----

DEX

| PART      I. FINANCIAL INFORMATION                                                                                                                                                                                                           |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ITEM 1. CONSOLIDATED FINANCIAL      STATEMENTS (UNAUDITED)                                                                                                                                                                                   |   |
| Consolidated Balance Sheet at      December 31, 2007                                                                                                                                                                                         | F-1    |
| Consolidated Statements of      Operations for the Three Months Ended December 31, 2006 and      2007                                                                                                                              | F-2    |
|                  Consolidated Statements of Operations for the      Six Months Ended December 31, 2006 and 2007                                                             | F-3    |
|                          Consolidated Statement of      Stockholders' Equity      (Deficit) for the Six Months Ended      December 31, 2007   | F-4    |
|                          Consolidated Statement of Cash Flows for the Six Months      Ended December 31, 2006 and 2007    | F-5    |
| Notes to Consolidated Financial      Statements                                                                                                                                                                                              | F-6    |
| ITEM 2. MANAGEMENT'S DISCUSSION AND      ANALYSIS OR PLAN OF OPERATION                                                                                                                                                                       | 1      |
| ITEM 3. CONTROLS AND PROCEDURES                                                                                                                                                                                                              | 8      |
|  PART II. OTHER INFORMATION                                                                                                                                                                                                             |   |
| ITEM 1. LEGAL PROCEEDINGS                                                                                                                                                                                                                    | 9      |
| ITEM 2. UNREGISTERED SALES OF      EQUITY SECURITIES AND USE OF PROCEEDS                                                                                                                                                                | 9      |
| ITEM 3. DEFAULTS UPON SENIOR      SECURITIES                                                                                                                                                                                                 | 9      |
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS                                                                                                                                                                             | 9      |
| ITEM 5. OTHER INFORMATION                                                                                                                                                                                                                    | 10     |
| ITEM 6. EXHIBITS                                                                                                                                                                                                                             | 10     |

----

|   | PART      I.  FINANCIAL INFORMATION |
|--------|-----------------------------------------------|

| ITEM      1.  CONSOLIDATED FINANCIAL STATEMENTS |
|-----------------------------------------------------------|

LID

| ASSETS                                                                                   |   |   |         |
|------------------------------------------------------------------------------------------|--------|--------|--------------|
|                                                                                     |   |   |         |
| Current      assets                                                                      |   |   |         |
| Cash      and cash equivalents                                                           |   | $      | 251,074      |   |
| Restricted      cash                                                                     |   |   | 794,326      |   |
| Accounts      receivable, net of allowance for doubtful                                  |   |   |         |   |
| accounts      of $75,520                                                                 |   |   | 1,529,300    |   |
| Other      current assets                                                                |   |   | 149,736      |   |
|                                                                                     |   |   |         |   |
| Total      current assets                                                                |   |   | 2,724,436    |   |
|                                                                                     |   |   |         |   |
| Property      and equipment, net                                                         |   |   | 78,494       |   |
| Debt      issuance costs                                                                 |   |   | 978,117      |   |
| Goodwill                                                                                 |   |   | 4,772,413    |   |
| Deposits,      deferred offering costs and other assets                                  |   |   | 339,001      |   |
|                                                                                     |   |   |         |   |
| Total      assets                                                                        |   | $      | 8,892,461    |   |
|                                                                                     |   |   |         |   |
| LIABILITIES      AND STOCKHOLDERS' EQUITY (DEFICIT)                                      |   |   |         |   |
|                                                                                     |   |   |         |   |
| Current      liabilities                                                                 |   |   |         |   |
| Short-term      notes payable                                                            |   | $      | 3,086,216    |   |
| Accounts      payable                                                                    |   |   | 632,819      |   |
| Accrued      liabilities                                                                 |   |   | 1,101,501    |   |
| Deferred      revenue                                                                    |   |   | 2,011,250    |   |
|                                                                                     |   |   |         |   |
| Total      current liabilities                                                           |   |   | 6,831,786    |   |
|                                                                                     |   |   |         |   |
|         Long-term notes payable net of unamortized discount of      $3,033,333 |   |   | 2,566,667    |   |
| Non-current      deferred revenue                                                        |   |   | 55,447       |   |
|                                                                                     |   |   |         |   |
| Total      liabilities                                                                   |   |   | 9,453,900    |   |
|                                                                                     |   |   |         |   |
| Commitments      and contingencies                                                       |   |   |         |   |
|                                                                                     |   |   |         |   |
| Stockholders'      equity (deficit)                                                      |   |   |         |   |
| Preferred      stock, $0.001 par value                                                   |   |   |         |   |
| Authorized      - 5,000,000 shares                                                       |   |   |         |   |
| Issued      and outstanding - none                                                       |   |   | -            |   |
| Common      stock, $0.001 par value                                                      |   |   |         |   |
| Authorized      - 100,000,000 shares                                                     |   |   |         |   |
| Issued      and outstanding - 8,349,239 shares                                           |   |   | 8,349        |   |
| Additional      paid-in capital                                                          |   |   | 30,666,808   |   |
| Accumulated      deficit                                                                 |   |   | (30,831,180) |   |
| Deferred      compensation                                                               |   |   | (405,416)    |   |
|                                                                                     |   |   |         |   |
| Total      stockholders' equity (deficit)                                                |   |   | (561,439)    |   |
|                                                                                     |   |   |         |   |
| Total      liabilities and stockholders' equity (deficit)                                |   | $      | 8,892,461    |   |

----

T

|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
|---------------------------------------------|-----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|--------------|--------|
| Revenues                                    |                                                                                    |                                                                                        |                                                                                                   |                                                                                        | 2006                                                                                                                                                          | 2007                                                                        |
|                                        | OnDemand      revenues                                                                  |                                                                                        |  $620,828                                                                                         |  $510,143                                                                              |
|                                        | Enterprise      revenues                                                                |                                                                                        |               523,886            |               987,819 |
|                                        | Total      revenues                                                                     |                                                                                        |                                                                                                   |            1,144,714                 |            1,497,962                                                                                   |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Cost      of revenues                       |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |
|                                        |  OnDemand      costs                                                               |                                                                                        |                                                                                                   |               312,264 |               393,259                                                                   |
|                                        |  Enterprises      costs                                                            |                                                                                        |                                                                                                   |               123,535 |                 57,581                                                        |
|                                        |  Total      cost of revenues                                                       |                                                                                        |               435,799            |               450,840 |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Gross      profit                           |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |               708,915                                                                   |            1,047,122 |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Operating      expenses                     |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |
|                                        | Sales      and marketing                                                                |                                                                                        |               498,219            |               467,271 |
|                                        | General      and administrative                                                         |            1,356,461                 |               861,069            |
|                                        | Research      and development                                                           |               511,001 |               451,093            |
|                                        | Settlement      of claim                                                                |                                                                                        |                                                                                                   |              (147,500)     |                           - |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
|                                        |                                                                                    |                                                                                        | Total      operating expenses                                                                          |            2,218,181                 |            1,779,433                                                                                   |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Loss      from operations                   |                                                                                    |                                                                                        |           (1,509,266)                                |             (732,311)           |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Other      income (expense), net            |                                                                                    |                                                                                        |                                                                                                   |
| Interest      expense                       |                                                                                    |                                                                                        |                                                                                                   |           (1,364,056)                     |          (1,406,537)                                                                                             |
| Interest      and other income              |                                                                                    |               606,043 |                 10,826 |
| Total      other income (expense), net      |              (758,013) |          (1,395,711)                           |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Net      Loss                               |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          | $ (2,267,279)                                                               | $(2,128,022) |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
| Net      loss per share - basic and diluted |                                                                                    |                                                                                        |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
|                                        | Net      loss per share                                                                 |                                                                                        |                                                                                                   | $(0.53)                                                                                     | $(0.27)                                                                                                                                                       |
|                                        |                                                                                    |                                                                                        |                                                                                                   |                                                                                        |                                                                                                                                                          |                                                                        |         |   |
|                                        | Basic      and diluted weighted average                                                 |                                                                                        |                                                                                                   |
|                                        |                                                                                    | common  shares      outstanding                                                   | 4,285,916                                                                                              | 7,971,229                                                                                   |

----

E

| Revenues                                    |                                         |                                                                                         |                                                                                                                                                          |                                                                                        | 2006                                                                                                                                                          | 2007                                                                        |
|---------------------------------------------|----------------------------------------------|----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
|                                        | OnDemand      revenues                       |                                                                                         |  $      936,639                                                                                                                                          |  $      1,059,808                                                                      |
|                                        | Enterprise      revenues                     |                                                                                         |            1,236,087                                                                                   |            1,604,240                 |
|                                        | Total      revenues                          |                                                                                         |                                                                                                                                                          |            2,172,726                 |            2,664,048                                                                                   |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Cost      of revenues                       |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |
|                                        |  OnDemand      costs                    |                                                                                         |                                                                                                                                                          |               602,265 |               773,935                                                                   |
|                                        |  Enterprises      costs                 |                                                                                         |                                                                                                                                                          |               265,208 |               135,747                                                                   |
|                                        |  Total      cost of revenues            |                                                                                         |               867,473                                                                   |               909,682 |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Gross      profit                           |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |            1,305,253                                                                                   |            1,754,366 |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Operating      expenses                     |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |
|                                        | Sales      and marketing                     |                                                                                         |               895,441                                                                   |            1,021,785                 |
|                                        | General      and administrative              |                                                                                         |            2,316,310                                                                                   |            1,874,611                 |
|                                        | Research      and development                |                                                                                         |            1,034,217                                                                                   |               921,386 |
|                                        | Restructuring      and other special charges |               (14,285) |                           - |
|                                        | Settlement      of claim                     |                                                                                         |                                                                                                                                                          |             (147,500)           |                           - |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
|                                        |                                         |                                                                                         | Total      operating expenses                                                                                                                                 |                                                                                        |            4,084,183                                                                                   |            3,817,782 |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Loss      from operations                   |                                         |                                                                                         |          (2,778,930)                                                                                             |          (2,063,416)                           |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Other      income (expense), net            |                                         |                                                                                         |                                                                                                                                                          |
| Interest      expense                       |                                         |                                                                                         |                                                                                                                                                          |          (3,198,174)                           |          (2,721,372)                                                                                             |
| Interest      and other income              |                                         |            1,205,718                  |                 34,937                                                        |
| Total      other income (expense), net      |                                         |          (1,992,456)                            |          (2,686,435)                                                                                             |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Net      Loss                               |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |  $ (4,771,386)                                                         |  $ (4,749,851) |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
| Net      loss per share - basic and diluted |                                         |                                                                                         |                                                                                                                                                          |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
|                                        | Net      loss per share                      |                                                                                         |                                                                                                                                                          |  $ (1.18)                                                                              | $ (0.61)                                                                                                                                                      |
|                                        |                                         |                                                                                         |                                                                                                                                                          |                                                                                        |                                                                                                                                                          |                                                                        |   |   |
|                                        | Basic      and diluted weighted average      |                                                                                         |                                                                                                                                                          |                                                                                        |
|                                        |                                         | common  shares      outstanding                                                    |                                                                                                                                                          | 4,035,916                                                                                   | 7,814,360                                                                                                                                                     |

----

T

|                            |                                            |                                                    |                                                                                                                |                                                                                                                |                                                                                                                                                          |                                                                                                                                  |                                                                                              |
|---------------------------------|-------------------------------------------------|---------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                            |                                            |                                                    |  Common Stock                                                                                                  |                                                                                                                | Retained      Earnings                                                                                                                                        |                                                                                                                                  |                                                                                              |
|                            |                                            |                                                    |                                                                                                                | $0.001                                                                                                              |  Additional      Paid                                                                                                                                    |  (Accumulated                                                                                                                    |  Deferred                                                                                    |  Stockholders' |
|                            |                                            |                                                    |  Shares                                                                                                        |  Par Value                                                                                                     |  In Capital                                                                                                                                              |  Deficit)                                                                                                                        |  Compensation                                                                                |  Equity |
|                            |                                            |                                                    |                                                                                                                |                                                                                                                |                                                                                                                                                          |                                                                                                                                  |                                                                                              |   |
| Balance,      June 30, 2007     |      8,224,239         |  $8,224                                            |  $29,898,183                                                                                                   |  $(26,081,329)                                                                                                 |  $(976,356)                                                                                                                                              |  $2,848,722                                                                                                                      |
|                            |                                            |                                                    |                                                                                                                |                                                                                                                |                                                                                                                                                          |                                                                                                                                  |                                                                                              |   |
|                            | Issuance      of common stock under bridge loan |         125,000 | 125                                                                                                                 |                768,625                   |                          -       |                       - |                768,750 |
|                            |                                            |                                                    |                                                                                                                |                                                                                                                |                                                                                                                                                          |                                                                                                                                  |                                                                                              |   |
|                            | Net      loss for the six months ended          |                                                    |                                                                                                                |                                                                                                                |                                                                                                                                                          |                                                                                                                                  |                                                                                              |
|                            |                                            | December      31, 2007                                  |                    - |                    - |                           - |           (4,749,851)                                                               |             570,940                   |             (4,178,911) |
|                            |                                            |                                                    |                                                                                                                |                                                                                                                |                                                                                                                                                          |                                                                                                                                  |                                                                                              |   |
| Balance,      December 31, 2007 |      8,349,239         |  $8,349                                            |  $30,666,808                                                                                                   |  $(30,831,180)                                                                                                 |  $(405,416)                                                                                                                                              |  $(561,439)                                                                                                                      |

----

T

|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   | 2006                                                                                        | 2007                                                                                    |
|---------------------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
| Cash      flows from operating activities                     |                                                                                        |                                                                                                                                                          |
|                                                          | Net      loss                                                                               |                                                                                                                                                          |                                                                                                                                                          |  $(4,771,386)                                                                                     |  $(4,749,851)                                                                          |
|                                                          | Adjustments      to reconcile net loss to net cash used in operating    activities          |                                                                                                                                                          |                                                                                                                                                          |
|                                                          |                                                                                        | Depreciation      and amortization                                                                                                                            |            1,905,491                                                                                   |            2,196,768                            |
|                                                          |                                                                                        | Amortization      of stock based compensation                                                                                                                 |               127,998                                                                   |               570,940            |
|                                                          | Changes      in assets and liabilities                                                      |                                                                                                                                                          |                                                                                                                                                          |
|                                                          |                                                                                        | Accounts      receivables                                                                                                                                     |              (940,670)                                                                       |              (728,094)                |
|                                                          |                                                                                        | Other      current assets                                                                                                                                     |                (83,961)                                                            |                (29,576)     |
|                                                          |                                                                                        | Accounts      payable                                                                                                                                         |              (137,927)                                                                       |                 62,512 |
|                                                          |                                                                                        | Accrued      liabilities                                                                                                                                      |               330,715                                                                   |              (179,002)                |
|                                                          |                                                                                        | Deferred      revenue                                                                                                                                         |               310,547                                                                   |               515,649            |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
|                                                          |                                                                                        |                                                                                                                                                          | Net      cash used in operating activities                                                                                                                    |           (3,259,193)                                |           (2,340,654)                     |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
| Cash      flows from investing activities                     |                                                                                        |                                                                                                                                                          |
|                                                          | Purchase      of property and equipment                                                     |                (18,763)                                                            |                (36,683)                                                            |
|                                                          | Restricted      cash                                                                        |           (2,500,000)                                                                                       |               368,264                                                                   |
|                                                          | Other      assets                                                                           |                                                                                                                                                          |                 41,767                                                        |                (24,978)     |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
|                                                          |                                                                                        |                                                                                                                                                          | Net      cash provided by or (used in) investing activities                                                                                                   |           (2,476,996)                                |               306,603 |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
| Cash      flows from financing activities                     |                                                                                        |                                                                                                                                                          |
|                                                          | Proceeds      from sale of stock net of expenses                                            |            6,000,076                                                                                   |                           - |
|                                                          | Borrowing      under notes payable net of repayments                                        |              (899,089)                                                                       |            1,783,581                                                                                   |
|                                                          | Deferred      offering costs                                                                |                           - |              (300,573)                                                                       |
|                                                          | Debt      issuance costs                                                                    |                (24,973)                                                            |               112,145                                                                   |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
|                                                          |                                                                                        |                                                                                                                                                          | Net      cash provided by financing activities                                                                                                                |            5,076,014                            |            1,595,153                 |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          | Net      decrease in cash and cash equivalents                                                         |              (660,175)     |              (438,898) |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
| Cash      and cash equivalents, on June 30, 2006 and 2007     |               831,184 |               689,972                                                                   |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
| Cash      and cash equivalents, on December 31, 2006 and 2007 |  $171,009                                                                              |  $251,074                                                                                                                                                |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
| Supplemental      cash flow information:                      |                                                                                        |                                                                                                                                                          |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
|                                                          | Interest      paid                                                                          |                                                                                                                                                          |  $1,380,490                                                                                                                                              |  $361,970                                                                                         |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
| Non      cash investing and financing activities:             |                                                                                        |                                                                                                                                                          |
|                                                          |                                                                                        |                                                                                                                                                          |                                                                                                                                                          |                                                                                                   |                                                                                        |                                                                                    |
|                                                          | During      the six months ended December 31, 2007, the Company issued                      |                                                                                                                                                          |                                                                                                                                                          |
|                                                          | 125,000      shares of common stock valued at $768,750 in connection                        |                                                                                                                                                          |                                                                                                                                                          |
|                                                          | with      the bridge loan.                                                                  |                                                                                                                                                          |                                                                                                                                                          |

----

CO

----

----

----

| •     | $45.0 million      in principal repayment of the Nonconvertible Notes, plus accrued interest      thereon;                                                                                                                                                             |
|---------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •     | a      new issue of the $5.6 million 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”).                                                                                                                                                                                           |

----

----

----

----

----

----

|  ITEM      2. |   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF      OPERATION |
|--------------------|----------------------------------------------------------------------------|

|   | Executive      Summary |
|--------|------------------------|

----

|                                                           |   | Three      Months Ended December 31 |        |
|----------------------------------------------------------------|--------|-------------------------------------|-------------|
|                                                           |   | 2006                                |        |   | 2007 |   |
|                                                           |   | Amount                              |        |   | %      of Revenues |   |   | Amount |   |   | %      of Revenues |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |
| Revenues                                                       |   |                                |        |   |   |   |   |   |   |   |   |   |
|      OnDemand      revenues           |   | $                                   | 620,828     |   |   |   |   |   |   | 510,143 |   |   |   |   |
|      Enterprise      revenues         |   |                                | 523,886     |   |   |   |   |   |   | 987,819 |   |   |   |   |
| Total      revenues                                            |   |                                | 1,144,714   |   |   |   |   |   |   | 1,497,962 |   |   |   |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of revenues                                          |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |
|      OnDemand      cost of revenues   |   |                                | 312,264     |   |   |   |   |   |   | 393,259 |   |   |   |   |
|      Enterprise      cost of revenues |   |                                | 123,535     |   |   |   |   |   |   | 57,581 |   |   |   |   |
| Total      cost of revenues                                    |   |                                | 435,799     |   |   |   | 38.1 |   |   |   | 450,840 |   |   |   | 30.1 |   |
| Gross      profit                                              |   |                                | 708,915     |   |   |   | 61.9 |   |   |   | 1,047,122 |   |   |   | 69.9 |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                        |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Sales      and marketing         |   |                                | 498,219     |   |   |   | 43.5 |   |   |   | 467,271 |   |   |   | 31.2 |   |
|      General      and administrative  |   |                                | 1,356,461   |   |   |   | 118.5 |   |   |   | 861,069 |   |   |   | 57.5 |   |
|      Research      and development    |   |                                | 511,001     |   |   |   | 44.6 |   |   |   | 451,093 |   |   |   | 30.1 |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Settlement      of claim         |   |                                | (147,500)   |   |   |   | (12.9) |   |   |   | - |   |   |   |   |   |
| Total      operating expenses                                  |   |                                | 2,218,181   |   |   |   | 193.7 |   |   |   | 1,779,433 |   |   |   | 118.8 |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                                      |   |                                | (1,509,266) |   |   |   | (131.8) |   |   |   | (732,311) |   |   |   | (48.9) |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense), net                               |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Interest      expense            |   |                                | (1,364,056) |   |   |   | (119.2) |   |   |   | (1,406,537) |   |   |   | (93.9) |   |
|      Interest      and other income   |   |                                | 606,043     |   |   |   | 52.9 |   |   |   | 10,826 |   |   |   | .7 |   |
| Total      other income (expense), net                         |   |                                | (758,013)   |   |   |   | (66.3) |   |   |   | (1,395,711) |   |   |   | (93.2) |   |
|                                                           |   |                                |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                  |   |                                | (2,267,279) |   |   |   | (198.1) |   |   |   | (2,128,022) |   |   |   | (142.1) |   |

----

----

|                                                           |   | Six      Months Ended December 31 |        |
|----------------------------------------------------------------|--------|-----------------------------------|-------------|
|                                                           |   | 2006                              |        |   | 2007 |   |
|                                                           |   | Amount                            |        |   | %      of Revenues |   |   | Amount |   |   | %      of Revenues |   |
|                                                           |   |                              |        |   |   |   |   |   |   |   |   |   |
| Revenues                                                       |   |                              |        |   |   |   |   |   |   |   |   |   |
|      OnDemand      revenues           |   | $                                 | 936,639     |   |   |   |   |   |   | 1,059,808 |   |   |   |   |
|      Enterprise      revenues         |   |                              | 1,236,087   |   |   |   |   |   |   | 1,604,240 |   |   |   |   |
| Total      revenues                                            |   |                              | 2,172,726   |   |   |   |   |   |   | 2,664,048 |   |   |   |   |
|                                                           |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of revenues                                          |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |
|      OnDemand      cost of revenues   |   |                              | 602,265     |   |   |   |   |   |   | 773,935 |   |   |   |   |
|      Enterprise      cost of revenues |   |                              | 265,208     |   |   |   |   |   |   | 135,747 |   |   |   |   |
| Total      cost of revenues                                    |   |                              | 867,473     |   |   |   | 39.9 |   |   |   | 909,682 |   |   |   | 34.1 |   |
| Gross      profit                                              |   |                              | 1,305,253   |   |   |   | 60.1 |   |   |   | 1,754,      366 |   |   |   | 65.9 |   |
|                                                           |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                        |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Sales      and marketing         |   |                              | 895,441     |   |   |   | 41.2 |   |   |   | 1,021,785 |   |   |   | 38.4 |   |
|      General      and administrative  |   |                              | 2,316,310   |   |   |   | 106.6 |   |   |   | 1,874,611 |   |   |   | 70.4 |   |
|      Research      and development    |   |                              | 1,034,217   |   |   |   | 47.6 |   |   |   | 921,386 |   |   |   | 34.6 |   |
|      Restructuring                    |   |                              | (14,285)    |   |   |   | (.6) |   |   |   | - |   |   |   |   |   |
|      Settlement      of claim         |   |                              | (147,500)   |   |   |   | (6.8) |   |   |   | - |   |   |   |   |   |
| Total      operating expenses                                  |   |                              | 4,084,183   |   |   |   | 188.0 |   |   |   | 3,817,782 |   |   |   | 143.4 |   |
|                                                           |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      from operations                                      |   |                              | (2,778,930) |   |   |   | (127.9) |   |   |   | (2,063,416) |   |   |   | (77.5) |   |
|                                                           |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income (expense), net                               |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Interest      expense            |   |                              | (3,198,174) |   |   |   | (147.2) |   |   |   | (2,721,372) |   |   |   | (102.1) |   |
|      Interest      and other income   |   |                              | 1,205,718   |   |   |   | 55.5 |   |   |   | 34,937 |   |   |   | 1.3 |   |
| Total      other income (expense), net                         |   |                              | (1,992,456) |   |   |   | (91.7) |   |   |   | (2,686,435) |   |   |   | (100.8) |   |
|                                                           |   |                              |        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss                                                  |   |                              | (4,771,386) |   |   |   | (219.6) |   |   |   | (4,749,851) |   |   |   | (178.3) |   |

----

----

----

----

|  ITEM 3. |   CONTROLS      AND PROCEDURES |
|---------------|------------------------------------------|

----

| PART      II.  OTHER INFORMATION |
|--------------------------------------------|

| ITEM      1.   | LEGAL PROCEEDINGS |
|---------------------|-------------------|

| ITEM      2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS |
|-------------------------------------------------------------------------------------|

PON SENIOR SECURITIES

M
MATTERS TO A VOTE OF SECURITY HOLDERS

|   | 1. | elected      four directors, Mark Campion, Doug Croxall, William Santo and Mark Tunney,      to serve for a term that will expire at the 2008 Annual Meeting of      Stockholders of the Company, subject to earlier resignation or removal;      and |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | ratified      the appointment of Causey Demgen & Moore, Inc. as our independent      registered public accounting firm for the fiscal year ending June 30,      2008. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

HE
NFORMATION

HIBITS

31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a)

or Rule15d-14(a)

31.2Certification of Principal Financial Officer pursuant to Rule

13a-14(a) or Rule 15d-14(a)

32.1Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant

ToSection 906 of the Sarbanes-Oxley Act Of 2002

99.1Equipment LeaseAgreement

----

| Date:       February      14, 2008  |   | Firepond,      Inc. (Registrant) |
|-----------------------------------------------|--------|----------------------------------|

|   |
|--------|

|   |
|--------|

|                         |   |   |                   |
|------------------------------|--------|--------|------------------------|
| /s/ William      Santo  |   |   | /s/      Stephen Peary |
|                         |   |   |                   |
| William      Santo, CEO |   |   | Stephen      Peary,CFO |

----