expenses of $20,175 for compensation expense due to option vesting and a $20,000 increase in bad debt reserve on the balance sheet in response to higher accounts receivable levels resulting from stronger sales. In addition, we experienced increases in legal and corporate expenses and medical insurance costs.

We expect that general and administrative expense may continue to increase in future quarters as we adhere to the requirements mandated by the Sarbanes-Oxley Act and integrate any additional requirements imposed by future regulations.

LIQUIDITY AND CAPITAL RESOURCES

During the six-month period ended March 31, 2009, we funded our operations through a combination of our gross profit earned from revenue and existing cash balances. Our ability to fund our recurring losses from operations depends upon success of our NotifyLink wireless e-mail notification market solutions.

A significant characteristic of our business is the sale of our products customarily in the form of annual contracts paid for upon signing with the revenue amortized over the twelve-month service period. The unamortized contract revenue is reflected in the deferred revenue account on our balance sheet. As our installed base grows, this practice increases the deferred revenue liability on the balance sheet provided we add new contracts faster than old contracts expire. For example, deferred revenue increased significantly to $3,050,206 at March 31, 2009 from $2,418,235 at September 30, 2008, due to growing our installed base and improved retention of accounts that require an annual renewal. If we continue to add new accounts and renew established accounts faster than we amortize our existing contracts, we could continue to see deferred revenue increase in the future.

The major cost of operations is comprised of (1) the engineering design of our products offered for sale and (2) the sales process of a contract that requires both direct sales effort and technical support hours to facilitate an optional 30-day trial period of our software prior to purchase. We believe that the increase in the NotifyLink deferred revenue to $3,050,206 as of March 31, 2009 from $2,418,237 as of March 31, 2008, combined with the increases in cash and cash equivalents and accounts receivable over the same period, illustrates that total product revenue improved in the twelve-month period ended March 31, 2009.
Deferred revenue also represents the obligation to service the contracts underlying the revenue. However, we believe the cash flow required to service the contracts is significantly less than the amortized revenue recognized each month.

Our continued operations depend on the cash flow from sales of NotifyLink. In the event sales of our product decline or our revenue is otherwise interrupted, we would have to reduce our operations to minimally service our existing contract obligations unless we secured additional financing. If we were unable to increase our revenues or secure financing, we would have to restructure our business to reduce costs.

We are currently expanding our product offerings into our current or other niche markets. We believe that these niche markets are not adequately addressed by market competitors at the present time. We also intend to capitalize on our ability to offer a single middleware solution for those companies deploying a variety of manufacturers' devices on a single email system. The success of our business operations will depend upon a continued favorable market acceptance for our wireless software products.

We also continue to evaluate our opportunities to obtain financing to provide additional funding for our operations. In the event we require additional capital, we cannot predict whether we will be able to obtain financing on commercially reasonable terms, if at all. Any future financings may take the form of debt or equity securities or a combination of debt and equity, including convertible notes or warrants. In the event we are required to obtain additional financing, we cannot predict whether we could successfully conclude a financing with any new investors. Minimally, we expect that any additional financing could result in a substantial dilution of the equity and voting interests of our current shareholders.

In July 2008, warrants and options to purchase our preferred stock that had been outstanding since July 2001, expired without having been exercised. The expiration left 14,075,662 shares of common stock and options to purchase 3,353,244 shares of common stock as our only issued and outstanding securities.
There were no remaining obligations associated with the expiring warrants and options. This simplification of our equity structure could be advantageous in the event we require additional capital.

On December 17, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan ("2008 Plan") subject to the approval of our shareholders. The Board authorized 2,317,000 shares of the Company's common stock to be reserved under the 2008 Plan. Included in the 3,608,014 total outstanding options as of March 31, 2009, were 1,750,014 options granted under the 2008 Plan on December 17, 2008 to various employees. These grants included 169,470 options exchanged for 900,000 options granted under a prior option plan.

At March 31, 2009, we had cash and cash equivalents of $1,379,080, compared to $1,038,555 at March 31, 2008. Over the last several years, we have financed our operations primarily through revenue from operations and existing cash balances.
The net cash generated by operating activities equaled $443,569 in the six-month period ended March 31, 2009, versus net cash generated by operating activities of $255,127 in the six-month period ended March 31, 2008. The cash generated by operations in the six-month period ended March 31, 2009 was primarily due to a combination of a net loss of $153,889 and an increase in accounts receivable of $123,172, offset by an increase in deferred revenue of $631,972 and an increase in other accrued liabilities of $38,005. The cash generated by operations in the six-month period ended March 31, 2008 was largely due to a combination of a net loss of $213,729 partially offset by an increase in deferred revenue of $253,146 and a decrease in accounts receivable of $99,458. Although we have been cash positive in the last two fiscal years, we anticipate that we will have negative cash flow from time to time from operating activities in future periods.

Net cash used by investing activities in the six-month period ended March 31, 2009 was an outflow of $72,909 for computer purchases. There was a net cash outflow of $78,765 from the purchase of fixed assets and accounting software in the six-month period ended March 31, 2008.

Net cash provided by financing activities was an outflow of $2,187 and an inflow of $22,418 for the six-month periods ended March 31, 2009 and 2008, respectively. The net cash outflow for the six-month period ended March 31, 2009 was due to payments on capital leases. The inflow for the six-month period ended March 31, 2008 was due to $27,933 from the exercise of options partially offset by $5,515 of payments on capital leases.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate estimates, including those related to bad debts, inventories and income taxes, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of our financial statements:

We recognize revenue in accordance with the American institute of Certified Public Accountants Statement of Position ("SOP") 97-2, "Software Revenue Recognition," and SEC Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104").

Under SOP 97-2, we recognize software license agreements when persuasive evidence of an agreement exists, delivery of the product has occurred, the license fee is fixed or determinable and collection is probable. Our license agreements take two basic forms. The first form of agreement is essentially a subscription agreement that is used in connection with our hosting arrangement where we provide both the software combined with hosting services from a hardened site owned and managed by us. The agreement generally has a fixed term and the license revenue is recognized ratably over the term of each service contract. The second form of agreement involves the purchase of a license and a service agreement based on the Vendor Supplied Objective Evidence ("VSOE") where only the service agreement is renewed each year. We recognize the license portion at the point of sale for those sales where VSOE has been established and the service portion ratably over the term of the service contract. For those contracts where VSOE has not been established, the revenue of the entire contract is recognized ratably over the term of the contract. Our sales process provides for an optional trial period prior to the agreement to purchase and no revenue is recognized during that trial period.

Under SAB 104, we recognize revenue when the title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery of the product has occurred or services have been rendered, the sales price is fixed or determinable and collection is probable. Installation, when required, is commonly completed prior to an agreement to facilitate a trial of the product.
Technical assistance is available during the sales process and is unrelated to the service component portion of the final arrangement. Revenue related to installation is recognized when the agreement is signed and the contract period has commenced.

We maintain allowances for doubtful accounts for estimated bad debts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

The carrying value of our deferred tax assets are dependent upon our ability to generate sufficient future taxable income in certain tax jurisdictions. Should we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Currently, our deferred tax assets are fully reserved.

OFF BALANCE SHEET ARRANGEMENTS

We have no off balance sheet arrangements as defined by Item 303(a)4 of Regulation S-K.

Item 3.