----

----

| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|-----------------------------------------------------------------------------------------|

|  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|--------|------------------------------------------------------------------------------------------|

| Delaware                                                       | 20-0996152                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |

| Large accelerated filer  ̈       | Accelerated filer  ̈ | Non-accelerated filer  ̈ | Smaller Reporting Company þ |
|-------------------------------------------------------------------------|-------------------------------|-----------------------------------|----------------------------------|

----

----

|                                 |                                                                                                                                                |   |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                 |                                                                                                                                                | Page   |
| PART I – FINANCIAL INFORMATION |                                                                                                                                                |
|                                 |                                                                                                                                                |   |
| ITEM 1.                              | FINANCIAL STATEMENTS                                                                                                                                | 1      |
|                                 |                                                                                                                                                |   |
|                                 | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009                                     | 1      |
|                                 |                                                                                                                                                |   |
|                                 | CONDENSED CONSOLIDATED STATEMENTS OF INCOME  FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009 (UNAUDITED)         | 2      |
|                                 |                                                                                                                                                |   |
|                                 | CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE  NINE MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED)                      | 3      |
|                                 |                                                                                                                                                |   |
|                                 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009 (UNAUDITED) | 4      |
|                                 |                                                                                                                                                |   |
|                                 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                                                                | 5      |
|                                 |                                                                                                                                                |   |
| ITEM 2.                              | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                         | 14     |
|                                 |                                                                                                                                                |   |
| ITEM 3.                              | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                          | 22     |
|                                 |                                                                                                                                                |   |
| ITEM 4T.                             | CONTROLS AND PROCEDURES                                                                                                                             | 23     |
|                                 |                                                                                                                                                |
| PART II – OTHER INFORMATION    |                                                                                                                                                |
|                                 |                                                                                                                                                |   |
| ITEM 1.                              | LEGAL PROCEEDINGS                                                                                                                                   | 23     |
|                                 |                                                                                                                                                |   |
| ITEM 1A.                             | RISK FACTORS                                                                                                                                        | 24     |
|                                 |                                                                                                                                                |   |
| ITEM 2.                              | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                                         | 24     |
|                                 |                                                                                                                                                |   |
| ITEM 3.                              | DEFAULTS UPON SENIOR SECURITIES                                                                                                                     | 24     |
|                                 |                                                                                                                                                |   |
| ITEM 4.                              | [REMOVED AND RESERVED]                                                                                                                              | 24     |
|                                 |                                                                                                                                                |   |
| ITEM 5.                              | OTHER INFORMATION                                                                                                                                   | 24     |
|                                 |                                                                                                                                                |   |
| ITEM 6.                              | EXHIBITS                                                                                                                                            | 25     |

----

|                                                                                                                                                                           |   | September 30, 2010 |        |   | December 31, 2009 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                           |   | (Unaudited)        |        |   |              |   |
|                                                                                                                                                                           |   |               |        |   |              |   |
| Assets                                                                                                                                                                         |   |               |        |   |              |   |
|                                                                                                                                                                           |   |               |        |   |              |   |
| Current Assets                                                                                                                                                                 |   |               |        |   |              |   |
| Cash and cash equivalents                                                                                                                                                      |   | $                  | 2,789,000   |   |              | $      | 2,454,000 |   |
| Accounts receivable - net of allowance for doubtful accounts of $30,000 and $13,000 at  September 30, 2010 and December 31, 2009, respectively                       |   |               | 4,446,000   |   |              |   | 2,534,000 |   |
| Inventories - net                                                                                                                                                              |   |               | 447,000     |   |              |   | 242,000 |   |
| Prepaid expenses and other current assets                                                                                                                                      |   |               | 409,000     |   |              |   | 335,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Total current assets                                                                                                                                                           |   |               | 8,091,000   |   |              |   | 5,565,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Fixed Assets - Net                                                                                                                                                             |   |               | 588,000     |   |              |   | 564,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Goodwill                                                                                                                                                                       |   |               | 8,280,000   |   |              |   | 7,568,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Intangible Assets - Net                                                                                                                                                        |   |               | 619,000     |   |              |   | - |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Other Assets                                                                                                                                                                   |   |               | 737,000     |   |              |   | 148,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Total Assets                                                                                                                                                                   |   | $                  | 18,315,000  |   |              | $      | 13,845,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Liabilities and Stockholders’ Deficit                                                                                                                                    |   |               |        |   |              |   |   |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Current Liabilities                                                                                                                                                            |   |               |        |   |              |   |   |   |
| Short-term borrowings                                                                                                                                                          |   | $                  | 483,000     |   |              | $      | 2,250,000 |   |
| Accounts payable                                                                                                                                                               |   |               | 981,000     |   |              |   | 817,000 |   |
| Accrued compensation                                                                                                                                                           |   |               | 1,349,000   |   |              |   | 834,000 |   |
| Accrued expenses and other current liabilities                                                                                                                                 |   |               | 819,000     |   |              |   | 597,000 |   |
| Warranty liability                                                                                                                                                             |   |               | 190,000     |   |              |   | 192,000 |   |
| Capitalized lease obligations                                                                                                                                                  |   |               | -           |   |              |   | 22,000 |   |
| Deferred revenue                                                                                                                                                               |   |               | 10,942,000  |   |              |   | 10,209,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Total current liabilities                                                                                                                                                      |   |               | 14,764,000  |   |              |   | 14,921,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Convertible Note Payable                                                                                                                                                       |   |               | 3,175,000   |   |              |   | - |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Deferred Revenue                                                                                                                                                               |   |               | 10,054,000  |   |              |   | 7,708,000 |   |
| Total liabilities                                                                                                                                                              |   |               | 27,993,000  |   |              |   | 22,629,000 |   |
|                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Stockholders’ Deficit                                                                                                                                                    |   |               |        |   |              |   |   |   |
| Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding                                                                                |   |               | -           |   |              |   | - |   |
| Common stock, $0.01 par value; 50,000,000 shares authorized; 15,922,696 and 13,319,991 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively |   |               | 157,000     |   |              |   | 132,000 |   |
| Additional paid-in capital                                                                                                                                                     |   |               | 41,742,000  |   |              |   | 40,774,000 |   |
| Accumulated deficit                                                                                                                                                            |   |               | (51,577,000 | )      |              |   | (49,690,000 | ) |
| Total stockholders’ deficit                                                                                                                                              |   |               | (9,678,000  | )      |              |   | (8,784,000 | ) |
| Total Liabilities and Stockholders’ Deficit                                                                                                                              |   | $                  | 18,315,000  |   |              | $      | 13,845,000 |   |

----

|                                          |   | Three months ended September 30, |       |   | Nine months ended September 30, |   |
|-----------------------------------------------|--------|----------------------------------|------------|--------|---------------------------------|--------|
|                                          |   | 2010                             |       |   | 2009                            |   |   | 2010 |   |   | 2009 |   |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |
| Revenues                                      |   |                             |       |   |                            |   |   |   |   |   |   |   |
| Subscription                                  |   | $                                | 3,623,000  |   |                            | $      | 3,615,000 |   |   | $ | 10,534,000 |   |   | $ | 10,996,000 |   |
| Appliance                                     |   |                             | 961,000    |   |                            |   | 875,000 |   |   |   | 2,727,000 |   |   |   | 2,691,000 |   |
| License                                       |   |                             | 3,000      |   |                            |   | 3,000 |   |   |   | 56,000 |   |   |   | 9,000 |   |
| Total Revenues                                |   |                             | 4,587,000  |   |                            |   | 4,493,000 |   |   |   | 13,317,000 |   |   |   | 13,696,000 |   |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Cost of Revenues                              |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Subscription                                  |   |                             | 678,000    |   |                            |   | 416,000 |   |   |   | 1,488,000 |   |   |   | 1,316,000 |   |
| Appliance                                     |   |                             | 651,000    |   |                            |   | 594,000 |   |   |   | 1,884,000 |   |   |   | 1,826,000 |   |
| License                                       |   |                             | 1,000      |   |                            |   | 9,000 |   |   |   | 13,000 |   |   |   | 11,000 |   |
| Total Cost of Revenues                        |   |                             | 1,330,000  |   |                            |   | 1,019,000 |   |   |   | 3,385,000 |   |   |   | 3,153,000 |   |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Gross Profit                                  |   |                             | 3,257,000  |   |                            |   | 3,474,000 |   |   |   | 9,932,000 |   |   |   | 10,543,000 |   |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                            |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                           |   |                             | 1,868,000  |   |                            |   | 1,474,000 |   |   |   | 5,288,000 |   |   |   | 4,715,000 |   |
| Research and development                      |   |                             | 1,249,000  |   |                            |   | 860,000 |   |   |   | 2,964,000 |   |   |   | 2,988,000 |   |
| General and administrative                    |   |                             | 1,330,000  |   |                            |   | 462,000 |   |   |   | 3,335,000 |   |   |   | 2,709,000 |   |
| Impairment expense                            |   |                             | -          |   |                            |   | 473,000 |   |   |   | - |   |   |   | 473,000 |   |
| Total Operating Expenses                      |   |                             | 4,447,000  |   |                            |   | 3,269,000 |   |   |   | 11,587,000 |   |   |   | 10,885,000 |   |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| (Loss) Income from Operations                 |   |                             | (1,190,000 | )      |                            |   | 205,000 |   |   |   | (1,655,000 | ) |   |   | (342,000 | ) |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Other Expense (Income)                        |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense - net                        |   |                             | 37,000     |   |                            |   | 79,000 |   |   |   | 133,000 |   |   |   | 250,000 |   |
| Other expense (income)                        |   |                             | 79,000     |   |                            |   | 9,000 |   |   |   | 99,000 |   |   |   | (29,000 | ) |
| Total Other Expense                           |   |                             | 116,000    |   |                            |   | 88,000 |   |   |   | 232,000 |   |   |   | 221,000 |   |
| Loss (Income) Before Income Taxes             |   |                             | (1,306,000 | )      |                            |   | 117,000 |   |   |   | (1,887,000 | ) |   |   | (563,000 | ) |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense                            |   |                             | -          |   |                            |   | - |   |   |   | - |   |   |   | (5,000 | ) |
| Net (Loss) Income                             |   | $                                | (1,306,000 | )      |                            | $      | 117,000 |   |   | $ | (1,887,000 | ) |   | $ | (568,000 | ) |
| (Loss) Income Per Common Share - Basic        |   | $                                | (0.09      | )      |                            | $      | 0.01 |   |   | $ | (0.14 | ) |   | $ | (0.04 | ) |
| (Loss) Income Per Common Share - Diluted      |   | $                                | (0.09      | )      |                            | $      | 0.01 |   |   | $ | (0.14 | ) |   | $ | (0.04 | ) |
|                                          |   |                             |       |   |                            |   |   |   |   |   |   |   |   |   |   |   |
| Weighted Average Shares Outstanding - Basic   |   |                             | 15,069,595 |   |                            |   | 13,720,371 |   |   |   | 13,956,331 |   |   |   | 14,467,141 |   |
| Weighted Average Shares Outstanding - Diluted |   |                             | 15,069,595 |   |                            |   | 13,873,815 |   |   |   | 13,956,331 |   |   |   | 14,467,141 |   |

----

|                                                            |   |         |       |   |    |   |    | Additional  |   |   |       |   |   |   |        |
|-----------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|---------|-------------|--------|--------|------------|--------|--------|--------|-------------|
|                                                            |   | Common Stock |       |   | Paid-in |   |    | Accumulated |   |   |       |   |
|                                                            |   | Shares       |       |   | Amount  |   |    | Capital     |   |   | Deficit    |   |   | Total  |        |
|                                                            |   |         |       |   |    |   |    |        |   |   |       |   |   |   |        |
| Balance at December 31, 2009                                    |   |         | 13,319,991 |   |    | $      | 132,000 |        |   | $      | 40,774,000 |   |   | $      | (49,690,000 | ) |   | $ | (8,784,000 | ) |
| Common stock issued under the employee stock purchase plan      |   |         | 139,886    |   |    |   | 1,000   |        |   |   | 24,000     |   |   |   | -           |   |   |   | 25,000 |   |
| Common stock issued for the exercise of employee stock options  |   |         | 46,547     |   |    |   | -       |        |   |   | 12,000     |   |   |   | -           |   |   |   | 12,000 |   |
| Common stock issued in connection with asset purchase agreement |   |         | 2,416,272  |   |    |   | 24,000  |        |   |   | 797,000    |   |   |   | -           |   |   |   | 821,000 |   |
| Stock-based compensation expense                                |   |         | -          |   |    |   | -       |        |   |   | 135,000    |   |   |   | -           |   |   |   | 135,000 |   |
| Net loss                                                        |   |         | -          |   |    |   | -       |        |   |   | -          |   |   |   | (1,887,000  | ) |   |   | (1,887,000 | ) |
| Balance at September 30, 2010                                   |   |         | 15,922,696 |   |    | $      | 157,000 |        |   | $      | 41,742,000 |   |   | $      | (51,577,000 | ) |   | $ | (9,678,000 | ) |

----

|                                                                             |   | Nine months ended September 30, |       |
|----------------------------------------------------------------------------------|--------|---------------------------------|------------|
|                                                                             |   | 2010                            |       |   | 2009 |   |
|                                                                             |   |                            |       |   |   |   |
| Cash Flows From Operating Activities                                             |   |                            |       |   |   |   |
| Net loss                                                                         |   | $                               | (1,887,000 | ) |   | $ | (568,000 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: |   |                            |       |   |   |   |   |   |
| Depreciation and amortization                                                    |   |                            | 314,000    |   |   |   | 281,000 |   |
| Allowance for doubtful accounts                                                  |   |                            | (9,000     | ) |   |   | (32,000 | ) |
| Loss on change in fair value of warrant derivative liability           |   |                            | 102,000    |   |   |   | 8,000 |   |
| Write-off of capitalized software                                                |   |                            | -          |   |   |   | 473,000 |   |
| Stock-based compensation expense                                                 |   |                            | 135,000    |   |   |   | 486,000 |   |
| Noncash interest expense                                                         |   |                            | 48,000     |   |   |   | 116,000 |   |
| Change in operating assets and liablilities, net of effect of acquisition:       |   |                            |       |   |   |   |   |   |
| Accounts receivable                                                              |   |                            | (1,265,000 | ) |   |   | 495,000 |   |
| Inventories                                                                      |   |                            | (156,000   | ) |   |   | (10,000 | ) |
| Prepaid expenses and other assets                                                |   |                            | (650,000   | ) |   |   | (418,000 | ) |
| Accounts payable                                                                 |   |                            | (256,000   | ) |   |   | (376,000 | ) |
| Accrued expenses and other current liabilities                                   |   |                            | 47,000     |   |   |   | (1,165,000 | ) |
| Accrued compensation                                                             |   |                            | 515,000    |   |   |   | 543,000 |   |
| Warranty liability                                                               |   |                            | (2,000     | ) |   |   | - |   |
| Deferred revenue                                                                 |   |                            | 2,102,000  |   |   |   | 67,000 |   |
| Net cash used by operating activities                                            |   |                            | (962,000   | ) |   |   | (100,000 | ) |
|                                                                             |   |                            |       |   |   |   |   |   |
| Cash Flows From Investing Activities                                             |   |                            |       |   |   |   |   |   |
| Acquisition, net of cash acquired                                                |   |                            | (66,000    | ) |   |   | - |   |
| Purchases of fixed assets                                                        |   |                            | (59,000    | ) |   |   | (75,000 | ) |
| Net cash used by investing activities                                            |   |                            | (125,000   | ) |   |   | (75,000 | ) |
|                                                                             |   |                            |       |   |   |   |   |   |
| Cash Flows From Financing Activities                                             |   |                            |       |   |   |   |   |   |
| Proceeds from convertible note payable                                           |   |                            | 3,175,000  |   |   |   | - |   |
| Proceeds from stock option exercises                                             |   |                            | 12,000     |   |   |   | - |   |
| Proceeds from the sales of stock under the employee stock purchase plan          |   |                            | 24,000     |   |   |   | 24,000 |   |
| Principal payments on capitalized lease obligations                              |   |                            | (22,000    | ) |   |   | (117,000 | ) |
| Net decrease in short-term borrowings                                            |   |                            | (1,767,000 | ) |   |   | (362,000 | ) |
| Net cash provided (used) by financing activities                                 |   |                            | 1,422,000  |   |   |   | (455,000 | ) |
| Net Increase (Decrease) in Cash and Cash Equivalents                             |   |                            | 335,000    |   |   |   | (630,000 | ) |
| Cash and Cash Equivalents at Beginning of Period                                 |   |                            | 2,454,000  |   |   |   | 2,051,000 |   |
| Cash and Cash Equivalents at End of Period                                       |   | $                               | 2,789,000  |   |   | $ | 1,421,000 |   |
|                                                                             |   |                            |       |   |   |   |   |   |
| Supplemental Disclosures of Cash Flow Information:                               |   |                            |       |   |   |   |   |   |
| Cash paid during the period for:                                                 |   |                            |       |   |   |   |   |   |
| Interest                                                                         |   | $                               | 69,000     |   |   | $ | 101,000 |   |
| Income taxes                                                                     |   | $                               | 2,000      |   |   | $ | 3,000 |   |
|                                                                             |   |                            |       |   |   |   |   |   |
| Non Cash Investing and Financing Activities:                                     |   |                            |       |   |   |   |   |   |
|                                                                             |   |                            |       |   |   |   |   |   |

| The Company acquired substantially all of the assets of Red Condor, Inc. for consideration of $1.0 million. |   |   |      |
|-------------------------------------------------------------------------------------------------------------|--------|--------|-----------|
|                                                                                                        |   |   |      |
| Fair value of assets acquired                                                                               |   | $      | 2,492,000 |   |
| Purchase consideration:                                                                                     |   |   |      |   |
| Common stock                                                                                                |   |   | (821,000  | ) |
| Cash                                                                                                        |   |   | (220,000  | ) |
| Fair Value of liabilities assumed                                                                           |   | $      | 1,451,000 |   |

|                                                                                                                                            |   |   |   |   |   |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|
| In January 2009, the Company reclassified 463,500 warrants with an estimated fair value of $41,000 from equity to warrant derivative liability. |   |   |   |   |   |

----

----

----

----

|                                |   | Amount |      |
|-------------------------------------|--------|--------|-----------|
| Net tangible assets and liabilities |   | $      | (310,000  | ) |
| Goodwill                            |   |   | 711,000   |   |
| Intangible assets                   |   |   | 640,000   |   |
|                                |   |   |      |   |
|                                |   | $      | 1,041,000 |   |

----

|                            |   | Nine Months        |   |   | Nine Months        |   |
|---------------------------------|--------|--------------------|--------|--------|--------------------|--------|
|                            |   | Ended              |   |   | Ended              |   |
|                            |   | September 30, 2010 |   |   | September 30, 2009 |   |
| Average expected life (years)   |   |               | 6.5    |   |               |   | 6.5 |   |
| Average expected volatility     |   |               | 49.5   | %      |               |   | 50.6 | % |
| Average risk-free interest rate |   |               | 3.4    | %      |               |   | 3.6 | % |
| Average expected dividend yield |   |               | 0      |   |               |   | 0 |   |

|                                      |   | Number ofSharesOutstanding |      |    | WeightedAverageExercisePrice |   |
|-------------------------------------------|--------|----------------------------|-----------|---------|------------------------------|--------|
|                                      |   |                       |      |    |                         |   |
| Options outstanding at December 31, 2009  |   |                       | 2,455,049 |    |                         | $      | 0.22 |   |
| Granted                                   |   |                       | 1,678,000 |    |                         | $      | 0.32 |   |
| Exercised                                 |   |                       | (46,547   | )  |                         | $      | 0.25 |   |
| Forfeited                                 |   |                       | (147,793  | )       |                         | $      | 0.25 |   |
| Options outstanding at September 30, 2010 |   |                       | 3,938,709 |    |                         | $      | 0.26 |   |
| Options exercisable at September 30, 2010 |   |                       | 1,318,977 |    |                         | $      | 0.24 |   |

|     Range of ExercisePrices |   |   | Number ofSharesOutstanding |   |   | WeightedAverageRemainingContractualLife in Years |   |   | WeightedAverageExercisePrice |   |   | NumberExercisable |   |   | WeightedAverageExercisePrice |   |
|--------------------------------------------|--------|--------|----------------------------|--------|--------|------------------------------------------------------------|--------|--------|------------------------------|--------|--------|-------------------|--------|--------|------------------------------|--------|
| $                                          | 0.14   |   |                       | $      | 0.16   |                                                       |   |   | 481,750                      |   |   |              | 8.46   |   |                         | $      | 0.16 |   |   |   | 90,594 |   |   | $ | 0.15 |   |
| $                                          | 0.18   |   |                       | $      | 0.19   |                                                       |   |   | 41,000                       |   |   |              | 8.25   |   |                         | $      | 0.18 |   |   |   | 2,766 |   |   | $ | 0.19 |   |
| $                                          | 0.20   |   |                       | $      | 0.20   |                                                       |   |   | 395,000                      |   |   |              | 8.94   |   |                         | $      | 0.20 |   |   |   | 104,323 |   |   | $ | 0.20 |   |
| $                                          | 0.22   |   |                       | $      | 0.24   |                                                       |   |   | 338,000                      |   |   |              | 9.16   |   |                         | $      | 0.23 |   |   |   | 42,222 |   |   | $ | 0.23 |   |
| $                                          | 0.25   |   |                       | $      | 0.25   |                                                       |   |   | 1,264,459                    |   |   |              | 5.22   |   |                         | $      | 0.25 |   |   |   | 1,077,092 |   |   | $ | 0.25 |   |
| $                                          | 0.26   |   |                       | $      | 0.26   |                                                       |   |   | 6,000                        |   |   |              | 8.98   |   |                         | $      | 0.26 |   |   |   | 1,980 |   |   | $ | 0.26 |   |
| $                                          | 0.29   |   |                       | $      | 0.29   |                                                       |   |   | 500,000                      |   |   |              | 9.58   |   |                         | $      | 0.29 |   |   |   | — |   |   | $ | — |   |
| $                                          | 0.32   |   |                       | $      | 0.34   |                                                       |   |   | 110,000                      |   |   |              | 5.40   |   |                         | $      | 0.34 |   |   |   | — |   |   | $ | — |   |
| $                                          | 0.35   |   |                       | $      | 0.35   |                                                       |   |   | 723,500                      |   |   |              | 9.56   |   |                         | $      | 0.35 |   |   |   | — |   |   | $ | — |   |
| $                                          | 0.42   |   |                       | $      | 0.58   |                                                       |   |   | 79,000                       |   |   |              | 9.68   |   |                         | $      | 0.53 |   |   |   | — |   |   | $ | — |   |
| $                                          | 0.14   |   |                       | $      | 0.58   |                                                       |   |   | 3,938,709                    |   |   |              | 7.81   |   |                         | $      | 0.26 |   |   |   | 1,318,977 |   |   | $ | 0.24 |   |

----

----

----

|                    |   | Nine months        |   |
|-------------------------|--------|--------------------|--------|
|                    |   | Ended              |   |
|                    |   | September 30, 2010 |   |
| Remaining life (years)  |   |               | 4.3    |   |
| Expected volatility     |   |               | 53.4   | % |
| Risk-free interest rate |   |               | 2.5    | % |
| Expected dividend yield |   |               | 0      |   |
| Stock price             |   |  $            | 0.58   |   |

| Balance at December 31, 2009                           |   | $      | 19,000  |   |
|--------------------------------------------------------|--------|--------|---------|--------|
| Loss on change in fair value included in other expense |   |   | 102,000 |   |
| Balance at September 30, 2010                          |   | $      | 121,000 |   |

----

----

----

|   | ● | revenue recognition;                          |
|--------|---------|-----------------------------------------------|
|   | ● | allowance for doubtful accounts;              |
|   | ● | intangible assets;                            |
|   | ● | impairment of goodwill and long-lived assets; |
|   | ● | accounting for income taxes;                  |
|   | ● | warranty obligation; and                      |
|   | ● | accounting for stock options.                 |

|           |   | For the            |   |   |   |   |
|----------------|--------|--------------------|--------|--------|--------|--------|
|           |   | Three Months Ended |   |   |   |   |
|           |   | September 30,      |   |   |   |   |
|           |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Total revenues |   | $                  | 4,587  |   |   | $      | 4,493 |   |   |   | 2.1%  |   |

|                              |   | For the            |   |   |   |   |
|-----------------------------------|--------|--------------------|--------|--------|--------|--------|
|                              |   | Three Months Ended |   |   |   |   |
|                              |   | September 30,      |   |   |   |   |
|                              |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Subscription revenues             |   | $                  | 3,623  |   |   | $      | 3,615 |   |   |   | 0.2% |   |
|                              |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |               | 79.0%  |   |   |   | 80.5% |   |   |   |   |   |

----

|                              |   | For the            |   |   |   |   |
|-----------------------------------|--------|--------------------|--------|--------|--------|--------|
|                              |   | Three Months Ended |   |   |   |   |
|                              |   | September 30,      |   |   |   |   |
|                              |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Appliance revenues                |   | $                  | 961    |   |   | $      | 875 |   |   |   | 9.8% |   |
|                              |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |               | 21.0%  |   |   |   | 19.5% |   |   |   |   |   |

|                    |   | For the            |   |   |   |   |
|-------------------------|--------|--------------------|--------|--------|--------|--------|
|                    |   | Three Months Ended |   |   |   |   |
|                    |   | September 30,      |   |   |   |   |
|                    |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Total cost of revenues  |   | $                  | 1,330  |   |   | $      | 1,019 |   |   |   | 30.5% |   |
|                    |   |               |   |   |   |   |   |   |   |   |   |   |
| Gross margin percentage |   |               | 71.0%  |   |   |   | 77.3% |   |   |   |   |   |

|                          |   | For the            |   |   |   |   |
|-------------------------------|--------|--------------------|--------|--------|--------|--------|
|                          |   | Three Months Ended |   |   |   |   |
|                          |   | September 30,      |   |   |   |   |
|                          |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Cost of subscription revenues |   | $                  | 678    |   |   | $      | 416 |   |   |   | 63.0% |   |
|                          |   |               |   |   |   |   |   |   |   |   |   |   |
| Gross margin percentage       |   |               | 81.3%  |   |   |   | 88.5% |   |   |   |   |   |

|                       |   | For the            |   |   |   |   |
|----------------------------|--------|--------------------|--------|--------|--------|--------|
|                       |   | Three Months Ended |   |   |   |   |
|                       |   | September 30,      |   |   |   |   |
|                       |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Cost of appliance revenues |   | $                  | 651    |   |   | $      | 594 |   |   |   | 9.6% |   |
|                       |   |               |   |   |   |   |   |   |   |   |   |   |
| Gross margin percentage    |   |               | 32.3%  |   |   |   | 32.1% |   |   |   |   |   |

|                              |   | For the            |   |   |   |   |
|-----------------------------------|--------|--------------------|--------|--------|--------|--------|
|                              |   | Three Months Ended |   |   |   |   |
|                              |   | September 30,      |   |   |   |   |
|                              |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Sales and marketing expense       |   | $                  | 1,868  |   |   | $      | 1,474 |   |   |   | 26.7% |   |
|                              |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |               | 40.7%  |   |   |   | 32.8% |   |   |   |   |   |

----

|                              |   | For the            |   |   |   |   |
|-----------------------------------|--------|--------------------|--------|--------|--------|--------|
|                              |   | Three Months Ended |   |   |   |   |
|                              |   | September 30,      |   |   |   |   |
|                              |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Research and development expense  |   | $                  | 1,249  |   |   | $      | 860 |   |   |   | 45.2% |   |
|                              |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |               | 27.2%  |   |   |   | 19.1% |   |   |   |   |   |

|                               |   | For the            |   |   |   |   |
|------------------------------------|--------|--------------------|--------|--------|--------|--------|
|                               |   | Three Months Ended |   |   |   |   |
|                               |   | September 30,      |   |   |   |   |
|                               |   | 2010               |   |   | 2009   |   |   | % Change |   |
| General and administrative expense |   | $                  | 1,330  |   |   | $      | 462 |   |   |   | 187.9% |   |
|                               |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues  |   |               | 29.0%  |   |   |   | 10.3% |   |   |   |   |   |

|                              |   | For the            |   |   |   |   |
|-----------------------------------|--------|--------------------|--------|--------|--------|--------|
|                              |   | Three Months Ended |   |   |   |   |
|                              |   | September 30,      |   |   |   |   |
|                              |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Write-off of capitalized software |   | $                  | 0      |   |   | $      | 473 |   |   |   | (100.0)% |   |
|                              |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |               | 0.0%   |   |   |   | 10.5% |   |   |   |   |   |

----

|                              |   | For the            |   |   |   |   |
|-----------------------------------|--------|--------------------|--------|--------|--------|--------|
|                              |   | Three Months Ended |   |   |   |   |
|                              |   | September 30,      |   |   |   |   |
|                              |   | 2010               |   |   | 2009   |   |   | % Change |   |
| Interest and other income, net    |   | $                  | 116    |   |   | $      | 88 |   |   |   | 31.8% |   |
|                              |   |               |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |               | 2.5%   |   |   |   | 2.0% |   |   |   |   |   |

|           |   | For the           |   |   |   |   |
|----------------|--------|-------------------|--------|--------|--------|--------|
|           |   | Nine months Ended |   |   |   |   |
|           |   | September 30,     |   |   |   |   |
|           |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Total revenues |   | $                 | 13,317 |   |   | $      | 13,696 |   |   |   | (2.8)%  |   |

|                              |   | For the           |   |   |   |   |
|-----------------------------------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Nine months Ended |   |   |   |   |
|                              |   | September 30,     |   |   |   |   |
|                              |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Subscription revenues             |   | $                 | 10,534 |   |   | $      | 10,996 |   |   |   | (4.2)% |   |
|                              |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |              | 79.1%  |   |   |   | 80.3% |   |   |   |   |   |

|                              |   | For the           |   |   |   |   |
|-----------------------------------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Nine months Ended |   |   |   |   |
|                              |   | September 30,     |   |   |   |   |
|                              |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Appliance revenues                |   | $                 | 2,727  |   |   | $      | 2,691 |   |   |   | 1.3% |   |
|                              |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |              | 20.5%  |   |   |   | 19.6% |   |   |   |   |   |

|                    |   | For the           |   |   |   |   |
|-------------------------|--------|-------------------|--------|--------|--------|--------|
|                    |   | Nine months Ended |   |   |   |   |
|                    |   | September 30,     |   |   |   |   |
|                    |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Total cost of revenues  |   | $                 | 3,385  |   |   | $      | 3,153 |   |   |   | 7.4% |   |
|                    |   |              |   |   |   |   |   |   |   |   |   |   |
| Gross margin percentage |   |              | 74.6%  |   |   |   | 77.0% |   |   |   |   |   |

----

|                          |   | For the           |   |   |   |   |
|-------------------------------|--------|-------------------|--------|--------|--------|--------|
|                          |   | Nine months Ended |   |   |   |   |
|                          |   | September 30,     |   |   |   |   |
|                          |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Cost of subscription revenues |   | $                 | 1,488  |   |   | $      | 1,316 |   |   |   | 13.1% |   |
|                          |   |              |   |   |   |   |   |   |   |   |   |   |
| Gross margin percentage       |   |              | 85.9%  |   |   |   | 88.0% |   |   |   |   |   |

|                       |   | For the           |   |   |   |   |
|----------------------------|--------|-------------------|--------|--------|--------|--------|
|                       |   | Nine months Ended |   |   |   |   |
|                       |   | September 30,     |   |   |   |   |
|                       |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Cost of appliance revenues |   | $                 | 1,884  |   |   | $      | 1,826 |   |   |   | 3.2% |   |
|                       |   |              |   |   |   |   |   |   |   |   |   |   |
| Gross margin percentage    |   |              | 30.9%  |   |   |   | 32.1% |   |   |   |   |   |

|                              |   | For the           |   |   |   |   |
|-----------------------------------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Nine months Ended |   |   |   |   |
|                              |   | September 30,     |   |   |   |   |
|                              |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Sales and marketing expense       |   | $                 | 5,288  |   |   | $      | 4,715 |   |   |   | 12.2% |   |
|                              |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |              | 39.7%  |   |   |   | 34.4% |   |   |   |   |   |

|                              |   | For the           |   |   |   |   |
|-----------------------------------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Nine months Ended |   |   |   |   |
|                              |   | September 30,     |   |   |   |   |
|                              |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Research and development expense  |   | $                 | 2,964  |   |   | $      | 2,988 |   |   |   | (0.8)% |   |
|                              |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |              | 22.3%  |   |   |   | 21.8% |   |   |   |   |   |

----

|                               |   | For the           |   |   |   |   |
|------------------------------------|--------|-------------------|--------|--------|--------|--------|
|                               |   | Nine months Ended |   |   |   |   |
|                               |   | September 30,     |   |   |   |   |
|                               |   | 2010              |   |   | 2009   |   |   | % Change |   |
| General and administrative expense |   | $                 | 3,335  |   |   | $      | 2,709 |   |   |   | 23.1% |   |
|                               |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues  |   |              | 25.0%  |   |   |   | 19.8% |   |   |   |   |   |

|                              |   | For the           |   |   |   |   |
|-----------------------------------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Nine Months Ended |   |   |   |   |
|                              |   | September 30,     |   |   |   |   |
|                              |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Write-off of capitalized software |   | $                 | 0      |   |   | $      | 473 |   |   |   | (100.0)% |   |
|                              |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |              | 0.0%   |   |   |   | 3.5% |   |   |   |   |   |

|                              |   | For the           |   |   |   |   |
|-----------------------------------|--------|-------------------|--------|--------|--------|--------|
|                              |   | Nine months Ended |   |   |   |   |
|                              |   | September 30,     |   |   |   |   |
|                              |   | 2010              |   |   | 2009   |   |   | % Change |   |
| Interest and other income, net    |   | $                 | 232    |   |   | $      | 221 |   |   |   | 5.0% |   |
|                              |   |              |   |   |   |   |   |   |   |   |   |   |
| As a percentage of total revenues |   |              | 1.7%   |   |   |   | 1.6% |   |   |   |   |   |

----

----

----

----

----

| 3.1    | Amended and Restated Certificate of Incorporation of St. Bernard Software, Inc. (formerly known as Sand Hill IT Security Acquisition Corp.) (incorporated herein by reference to Exhibit 3.1.1 to the Company’s Registration Statement on Form S-4 initially filed with the Securities and Exchange Commission on December 16, 2005).                   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 3.2    | Amended and Restated Bylaws of St. Bernard Software, Inc. (formerly known as Sand Hill IT Security Acquisition Corp.) (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K initially filed with the Securities and Exchange Commission on April 5, 2007).                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.1    | Specimen Unit Certificate of St. Bernard Software, Inc. (formerly known as Sand Hill IT Security Acquisition Corp.) (incorporated herein by reference to Exhibit 4.1 to the Company’s Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-114861) filed with the Securities and Exchange Commission on June 23, 2004).         |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.2    | Specimen Common Stock Certificate of St. Bernard Software, Inc. (formerly known as Sand Hill IT Security Acquisition Corp.) (incorporated herein by reference to Exhibit 4.2 to the Company’s Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-114861) filed with the Securities and Exchange Commission on June 23, 2004). |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.3    | Specimen Warrant Certificate of St. Bernard Software, Inc. (formerly known as Sand Hill IT Security Acquisition Corp.) (incorporated herein by reference to Exhibit 4.3 to the Company’s Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-114861) filed with the Securities and Exchange Commission on June 23, 2004).           |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.4    | Warrant issued by St. Bernard Software, Inc. on May 16, 2007 to Silicon Valley Bank (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2007).                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.5    | Warrant issued by St. Bernard Software, Inc. on January 25, 2008 to Agility Capital, LLC (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2008).                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.6    | Warrant issued by St. Bernard Software, Inc. on January 25, 2008 to Silicon Valley Bank (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2008).                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.7    | Warrant issued by St. Bernard Software, Inc. on July 21, 2008 to Partners for Growth II, L.P. (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008).                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.8    | Warrant Purchase Agreement between St. Bernard Software, Inc. and Partners for Growth II, L.P. dated July 21, 2008 (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2008).                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.9    | Warrant Purchase Agreement among Humphrey P. Polanen and Newbridge Securities Corporation and I-Bankers Securities Incorporated (incorporated herein by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-114861) filed with the Securities and Exchange Commission on April 26, 2004.)                      |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.10   | Warrant Purchase Agreement between St. Bernard Software, Inc. and RWI Ventures II, L.P. dated July 28, 2010 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2010).                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.11   | Convertible Note Agreement between St. Bernard Software, Inc. and certain Noteholders dated July 28, 2010 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2010).                                                                           |

----

| 10.1   | St. Bernard Software, Inc. Amended and Restated 2005 Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 4, 2008).                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                            |
| 10.2   | St. Bernard Software, Inc. 2006 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2006).                                                                  |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.3   | St. Bernard Software, Inc. 2006 Recruitment Equity Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2006).                                                                  |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.4   | Loan and Security Agreement between St. Bernard Software, Inc. and Silicon Valley Bank dated May 11, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 23, 2007).                               |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.5   | Third Amendment to Loan and Security Agreement between St. Bernard Software, Inc. and Silicon Valley Bank dated January 25, 2008 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2008).    |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.6   | Intellectual Property Security Agreement between St. Bernard Software, Inc. and Silicon Valley Bank dated January 25, 2008 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 31, 2008).          |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.7*  | Employment Agreement between St. Bernard Software, Inc. and Louis E. Ryan executed February 10, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 11, 2009).                               |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.8   | Fifth Amendment to Loan and Security Agreement between St. Bernard Software, Inc. and Silicon Valley Bank dated February 27, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2009).      |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.9   | First Amendment to Loan Agreement between St. Bernard Software, Inc. and Partners for Growth II, L.P. dated February 27, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2009).          |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.10* | Amended Employment Agreement between St. Bernard Software, Inc. and Steve Yin executed April 2, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2009).                                   |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.11* | Employment agreement between St. Bernard Software, Inc. and Thalia Gietzen executed June 15, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 13, 2009).                                      |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.12* | Amended Employment Agreement between St. Bernard Software, Inc. and Louis E. Ryan executed January 19, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2010).                         |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.13  | Sixth Amendment to Loan and Security Agreement between St. Bernard Software, Inc. and Silicon Valley Bank dated March 23, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 25, 2010).        |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.14* | Employment agreement between St. Bernard Software, Inc. and Brian Nugent executed April 28, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 4, 2010).                                         |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.15  | Lease Agreement between St. Bernard Software, Inc. and Kilroy Realty, L.P., dated August 2, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 6, 2010).                                 |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.16  | Seventh Amendment to Loan and Security Agreement between St. Bernard Software, Inc. and Silicon Valley Bank dated September 29, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 5, 2010). |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.17  | Asset Purchase Agreement between St. Bernard Software, Inc. and Red Condor, Inc. dated July 28, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 3, 2010.)                                  |
|   |                                                                                                                                                                                                                                                                                                            |
| 10.18  | Amendment No. 1 to the Asset Purchase Agreement between St. Bernard Software, Inc. and Red Condor, Inc. dated July 28, 2010 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 13, 2010.)         |

----

| 31.1   | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                               |
| 31.2   | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |                                                                                                                                                                                                               |
| 32.1   | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                       |
|   |                                                                                                                                                                                                               |
| 32.2   | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                       |
|   |                                                                                                                                                                                                               |

| *   Management contract or compensatory plan or arrangement |
|----------------------------------------------------------------------------|

----

|                     | ST. BERNARD SOFTWARE, INC. |
|--------------------------|----------------------------|
|                     |                       |   |
|                     |                       |   |
| Dated: November 15, 2010 | By:                        | /s/ Louis E. Ryan |
|                     |                       | Louis E. RyanChief Executive Officer andChairman of the Board of Directors |

----