**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**Form      10-KSB**

| **(Mark                One)** |   |                                                                                                                                      |
|-------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| **x**                         |   | **ANNUAL                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934**     |
|                          |   |                                                                                                                                      |
|                          |   | **For                the fiscal year ended June 30, 2007**                                                                                |
|                          |   |                                                                                                                                      |
|                          |   | **Or**                                                                                                                                    |
|                          |   |                                                                                                                                      |
| **o**                         |   | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |

**Commission      File Number 000-28515**

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**FIREPOND,      INC.**

| **Delaware**                                                     |   | **20-3446646**                                      |
|------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                of incorporation)                          |   | (I.R.S.                Employer Identification No.) |
|                                                             |   |                                                |
| **205                Newbury Street, Framingham, Massachusetts** |   | **01701**                                           |
| (Address                of principal executive offices)          |   | (Zip                Code)                           |

**(508) 820      4300**

**None**

**Common      Stock, $.001 par value**

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**DOCUMENTS      INCORPORATED BY REFERENCE:**

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**FIREPOND,      INC.**

**Form      10-KSB**

**Annual      Report for the Fiscal Year Ended June 30, 2007**

**TABLE      OF CONTENTS**

|                    |   | **Part                I**                                                                                                                                                   |   |
|-------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item                1.  |   | Description                of Business                                                                                                                                      | 1      |
| Item                2.  |   | Description                of Property                                                                                                                                      | 25     |
| Item                3.  |   | Legal                Proceedings                                                                                                                                            | 25     |
| Item                4.  |   | Submission                of Matters to a Vote of Security Holders                                                                                                          | 25     |
|                    |   | **Part                II**                                                                                                                                                  |   |
| Item                5.  |   | Market                for                Equity and Related Stockholder Matters                                                                                             | 25     |
| Item                6.  |   | Management’s                Discussion and Analysis or Plan of Operation                                                                                              | 27     |
| Item                7.  |   | Financial                Statements                                                                                                                                         | 42     |
| Item                8.  |   | Changes                in and                Disagreements with Accountants on Accounting and Financial                Disclosure                                           | 43     |
| Item                8A. |   | Controls                and                Procedures                                                                                                                       | 43     |
| Item                8B. |   | Other                Information                                                                                                                                            | 43     |
|                    |   | **Part                III**                                                                                                                                                 |   |
| Item                9.  |   | Directors,                Executive                Officers, Promoters and Control Persons; Compliance with Section                16(a) of                the Exchange Act | 44     |
| Item                10. |   | Executive                Compensation                                                                                                                                       | 47     |
| Item                11. |   | Security                Ownership                of Certain Beneficial Owners and Management and Related Stockholder                Matters                                 | 49     |
| Item                12. |   | Certain                Relationships and Related Transactions                                                                                                               | 51     |
| Item                13. |   | Exhibits                                                                                                                                                                    | 51     |
| Item                14. |   | Principal                Accountant Fees and Services                                                                                                                       | 53     |
|                    |   |                                                                                                                                                                        |   |
|                    |   | Signatures                                                                                                                                                                  |   |
|                    |   |                                                                                                                                                                        |   |

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**PART      I**

*BUSINESS OVERVIEW—Corporate      Information*

**ITEM      1.        BUSINESS      OVERVIEW**

**Industry      Background**

*Evolution      from On-Premise to On-Demand Applications*

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|   | •     | *High                Total Cost of Ownership.* In addition to the initial purchase cost,                businesses deploying traditional on-premise application software                must make                substantial, ongoing investments in underlying IT infrastructure,                such as                hardware systems, networks, databases, application servers, and storage                in                order to run the applications. Businesses also need to employ costly                IT                staff and consultants to deploy, integrate, customize, support, and                upgrade the applications. Moreover, upgrade and maintenance requirements                are typically difficult to anticipate and implement on a cost-effective                basis. |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | *Lengthy                Deployment, High Complexity, and Limited Utilization*. The growing                scope and complexity of on-premise software enterprise applications                often                makes implementation a lengthy and challenging process, frequently                lasting                from six months to several years. Custom programming is typically                required                to finish these applications, which extends time to deployment, reduces                application reliability, and makes future upgrades more                difficult.                                                                                                                                                                                                     |
|   | •     | *Limited                Incentives to Ensure On-Going Client Success*. The traditional model                for purchasing on-premise enterprise applications requires businesses                to                pay upfront for perpetual use of software before the software is                actually                deployed and to pay a fixed maintenance fee for a specified period                of                time. This purchasing model may not provide appropriate financial                incentive for software vendors to assist their customers in successfully                deploying their applications and fully realizing the intended benefits                from their investments.                                                                                            |

*Single      Tenant versus Multi-Tenant Architecture*

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*Complexity      In The Sales Process*

**The      Firepond Solution**

|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | *Automated                Complex Sales Processes.* The sale of complex products by a company                typically requires the assistance of personnel from multiple departments,                including sales, engineering, manufacturing, finance, legal, and                marketing. Our solution provides sales representatives of a company                with                timely, relevant, and accurate information from each department regardless                of platform, format, or location of the data. As a result, our solution                enables a company to capture design specifications from engineering,                production constraints from manufacturing, discount authorization                from                finance, terms and conditions from legal, and product collateral                from                marketing on a real-time basis. |
|   | •     | *Increased                Order Accuracy.* Our software solutions increase order accuracy by                centralizing all product specifications and pricing options on our                web-based application. This centralization assures that all sales                channels                are quoting the most up-to-date and accurate product configurations                and                price information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | •     | *Accelerated                Sales Cycles.* Our software solution is designed to optimize the sales                process and increase the speed at which a sale can be completed.                Quick                turnaround in product recommendations, pricing, proposals, and financing                allows sales representatives to manage multiple sales simultaneously                and                close them faster. This high degree of responsiveness helps foster                a                strong and lasting customer-supplier relationship that we believe                is a                distinct competitive advantage for us.                                                                                                                                                                                                                                       |
|   | •     | *Lowered                Cost of Ownership.* Our multi-tenant, on-demand subscription-based                software application eliminates the need for heavy investment in                an IT                infrastructure and the staff necessary to support it. The reduced                cost of                accessing our application extends our addressable market to include                small                and medium businesses, as well as divisions of large                companies.                                                                                                                                                                                                                                                                                                                                                                                              |

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**Strategy**

|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | *Grow                Our Sales Organization to Reach More Customers*. We intend to expand                our sales organization to provide broader market coverage and reach                more                customers. We believe our on-demand delivery model enables us efficiently                to target clients of all sizes, including large corporations that                historically have deployed on-site highly customized enterprise                applications, as well as small and medium-sized companies that have                been                unable to afford higher-cost traditional applications.                                                                                                                                                                                       |
|   | •     | *Expand                Targeted Vertical Markets.* We intend to expand the number of vertical                markets that we currently address. We believe our focus on targeted                vertical markets enables us to offer solutions that meet the unique                needs                of our customers. We currently offer our products and services primarily                to high technology, transportation, construction machinery, agricultural                equipment, and service companies. We target companies within these                selected vertical industries that have complex products, services,                or                channel relationships as well as organizations with a distributed                and                connected customer base or dealer network. |
|   | •     | *Deepen                Relationships with Our Existing Customer Base.* We believe there is                significant opportunity to increase our business with existing customers.                We seek to attract more users from existing customers by targeting                additional functional areas and business units within the customer’s                organization and pursuing company-wide deployments. In addition,                by                continuously enhancing the functionality of our product, we believe                that                customers will continue to renew their existing subscriptions and                add                additional users.                                                                                                                |
|   | •     | *Expand                and Enhance Our Product Offerings.* We plan to continue to enhance our                sales automation products. We are expanding our engineering team                and                investing in research and development activities. In addition, we                plan to                continue to leverage the significant expenditures in research and                development and engineering we made before changing our business                model to                a multi-tenant, on-demand platform.                                                                                                                                                                                                                                                                         |
|   | •     | *Pursue                Strategic Alliances and Acquisitions.* We are focused on developing                strategic relationships to expand our vertical markets, enlarge our                customer base, and broaden our geographic reach. In addition, we                intend to                pursue acquisitions of complementary products, technologies, and                businesses. We anticipate that these strategic alliances and acquisitions                may focus on products and companies in analytics, order management,                sales                channel management, and product lifecycle                management.                                                                                                                                                                  |

**Firepond      CPQ OnDemand**

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|   | •     | *Configure.*                Configuring complex products or services involves the selection of                many                options before a product is ready to be priced and built. For example,                an                agricultural tractor has hundreds of models and thousands of options                from                which to choose. The Firepond solution guides the user to recommended                model and options by asking pre-defined questions and providing pictures,                help tools, and calculators to assist in making configuration choices.                The                application utilizes constraint options based upon predefined product                compatibility rules that enable the user to view price, lead time,                and                availability in real-time during the build process. This functionality                permits the configuration of nested systems that contain multiple                products                or services and supports complex sizing calculations and                algorithms. |
|--------|---------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | *Price.*                Once configuration features and options have been selected by the                user,                our software provides pricing information based upon a number of                parameters. Pricing and discounting rules are seamlessly integrated,                incorporating customer, channel, volume, and product-specific prices                and                discounts. Furthermore, Firepond CPQ OnDemand calculates costs, margins,                and commissions and manages special pricing and approval                workflow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | •     | *Quote.*                Our quotation and proposal tool determines detailed pricing metrics                and                creates professional, customer-friendly proposals. Proposals are                generated                in Word, Excel, Adobe, PDF, or HTML format with built-in functionality                to                include recommended upsell options and incorporate drawings, pictures,                and                technical datasheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

**Technology**

*Infrastructure      and Platform*

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*Architecture*

|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|---------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | *Compatibility.*                A compatibility rule can be built controlling the selection of options,                for example option A can only be selected with product                Y.                                                                                                                                                                                                                                                                                                          |
|   | •     | *Aggregates.*                A class of products or options can be linked, allowing an entire                sub-assembly to be added based on a selection of a particular product                or                grouping of products. Aggregates behavior is a necessary function                for                feeding an accurate bill of materials to a downstream                system.                                                                                                     |
|   | •     | *Global                Constraints.* This behavior is used to create a rule that impacts the                entire configuration. This behavior is useful when a product must                have a                certain option or option group selected to be buildable. For example,                in a                truck configuration, you may be required to select the 24-volt generator                to support the selected entertainment center in the sleeper                cab.      |
|   | •     | *Spatial                Dimension and Location.* Our configuration engine can calculate the                actual dimensions of a product as it is being constructed during                the                quotation process. This feature is necessary if there are spatial                or                weight-related constraints that must be adhered to.                                                                                                                                     |
|   | •     | *Includes.*“Includes”                is the ability of the configuration run-time engine to automatically                select options. This happens when other options are selected or conditions                become true that force an Include to be activated. Includes can be                set up                in many different ways. For example, you can control whether the                end-user                is able to de-select an included                instance. |

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*Programming      Languages*

**Operations**

**Professional      Services and Support**

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**Strategic      Relationships**

|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|---------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | salesforce.com                is the leading provider of on-demand sales automation software with                over                38,000 customers, ranging in size from several users to thousands                of                users. Pursuant to our relationship, we have integrated our CPQ                application with salesforce.com and in exchange receive leads to                additional customers. Through the salesforce.com AppExchange, we                engage in                a variety of co-selling activities, ranging from webinars to joint                sales                presentations. |
|   | •     | KKE                is one of the largest engineering firms in Japan providing consulting                services to manufacturers throughout Japan and Asia. KKE resells                and                implements our products, on a non-exclusive basis, in the Japanese                market.                                                                                                                                                                                                                                                                                                                                  |

**Sales      and Marketing**

**Customers**

|                                          |   |                                   |   |                                |   |                        |
|-----------------------------------------------|--------|----------------------------------------|--------|-------------------------------------|--------|-----------------------------|
| **Construction                Machinery**     |   | **High                Technology**     |   | **Transportation**                  |   | **Service**                 |
| **and                Agricultural Equipment** |   |                                   |   |                                |   |                        |
|                                          |   |                                   |   |                                |   |                        |
| CNH                                           |   | Commvault                              |   | American                LaFrance    |   | BCBS                Horizon |
| Deere                                         |   | Decru/Network                Appliance |   | Bell                Helicopter      |   | Eloqua                      |
| Mitsubishi                                    |   | Perimeter                              |   | DAF                                 |   | GenBand                     |
| Onan/Cummins                                  |   | RedBack                                |   | Freightliner                Renault |   | InfoGenesis                 |
| Steelcase                                     |   | Secure                Logix            |   | GE                TIP               |   | IHA                         |
|                                          |   | Sonitrol                               |   | Hino                                |   | Mirapoint                   |

|   |   | Sony   |   | Rolls                Royce |   | Plant                Equipment                                                      |
|--------|--------|--------|--------|----------------------------|--------|-------------------------------------------------------------------------------------|
|   |   |   |   |                       |   | Symantec                                                                            |
|   |   |   |   |                       |   | Wily                (which has been acquired by Computer                Associates) |

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**Research      and Development  **

**Competition**

|   |                            |                                                                                                                                       |
|--------|---------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | adherence                to emerging Internet-based technology standards;                                                                  |
|   | •     | comprehensiveness                of our application;                                                                                       |
|   | •     | adaptability,                flexibility, and scalability;                                                                                 |
|   | •     | real-time,                interactive capability with customers, strategic partners, vendors,                and                suppliers; |
|   | •     | ability                to support vertical industry requirements;                                                                          |
|   | •     | ease                of application use and deployment;                                                                                     |
|   | •     | speed                of implementation;                                                                                                    |
|   | •     | customer                service and support; and                                                                                      |
|   | •     | initial                price and total cost of ownership.                                                                                  |
|   | •     | reliability.                                                                                                                               |

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**Proprietary      Rights**

**Employees**

**Corporate      Information**

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**Recent      Events**

*“Management’s Discussion and Analysis of Financial Condition and Results      of Operations of the Company – Company Financings.”*

**Risk      Factors**

*The      risks and uncertainties described below are not the only ones facing us. Other      events that we do not currently anticipate or that we currently deem immaterial      also may affect our results of operations and financial      condition.*

**Risks      Relating to Our Business**

**We      incurred losses in the past, and we may not be able to achieve or maintain      profitability in the future.**

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**We      have incurred operating losses and a decrease in available cash and cash      equivalents, raising substantial doubt about our ability to continue as a going      concern.**

**The      on-demand software market is new and rapidly evolving, which makes it difficult      to evaluate our business prospects.**

|   |                            |                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | reluctance                by enterprises to migrate to an on-demand application                service;                                                                                                                                                                                                     |
|   | •     | the                price and performance of this service;                                                                                                                                                                                                                                                   |
|   | •     | the                availability, performance, and price of competing products and                services;                                                                                                                                                                                                  |
|   | •     | reluctance                by enterprises to trust third parties to store and manage their internal                data; and                                                                                                                                                                            |
|   | •     | adverse                publicity about us, our service, or the viability or security of                on-demand                application services generally from third-party reviews, industry                analyst                reports, and adverse statements made by                competitors. |

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**We      currently derive substantially all of our customer prospects from      salesforce.com, but have no exclusive arrangement with that      organization.**

**We      do not own the patents related to our software, and the owner of the patents      may      take actions that are against our interests.**

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**If      we are unable to attract new customers or to expand our business with our      existing customers, our revenue growth will be adversely      affected.**

**Our      business depends substantially on customers renewing their subscriptions for      our      on-demand services, and any decline in our customer renewals would harm our      future operating results.**

**Because      we recognize subscription revenue over the term of the applicable agreement,      the      lack of subscription renewals or new service agreements may not immediately      be      reflected in our operating results.**

**We      have limited experience with respect to our pricing model and if the prices      we      charge for our services are unacceptable to our customers, our revenue and      operating results will be harmed.**

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**If we are unable to introduce new and enhanced      products on a timely basis      that respond effectively to changing technology, our revenue may      decline.**

**A      rapid expansion of our network and systems could cause us to lose customer      data      or cause our network or systems to fail.**

**Restrictive      covenants in the indenture governing our convertible notes issued in the January      2007 exchange transaction and the related securities purchase agreement, and      any      additional indebtedness that we may incur, may restrict our ability to pursue      our business strategies.**

|   |                            |                                                                                                                                                                                                   |
|--------|---------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | incur                additional indebtedness or incur liens without the prior consent                of the                convertible note holders;                                                   |
|   | •     | redeem,                repurchase, or declare or pay any dividend or distribution on our                capital                stock; and                                                              |
|   | •     | consolidate,                merge, sell, or otherwise dispose of all or substantially all of                our                assets or enter into a business combination                transaction. |

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|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|---------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | making                it more difficult for us to satisfy our debt                obligations;                                                                                                                                                                                                                                                                                                                                   |
|   | •     | requiring                us to dedicate a substantial portion of our cash flow from operations                to                payments on our indebtedness, thereby reducing the availability of                our                cash flow to fund working capital, capital expenditures, research                and                development efforts, acquisitions, and other general corporate                purposes; |
|   | •     | increasing                our vulnerability to and limiting our flexibility in planning for                or                reacting to changes in our business and the industry in which we                operate;                                                                                                                                                                                                            |
|   | •     | placing                us at a competitive disadvantage compared with competitors that have                less                debt; and                                                                                                                                                                                                                                                                                         |
|   | •     | limiting                our ability to borrow additional                funds.                                                                                                                                                                                                                                                                                                                                                   |

**Our      quarterly revenue and operating results are likely to      fluctuate.**

|   |                            |                                                                                                                                                                                                                                                                                     |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | our                ability to retain and increase sales to existing customers, attract                new                customers, and satisfy our customers’ requirements;                                                                                                       |
|   | •     | the                timing of additional investments in our on-demand application                service;                                                                                                                                                                                 |
|   | •     | the                addition or loss of large customers;                                                                                                                                                                                                                                  |
|   | •     | seasonal                variations in the demand for our services and the implementation                cycles                for our new customers;                                                                                                                                     |
|   | •     | our                ability to promote software solutions, as well as the cost and                effectiveness of such advertising;                                                                                                                                                      |
|   | •     | our                ability to obtain additional customers or to derive additional revenue                from our existing promotion efforts;                                                                                                                                            |
|   | •     | downward                pricing pressures;                                                                                                                                                                                                                                               |
|   | •     | the                rate of expansion and effectiveness of our sales force;                                                                                                                                                                                                               |
|   | •     | the                length of the sales cycle for our service;                                                                                                                                                                                                                            |
|   | •     | our                ability to form strategic relationships with third parties for the                distribution of our software and the level of costs that these                arrangements entail;                                                                                  |
|   | •     | technical                difficulties or interruptions in our service;                                                                                                                                                                                                                   |
|   | •     | our                ability to respond to technological developments;                                                                                                                                                                                                                     |
|   | •     | fluctuations                in economic and market conditions, particularly those affecting the                market                for technology spending or the industries of our customers, such                as                manufacturing, insurance, and financial services; |
|   | •     | costs                or potential limitations on our business activities resulting from                litigation and regulatory developments in our industry, which could                be                significant;                                                                 |
|   | •     | costs                associated with any future acquisitions;                                                                                                                                                                                                                            |
|   | •     | the                purchasing and budgeting cycles of our customers;                                                                                                                                                                                                                     |
|   | •     | general                economic, industry, and market conditions and conditions specific                to                Internet usage and online businesses; and                                                                                                                      |
|   | •     | events                such as war, threat of war, or terrorist                activities.                                                                                                                                                                                                |

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**Failure      to expand our relationships with third-party channels may adversely impact      our      support and maintenance of existing customers, delay the implementation of      our      products, and delay the growth of our revenue.**

**The      market in which we participate is intensely competitive, and if we do not      compete effectively, our operating results could be      harmed.**

**Defects      in our products and services could diminish demand for our products and services      and subject us to substantial liability.**

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**If      our security measures are breached and unauthorized access is obtained to a      customer’s data, our service may be perceived as not being secure, customers may      curtail or stop using our service, and we may incur significant      liabilities.**

**Interruptions      or delays in service from our third-party Web hosting facility could impair      the      delivery of our service and harm our business.**

**We      depend on our direct sales force for a significant portion of our current sales,      and our growth depends on the ability of this direct sales force to increase      sales to a level that will allow us to reach and maintain      profitability.**

**We      depend on key personnel and must attract and retain qualified personnel to      be      successful.**

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**Our      planned growth may strain our personnel resources and infrastructure, and if      we      are unable to implement appropriate controls and procedures, we may not be      able      to successfully implement our business plan.**

**Industry      consolidation may lead to stronger competitors, which may harm our operating      results.**

**We      rely on third-party hardware and software that may be difficult to replace      or      which could cause errors or failures of our service.**

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**f      we are unable to protect our proprietary technology and other intellectual      property rights, it will reduce our ability to compete for business and we      may      lose valuable assets, experience reduced revenue, and incur costly litigation      to      protect our rights.**

**If      a third party asserts that we are infringing its intellectual property, whether      successful or not, it could subject us to costly and time-consuming litigation      or expensive licenses, and our business may be harmed.**

|   |                            |                                                                                                                                                                                                        |
|--------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | require                significant management time and attention;                                                                                                                                           |
|   | •     | result                in costly and time-consuming litigation and the payment of substantial                damages;                                                                                        |
|   | •     | require                us to enter into royalty or licensing agreements, which may not be                available on terms acceptable to us, if at all;                                                    |
|   | •     | require                us to expend additional development resources to redesign our solutions                to                avoid infringement or discontinue the sale of our                solutions; |
|   | •                         |  create              negative publicity that adversely affects our reputation and brand              and the              demand for our solutions; or                                                 |
|   | •                         |  require              us to indemnify our clients.                                                                                                                                                     |

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**We      might require additional capital to support business growth, and this capital      might not be available.**

**Difficulties      and financial burdens associated with mergers and acquisitions could harm our      business and financial results.**

|   |                            |                                                                                                                                                                           |
|--------|---------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | difficulties                in integrating operations, technologies, services, and                personnel;                                                                   |
|   | •     | exposure                to unknown liabilities of the acquired assets or                business;                                                                              |
|   | •     | diversion                of financial and managerial resources from existing                operations;                                                                        |
|   | •     | risk                of entering new markets;                                                                                                                                   |
|   | •     | potential                write-offs of acquired assets or investments;                                                                                                         |
|   | •     | potential                loss of key employees;                                                                                                                                |
|   | •     | additional                acquisition costs and unanticipated expenses;                                                                                                        |
|   | •     | inability                to generate sufficient revenue to offset acquisition or investment                costs                or to pay off any debt incurred therewith; and |
|   | •     | delays                in customer purchases due to                uncertainty.                                                                                                 |

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**Any      efforts we may make in the future to expand our service beyond the CPQ market      may not succeed.**

**As      we expand our services internationally, our business will be susceptible to      additional risks associated with international operations.**

|   |                            |                                                                                                                               |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | fluctuations                in currency exchange rates;                                                                            |
|   | •     | seasonal                fluctuations in purchasing patterns in other countries;                                                    |
|   | •     | different                regulatory requirements;                                                                                  |
|   | •     | difficulties                in collecting accounts receivable in other countries;                                                  |
|   | •     | the                burdens of complying with a wide variety of foreign                laws;                                        |
|   | •     | challenges                in staffing and managing foreign operations;                                                             |
|   | •     | political                and economic instability; and                                                                             |
|   | •     | potentially                adverse tax consequences, including those resulting from unexpected                changes in tax laws. |

**Control      by our principal stockholder will limit your ability to influence the outcome      of      director elections and other matters requiring stockholder      approval.**

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**We      are incurring increased costs as a result of being a public      company.**

**Our      compliance with the Sarbanes-Oxley Act of 2002 and SEC rules concerning internal      controls may be time consuming, difficult, and costly.**

**Risks      Relating to Our Common Stock**

**Our      stock price is highly volatile, and you may not be able to resell your shares      of      common stock at or above the price you paid for them.**

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|   | ▪                         | actual              or anticipated changes in our operating results;                                                                                                   |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | changes                in expectations relating to our products, plans, and strategic position                or                those of our competitors or customers; |
|   | •     | announcements                of technological innovations or new products by our competitors,                our                customers or us;                       |
|   | •     | market                conditions within our market;                                                                                                                    |
|   | •     | price                and volume fluctuations in the overall stock market from time to                time;                                                             |
|   | •     | significant                volatility in the market price and trading volume of technology companies                in general and software companies in particular;   |
|   | •     | changes                in investor perceptions;                                                                                                                        |
|   | •     | the                level and quality of any research analyst coverage of our common                stock;                                                              |
|   | •     | changes                in earnings estimates or investment recommendations by                analysts;                                                                 |
|   | •     | the                financial guidance we may provide to the public, any changes in such                guidance, or our failure to meet such guidance;                 |
|   | •     | litigation                involving us, our industry, or both;                                                                                                         |
|   | •     | regulatory                developments in the United States or abroad;                                                                                                 |
|   | •     | the                gain or loss of significant customers;                                                                                                              |
|   | •     | recruitment                or departure of key personnel;                                                                                                              |
|   | •     | developments                with respect to intellectual property rights;                                                                                              |
|   | •     | acquisitions                or strategic alliances by us or our competitors; and                                                                                       |
|   | •     | general                global economic and political                instability.                                                                                       |

**If      a significant number of shares of our common stock are sold into the market,      the      market price of our common stock could significantly      decline.**

**Our      common stock currently is quoted on the OTC Bulletin Board, which may      adversely affect its trading volume and price.**

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**If      we are unable to maintain the effectiveness of our registration statements      related to common stock and warrants issued by us in our financings, we would      be      required to pay liquidated damages, which could materially affect our financial      condition.**

| **ITEM 2.  ** | **PROPERTIES** |
|-------------------------|----------------|

| **ITEM 3.  ** | **  LEGALPROCEEDINGS** |
|-------------------------|----------------------------------|

| **ITEM 4. ** | ** SUBMISSION                OF MATTERS TO A VOTE OF SECURITY                HOLDERS** |
|-------------------|---------------------------------------------------------------------------------------------|

**                       **

**PART      II**

| **ITEM 5. ** | **MARKETFOR                REGISTRANT’S COMMON EQUITY AND RELATED                STOCKHOLDER MATTERS** |
|-------------------|--------------------------------------------------------------------------------------------------------------|

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|                                                        |   |                                                                                                                                                               |   |                                                                                                                                                              |   |   |
|-------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| **Period**                                                  |   | **                                       High** |   | **                                       Low** |   |
|                                                        |   |                                                                                                                                                               |   |                                                                                                                                                              |   |   |
| **2006**                                                    |   |                                                                                                                                                               |   |                                                                                                                                                              |   |   |
| First                Quarter                                |   | N/A                                                                                                                                                                |   |                                                                                                                                                              | N/A    |   |
| Second                Quarter                               |   |               $                7.25                                                          |   |                                                                                                                                                              | $7.25  |   |
| Third                Quarter                                |   |    7.50                                                                                                                                             |   |                                                                                                                                                              | 5.00   |   |
| Fourth                Quarter                               |   |  13.00                                                                                                                                                        |   |                                                                                                                                                              | 6.85   |   |
|                                                        |   |                                                                                                                                                               |   |                                                                                                                                                              |   |   |
| **2007**                                                    |   |                                                                                                                                                               |   |                                                                                                                                                              |   |   |
| First                Quarter                                |   |           $10.75                                                                                                 |   |                                                                                                                                                              | $8.00  |   |
| Second                Quarter                               |   |    9.50                                                                                                                                             |   |                                                                                                                                                              | 5.50   |   |
| Third                Quarter (through August 31, 2007) |   | 6.50                                                                                                                                                               |   |                                                                                                                                                              | 4.00   |   |

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| **ITEM 6. ** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                AND RESULTS OF OPERATIONS OF THE                COMPANY** |
|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Our      discussion includes forward-looking statements, which involve certain risks      and      uncertainties.  Certain statements in the “Management’s Discussion and      Analysis of Financial Condition and Results of Operations of the Company” are      forward-looking statements that involve risks and uncertainties. Words such      as      anticipates, expects, intends, plans, believes, seeks, estimates, and similar      expressions identify such forward-looking statements. The forward-looking      statements contained herein are based on current expectations and entail various      risks and uncertainties that could cause actual results to differ materially      from these expressed in such forward-looking statements. Factors that might      cause such a difference include, among other things, those set forth under“Risk      Factors”, “Overview”  and “Liquidity and Capital Resources” included      in these sections and those appearing elsewhere in this Form10-KSB. Readers      are      cautioned not to place undue reliance on these forward-looking statements,      which      reflect management’s analysis only as of the date hereof.  We assume      no obligation to update these forward-looking statements to reflect actual      results or changes in factors or assumptions affecting forward-looking      statements. Rounding of figures for presentation purposes sometimes results      in      inconsistent results for comparison purposes.  We believe these      inconsistencies to be immaterial.*

**Overview**

**Recent      Events**

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**Financial      Condition**

*Management’s Discussion and Analysis of      Financial Condition and Results of Operations –CompanyFinancings.”   *

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**Corporate      History**

**Sources      of Revenue**

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**Cost      of Revenue**

**Critical      Accounting Policies and Estimates**

*Revenue      Recognition*

*OnDemand      Hosted License Revenue.*
*AICPA Statement of Position 97-2 (“*

*Application of AICPA      Statement of Position 97-2 to Arrangements That Include the Right to Use      Software Stored on Another Entity’s Hardware” (“EITF      00-03”)*

| **·  ** | the                customer has the contractual right to take possession of the software                at                any time during the hosting period without significant penalty;                and |
|------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | it                is feasible for the customer to either run the software on its own                hardware or contract with another party unrelated to the vendor to                host                the software without significant                penalty. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | This                allows us the ability to recognize that portion of the fee attributable                to                the license on delivery, while that portion of the fee related to                the                hosting element would be recognized ratably as the service is provided,                assuming all other revenue recognition criteria have been                met.   If a hosting arrangement fails to meet the                requirements of EITF 00-03 then the arrangement is not considered                to have                a software element and therefore is outside of the scope of SOP 97-2.                The                hosting arrangement, which would follow a services accounting model,                would                then likely be accounted for in accordance with the guidance contained                in                the Securities and Exchange Commission’s Staff Accounting Bulletin No.                101, “*Revenue Recognition in Financial Statements*” (“SAB                101”).  SAB 101 contains the same four basic criteria for                revenue recognition as SOP 97-2: |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Persuasive                evidence of an arrangement exists; |
|--------------------|--------------------------------------------------------------|

| ·   | Delivery                has occurred or services have been                rendered; |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | The                vendor’s price to the buyer is fixed or determinable;                and |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | Collectibility                is reasonably assured. |
|--------------------|------------------------------------------------------|

*Revenue Recognition, corrected copy*
*SAB 104*

*Enterprise      Software Revenue Recognition.*

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*Accounting      for Stock-Based Compensation*

*Goodwill*

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*Computer      Software Development Costs and Research and Development      Expenses*

**Changes      in Fiscal Year End**

**Results      of Operations**

***Fiscal      Year Ended June 30, 2006 Compared with Fiscal Year Ended June 30,      2007***

|                                                                           |   | Fiscal                Year Ended June 30 |      |
|--------------------------------------------------------------------------------|--------|------------------------------------------|-----------|
|                                                                           |   | 2006                                     |      |   | 2007 |   |
|                                                                           |   | Amount                                   |      |   | %                of Revenue |   |   | Amount |   |   | %                of Revenue |   |
|                                                                           |   |                                     |      |   |   |   |   |   |   |   |   |   |
| Revenue                                                                        |   | $                                        | 3,761,242 |   |   |   | 100.0 | % |   | $ | 4,624,763 |   |   |   | 100.0 | % |
| Cost                of revenue                                                 |   |                                     | 1,944,650 |   |   |   | 51.7 |   |   |   | 2,071,919 |   |   |   | 44.8 |   |
| Gross                profit                                                    |   |                                     | 1,816,944 |   |   |   | 48.3 |   |   |   | 2,552,844 |   |   |   | 55.2 |   |
|                                                                           |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                expenses                                              |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Sales,                general and administrative |   |                                     | 3,165,398 |   |   |   | 84.2 |   |   |   | 6,307,673 |   |   |   | 136.4 |   |
|      Research                and development          |   |                                     | 1,835,176 |   |   |   | 48.8 |   |   |   | 2,225,118 |   |   |   | 48.1 |   |
|      Restructuring                                    |   |                                     | (16,170   | ) |   |   | (0.4 | ) |   |   | (14,285 | ) |   |   | - |   |

|      Settlement                of claim    |   |   | (1,712,500 | )      |   |   | (45.5  | )      |   |   | (147,500    | )      |   |   | (3.5   | )      |
|---------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|--------|--------|--------|--------|
| Total                operating expenses                             |   |   | 3,271,904  |   |   |   | 87.0   |   |   |   | 8,371,006   |   |   |   | 181.0  |   |
| Loss                from operations                                 |   |   | (1,454,960 | )      |   |   | (38.7  | )      |   |   | (5,818,162  | )      |   |   | (125.8 | )      |
|                                                                |   |   |       |   |   |   |   |   |   |   |        |   |   |   |   |   |
| Other                income (expense), net                          |   |   |       |   |   |   |   |   |   |   |        |   |   |   |   |   |
|      Interest                expense       |   |   | (3,068,063 | )      |   |   | (81.6  | )      |   |   | (5,039,513  | )      |   |   | (109.0 | )      |
|      Extinguishment                of debt |   |   | -          |   |   |   | -      |   |   |   | (13,705,000 | )      |   |   | (296.3 | )      |
|      Other                income (expense) |   |   | 503,094    |   |   |   | 13.4   |   |   |   | 1,292,538   |   |   |   | 27.9   |   |
| Total                other income (expense), net                    |   |   | (2,564,969 | )      |   |   | (68.2  | )      |   |   | (17,451,975 | )      |   |   | (377.4 | )      |
|                                                                |   |   |       |   |   |   |   |   |   |   |        |   |   |   |   |   |
| Net                loss from continuing operations                  |   |   | (4,019,929 | )      |   |   | (106.9 | )      |   |   | (23,270,137 | )      |   |   | (503.2 | )      |
| Loss                from discontinued operations                    |   |   | (763,252   | )      |   |   | (20.3  | )      |   |   | -           |   |   |   | -      |   |
| Net                loss                                             |   | $      | (4,783,181 | )      |   |   | (127.2 | )      |   | $      | (23,270,137 | )      |   |   | (503.2 | )      |

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*Revenue*

*Cost      of Revenue*

*Operating      Expenses*

*Sales,      General, and Administrative Expenses*

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*Research      and Development*

*Settlement      of Claim.*

*Other      Income (Expense)*

*Management’s Discussion and      Analysis of Financial Condition and Results of      Operations –  Liquidity and Capital Resources*
*Management’s Discussion and      Analysis of Financial Condition and Results of      Operations –  Company Financings*

*Net      Loss from Continuing Operations*

*Loss      from Discontinued Operations*

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***Fiscal      Period Ended June 30, 2005 (eight months) compared with Fiscal Period Ended      June 30, 2006 (12 months) Revenue***

*Cost      of Revenue*

*Operating      Expenses*

*Sales,      General, and Administrative.*

*Research      and Development Expenses.*

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*Restructuring      and other Special Charges Expense.*

*Settlement      of Claim.*

*Other      Income (Expense), Net*

*Income      (Loss) from Continuing Operations*

*Income      (Loss) from Discontinued Operations*

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*Gain      on Disposal of Discontinued Operations*

**Liquidity      and Capital Resources**

*August      2007 Bridge Financing*

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*Cash      Flows*

*Operating      Activities.  *

*Investing      Activities.   *

*Financing      Activities.  *

*Leased      Facilities.   *

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**Company      Financings**

*August      2007 Bridge Financing*

*Management’s Discussion and Analysis of Financial Condition and Results of      Operations – Liquidity and Capital Resources*

*Master      Exchange Agreement*
*Exchange of Stock, Notes, and Warrants.*

|   |                            |                                                                                                                                                                                                                                                                                                                  |
|--------|---------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | $45.0 million                in principal repayment of the Nonconvertible Notes, plus accrued                interest                thereon;                                                                                                                                                                    |
|   | •     | a                new issue of 12% Senior Secured Convertible Notes due January 2009 in                the aggregate principal amount of $5.6 million, or the New                Convertible Notes, issued under an indenture with The Bank of New                York, or                the New Indenture; |
|   | •     | warrants                to purchase an aggregate of 1,214,285 shares of common stock at an                initial exercise price of $7.00 per share, or the New Warrants,                exercisable for five years, and containing customary pro-rata                anti-dilution protections; and        |
|   | •     | 1,500,000                fully paid shares of common stock, or the New                Shares.                                                                                                                                                                                                                         |

*PIPE      Financing*

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*CAP      Financing – Notes and Warrants*

|   |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|---------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | •     | Senior                Secured Nonconvertible Notes due 2011 in an aggregate principal amount                of                $50.0 million, or the CAP Financing, exchangeable for Senior Secured                Convertible Notes due 2011, or the Convertible Notes, or redeemable                under                certain circumstances, and which Convertible Notes were convertible                into                shares of our common stock; and |
|   | •     | warrants                to acquire in the aggregate up to 6,875,000 shares of our common                stock                (including warrants granted to the placement agent to acquire                625,000 shares of our common                stock.                                                                                                                                                                                                          |

*Financings      with Trident Growth Fund*

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**ITEM      7.                FINANCIAL STATEMENTS**

|   | The                following financial statements are filed as a part of this report                beginning on page F-1:  |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

| **Page** |   | **Description**                                                                                                                          |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
| F-1      |   | Report                of Independent Registered Public Accounting                Firm                                                    |
| F-2      |   | Consolidated                Balance Sheet as of June 30, 2006 and                2007                                                    |
| F-3      |   | Consolidated                Statement of Operations for the fiscal years                ended  June 30, 2006 and June 30, 2007 |
| F-4      |   | Consolidated                Statement of Stockholders’ Equity (Deficit) for                the fiscal year ended June 30, 2007     |
| F-5      |   | Consolidated                Statement of Cash Flow for the fiscal years ended                June 30, 2006 and June 30, 2007             |
| F-6-F-26 |   | Notes                to Consolidated Financial                Statements.                                                                |

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**ITEM      8.                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING      AND      FINANCIAL DISCLOSURE**

**ITEM      8A.             CONTROLS AND PROCEDURES**

**ITEM      8B.              OTHER INFORMATION**

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**PART      III**

| **ITEM 9.    ** | **  DIRECTORS,                EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE                ACT.** |
|-------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Executive      Officers and Directors**

|                           |   |    |   |            |   |                                              |
|--------------------------------|--------|---------|--------|-----------------|--------|---------------------------------------------------|
| **Name**                       |   | **Age** |   | **Position(s)** |
|                           |   |    |   |            |   |                                              |
| Douglas                Croxall |   |    | 38     |            |   | Chairman                of the Board              |
| William                Santo   |   |    | 53     |            |   | Chief                Executive Officer, Director  |
| Stephen                Peary   |   |    | 58     |            |   | Chief                Financial Officer, Secretary |
| Jerry                Keefe     |   |    | 45     |            |   | Vice                President of Operations       |
| Carol                Ferrari   |   |    | 42     |            |   | Vice                President of Marketing        |
| Mark                Campion    |   |    | 51     |            |   | Director                                          |
| Mark                Tunney     |   |    | 43     |            |   | Director                                          |

***Douglas      Croxall***

***William      Santo***

***Stephen      Peary***

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***Jerry      Keefe***

***Carol      Ferrari***

***Mark      Campion***

***Mark      Tunney***

**Election      of Directors and Officers**

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**Board      Committees**

*Compensation      Committee*

*Audit      Committee.*

*Nominating      and Governance Committee.*

*Code      of Business Conduct and Ethics.*

**Corporate      Governance Documents**

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**Section      16(a) Beneficial Ownership Reporting Compliance**

**ITEM      10.*              *EXECUTIVE COMPENSATION**

**Summary      of Cash and Other Compensation**

**Summary      Compensation Table**

|                                           |   |     |   |   |                |   |    |               |   |   |               |      |   |   |    |   |
|------------------------------------------------|--------|----------|--------|--------|---------------------|--------|---------|--------------------|--------|--------|--------------------|-----------|--------|--------|---------|--------|
| **Name                and Principal Position** |   | **Year** |   |   | **Salary ($)** |   |    | **Bonus ($)** |   |   | **Total ($)** |      |
|                                           |   |     |   |   |                |   |    |               |   |   |               |      |   |   |    |   |
| William                Santo                   |   |     | 2007   |   |                | $      | 295,039 |               |   | $      | 25,000             |  (1) |   | $      | 320,039 |   |
| Chief                Executive Officer         |   |     |   |   |                |   |    |               |   |   |               |      |   |   |    |   |
| Stephen                Peary                   |   |     | 2007   |   |                |   | 250,140 |               |   |   | 25,000             |  (1) |   |   | 275,140 |   |
| Chief                Financial Officer         |   |     |   |   |                |   |    |               |   |   |               |      |   |   |    |   |
| Carol                Ferrari                   |   |     | 2007   |   |                |   | 180,031 |               |   |   | –            |      |   |   | 180,031 |   |
| Vice                President of Marketing     |   |     |   |   |                |   |    |               |   |   |               |      |   |   |    |   |

|   |                        |                                                                                                                                                                                                                                                   |
|--------|-----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (1)     | Pursuant                to the terms of their employment agreements, Messrs. Santo and Peary                each received bonuses of $25,000 in connection with the completion                of our                August 2007 PIPE transaction. |

**Employment      Agreements**

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**Outstanding      Equity Awards at June 30, 2007**

**Outstanding      Equity Awards at Fiscal Year-End**

|                                    |   |                                  |    |   |                                   |   |      |   |
|-----------------------------------------|--------|---------------------------------------|---------|--------|----------------------------------------|--------|-----------|--------|
|                                    |   | **Stock                  Awards**     |    |
|                                    |   |                                  |    |   | **Market                  or Payout**  |   |
|                                    |   | **Number                  of**        |    |   | **Value                  of Unearned** |   |
|                                    |   | **Unearned                  Shares,** |    |   | **Shares,                  Units or**  |   |
|                                    |   | **Units                  or Other**   |    |   | **Other                  Rights That** |   |
|                                    |   | **Rights                  that Have** |    |   | **Have                  Not Vested**   |   |
| **Name**                                |   | **Not                  Vested (#)**   |    |   | **($) (1)**                       |   |
|                                    |   |                                  |    |   |                                   |   |      |   |
| William                  Santo          |   |                                  | 195,312 |   |                                   | $      | 1,464,840 |   |
|                                    |   |                                  | 201,613 |   |                                   |   | 1,512,098 |   |
| Stephen                  Peary          |   |                                  | 140,015 |   |                                   |   | 1,050,113 |   |
|                                    |   |                                  | 201,613 |   |                                   |   | 1,512,098 |   |
| Carol                  Ferrari (2) |   |                                  | – |   |                                   |   | –   |   |

|   |                        |                                                                                                                                                                                                                      |
|--------|-----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (1)     | Determined                by multiplying the non-vested shares by the closing price of our                common                stock on June 29, 2007, the last trading day of our 2007 fiscal                year. |
|   | (2)     | In                July 2007, Ms. Ferrari was granted an option to purchase                40,000 shares of common stock.                                                                                        |

**Compensation      of Directors**

**Director      Compensation**

|                                |   |                                     |   |   |                                     |   |    |                         |   |   |               |      |   |   |    |   |
|-------------------------------------|--------|------------------------------------------|--------|--------|------------------------------------------|--------|---------|------------------------------|--------|--------|--------------------|-----------|--------|--------|---------|--------|
|                                |   | **Fees                earned or**        |   |   |                                     |   |    | **All                Other** |   |   |               |      |
| **Name**                            |   | **paid                in cash ($)** |   |   | **Stock                Awards ($)** |   |    | **Compensation**             |   |   | **Total ($)** |      |
|                                |   |                                     |   |   |                                     |   |    |                         |   |   |               |      |   |   |    |   |
| Douglas                Croxall      |   | $                                        | 9,500  |   |                                     | $      | – |                         |   | $      | 9,768              |  (1) |   | $      | 29,268  |   |
| Mark                Campion         |   |                                     | 23,000 |   |                                     |   | – |                         |   |   | –            |      |   |   | 23,000  |   |
| Mark                Tunney (2) |   |                                     | 4,500  |   |                                     |   | 450,000 |                         |   |   | 84,000             |      |   |   | 538,500 |   |

|   | (1)     | Consists                of reimbursement of health insurance premiums.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|-----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2)     | In                April 2006, our Board of Directors approved a grant of 60,000 shares                of restricted stock to Mark Tunney in connection with his election                as a                director effective April 18, 2007. The award was issued on                May 16, 2007. The shares vest pro rata monthly over a two-year period                beginning April 2007. The value of Mr. Tunney’s stock award is                determined by multiplying the number of restricted shares granted                to                Mr. Tunney by the closing price of our common stock on the date                Mr. Tunney signed the letter accepting our offer to join our Board.                In addition, the Board approved a one-time cash award to Mr. Tunney                of approximately $84,000 to compensate him for any tax liability                associated with the restricted stock grant. If Mr. Tunney’s tax                liability should be greater than the above-mentioned payment, the                Board                will use reasonable efforts to work with Mr. Tunney to resolve any                additional tax liability. |

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**2006      Stock Incentive Plan**

| **ITEM 11.*  *** | ***   *SECURITY OWNERSHIP OF CERTAIN BENEFICIAL                OWNERS                AND MANAGEMENT AND RELATED STOCKHOLDER                MATTERS** |
|----------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                  |   |                          |         |   |        |   |   |    |   |
|-------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------------|--------|-------------|--------|--------|---------|--------|
|                                                                                                  |   | **Amount                and** |         |   |        |   |   |
|                                                                                                  |   | **Nature                of**  |         |   |        |   |   |    |
|                                                                                                  |   | **Beneficial**                |         |   | **Percent** |   |   |
| **Name                of Beneficial Owner**                                                           |   | **Ownership (1)**        |         |   |        |   |   |
|                                                                                                  |   |                          |         |   |        |   |   |    |   |
| *Directors                and Executive Officers:*                                                    |   |                          |         |   |        |   |   |    |   |
| Douglas                Croxall                                                                        |   |                          | 2,600,414(2) |   |        |   | 31.4   | %       |   |
| William                Santo                                                                          |   |                          | 614,919(3)   |   |        |   | 7.5    | %       |   |
| Stephen                Peary                                                                          |   |                          | 514,122(4)   |   |        |   | 6.2    | %       |   |
| Jerry                Keefe                                                                            |   |                          | 2,222(5)     |   |        |   |   |  * |   |
| Carol                Ferrari                                                                          |   |                          | 2,222(6)     |   |        |   |   |  * |   |
| Mark                Campion                                                                           |   |                          | 60,484(7)    |   |        |   |   |  * |   |
| Mark                Tunney                                                                            |   |                          | 60,000(8)    |   |        |   |   |  * |   |
| All                current directors and executive officers as a group (seven                persons) |   |                          | 3,854,383    |   |        |   | 46.6   | %       |   |
|                                                                                                  |   |                          |         |   |        |   |   |    |   |
| *5%                Stockholders:*                                                                     |   |                          |         |   |        |   |   |    |   |
| Jaguar                Technology Holdings, LLC                                                        |   |                          | 1,927,414(9) |   |        |   | 23.4   | %       |   |
| JP                Morgan Securities Inc.                                                              |   |                          | 959,274(10)  |   |        |   | 10.9   | %       |   |
| Trident                Growth Fund, L.P.                                                              |   |                          | 813,798(11)  |   |        |   | 9.4    | %       |   |
| Cheyne                Capital                                                                         |   |                          | 562,286(12)  |   |        |   | 6.6    | %       |   |
| Benchmark                Equity Group, Inc.                                                           |   |                          | 508,942(13)  |   |        |   | 6.2    | %       |   |
| JMG                Capital Partners, LP                                                               |   |                          | 491,094(14)  |   |        |   | 5.8    | %       |   |

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|--------|-----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (1)     | Except                as otherwise noted in the notes below, percentage ownership is based                on                8,264,239 shares of our common stock outstanding as of June 30,                2007. Beneficial ownership is determined in accordance with the rules                of                the Securities and Exchange Commission and generally includes voting                or                investment power with respect to securities. Shares of common stock                subject to options and warrants currently exercisable or convertible,                or                exercisable or convertible within 60 days of June 30, 2007 are                deemed outstanding for computing the percentage of the person holding                such                option or warrant, but are not deemed outstanding for computing the                percentage of any other person. Except as pursuant to applicable                community                property laws, the persons named in the table have sole voting and                investment power with respect to all shares of common stock beneficially                owned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | (2)     | Includes                (a) 625,000 shares of restricted common stock held by                Mr. Croxall directly that are subject to vesting,                (b) 1,927,414 shares of common stock held by Jaguar Technology                Holdings, LLC, and (c) 48,000 shares of common stock issuable                upon conversion of senior secured convertible notes due January 2009                held                by Robert Willard & Associates LLC. Mr. Croxall is the sole                member of Riverland Enterprises LLC, which is the sole member-manager                of                Jaguar Technology Holdings LLC. Mr. Croxall is a control person of                Robert Willard & Associates LLC. Mr. Croxall disclaims                beneficial ownership, except to the extent of his pecuniary interest                therein, if any, of the shares held by Jaguar Technology Holdings                LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | (3)     | Consists                of (i) 302,419 shares of restricted common stock that vest over                a three-year period on a monthly pro rata basis beginning June 14,                2005, and (ii) 312,500 shares of restricted common stock that                vest over a two-year period on a monthly pro rata basis beginning                on                March 11, 2006. As of June 30, 2007, 396,925 shares had                vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | (4)     | Consists                of (i) 201,622 shares of restricted common stock that vest over                a three-year period on a monthly pro rata basis beginning May 15,                2005, and (ii) 312,500 shares of restricted common stock which                vest over a two-year period on a monthly pro rata basis beginning                on                March 11, 2006. As of June 30, 2007, 335,328 shares had                vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | (5)     | Includes                2,222 vested shares of common stock issuable upon exercise of outstanding                stock options and excludes 37,888 shares of common stock issuable                upon exercise of options that have not vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | (6)     | Includes                2,222 vested shares of common stock issuable upon exercise of outstanding                stock options and excludes 37,888 shares of common stock issuable                upon exercise of options that have not vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | (7)     | Consists                of 60,484 shares of restricted common stock that vest over a two-year                period on a monthly pro rata basis beginning on March 11, 2006. As of                June 30, 2007, 37,790 shares had vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | (8)     | Consists                of 60,000 shares of restricted common stock that vest over a two-year                period on a monthly pro rata basis beginning on April 18, 2007. As of                June 30, 2007, 5,000 shares had vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | (9)     | Consists                of 1,927,414 shares held by Jaguar Technology Holdings, LLC.                Mr. Croxall is the sole member of Riverland Enterprises LLC, which is                the sole member-manager of Jaguar Technology Holdings LLC.                Mr. Croxall disclaims beneficial ownership, except to the extent of                his pecuniary interest therein, if any, of the shares held by Jaguar                Technology Holdings LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | (10)              | These                securities may also be deemed to be owned by JPMorgan Chase &                Co., the indirect parent of J.P. Morgan Securities Inc. Includes                (a) 415,417 shares of common stock, (b) 216,000 shares                underlying issuable upon conversion of senior secured convertible                notes                due January 2009, and (c) 327,857 shares issuable upon exercise                of warrants. The number of shares of common stock issuable upon conversion                of the notes and upon exercise of the warrants are subject to certain                provisions that limit beneficial ownership to a maximum of 4.99%                our                outstanding common stock. Under those provisions, the limit is subject                to                increase by the holder to a percentage not in excess of 9.99% upon                60 days prior written notice to us. As of June 30, 2007, J.P.                Morgan Securities Inc. has not given us such notice. The address                of                J.P. Morgan Securities Inc. is 270 Park Ave., 8th Floor, New York, NY                10017.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | (11)              | Represents                (a) 413,798 shares of common stock, and                (b) 400,000 shares of common stock issuable upon exercise of                certain contract rights equivalent to options. Trident Management,                LLC is                the sole general partner of Trident Growth Fund, L.P. and has voting                control and investment discretion over the securities held by Trident                Growth Fund, L.P. Scotty Cook controls Trident Management, LLC and                has                voting control and investment discretion over the securities held                by                Trident Management, LLC. The address for Trident Growth Fund, L.P.                is 700                Gemini, Suite 100, Houston, TX 77058.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | (12)              | Includes                (a) 132,000 shares of common stock, 70,400 shares of common                stock issuable upon conversion of senior secured convertible notes                due                January 2009, and 106,857 shares issuable upon exercise of warrants                held by Cheyne Fund LP, and (b) 108,000 shares of common                stock, 57,600 shares underlying issuable upon conversion of senior                secured convertible notes due January 2009, and 87,429 shares                issuable upon exercise of warrants held by Cheyne Leverage Fund.                Pursuant                to an investment management agreement, David Treadwell serves as                the                manager of Cheyne Fund LP and Cheyne Leverage Fund. As a result,                Mr. Treadwell may be considered beneficial owner of any shares deemed                to be beneficially owned by such funds. The address of Cheyne Capital                is                Stornoway House, 13 Cleveland Row, London, SW1A 1DH,                England.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | (13)              | Represents                468,942 shares of common stock beneficially owned by Benchmark Equity                Group, Inc. and 40,000 shares of common stock owned by Trident                Advisors, Inc., which Benchmark Equity Group, Inc. has voting and                dispositive power over all such shares. The address of Benchmark                is 700                Gemini, Suite 100, Houston, Texas 77058.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | (14)              | Includes                (a) 109,583 shares of common stock, 54,000 shares issuable                upon conversion of senior secured convertible notes due January 2009,                and                81,964 shares issuable upon exercise of warrants held by JMG Capital                Partners, LP; and (b) 109,583 shares of common stock,                54,000 shares issuable upon conversion of senior secured convertible                notes due January 2009, and 81,964 shares issuable upon exercise of                warrants held by JMG Triton Offshore Fund, Ltd. JMG Capital Partners,                L.P., or JMG Partners, is a California limited partnership. Its general                partner is JMG Capital Management, LLC, or the Manager, a Delaware                limited                liability company and an investment adviser that has voting and                dispositive power over JMG Partners’ investments. The equity interests of                the Manager are owned by JMG Capital Management, Inc., or JMG Capital,                a                California corporation, and Asset Alliance Holding Corp., a Delaware                corporation. Jonathan M. Glaser is the Executive Officer and Director                of                JMG Capital and has sole investment discretion over JMG Partners’                portfolio holdings. JMG Triton Offshore Fund, Ltd., or the Fund,                is an                international business company organized under the laws of the British                Virgin Islands. The Fund’s investment manager is Pacific Assets Management                LLC, a Delaware limited liability company, or the Manager, that has                voting                and dispositive power over the Fund’s investments. The equity interests of                the Manager are owned by Pacific Capital Management, Inc., a California                corporation, or Pacific, and Asset Alliance Holding Corp., a Delaware                corporation. The equity interests of Pacific are owned by                Messrs. Roger Richter, Jonathan M. Glaser and Daniel A. David.                Messrs. Glaser and Richter have sole investment discretion over the                Fund’s portfolio holdings. For a discussion of director Mark Tunney’s                arrangements with JMG Partners, see “Certain Relationships and Related                Transactions”. The address of JMG Capital Partners, LP is 11601 Wilshire                Blvd., Suite 2180, Los Angeles, CA                90025. |

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**ITEM      12.*              *CERTAIN RELATIONSHIPS AND RELATED      TRANSACTIONS**

**ITEM      13.              EXHIBITS**

|        |   |                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                             |
|-------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Exhibit** |   |                                       |
| **Number**  |   | **Description                of Exhibits** |
|        |   |                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |   | .                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                             |
|        | 2      | .1(1)                                      |   | Plan                and Agreement of Merger, dated June 29, 2006, by and among AFG                Enterprises USA, Inc. and FP Technology, Inc.                                                                                                                                                                                                                                                             |
|        | 2      | .2(2)                                      |   | Agreement                and Plan of Merger, dated March 29, 2006, by and among AFG                Enterprises USA, Inc., FP Merger Sub, Inc. and FP Technology,                Inc.                                                                                                                                                                                                                        |
|        | 3      | .1                (14)                     |   | Amended                and Restated Certificate of Incorporation, as amended.                                                                                                                                                                                                                                                                                                                                    |
|        | 3      | .2(1)                                      |   | Amended                and Restated Bylaws of the Registrant.                                                                                                                                                                                                                                                                                                                                                    |
|        | 4      | .1(3)                                      |   | Specimen                Stock Certificate                                                                                                                                                                                                                                                                                                                                                                        |
|        |   |                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                             |
|        | 10     | .1(4)                                      |   | Master                Amendment, dated as of March 29, 2006, by and between FP Technology                Holdings, Inc., Trident Growth Fund, L.P. and AFG Enterprises USA,                Inc.                                                                                                                                                                                                             |
|        | 10     | .2(7)                                      |   | First                Amendment, dated September 13, 2006, by and between the Registrant                and Trident Growth Fund, L.P.                                                                                                                                                                                                                                                                        |
|        | 10     | .3(4)                                      |   | Securities                Purchase Agreement, dated as of September 12, 2005, by and among FP                Technology Holdings, Inc. and Trident Growth Fund, L.P.                                                                                                                                                                                                                                        |
|        | 10     | .4(4)                                      |   | Form                of 12% Senior Secured Convertible Debenture of FP Technology                Holdings, Inc. issued in initial principal amounts of                $2,000,000.                                                                                                                                                                                                                            |
|        | 10     | .5(4)                                      |   | Form                of Warrants issued to Trident Growth Fund, L.P.                                                                                                                                                                                                                                                                                                                                              |
|        | 10     | .6(4)                                      |   | Intercreditor                and Subordination Agreement, dated as of March 29, 2006, by Trident                Growth Fund, L.P., AFG Enterprises USA, Inc. and FP Technology Holdings,                Inc., in favor of the holders of the Senior Indebtedness and The                Bank of                New York, a New York corporation, as collateral agent for the Senior                Lenders. |
|        | 10     | .7(4)                                      |   | Security                Agreement, dated as of September 13, 2005, by and among FP Technology                Holdings, Inc. and Trident Growth Fund, L.P., and First Amendment                thereto,                dated as of November 15, 2005.                                                                                                                                                   |
|        | 10     | .8(5)                                      |   | Credit                Agreement, dated as of July 15, 2003, by and between AFG Enterprises                USA, Inc. and Acclaim Financial Group Ventures II, LLC.                                                                                                                                                                                                                                           |
|        | 10     | .9(4)                                      |   | Exchange                Agreement, made as of March 29, 2006, by and between AFG Enterprises                USA, Inc. and Benchmark Equity Group, Inc.                                                                                                                                                                                                                                                      |
|        | 10     | .10(7)                                     |   | Non-Exclusive                Patent License Agreement, dated March 28, 2006, by and between Orion                IP, LLC and FP Technology Holdings, Inc.                                                                                                                                                                                                                                                   |
|        | 10     | .11(11)*                                   |   | Employment                Agreement, dated March 16, 2006, by and between Firepond, Inc. and                William Santo.                                                                                                                                                                                                                                                                                  |
|        | 10     | .12(11)*                                   |   | Employment                Agreement, effective as of March 16, 2006, by and between Firepond,                Inc. and Stephen Peary.                                                                                                                                                                                                                                                                        |
|        | 10     | .13(7)*                                    |   | Employment                Agreement, effective as of March 30, 2006, by and between FP                Technology, Inc. and Carol Ferrari.                                                                                                                                                                                                                                                                   |
|        | 10     | .14(7)*                                    |   | Employment                Agreement, effective as of March 30, 2006, by and between FP                Technology, Inc. and Jerry Keefe.                                                                                                                                                                                                                                                                     |
|        | 10     | .15(6)                                     |   | Form                of Securities Purchase Agreement entered into by the Registrant in                connection with the PIPE Financing.                                                                                                                                                                                                                                                                        |
|        | 10     | .16(6)                                     |   | Form                of Warrant issued by the Registrant in connection with the PIPE                Financing.                                                                                                                                                                                                                                                                                                    |
|        | 10     | .17(6)                                     |   | Form                of Registration Rights Agreement entered into by the Registrant in                connection with the PIPE Financing.                                                                                                                                                                                                                                                                        |
|        | 10     | .18(7)*                                    |   | Form                of Restricted Stock Grant for grants to William Santo, Stephen Peary,                Mark                Campion and Douglas Croxall.                                                                                                                                                                                                                                                        |

|        |   |                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------|--------|--------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Exhibit** |   |                                       |
| **Number**  |   | **Description                of Exhibits** |
|        |   |                                       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        | 10     | .19(8)                                     |   | Consulting                Agreement, dated as of September 1, 2006, by and between the                Registrant and Trident Growth Fund L.P.                                                                                                                                                                                                                                                                                                                                    |
|        | 10     | .20(9)(10)                                 |   | Master                Exchange Agreement, dated as of January 24, 2007, by and among the                Registrant and the Purchasers listed on Exhibit A                thereto.                                                                                                                                                                                                                                                                                                |
|        | 10     | .21(9)                                     |   | Indenture,                dated as of January 24, 2007, between the Registrant and The Bank of                New York as Trustee.                                                                                                                                                                                                                                                                                                                                                    |
|        | 10     | .22(9)                                     |   | Form                of Warrants issued by the Registrant as of January 24,                2007.                                                                                                                                                                                                                                                                                                                                                                                       |
|        | 10     | .23(9)                                     |   | Security                Agreement, dated as of January 24, 2007, between the Registrant and                The Bank of New York, in its capacity as Collateral                Agent.                                                                                                                                                                                                                                                                                                  |
|        | 10     | .24(9)                                     |   | Registration                Rights Agreement, dated as of January 24, 2007, by and among the                Registrant and the Purchasers listed on Exhibit A to the Master                Exchange Agreement.                                                                                                                                                                                                                                                                   |
|        | 10     | .25(4)                                     |   | Indenture,                dated as of March 29, 2006, between AFG Enterprises, Inc. and The                Bank of New York.                                                                                                                                                                                                                                                                                                                                                          |
|        | 10     | .26(4)                                     |   | Form                of Warrant, dated as of March 29, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        | 10     | .27(4)                                     |   | Escrow                Agreement, dated as of March 29, 2006, by and between The Bank of New                York, as Escrow Agent, The Bank of New York, as Collateral Agent,                The Bank                of New York, as Trustee for the holders of certain notes of the Registrant                under the Indenture dated as of as of March 29, 2006 with the                Registrant, and the Registrant.                                                       |
|        | 10     | .28(7)                                     |   | Amendment                to Escrow Agreement, dated as of June 8, 2006, by and between the                Registrant, The Bank of New York, as Escrow Agent, The Bank of New                York,                as Collateral Agent and, The Bank of New York, as Trustee for the                holders                of certain notes of the Registrant under the Indenture dated as of                March 29, 2006.                                                       |
|        | 10     | .29(12)                                    |   | 2006                Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        | 10     | .30(13)                                    |   | Securities                Purchase Agreement, dated as of August 2, 2007, by and among the                Registrant and the Purchasers.                                                                                                                                                                                                                                                                                                                                              |
|        | 10     | .31(13)                                    |   | Form                of Senior Secured Subordinated Note, dated as of August 2, 2007,                between the Registrant and each respective Purchaser.                                                                                                                                                                                                                                                                                                                             |
|        | 10     | .32(13)                                    |   | Security                Agreement, dated as of August 2, 2007, between the Registrant and                Radcliffe SPC, Ltd. for and on behalf of the Class A Segregated                Portfolio, a Cayman Islands segregated portfolio company, in its                capacity                as collateral agent for the holders of the Subordinated                Notes.                                                                                                    |
|        | 10     | .33(13)                                    |   | Supplemental                Indenture No. 1, dated as of August 2, 2007, between the                Registrant and The Bank of New York, as Trustee.                                                                                                                                                                                                                                                                                                                             |
|        | 10     | .34(13)                                    |   | Intercreditor                and Subordination Agreement, dated as of August 2, 2007, between The                Bank of New York, as collateral agent under the Indenture dated                January 24, 2007, and Radcliffe SPC, Ltd. for and on behalf of the                Class A Segregated Portfolio, a Cayman Islands segregated portfolio                company, in its capacity as collateral agent for the holders of the                Subordinated Notes. |
|        | 10     | .35                                        |   | Lease                Agreement between the Registrant and                Atlantic – Philadelphia Realty LLC.                                                                                                                                                                                                                                                                                                                                                                    |
|        | 23     | .1                                         |   | Consent                of Causey Demgen & Moore, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        | 31     | .1                                         |   | Certificate                of Chief Executive Officer pursuant                to Section 302 of the Sarbanes – Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                     |
|        | 31     | .2                                         |   | Certificate                of Chief Financial Officer                pursuant to Section 302 of the Sarbanes – Oxley Act of                2002                                                                                                                                                                                                                                                                                                                                      |
|        | 32     | .1                                         |   | Certificate                of Chief Executive Officer                pursuant to Section 906 of the Sarbanes – Oxley Act of                2002                                                                                                                                                                                                                                                                                                                                      |
|        | 32     | .2                                         |   | Certificate                of Chief Financial Officer                pursuant to Section 906 of the Sarbanes – Oxley Act of                2002                                                                                                                                                                                                                                                                                                                                      |

|   |    |                                                                                             |
|--------|---------|--------------------------------------------------------------------------------------------------|
|   | *  | Indicates                management contract or compensatory plan or                arrangement. |

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|   |                        |                                                                                                                                                                                                                                            |
|--------|-----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (1)     | Previously                  filed by AFG Enterprises USA, Inc. on Schedule 14C on June 9,                  2006, and incorporated herein by reference.                                                                                |
|   | (2)     | Previously                  filed by AFG Enterprises USA, Inc. on Form 8-K on April 4, 2006                  (reporting the Registrant’s change in shell company status) and                  incorporated herein by reference. |
|   | (3)     | Previously                  filed on the Registration Statement on Form 10-12G/A, as amended, of                  In Store Media Systems, Inc. on January 28, 2000.                                                                   |
|   | (4)     | Previously                  filed by AFG Enterprises USA, Inc. on Form 8-K on April 4, 2006                  (reporting completion of the Registrant’s CAP Financing) and incorporated                  herein by reference.    |
|   | (5)     | Previously                  filed on Form 10-KSB of In Store Media Systems, Inc. for the year                  ended December 31, 2002, on April 20, 2005 and incorporated                  herein by reference.                 |
|   | (6)     | Previously                  filed by the Registrant on Form 8-K on September 7, 2006 and                  incorporated herein by reference.                                                                                           |
|   | (7)     | Previously                  filed by the Registrant on Form 10-KSB on September 28, 2006 and                  incorporated herein by reference.                                                                                       |
|   | (8)     | Previously                  filed by the Registrant on Form 8-K on January 24, 2007 and                  incorporated herein by reference.                                                                                            |
|   | (9)     | Previously                  filed by the Registrant on Form 8-K on January 25, 2007 and                  incorporated herein by reference.                                                                                            |
|   | (10)              | Previously                  filed by the Registrant on Form 8-K/A on May 17, 2007 and                  incorporated herein by reference.                                                                                              |

|   | (11)   | Previously                  filed by the Registrant on Form SB-2/A on April 3, 2007 and                  incorporated herein by reference. |
|--------|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (12)   | Previously                  filed by the Registrant on Form DEF 14C on June 4, 2007 and                  incorporated herein by reference.                                                                                             |
|--------|------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (13)   | Previously                  filed by the Registrant on Form 8-K on August 7, 2007 and                  incorporated herein by reference.                                                                                               |
|   | (14)   | Previously                  filed by the registrant on Form SB-2 filed with the Securities                  and                  Exchange Commission on August 14, 2007, and incorporated herein                  by                  reference. |

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**ITEM      14.              PRINCIPAL ACCOUNTANT FEES AND SERVICES**

| **Nature of fees**          |   | **June 30, 2007** |   |
|---------------------------------------|--------|-----------------------------|--------|
| Audit                Fees (Financial) |   | $                           | 85,473 |   |
| Audit                Related Fees     |   | $                           | 7,718  |   |
| Tax                Fees               |   | $                           | 0      |   |
| Other                Fees             |   | $                           | 0      |   |

**SIGNATURES**

|                                     | FIREPOND,                INC.          |                             |
|------------------------------------------|----------------------------------------|----------------------------------|
|                                     |                                   |                             |   |
| Dated:                September 18, 2006 | By:                               | /s/                William Santo |   |
|                                     | William                Santo           |
|                                     | Chief                Executive Officer |
|                                     |                                   |
|                                     | By:                               | /s/                Stephen Peary |   |
|                                     | Stephen                Peary           |
|                                     | Chief                Financial Officer |

| **SIGNATURE**                      |   | **TITLE**                                                   |   | **DATE**                               |
|------------------------------------|--------|-------------------------------------------------------------|--------|----------------------------------------|
|                               |   |                                                        |   |                                   |
| /S/                William Santo   |   | Chief                Executive Officer, Director            |   | September 18,                2007 |
| **William                Santo**   |   | (Principal                Executive Officer)                |   |                                   |
|                               |   |                                                        |   |                                   |
| /S/                Stephen Peary   |   | Chief                Financial Officer                      |   | September 18,                2007 |
| **Stephen                Peary**   |   | (Principal                Financial and Accounting Officer) |   |                                   |
|                               |   |                                                        |   |                                   |
| /S/                Douglas Croxall |   | Chairman                                                    |   | September 18,                2007 |
| **Douglas                Croxall** |   |                                                        |   |                                   |
|                               |   |                                                        |   |                                   |
| /s/                Mark Campion    |   | Director                                                    |   | September 18,                2007 |
| **Mark                Campion**    |   |                                                        |   |                                   |
|                               |   |                                                        |   |                                   |

| /s/                Mark Tunney |   | Director |   | September 18,                2007 |
|--------------------------------|--------|----------|--------|----------------------------------------|
| **Mark                Tunney** |   |     |   |                                   |
|                           |   |     |   |                                   |

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**FIREPOND,        INC.**

**CONSOLIDATED        FINANCIAL STATEMENTS FOR THE FISCAL YEARS**

**                               ENDED        JUNE 30, 2006 and 2007**

----

**FIREPOND      INC.**

**CONTENTS**

**June      30, 2007**

|                                                                                                                                                                  | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **REPORT                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING                FIRM**                                                                             | F-1      |
|                                                                                                                                                                  |     |
| **CONSOLIDATED                FINANCIAL STATEMENTS**                                                                                                                  |     |
|                                                                                                                                                                  |     |
| Consolidated                Balance Sheet as of June 30, 2006 and                2007                                                                                 | F-2      |
|                                                                                                                                                                  |     |
| Consolidated                Statement of Operations for the years ended  June 30,                2006and June 30,                2007                       | F-3      |
|                                                                                                                                                                  |     |
| Consolidated                Statement of Stockholders’ Equity (Deficit) for                the fiscal year ended June 30, 2007                                  | F-4      |
|                                                                                                                                                                  |     |
| Consolidated                Statement of Cash Flow for the fiscal years ended  June 30,                2006 and June                30,                2007 | F-5      |
|                                                                                                                                                                  |     |
| Notes                to                Consolidated Financial Statements                                                                                              | F-6-F-26 |

----

EPEND

----

RE

| **ASSETS**                                                                    |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |
|-------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| **Current                  assets**                                           |                                                                                                                                                                                                          | **6/30/2006**                                                                                                                                                                                                 | **6/30/2007**                                                                                                                                                                                                 |
|                                                                          | Cash                  and cash equivalents                                                                                                                                                                    |                                                                                                                                                                                                          |  $                 831,184                                                                                          |  $                 689,972                                                                                          |
|                                                                          | Restricted                  cash                                                                                                                                                                              |                                                                                                                                                                                                          |                47,500,000                                                                                                          |                  1,162,590                                                                                               |
|                                                                          | Accounts                  receivable, net of allowance for doubtful                                                                                                                                           |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          |                                                                                                                                                                                                          | accounts                  of $10,000                                                                                                                                                                          |                                                                                                                                                                                                          |                     115,206                                                                               |                     801,206                             |
|                                                                          | Debt                  issuance costs                                                                                                                                                                          |                                                                                                                                                                                                          |                  1,633,835                                                                                               |                                   - |
|                                                                          | Other                  current assets                                                                                                                                                                         |                                                                                                                                                                                                          |                     601,956                                                                               |                     120,160                                                                               |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
|                                                                          |                                                                                                                                                                                                          | **Total                  current assets**                                                                                                                                                                     |                                                                                                                                                                                                          |                50,682,181                                                                                                          |                  2,773,928                                             |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| Property                  and equipment, net                                  |                                                                                                                                                                                                          |                     191,081                                                                               |                        66,638                                                              |
| Debt                  issuance costs                                          |                                                                                                                                                                                                          |                                   - |                  1,093,455                                                                                               |
| Goodwill                                                                      |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                  4,772,413                                                                                               |                  4,772,413                                             |
| Deferred                  offering costs                                      |                                                                                                                                                                                                          |                        43,076                                                              |                                   - |
| Deposits                                                                      |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                        12,140                                                              |                        13,449            |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          | **Total                  assets**                                                                                                                                                                             |                                                                                                                                                        |  $           55,700,891                             |  $              8,719,883 |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                     |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| **Current                  liabilities**                                      |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          | Short-term                  notes payable net of discount of $154,250 (2006)                                                                                                                                  |  $           52,595,750                                                                                                                           |  $              1,100,945                                                                                                          |
|                                                                          | Accounts                  payable                                                                                                                                                                             |                                                                                                                                                                                                          |                     524,171                                                                               |                     570,307                                                                               |
|                                                                          | Accrued                  liabilities                                                                                                                                                                          |                                                                                                                                                                                                          |                  2,082,459                                                                                               |                  1,280,503                                                                                               |
|                                                                          | Deferred                  revenue                                                                                                                                                                             |                                                                                                                                                                                                          |                  1,609,657                                                                                               |                  1,497,264                                                                                               |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
|                                                                          |                                                                                                                                                                                                          | **Total                  current liabilities**                                                                                                                                                                |                                                                                                                                                                                                          |                56,812,037                                                                                                          |                  4,449,019                                             |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| Non-current                  deferred revenue                                 |                                                                                                                                                                                                          |                                   - |                        53,784                                                              |
| Long-term                  notes payable net of discount of $4,433,333 (2007) |                                   - |                  1,368,358                                                                                               |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| **Commitments                  and contingencies**                            |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
| **Stockholders'                  equity (deficit)**                           |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          | Preferred                  stock, par value $.001                                                                                                                                                             |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          |                                                                                                                                                                                                          | Authorized                  - 5,000,000 shares                                                                                                                                                                |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |
|                                                                          |                                                                                                                                                                                                          | Issued                  and outstanding - none                                                                                                                                                                |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |
|                                                                          | Common                  stock, par value $.001                                                                                                                                                                |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |
|                                                                          |                                                                                                                                                                                                          | Authorized                  - 100,000,000 shares                                                                                                                                                              |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |
|                                                                          |                                                                                                                                                                                                          | Issued                  and outstanding 5,100,441 shares at 2006                                                                                                                                              |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |
|                                                                          |                                                                                                                                                                                                          | Issued                  and outstanding 8,224,239 shares at 2007                                                                                                                                              |                                                                                                                                                                                                          |                          5,100                                                   |                          8,224 |
|                                                                          | Additional                  paid-in capital                                                                                                                                                                   |                                                                                                                                                                                                          |                  2,182,237                                                                                               |                29,898,183                                                                                                          |
|                                                                          | Retained                  earnings/accumulated deficit                                                                                                                                                        |                                                                                                                                                                                                          |                (2,811,192)                                                                                                         |              (26,081,329)                                                                                                                    |
|                                                                          | Deferred                  compensation                                                                                                                                                                        |                                                                                                                                                                                                          |                    (487,291)                                                                                   |                    (976,356)                                                                                   |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          | **Total                  stockholders' equity (deficit)**                                                                                                                                                     |                                                                                                                                                                                                          |                (1,111,146)                                                       |                  2,848,722 |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                        |                                                                                                            |   |   |
|                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          |                                                                                                                                                                                                          | **Total                  liabilities and stockholders' equity**                                                                                                                                               |                                                                                                                                                        |  $           55,700,891                             |  $              8,719,883 |

----

REP

|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  | 6/30/2006                                                                           | 6/30/2007 |
|-------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------|-----------|
| **Revenues**                                                |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |
|                                                        | Enterprise                  revenues                                                                        |                                                                                                                                         |  $               3,310,242                                                                                                          |  $              2,454,657                                  |
|                                                        | OnDemand                  revenues                                                                          |                                                                                                                                         |                      451,352                                                                               |                   2,170,106                 |
|                                                        | Total                  revenues                                                                             |                                                                                                                                         |                                                                                                                                                                                                                |                   3,761,594                 |                   4,624,763                 |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Cost                  of revenues**                       |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |
|                                                        | Enterprise                                                                                                  |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                   1,585,188                 |                      862,942 |
|                                                        | OnDemand                                                                                                    |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                      359,462 |                   1,208,977                 |
|                                                        | Total                  cost of revenues                                                                     |                                                                                                                                         |                   1,944,650                                                                                               |                   2,071,919                 |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Gross                  profit**                           |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                   1,816,944                 |                   2,552,844                 |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Operating                  expenses**                     |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |
|                                                        | Sales,                  general and administrative                                                          |                   3,165,398                        |                   6,307,673                                                                                               |
|                                                        | Research                  and development                                                                   |                   1,835,176                        |                   2,225,118                                                                                               |
|                                                        | Restructuring                  and other special charges                                                    |                       (16,170) |                       (14,285)                                                                        |
|                                                        | Settlement                  of claim                                                                        |                                                                                                                                         |                 (1,712,500)                                                                                                         |                    (147,500)           |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
|                                                        |                                                                                                        |                                                                                                                                         | Total                  operating expenses                                                                                                                                                                           |                   3,271,904                 |                   8,371,006                 |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Loss                  from operations**                   |                                                                                                        |                                                                                                                                         |                 (1,454,960)                                                                                                         |                 (5,818,162)                           |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Other                  expense**                          |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |
| **Interest                  income**                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                      522,045 |                   1,326,586                 |
| **Interest                  expense**                       |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                 (3,068,063)                           |                 (5,039,513)                           |
| **Extinguishment                  of debt**                 |                                                                                                        |                                                                                                                                         |                                    - |               (13,705,000)                                      |
| **Other                  income  (expenses)**     |                                                                                                        |                       (18,951) |                       (34,048)                                                                        |
| **Total                  other income expense**             |                                                                                                        |                 (2,564,969)                                  |               (17,451,975)                                                                                                                    |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Net                  loss from continuing operations**    |                 (4,019,929) |               (23,270,137)                                             |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
|                                                        | Discontinued                  operations                                                                    |                     (763,252)            |                                    - |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Net                  loss**                               |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  | ** $             (4,783,181)**                                  | ** $          (23,270,137)** |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
| **Net                  loss per share - basic and diluted** |                                                                                                        |                                                                                                                                         |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
|                                                        | Loss                  from continuing operations                                                            | ($1.64)                                                                                                                                      | ($4.36)                                                                                                                                                                                                             |
|                                                        | Loss                  from discontinued operations                                                          | ($0.31)                                                                                                                                      |                                    - |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
|                                                        | **Basic                  and diluted loss per share**                                                       | **($1.95)**                                                                                                                                  | **($4.36)**                                                                                                                                                                                                         |
|                                                        |                                                                                                        |                                                                                                                                         |                                                                                                                                                                                                                |                                                                                                                                  |                                                                                                                                  |                                                                                                                                  |                                                                                |      |
|                                                        | **Basic                  and diluted weighted average common shares                  outstanding**          | **                  2,454,540**                    | **                  5,340,563**                                                                                           |

----

RE

|                                                                                                                                                                            |   | Common                    Stock |                  |   |   |   |        | Retained                    Earnings |   |   |            |   |   | Accumulated                    Other |        |   |                             |   |            |                                |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|-----------------------|--------|--------|--------|-------------|--------------------------------------|--------|--------|-----------------|--------|--------|--------------------------------------|-------------|--------|----------------------------------|--------|-----------------|-------------------------------------|--------|
|                                                                                                                                                                            |   |                            |                  |   |   |   |        | Additional                    Paid   |   |   | (Accumulated    |   |   | Deferred                             |        |   | Comprehensive                    |   |            | Stockholders'                       |   |   | Comprehensive |   |
|                                                                                                                                                                            |   | Shares                          |                  |   | Amount |   |        | In                    Capital        |   |   | Deficit)        |   |   | Compensation                         |        |   | Income                    (Loss) |   |            | Equity                    (Deficit) |   |   | Income                    (Loss) |   |
| Balance,                    June 30,  2005                                                                                                                            |   |                            | 2,177,414             |   |   | $      | 2,177       |                                 |   | $      | (997,167        | )      |   | $                                    | 1,971,989   |   |                             | $      | -               |                                |   | $ | (680,778 | ) |   | $ | 296,221 |   |   | $ | 1,291,211 |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| FP                    Technology - Common Stock                                                                                                                                 |   |                            | 2,016,124             |   |   |   | 2,016       |                                 |   |   | 47,984          |   |   |                                 | -           |   |                             |   | -               |                                |   |   | - |   |   |   | 50,000 |   |   |   | - |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| FP                    Technology - Additional Paid in Capital                                                                                                                   |   |                            | -                     |   |   |   | -           |                                 |   |   | (50,000         | )      |   |                                 | -           |   |                             |   | -               |                                |   |   | - |   |   |   | (50,000 | ) |   |   | - |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of convertible debt with warrants                                                                                                                   |   |                            | -                     |   |   |   | -           |                                 |   |   | 510,000         |   |   |                                 | -           |   |                             |   | -               |                                |   |   | - |   |   |   | 510,000 |   |   |   | - |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of convertible debt with warrants                                                                                                                   |   |                            | -                     |   |   |   | -           |                                 |   |   | 160,000         |   |   |                                 | -           |   |                             |   | -               |                                |   |   | - |   |   |   | 160,000 |   |   |   | - |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of additional shares to 100% owner                                                                                                                  |   |                            |  161,290    |   |   |   | 161    |                                 |   |   | (161)      |   |   |                                 | -      |   |                             |   | -          |                                |   |   | -  |   |   |   | -  |   |   |   | -  |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Existing                    AFG Enterprises equity at time of                    reverse merger                                                                                 |   |                            |  1,108,502  |   |   |   | 1,108  |                                 |   |   | (23,123)   |   |   |                                 | -      |   |                             |   | -          |                                |   |   | -  |   |   |   | (22,015)  |   |   |   | -  |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of common stock awards to directors                    and officers                                                                                 |   |                            | 1,814,525        |   |   |   | 1,815  |                                 |   |   | 562,527    |   |   |                                 |        |   |                             |   | (564,342)  |                                |   |   | -  |   |   |   | -  |   |   |   | -  |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of warrants in connection with debt                    financing                                                                                    |   |                            | -                |   |   |   | -      |                                 |   |   | 1,970,000  |   |   |                                 | -      |   |                             |   |  -         |                                |   |   | -  |   |   |   | 1,970,000  |   |   |   | -  |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    loss for the year ended                                                                                                                                  |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| June                    30, 2006                                                                                                                                                |   |                            | -                     |   |   |   | -           |                                 |   |   |            |   |   |                                 | (4,783,181  | )      |                             |   | 77,051          |                                |   |   | 680,778 |   |   |   | (4,025,352 | ) |   |   | (4,102,403 | ) |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Reclassification  of                      Firepond equity as a result                      of Trust created to assume all                      prior liabilities |   |                            | (2,177,414            | )      |   |   | (2,177      | )                                    |   |   | 2,177           |   |   |                                 | -           |   |                             |   | -               |                                |   |   | - |   |   |   | - |   |   |   | - |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    June 30,  2006                                                                                                                            |   |                            | 5,100,441             |   |   |   | 5,100       |                                 |   | $      | 2,182,237       |   |   | $                                    | (2,811,192  | )      |                             | $      | (487,291        | )                                   |   | $ | - |   |   | $ | (1,111,146 | ) |   | $ | (2,811,192 | ) |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale                    of common stock                                                                                                                                         |   |                            | 1,000,000             |   |   |   | 1,000       |                                 |   |   | 6,999,000       |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   | 7,000,000 |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Expenses                      recorded in connection with stock sale                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   | (899,924        | )      |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   | (899,924 | ) |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of convertible debt with warrants                                                                                                                   |   |                            |                  |   |   |   |        |                                 |   |   | 5,000,000       |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   | 5,000,000 |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of warrants to purchase common stock in exchange for                      services                                                                |   |                            |                  |   |   |   |        |                                 |   |   | 670,000         |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   | 670,000 |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of common stock in connection with debt retirement                                                                                                |   |                            | 1,650,000             |   |   |   | 1,650       |                                 |   |   | 13,703,350      |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   | 13,705,000 |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                      of common stock in exchange for services and retirement of                      previously                                                        |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| outstanding                    warrants                                                                                                                                         |   |                            | 413,798               |   |   |   | 414         |                                 |   |   | 1,793,580       |   |   |                                 |        |   |                             |   | (1,255,255      | )                                   |   |   |   |   |   |   | 538,739 |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of common stock to new director                                                                                                                     |   |                            | 60,000                |   |   |   | 60          |                                 |   |   | 449,940         |   |   |                                 |        |   |                             |   | (450,000        | )                                   |   |   |   |   |   |   | - |   |   |   |   |   |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    loss for the year ended                                                                                                                                  |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| June                    30, 2007                                                                                                                                                |   |                            | -                     |   |   |   | -           |                                 |   |   | -               |   |   |                                 | (23,270,137 | )      |                             |   | 1,216,190       |                                |   |   | - |   |   |   | (22,053,947 | ) |   |   | (23,270,137 | ) |
|                                                                                                                                                                            |   |                            |                  |   |   |   |        |                                 |   |   |            |   |   |                                 |        |   |                             |   |            |                                |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    June 30, 2007                                                                                                                                       |   |                            | 8,224,239             |   |   | $      | 8,224       |                                 |   | $      | 29,898,183      |   |   | $                                    | (26,081,329 | )      |                             | $      | (976,356        | )                                   |   | $ |  |   |   | $ | 2,848,722 |   |   | $ | (26,081,329 | ) |

----

E

|                                                                                                                                 |   | 6/30/2006 |         |   | 6/30/2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------------|--------|-----------|--------|
| **Cash                  flows from operating activities**                                                                            |   |      |         |   |      |   |
| Net                  loss                                                                                                            |   | $         | (4,783,181   | )      |      | $      | (23,270,137 | ) |
| Adjustments                  to reconcile net loss to net cash used in operating                  activities                         |   |
| (Gain)/loss                  on disposal of fixed assets                                                                             |   |      | -            |   |      |   | 20,912 |   |
| Settlement                  of claim                                                                                                 |   |      | (1,712,500   | )      |      |   | - |   |
| Stock                  issued in extinguishment of debt                                                                              |   |      |         |   |      |   | 13,705,000 |   |
|  Amortization                of stock based compensation recorded as deferred                compensation                       |   |      | 77,051  |   |      |   | 1,216,190  |   |
| Depreciation                  and amortization                                                                                       |   |      | 2,305,132    |   |      |   | 3,363,364 |   |
| Loss                  from discontinued operations                                                                                   |   |      | 680,778      |   |      |   | - |   |
| Changes                  in assets and liabilities:                                                                                  |   |      |         |   |      |   |   |   |
| Accounts                  receivable                                                                                                 |   |      | 433,750      |   |      |   | (686,000 | ) |
| Other                  current assets                                                                                                |   |      | (402,410     | )      |      |   | 481,796 |   |
| Accounts                  payable                                                                                                    |   |      | 364,428      |   |      |   | 46,136 |   |
| Accrued                  liabilities                                                                                                 |   |      | 1,034,348    |   |      |   | (263,217 | ) |
| Deferred                  revenue                                                                                                    |   |      | 421,370      |   |      |   | (58,609 | ) |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| Net                  cash used in operating activities                                                                               |   |      | (1,581,234   | )      |      |   | (5,444,565 | ) |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| **Cash                  flows from investing activities**                                                                            |   |      |         |   |      |   |   |   |
| Restricted                  cash                                                                                                     |   |      | (47,500,000  | )      |      |   | 46,337,410 |   |
| Purchase                  of property and equipment                                                                                  |   |      | (42,018      | )      |      |   | (26,165 | ) |
| Deferred                  offering costs and deposits                                                                                |   |      | (22,274      | )      |      |   | 41,767 |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| Net                  cash provided  by (used in) investing activities                                                      |   |      | (47,564,292  | )      |      |   | 46,353,012 |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| **Cash                  flows from financing activities**                                                                            |   |      |         |   |      |   |   |   |
| Payments                  on notes payable                                                                                           |   |      | (1,250,000   | )      |      |   | (51,447,364 | ) |
| Debt                  issuance costs                                                                                                 |   |      | (1,297,669   | )      |      |   | (702,371 | ) |
| Proceeds                  from issuance of common stock net of expenses                                                              |   |      | -            |   |      |   | 6,100,076 |   |
| Borrowings                  from notes payable                                                                                       |   |      | 52,500,000   |   |      |   | 5,000,000 |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| Net                  cash provided by (used in) financing activities                                                                 |   |      | 49,952,331   |   |      |   | (41,049,659 | ) |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| Net                  (decrease) increase in cash and cash equivalents                                                                |   |      | 806,805      |   |      |   | (141,212 | ) |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| **Cash                  and cash equivalents on June 30, 2005 and 2006**                                                             |   |      | 24,379       |   |      |   | 831,184 |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| **Cash                  and cash equivalents on June 30, 2006 and 2007**                                                             |   | **$**     | **831,184**  |   |      | **$**  | **689,972** |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| **Supplemental                  cash flow information:**                                                                             |   |      |         |   |      |   |   |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| Taxes                  Paid                                                                                                          |   | $         | -            |   |      | $      | - |   |
| Interest                  paid                                                                                                       |   | $         | 226,667      |   |      | $      | 1,791,338 |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| **Non                  Cash Financing and Investing Activities:**                                                                    |   |      |         |   |      |   |   |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| During                  the year ended June 30, 2006, the Company issued                                                             |   |      |         |   |      |   |   |   |
| convertible                  notes and warrants and valued the conversion rights and                  the                            |   |
| warrants                  at $670,000. The Company also issued warrants to the                  noteholders                     |   |
| and                  the underwriters valued at $1,970,000 for debt issuance                  costs.                                 |   |      |         |   |      |   |   |   |
|                                                                                                                                 |   |      |         |   |      |   |   |   |
| During                  the year ended June 30, 2007, the Company issued stock in                                                    |   |      |         |   |      |   |   |   |
| retirement                  of certain debt and outstanding warrants resulting in the                  recording                     |   |
| of                  $670,000 in debt issuance costs and stock in settlement of $538,739                  of                  accrued |   |
| expenses. Additionally,                  the Company issued convertible debt with warrants that resulted                  in    |   |
| a                  debt discount of $5,600,000                                                                                       |   |      |         |   |      |   |   |   |

----

ep

**NOTE        1 – THE COMPANY**

----

**NOTE        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

----

*           OnDemand        Hosted Licensed Revenue*

*AICPA Statement of Position 97-2 (“*

*Application of AICPA Statement of Position 97-2 to        Arrangements That Include the Right to Use Software Stored on Another Entity’s        Hardware” (“EITF 00-03”)*

| ·   | the                  customer has the contractual right to take possession of the software                  at                  any |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | it                  is feasible for the customer to either run the software on its                  own                  hardware or contract with another party unrelated to the vendor                  to host                  the software without significant                  penalty. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Revenue Recognition in Financial Statements*

| ·   | Persuasive                  evidence of an arrangement exists; |
|--------------------|----------------------------------------------------------------|

| ·   | Delivery                  has occurred or services have been                  rendered; |
|--------------------|-----------------------------------------------------------------------------------------|

| ·   | The                  vendor’s price to the buyer is fixed or determinable;                  and |
|--------------------|-------------------------------------------------------------------------------------------------------|

----

| ·   | Collectibility                  is reasonably assured. |
|--------------------|--------------------------------------------------------|

*Revenue Recognition, corrected copy*
*SAB 104*

*Enterprise        Software Revenue Recognition*

*Software Revenue Recognition*
*Accounting for Performance of        Construction-Type and Certain Production-Type Contracts*

----

*Software Revenue Recognition with Respect to Certain Arrangements*

|                                                        |   | Year                  Ended   |      |   | Year                  Ended    |   |
|-------------------------------------------------------------|--------|-------------------------------|-----------|--------|--------------------------------|--------|
| Deferred                  revenues                          |   | June                  30,2006 |      |   | June                  30, 2007 |   |
|                                                        |   |                          |      |   |                           |   |
| OnDemand                  revenue                           |   | $                             | 440,647   |   |                           | $      | 886,534 |   |
| Product                  license and related services       |   |                          | 76,636    |   |                           |   | 22,400 |   |
| Product-related                  maintenance                |   |                          | 1,092,374 |   |                           |   | 642,114 |   |
| Total                  deferred revenues                    |   | $                             | 1,609,657 |   |                           | $      | 1,551,048 |   |
| Less                  current portion of deferred revenues: |   |                          | 1,609,657 |   |                           |   | 1,497,264 |   |
| Non-current                  portion of deferred revenues:  |   | $                             | 0         |   |                           | $      | 53,784 |   |

----

|                                                  |   |   |      |   |   |   |
|-------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                  |   | 2006   |      |   | 2007   |   |
|                                                  |   |   |      |   |   |   |
| OnDemand                  cost of revenue             |   | $      | 359,462   |   |   | $      | 1,208,977 |   |
| Product                  license and related services |   |   | 732,918   |   |   |   | 337,038 |   |
| Product-related                  maintenance          |   |   | 852,270   |   |   |   | 525,904 |   |
|                                                  |   | $      | 1,944,650 |   |   | $      | 2,071,919 |   |

*Accounting for Income Taxes*
*SFAS No.        109*

----

*Goodwill and Other Intangible Assets*
*SFAS        142*

*Disclosure of Information about        Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments        with        Concentrations of Credit Risk*
*SFAS No. 105*

----

*Share        Based Payment*
*SFAS No. 123 (R)”)*

----

*Accounting for Certain Hybrid        Financial Instruments—an amendment of FASB Statements No. 133 and 140*

----

**NOTE        3 - PROPERTY AND EQUIPMENT**

| Property                  and equipment                         |   | 2006   |      |   | 2007   |   |
|-----------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                            |   |   |      |   |   |   |
| Computer                  equipment and software                |   | $      | 3,421,851 |   |   | $      | 1,632,900 |   |
| Furniture                  and fixtures                         |   |   | 527,902   |   |   |   | 114,678 |   |
| Leasehold                  improvements                         |   |   | 19,915    |   |   |   | 21,375 |   |
|                                                            |   |   | 3,969,668 |   |   |   | 1,768,953 |   |
|                                                            |   |   |      |   |   |   |   |   |
| Less                  accumulated depreciation and amortization |   |   | 3,778,587 |   |   |   | 1,702,315 |   |
|                                                            |   |   |      |   |   |   |   |   |
|    Property                  and equipment, net  |   | $      | 191,081   |   |   | $      | 66,638 |   |

----

|                                              |   | June                  30, 2006 |      |   | June                  30, 2007 |   |
|---------------------------------------------------|--------|--------------------------------|-----------|--------|--------------------------------|--------|
|                                              |   |                           |      |   |                           |   |
| Accrued                  interest                 |   | $                              | 606,436   |   |                           | $      | - |   |
| Consulting                  and professional fees |   |                           | 631,908   |   |                           |   | 234,809 |   |
|  Compensation                  and benefits  |   |                           | 247,312   |   |                           |   | 265,674 |   |
| Sales,                  use and other taxes       |   |                           | 123,547   |   |                           |   | 217,725 |   |
| Restructuring                                     |   |                           | 217,735   |   |                           |   | 203,333 |   |
| Other                                             |   |                           | 255,521   |   |                           |   | 358,962 |   |
|                                              |   |                           |      |   |                           |   |   |   |
|                                              |   | $                              | 2,082,459 |   |                           | $      | 1,280,503 |   |

**NOTE        5 –NOTES PAYABLE**

*CAP        Financing – Notes and Warrants*

| •     | ·  Senior                  Secured Nonconvertible Notes due 2011 in an aggregate principal                  amount of                  $50.0 million (the “CAP Financing”), exchangeable for Senior Secured                  Convertible Notes due 2011 (the “Convertible Notes”), or redeemable under                  certain circumstances, and which the Convertible Notes were convertible                  into shares of the Company’s common stock; and |
|---------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •     | ·  warrants                  to acquire in the aggregate up to 6,875,000 shares of the Company’s common                  stock (including warrants granted to the placement agent to acquire                  625,000 shares of our common stock.                                                                                                                                                                                                                                       |

*Master        Exchange Agreement*

----

| •     | $45.0 million                  in principal repayment of the Nonconvertible Notes, plus accrued                  interest                  thereon;                                                                                                                                                                              |
|---------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •     | a                  new issue of 12% Senior Secured Convertible Notes due January 2009 in                  the aggregate principal amount of $5.6 million (the “New Convertible                  Notes”), issued under an indenture with The Bank of New York(the “New                  Indenture”); |
| •     | warrants                  to purchase an aggregate of 1,214,285 shares of common stock at an                  initial exercise price of $7.00 per share (the “New Warrants), exercisable                  for five years, and containing customary pro-rata anti-dilution                  protections; and           |
| •     | 1,500,000                  fully paid shares of common stock (the “New                  Shares”).                                                                                                                                                                                                                         |

*Financings        with Trident Growth Fund*

----

|                                                                                                                                                           |   | June                  30, 2006 |       |   | June                  30, 2007 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|------------|--------|--------------------------------|--------|
| Unsecured                  note payable to General Motors, 5.00%                                                                                               |   | $                              | 250,000    |   |                           | $      | 135,969 |   |
| Trident                  secured note payable, 12%                                                                                                             |   |                           | 2,500,000  |   |                           |   | 1,166,667 |   |
| Senior                  secured nonconvertible notes, variable rate based on the greater                  of 4.51%                  or the 3 month T-Bill rate |   |                           | 50,000,000 |   |                           |   | - |   |
| Senior                  secured convertible notes, 12%                                                                                                         |   |                           | -          |   |                           |   | 5,600,000 |   |
|                                                                                                                                                           |   |                           |       |   |                           |   |   |   |
| Less                  discount                                                                                                                                 |   |                           | (154,250   | )      |                           |   | (4,433,333 | ) |
|                                                                                                                                                           |   |                           |       |   |                           |   |   |   |
| Total                  notes payable                                                                                                                           |   | $                              | 52,595,750 |   |                           | $      | 2,469,303 |   |
|                                                                                                                                                           |   |                           |       |   |                           |   |   |   |
| Less                  current portion:                                                                                                                         |   |                           | 52,595,750 |   |                           |   | 1,100,945 |   |
|                                                                                                                                                           |   |                           |       |   |                           |   |   |   |
| Non-current                  portion:                                                                                                                          |   | $                              | -          |   |                           | $      | 1,368,358 |   |
|                                                                                                                                                           |   |                           |       |   |                           |   |   |   |
| (Weighted                  average interest rate - 4.88% for 2006 and 11.86% for                  2007)                                                        |   |                           |       |   |                           |

**NOTE        6 – OTHER MATERIAL AGREEMENTS**

----

**NOTE        7 - INTEREST EXPENSE**

**NOTE        8 - ACCUMULATED OTHER COMPREHENSIVE LOSS**

| Foreign                  currency translation | $                  (680,778) |
|-----------------------------------------------|------------------------------|
|  Accumulated                other comprehensive loss at 6/30/05:   | $                (680,778) |
|-----------------------------------------------------------------------------------|----------------------------|

----

**NOTE        9 - INCOME TAXES**

|                                                                  |   | Year                  Ended    |       |   | Year                  Ended    |   |
|-----------------------------------------------------------------------|--------|--------------------------------|------------|--------|--------------------------------|--------|
|                                                                  |   | June                  30, 2006 |       |   | June                  30, 2007 |   |
| Deferred                  Tax Assets and Liabilities                  |   |                           |       |   |                           |   |
|  Net                  operating losses and credit carryforwards  |   | $                              | 6,759,706  |   |                           | $      | 10,024,286 |   |
| Nondeductible                  reserves and accruals                  |   |                           | 548,877    |   |                           |   | 294,011 |   |
| Depreciation                  and amortization                        |   |                           | 216,351    |   |                           |   | (467,367 | ) |
| Capitalized                  research and development                 |   |                           | 692,100    |   |                           |   | 2,660,359 |   |
| Other                                                                 |   |                           | 179,478    |   |                           |   | - |   |
| Temporary                  timing difference from debt extinguishment |   |                           | -          |   |                           |   | (615,450 | ) |
|  Stock                  options                                  |   |                           | -          |   |                           |   | (203,325 | ) |
|                                                                  |   |                           |       |   |                           |   |   |   |
| Gross                  deferred tax assets                            |   | $                              | 8,396,512  |   |                           | $      | 11,692,514 |   |
| Valuation                  allowance                                  |   |                           | (8,396,512 | )      |                           |   | (11,692,514 | ) |
| Net                  deferred tax assets                              |   |                           | -          |   |                           |   | - |   |

----

| 2022                                                                                                                   |   | $3,548,000  |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------|
| 2023                                                                                                                   |   | 7,095,000   |
| 2024                                                                                                                   |   | 4,193,000   |
| 2025                                                                                                                   |   | -           |
|                    2026 |   | 2,487,000   |
| 2027                                                                                                                   |   | 8,576,000   |
|                                                                                                                   |   | $25,899,000 |

**NOTE        10 - COMMITMENTS AND CONTINGENCIES**

----

----

|  2008 |   | $      | 250,000 |   |
|------------|--------|--------|---------|--------|
|  2009 |   |   | 244,000 |   |
|  2010 |   |   | 218,000 |   |
|  2011 |   |   | 95,000  |   |
|       |   | $      | 807,000 |   |

**NOTE        11 - STOCKHOLDERS' EQUITY**

----

|                                                                                                                | Exercise | Number                  of                                                                                                                                                                                           |
|---------------------------------------------------------------------------------------------------------------------|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                | price    | shares                                                                                                                                                                                                               |
| Issued                  in connection with Trident  Agreement (net of exercised                  options) | $7.00    |                                   400,000* |
| Issued                  in connection with PIPE Offering                                                            | $7.00    | 1,100,000                                                                                                                                                                                                            |
| Issued                  in connection with Master Exchange agreement                                                | $7.00    | 1,285,714                                                                                                                                                                                                            |
| Balance                  at June 30, 2007                                                                           |     |                                2,785,714                  |

|                                                   |  Warrant                  price per share                                                                                                        |  Weighted                  average exercise price                                                                        |  Number                  of shares                                                                                                   |
|--------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|
| Balance                  June 30, 2005                 |                        -           |                     -     |                      -           |
| Granted                                                | $4.00                  to $8.00                                                                                                                       | $7.78                                                                                                                         |      7,265,625                                                                                                   |
| Exercised                                              | 0                                                                                                                                                     | 0                                                                                                                             | 0                                                                                                                                         |
| Forfeited                                              | 0                                                                                                                                                     | 0                                                                                                                             | 0                                                                                                                                         |
| Balance                  June 30, 2006                 | $4.00                  to $8.00                                                                                                                       |          $7.78                                                                   | 7,265,625                                                                                                                                 |
|                                                   |                                                                                                                                                  |                                                                                                                          |                                                                                                                                      |
| Granted                                                | $7.00                                                                                                                                                 | $7.00                                                                                                                         |      3,385,714                                                                                                   |
| Exercised                                              |                        $4.00-$7.00 |                     $5.81 |                      (990,625)   |
| Retired                                                |                        $8.00       |                     -     |                      (6,875,000) |
| Forfeited                                              |                   -                                    |  -                                                                                                                       |  -                                                                                                                                   |
|                                                   |                                                                                                                                                  |                                                                                                                          |                                                                                                                                      |
| Balance                  June 30, 2007                 | $7.00                                                                                                                                                 | $7.00                                                                                                                         |      2,785,714                                                                                                   |
|                                                   |                                                                                                                                                  |                                                                                                                          |                                                                                                                                      |
| Warrants                  exercisable at June 30, 2007 | $7.00                                                                                                                                                 | $7.00                                                                                                                         | 2,385,714                                                                                                                                 |
|                                                   |                                                                                                                                                  |                                                                                                                          |                                                                                                                                      |

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|  Price                  per share |  Weighted                  average remaining contractual life in years |  Weighted                  average exercise price |  Number                  of shares |
|----------------------------------------|-----------------------------------------------------------------------------|--------------------------------------------------------|-----------------------------------------|
| $7.00                                  | 4.15                                                                        |  $7.00                                       |      2,785,714 |

**NOTE        12 - PROFIT-SHARING PLAN**

**NOTE        13 - SUBSEQUENT EVENTS**

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