Results of Operations for the Three Months Ended December 31, 2010, Compared to December 31, 2009

For the three months ended December 31, 2010, our revenue increased 19% to $6.5 million from $5.5 million for the same period of fiscal 2010. Gross profit was $3.2 million compared with $3.0 million for the same period of fiscal 2010, an increase of 5%. Gross profit margins were 49% compared with 55% for the same period of fiscal 2010. The decrease in gross profit margin is primarily attributable to the impact of lower gross profit margin web application development services revenue from two acquisitions completed during the second half of fiscal 2010.

The loss from operations for the three month period was ($84) thousand compared with income from operations of $242 thousand in the same period of fiscal 2010. The net loss for the three month period was ($156) thousand compared with net income of $220 thousand in the same period of fiscal 2010. The primary reason for the decrease in operating and net income is that there were no capitalized costs related to iAPPS software development in the three months ended December 31, 2010, while there was $170 thousand of capitalized costs in the three months ended December 31, 2009. In addition, the decrease is due to lower gross margin contribution and increased sales expense from our two recent acquisitions. Earnings (loss) per share were ($0.01) for the three months ended December 31, 2010, compared with $0.02 for the same period of the prior year. Non-GAAP adjusted net income was $167 thousand and non-GAAP adjusted earnings per diluted share was $0.01 for the three months ended December 31, 2010, compared with non-GAAP adjusted net income of $416 thousand and non-GAAP adjusted earnings per diluted share of $0.04 for the same period of fiscal 2010. Adjusted EBITDA was $485 thousand and Adjusted EBITDA per diluted share was $0.04 for the three months ended December 31, 2010, compared with $688 thousand and $0.06 for the same period of fiscal 2010.

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