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================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 ______________

                                    FORM 10-K

                        For Annual and Transition Reports
                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                                   (MARK ONE)
 (X)   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2007.
                                       OR
 ( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934.
             FOR THE TRANSITION PERIOD FROM _________ TO _________.
                        COMMISSION FILE NUMBER _________
                                 ______________

                           ILINC COMMUNICATIONS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  DELAWARE                                  76-0545043
       (STATE OR OTHER JURISDICTION                      (I.R.S. EMPLOYER
     OF INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NO.)

                         2999 N. 44TH STREET, SUITE 650
                             PHOENIX, ARIZONA 85018
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)     (602) 952-1200
                                                         ______________

 Securities registered pursuant to                   Name of Exchange on Which
    Section 12(b) of the Act                                Registered
COMMON, $0.001 PAR VALUE PER SHARE                    AMERICAN STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act
                         NONE

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         Indicate by check mark whether the registrant is an accelerated filer
           (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)
         Indicate by check mark whether the registrant is a small company
           (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)
         Indicate by check mark whether the  registrant is a shell company (as
           defined in Rule 12b-2 of the Exchange  Act).  Yes ( ) No (X)

         The aggregate market value of the registrant's voting and non-voting
common stock held by non-affiliates of the registrant computed by reference to
the price at which the common equity was last sold on the American Stock
Exchange as of March 31, 2007, was approximately $13,492,278 using a closing
price of $0.66 per share.

         The number of shares of common stock of the registrant, par value
$0.001 per share, outstanding at June 25, 2007 was 33,585,431 net of shares
held in treasury.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the definitive Proxy Statement relating to the Annual
Meeting of Stockholders of the registrant to be held on August 24, 2007 are
incorporated by reference into Part III of this Report.

================================================================================





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FORM 10-K REPORT INDEX


<TABLE>
<S>     <C>
                                             PART I
Item 1.     Business...................................................................................4
Item 1A.    Risk Factors...............................................................................10
Item 2.     Properties.................................................................................13
Item 3.     Legal Proceedings..........................................................................13
Item 4.     Submission of Matters to a Vote of Security Holders........................................13
Item 4A.    Executive Officers.........................................................................14


                                             PART II
Item 5.     Market for Registrant's Common Stock and Related Shareholder Matters.......................15
Item 6.     Selected Financial Data....................................................................16
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations......17
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.................................34
Item 8.     Financial Statements and Supplementary Data................................................35
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......71
Item 9A.    Controls and Procedures....................................................................71
Item 9B.    Other......................................................................................72


                                            PART III
Item 10.    Directors and Executive Officers of the Registrant.........................................72
Item 11.    Executive Compensation ....................................................................72
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related
               Shareholder Matters.....................................................................72
Item 13.    Certain Relationships and Related Transactions.............................................72
Item 14.    Principal Accountant Fees..................................................................72


                                             PART IV
Item 15.    Exhibits and Financial Statement Schedules.................................................73
</TABLE>


                                       2




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                           FORWARD-LOOKING STATEMENTS

         Unless the context requires otherwise, references in this document to
"iLinc Communications," "iLinc" the "Company," "we," "us," and "our" refer to
iLinc Communications, Inc.

         Statements contained in this Annual Report on Form 10-K that involve
words like "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended. These are statements that relate to future periods and
include, but are not limited to, statements as to our ability to: sell our
products and services; improve the quality of our software; derive overall
benefits of our products and services; introduce new products and versions of
our existing products; sustain and increase revenue from existing products;
integrate current and emerging technologies into our product offerings; control
our expenses including those related to sales and marketing, research and
development, and general and administrative expenses; control changes in our
customer base; support our customers and provide sufficient technological
infrastructure; obtain sales or increase revenues; impact the results of legal
proceedings; control and implement changes in our employee headcount; obtain
sufficient cash flow; manage liquidity and capital resources; realize positive
cash flow from operations; or realize net earnings.

         Such forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ materially from anticipated results.
These risks and uncertainties include, but are not limited to, our dependence on
our products or services, market demand for our products and services, our
ability to attract and retain customers and channel partners, our ability to
expand our technological infrastructure to meet the demand from our customers,
our ability to recruit and retain qualified employees, the ability of channel
partners to successfully resell our products, the status of the overall economy,
the strength of competitive offerings, the pricing pressures created by market
forces and the risks discussed herein (see "Management's Discussion and Analysis
of Financial Condition and Results of Operations"). All forward-looking
statements included in this report are based on information available to us as
of the date hereof. We expressly disclaim any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein, to reflect any change in our expectations or in events,
conditions or circumstances on which any such statement is based. Readers are
urged to carefully review and consider the various disclosures made in this
report and in our other reports filed with the SEC that attempt to advise
interested parties of certain risks and factors that may affect our business.
Our reports are available free of charge as soon as reasonably practicable after
such material is electronically filed with the SEC and may be obtained through
our Web site located at www.ilinc.com.

             iLinc, iLinc Communications, iLinc Suite, MeetingLinc, LearnLinc,
ConferenceLinc, SupportLinc, EventPlus, On-Demand, iReduce, iLinc Enterprise
Unlimited and its logos are trademarks or registered trademarks of iLinc
Communications, Inc. All other company names and products may be trademarks of
their respective companies.


                                       3




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                                     PART I

ITEM 1.  BUSINESS

COMPANY OVERVIEW

         Headquartered in Phoenix, Arizona, iLinc Communications, Inc., a
Delaware Corporation, is a leading provider of Web conferencing and audio
conferencing software and services. We develop and sell software that provides
real-time collaboration and training using Web-based tools. Our four-product
iLinc Suite, comprised of LearnLinc, MeetingLinc, ConferenceLinc and
SupportLinc, is an award winning virtual classroom, Web conferencing and
collaboration suite of software. Our software is based on a proprietary
architecture and code that finds its origins as far back as 1994, in what we
believe to be the beginnings of the Web collaboration industry. Versions of the
iLinc Suite have been translated into six languages, and it is currently
available in version 9.0. Uses for our four-product suite of Web collaboration
software include online business meetings, sales presentations, training
sessions, product demonstrations and technical support assistance. We sell our
software solutions to large and medium-sized corporations inside and outside of
the Fortune 1000. We market our products using a direct sales force and a
distribution channel consisting of agents, distributors, value added resellers
and OEM partners. We allow customers to choose between purchasing a perpetual
license and subscribing to a term license, providing for flexibility in pricing
and payment methods. Our revenues are a mixture of perpetual and periodic
licenses of software, subscription revenues from annual software maintenance,
hosting and support agreements and audio conferencing services.

PRODUCTS AND SERVICES

WEB CONFERENCING AND WEB COLLABORATION

         The iLinc Suite is a four-product suite of software that addresses the
most common business collaboration needs.

         LearnLinc is an Internet-based software that is designed for training
and education of remote students. With LearnLinc, instructors and students can
collaborate and learn remotely providing an enhanced learning environment that
replicates and surpasses traditional instructor-led classes. Instructors can
create courses and classes, add varied agenda items, enroll students, deliver
live instruction and deliver content that includes audio, video and interactive
multimedia. In combination with TestLinc, LearnLinc permits users to administer
comprehensive tests, organize multiple simultaneous breakout sessions and
record, edit, play back and archive entire sessions for future use.

         MeetingLinc is an online collaboration software designed to facilitate
the sharing of documents, PowerPoint(TM) presentations, graphics and
applications between meeting participants without leaving their desks.
MeetingLinc allows business professionals, government employees and educators to
communicate more effectively and economically through interactive online
meetings using Voice-over IP technology to avoid the expense of travel and long
distance charges. MeetingLinc allows remote participants to give presentations,
demonstrate their products and services, annotate on virtual whiteboards, edit
documents simultaneously and take meeting participants on a Web tour. Like all
of the Web collaboration products in the Suite, MeetingLinc includes integrated
voice and video conferencing services.

         ConferenceLinc is a presentation software designed to deliver the
message in a one-to-many format providing professional management of Web
conferencing events. ConferenceLinc manages events such as earnings
announcements, press briefings, new product announcements, corporate internal
mass communications and external marketing events. ConferenceLinc is built on
the MeetingLinc software platform and code to combine the best interactive
features with an easy-to-use interface providing meaningful and measurable
results to presenters and participants alike. Its design includes features that
take the hassle out of planning and supporting a hosted Web seminar.
ConferenceLinc includes automatic email invitations, "one-click join"
capabilities, online confirmations, update notifications and customized attendee
registration. With ConferenceLinc, presenters may not only present content, but
may also gain audience feedback using real-time polling, live chat, question and
answer sessions and post-event assessments. The entire presentation is easily
recordable for viewing offline and review after the show with the recorder
capturing the content and the audio, video and participant feedback.

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         SupportLinc is an online technical support and customer sales support
software designed to give customer service organizations the ability to provide
remote hands-on support for products, systems or software applications.
SupportLinc manages the support call volume and enhances the effectiveness of
traditional telephone-based customer support systems. SupportLinc's custom
interface is designed to be simple to use so as to improve the interaction and
level of support for both customers and their technical support agents.

         Our Web collaboration software is sold on a perpetual license or
periodic license basis. A customer may choose to acquire a one-time perpetual
license (the "Purchase Model") or may rent our software on a periodic basis on
either a per-seat, per-month or per-minute basis (the "Subscription Model").
Should they choose to acquire the software using the Purchase Model, then they
may either elect to host our software behind their own firewall or they may
choose to have iLinc host it for them, depending upon their preferences, budget
and IT capabilities. Customers who select the Purchase Model, whether hosted by
iLinc or the customer, may also subscribe for ongoing customer support and
maintenance and software upgrade services, using a support and maintenance
contract with terms from one to five years. The annual maintenance and support
fee charged is initially based upon a percentage of the purchase price that
varies between 12% and 18% of the purchase license fee paid for the perpetual
licenses, with the percentage depending upon the contractual length and
pre-payment of the annual maintenance and support agreement. If a customer
chooses to have iLinc host their Purchase Model licenses, then the customer is
also charged an annual hosting fee equal to 10% of the Purchase Model License
fee that was paid for the perpetual license.

         During fiscal 2006, iLinc launched its Enterprise Unlimited perpetual
licensing model that enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web conferencing, as well as a named-user model
that permits a host to subscribe for a limited use room. Those customers who
qualify for the iLinc Enterprise Unlimited site license may subscribe to an
unlimited use license. The initial iLinc Enterprise Unlimited license fee is
determined based upon the number of employees within the customer's organization
and various other factors. The annual maintenance and support fees and hosting
fees associated with an iLinc Enterprise Unlimited license are then based upon a
fixed rate per-seat license that is active on each annual anniversary of the
iLinc Enterprise Unlimited license agreement. Customers may expand the number of
active seats available to them at any time with a corresponding increase in
annual maintenance and hosting fees being charged.

         Customers choosing the Subscription Model pay per seat (concurrent
connection) on either a per-month or per-year basis depending upon the length
and term of the subscription agreement. Hosting and maintenance are included as
a part of the monthly or annual rental fees. Customers may also obtain Web
conferencing and audio conferencing on a per-minute basis using the iLinc
On-Demand product. Those choosing the iLinc On-Demand product pay on a monthly
basis typically without contractual commitment.

AUDIO CONFERENCING

         The Company also delivers comprehensive audio conferencing solutions
that help businesses provide virtual meetings, corporate events, distance
learning programs and daily conference calls. Our audio conferencing offering
includes a wide array of services and products that include the following:

         o    AUDIO ON-DEMAND (NO RESERVATIONS NEEDED): With pre-established
              calling accounts for each user, you can create or participate in
              conference calls with no advance notice, 24/7;

         o    RESERVED AUTOMATED: The solution for recurring calls, each
              participant has a permanent number and passcode;

         o    OPERATOR ASSISTED: For important calls, this service includes an
              iLinc conference operator to host, monitor and coordinate the
              call; and,

         o    ONLINE SEMINARS: High-quality event services that include
              invitation and user management, scripting, presentation
              preparation, post show distribution and dedicated operator
              assistance from iLinc.

         Customers may purchase our audio conferencing products and services
without an annual contract commitment on a monthly recurring usage basis, and
often subscribe for a fixed per-minute rate.

         iLinc recently launched version 9.0 of the iLinc Suite(TM) in June 2007
as a fully integrated voice and Web conferencing system allowing customers to
manage all aspects of their audio and Web session.

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<PAGE>

OTHER PRODUCTS AND SERVICES

         In addition to the iLinc Suite of products and audio conferencing
services, we offer to our customers custom content development services through
a subcontractor relationship and an off-the-shelf online library of content that
includes an online mini-MBA program co-developed with the Tuck School of
Business at Dartmouth College. These other services are a small portion of our
overall revenue base and will likely phase out as an offered service over the
next three years.

INDUSTRY TRENDS

         Industry analyst Frost and Sullivan in their 2005 World Web
Conferencing Market report separates the Web Conferencing vendor community into
distinct groups that include: service providers ("Service Providers") and
software providers ("Software Providers"). The difference between Service
Providers and Software Providers is that the Service Providers effectively only
offer Web conferencing as an ASP service or rental model basis. However,
Software Providers offer Web conferencing as a solution that can be purchased
and owned by customers (whether the software is installed internally by
customers or hosted by the software provider). iLinc is one of the only
providers that effectively competes in both the Service Provider and Software
Provider markets. While we also offer our iLinc Suite as an ASP or per-minute
service, the predominate licensing arrangement selected by our customer base
remains the Purchase Model. The Web conferencing software market is the faster
growing segment, representing about $227 million of the current Web conferencing
market. A Frost and Sullivan forecast projects a 40% Compound Annual Growth Rate
("CAGR") between 2002 and 2010 (as compared with the service provider market
which is projected to grow at a 22% CAGR for the same time period). The Software
Provider market, based upon its higher growth rate, is expected to outgrow the
Service Provider market by the end of 2009.

         Another important trend in the industry is the convergence of
communication technologies such as audio and Web conferencing and the increase
in demand for a single source for both of these capabilities. Frost and Sullivan
has noted, in a separate report on audio conferencing, that the demand for
integrated audio, Web and video conferencing solutions continues to surge as end
user needs for easy-to-use, single-source solutions as well. Developing and
providing a truly converged user environment and experience, including the
integration of audio, Web and video conferencing technologies, is essential.
With the addition of audio conferencing capabilities, we have been able to
provide a single source for deeply integrated Web, audio, video as well as
Voice-over IP. Increasingly, the option a vendor chooses for Web conferencing
determines their selection for audio conferencing. We believe we have already
made significant progress in selling audio conferencing to the iLinc customer
base and we actively cross sell all of our products and services to all
customers. We believe that another benefit of the integrated conferencing
approach is customer retention. According to the same Frost and Sullivan report,
when Web conferencing and audio conferencing are sold together as an integrated
package there is a significant increase in retention of the audio conferencing
service. We are continuing to create incentives for our audio customers to be
both Web and audio customers to drive this retention.

MARKET POSITION - DIFFERENTIATORS

         We view our position in the market as the best solution for the
enterprise-wide buyer that has already adopted Web conferencing, as well as
organizations that believe their usage of Web conferencing will grow quickly. A
growing number of these organizations are using four or more different vendors
for Web or audio conferencing services and, therefore, not realizing the
economies of scale that consolidating to one or two vendors for these services
can provide. There are also other important considerations revolving around Web
conferencing such as security and bandwidth availability that are forcing the
buying decision for Web and audio conferencing out of the business units and
into the IT department. We believe that our solution uniquely maps to critical
IT requirements among these mature buyers in four important areas.

         First, we offer WEB CONFERENCING SOFTWARE WITH FLEXIBLE LICENSING
OPTIONS that allows organizations to pay a one-time license fee to install the
software inside of their environment, or to purchase perpetual licenses and have
those licenses hosted in our co-location facility. We find this flexibility to
be an important differentiator to address the needs of customers that are ready
to make an enterprise-wide decision as well as customers that think their usage
may grow throughout their organization. We believe this licensing structure also
enables us to maintain a consistent revenue stream of smaller sized purchases
while also winning larger enterprise-wide deals that help substantially increase
revenue growth.

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         Second, we believe we offer the HIGHEST LEVEL OF DATA SECURITY
commercially available. We believe that we are the only Web conferencing
provider that offers a customer-hosted solution with a purchase license option
and true point-to-point security with our unique combination of Advanced
Encryption Standard and secure socket layer (SSL). All information within a
session can be transmitted between meeting attendees securely without any
reduction in performance. We believe this aspect of our software has been
extremely attractive to government, military and financial organizations as well
as to the companies that supply to these entities. We also believe that this
solution, combined with other aspects of our software, enables us to be a more
reliable solution than our Web conferencing software competitors.

         Third, our solution is SUITABLE AND SCALABLE FOR ENTERPRISE-WIDE
DEPLOYMENT. The iLinc Suite contains four modes that address the most common
needs for business collaboration within the enterprise. We offer virtual
classroom software with our LearnLinc mode, presentation and sales demonstration
capabilities with MeetingLinc, customer support with SupportLinc and a mode for
Web casts and marketing events with ConferenceLinc. Each of these modes shares a
common interface enabling users of one mode to easily understand any of our
other modes. We believe this reduces the learning curve for Web conferencing
enterprise-wide roll out and we believe increases adoption success. All users
can have access to all four modes of the suite. This is an important
differentiation because our competition typically charges separate licensing
fees for the use of separate modes. Giving users access to the full suite
supports the natural migration of Web conferencing usage from department to
department. Each of the modes has functionality built specifically for a
particular type of activity.

         Fourth, we provide what we believe to be an EXCEPTIONAL "TOTAL COST OF
OWNERSHIP" VALUE. Our software and services are competitively priced but, unlike
our competitors, a customer's installation of our product is a very short and
non-labor intensive process. Maintenance of our software also requires minimal
attention from an IT perspective. We believe most of our Web conferencing
software competitors require very complex and costly implementations.

         We believe that all of these factors make our solution compelling to
organizations that have already adopted the practice of Web conferencing as a
best practice as well as companies that are just starting to use Web
conferencing, but anticipate that their usage will grow quickly. We recognize
that in order to grow our market share we need to develop products that are easy
to implement and that scale with our customer needs.

SALES AND MARKETING FOCUS

         To leverage these advantages, our organization continually creates new
marketing and sales campaigns that focus in four target markets.

         o    We sell to prospects that are using other Web conferencing service
              providers that are ready to migrate to Web conferencing software.
              We find that these organizations appreciate the cost and feature
              advantages that our technology offers.
         o    We target organizations that have a natural fit for highly secure
              Web conferencing software such as government, military, and
              financial organizations as well as the companies that supply to
              these entities.
         o    We target organizations looking to deploy live, Web-based
              training. Our software was originally built for training and we
              have maintained a competitive technology advantage in this area.
         o    We continue to cross sell all of our products and services to our
              large database of existing customers.

         Marketing has developed a plan that incorporates public relations,
tradeshows, Web events, Web marketing initiatives and direct marketing (mail and
email) efforts messaged in campaigns that speak to the needs of our specific
target markets. The goal of our marketing strategy is to drive new business into
our customer base and then cross sell our synergistic Web, audio and event
product and drive usage of all products to increase the propensity for our
customers to make additional purchases.

         The direct sales team is organized by geographic territory and is
broken down into distinct groups: Direct Sales sells to organizations that are
not yet iLinc customers; Enterprise Sales sells into large existing accounts;
and our Event Sales team sells our High-Touch Event Services offering to all
sizes of organizations. All of these groups focus their outbound activity on our
specific vertical markets of financial services, high technology and
professional service organizations. We believe that the target vertical markets
have a commonality of meeting four criteria: we have an established customer
base in the market; our product feature set is specifically appropriate to the
needs of the market; analysts have identified a need within that market for
increasing use of Web and audio conferencing; and we believe that we have the
potential to capture a portion of the share of such markets.

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         iLinc has formed relationships with organizations that market and sell
our products and services through their sales distribution channels. The
relationships can be categorized into those that act as agents which sell on
behalf of iLinc and value added resellers (VAR's) that actively sell our
products and provide product support typically to their own existing customer
base. As of March 31, 2007, we had over 35 organizations selling our products
providing indirect sales in the United States and in countries outside the
United States, including Canada, the United Kingdom, The Netherlands,
France, Germany, Colombia, Mexico, India, Greece, Chile and Japan. Our value
added resellers execute agreements to resell our products to their customers
through direct sales and in some cases through integration of our products into
their products or service offerings. Our distribution agreements typically have
terms of one to three years and are automatically renewed for an additional like
term unless either party terminates the agreement for breach or other financial
reasons. In most of these agreements, the VAR licenses the product from us and
resells the product to its customers. Under those VAR agreements, we record only
the amount paid to us by the VAR as revenue and recognize revenue when all
revenue recognition criteria have been met.

CUSTOMERS

         Approximately 4,500 corporate, higher education and government
customers use iLinc inside of their organizations for their Web and audio
conferencing needs. Our corporate customer list includes notable customers in
financial services such as Aetna, Allianz Life, Citigroup, Citizens Financial
Group, Guardian Life Insurance, Hilliard-Lyons, JPMorgan Chase and St. Paul
Travelers Insurance; technology companies such as EDS, Numara Software,
Qualcomm, Sabre Holdings, Inc., Sony and Xerox Corporation. We have more than 80
higher education organizations including Benedictine University, Columbia
University, Creighton University, CSU Fullerton, Kent State University, Idaho
University, LSU, Marist College, University of New Hampshire, National
University, Rutgers University, The State Universities of New York, Tulane and
Villanova University. iLinc also has an impressive list of state and federal
government clients such as the states of Arizona, Louisiana, Oregon, and Utah;
and the U.S. Army, Navy, Coast Guard and the Department of Homeland Security.
Our reach includes customers both within the United States, Canada, Mexico and
outside North America.

AWARDS AND ACKNOWLEDGEMENTS

         We are proud of the recognition received by the Company from leading
industry experts including Forrester Research, Gartner and Frost & Sullivan. In
May, Gartner Research published the Magic Quadrant for Web Conferencing, 2007
noting iLinc as a visionary. In January 2007, iLinc was identified for the
second year in a row as part of the "Best of e-Learning" by e-Learning Magazine.
In June 2006, Forrester Research named iLinc as a "Strong Performer" in their
report titled "The Forrester WaveTM: Web Conferencing Q2 2006" and recognized
iLinc as a "Leading Hosted Web Conferencing Provider." In January 2006, the
Company received the 2006 Excellence in Technology Award from industry analyst
Frost & Sullivan in which the firm noted that iLinc delivers "...breakthrough
technology that addresses real issues facing organizations deploying Web
conferencing enterprise-wide." In late 2005, Web conferencing analyst Wainhouse
Research noted "iLinc offers a licensing model that supports organizations that
have made a strategic commitment to Web conferencing," and in a May 2006 report
iLinc was noted to be the "1st virtual classroom product and still a technology
leader" by the analyst firm Bersin and Associates. Together with our
predecessors, we have been honored with more than 60 awards from notable
authorities such as the American Society for Training and Development ("ASTD"),
analyst Brandon Hall, and e-Learning Magazine, which selected iLinc as a Best of
e-Learning company in 2006. The list of awards includes four National Telly
Awards, six Software Service Provider of the Year Awards and two Gold Medals
from e-Learning authority Brandon Hall. Software from our organization has taken
first place in two Software Shootouts held at the Online Learning conference in
which e-Learning professionals decided which products were best-of-class based
on functionality and ease of use. Notably, in 2002 our Web conferencing software
was voted first place at the synchronous software shootout held at Online
Learning Expo besting industry leaders WebEx, Centra and PlaceWare (purchased by
Microsoft and now Microsoft Live Meeting). We continue to receive recognition
from analysts and notable experts as we maintain a leadership position in the
conferencing and collaboration market.

TECHNOLOGY & INTELLECTUAL PROPERTY

          Our existing technology and intellectual property were originally
developed by organizations that we have acquired, including the assets from the
Mentergy and Glyphics transactions with continued enhancement on our part by our
own research and development team. We utilize copyright, trademark and patent
protection whenever possible to secure our intellectual property assets. We host
our software and provide Internet connectivity from our dedicated servers in
Phoenix, Arizona. Our data network is redundant in design and is secure from
unauthorized access.

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RESEARCH & DEVELOPMENT

         The Company invested a substantial portion of its working capital and
resources in the continued development of its software and technologies. We
employ full-time engineers, programmers and developers that are located in Troy,
New York and Phoenix, Arizona, who are constantly focused on developing new
features and enhancements to our existing software offering and expanding that
offering with new products and services. The primary focus of our research and
development efforts is on improving the functionality and performance of the
iLinc Suite as well as developing new features that meet changing market
demands. In the 2005 fiscal year, we invested over $1.5 million in direct and
indirect research and development activities and $1.4 million in the 2006 fiscal
year. In the 2007 fiscal year we invested $1.6 million, $367,000 of which we
capitalized as we began production of version 9.0 of our Web collaboration
software.

CUSTOMER SERVICE

         We employ full-time Tier 1 and Tier 2 customer support and technical
support representatives, who are located in Troy, New York, Springville, Utah,
and through outsourced relationships that provide 24x7 access. We are constantly
focused on the delivery of high-quality service and support to our existing
customer base and channel partners. We offer varying levels of support,
depending upon the maintenance and support agreement executed by the customer,
which include telephone support through a toll-free number and an email support
request system. We also offer access to self-help information that includes a
database of frequently asked questions, quick reference and advanced end-user
guides, online tutorials and access to a real-time searchable knowledge
database. Our response times vary depending upon the issue, but the vast
majority of our customer support questions are addressed during the initial
support call. Customer issues and support tickets are tracked within our CRM
database for use by our technical support teams and customers searching the
knowledge database.

COMPETITION

         We believe that our current Web conferencing software has specific and
unique characteristics that match the needs of our customers and target markets.
The Company intends to leverage these strengths as well as direct product
development efforts to continue to enhance the software to meet the specific
needs of these markets.

         With our emphasis on our Web collaboration four-product suite, we face
competition from various Web conferencing and collaboration software companies
including WebEx (now Cisco), Microsoft Live Meeting, and Adobe. The Web
collaboration, virtual classroom, and Web conferencing industry continues to
change and evolve rapidly, and we expect continued consolidation within the
industry. We have identified what we believe to be the principal competitive
factors in our markets, including: ease of use, breadth and depth of feature
set, quality and reliability of products, pricing, security and our ability to
develop and support software license sales in combination with hosting.

EMPLOYEES

         As of March 31, 2007 we employed 88 employees (including six part-time
employees). This included 34 employees at our corporate offices in Phoenix,
Arizona and 38 employees in our Springville, Utah facility. We also have ten
employees located in our development office in Troy, New York and six employees
who work remotely in other states. None of our employees are represented by
collective bargaining agreements.

         The populations of our functional organizations on March 31, 2007
included 18.5 sales employees, four marketing employees, 24 programming and
technical support employees, 35 audio conferencing operators and support
employees, and ten finance, executive and administrative employees.

DISCONTINUED OPERATIONS

         The Company began its operations in March of 1998, with the
simultaneous roll-up of 50 dental practices and an initial public offering. The
Company's initial goals were to provide training and practice enhancement
services nationwide to our Affiliated Practices using our proprietary Web-based
learning management and financial reporting system. Beginning in April of 2000,
the Company modified its affiliated service agreements and commensurate with


                                       9




<PAGE>

that change the Company recorded certain charges against earnings during the
fiscal years ended March 31, 2002 and March 31, 2001. The Company modified its
business plan moving away from its legacy dental practice management business
during its fiscal year ended March 31, 2002. Effective January 1, 2004, the
Company was no longer engaged in the dental practice management business and has
reflected such business segment as a discontinued operation.

ITEM 1A. RISK FACTORS

         You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the trading
price of our common stock could be adversely affected.

WE FACE RISKS INHERENT IN INTERNET-RELATED BUSINESSES AND MAY BE UNSUCCESSFUL IN
ADDRESSING THESE RISKS.

         We face risks frequently encountered by companies in new and rapidly
evolving markets such as Web conferencing and audio conferencing. We may fail to
adequately address these risks and, as a consequence, our business may suffer.
To address these risks among others, we must successfully introduce and attract
new customers to our products and services; successfully implement our sales and
marketing strategy to generate sufficient sales and revenues to sustain
operations; foster existing relationships with our customers to provide for
continued or recurring business and cash flow; and successfully address and
establish new products and technologies as new markets develop. We may not be
able to sufficiently address and overcome risks inherent in our business
strategy.

OUR QUARTERLY OPERATING RESULTS ARE UNCERTAIN AND MAY FLUCTUATE SIGNIFICANTLY.

         Our operating results have varied significantly from quarter to quarter
and are likely to continue to fluctuate as a result of a variety of factors,
many of which we cannot control. Factors that may adversely affect our quarterly
operating results include: the dependence upon software purchase license sales
as opposed to the more ratable subscription model, the size and timing of
product orders; the mix of revenue from custom services and software products;
the market acceptance of our products and services; our ability to develop and
market new products in a timely manner; the timing of revenues and expenses
relating to our product sales; and revenue recognition rules. Expense levels are
based, in part, on expectations as to future revenue and to a large extent are
fixed in the short term. To the extent we are unable to predict future revenue
accurately, we may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall.

WE HAVE LIMITED FINANCIAL RESOURCES AND MAY NOT REMAIN PROFITABLE.

         We have limited financial resources at our disposal. We have long-term
obligations that are due in 2010 and 2012 that we will not be able to satisfy
without additional debt and/or equity capital and/or ultimately generating
sufficient profits and sufficient cash flows from our Web conferencing and audio
conferencing operations. If we are unable to remain profitable, we will face
increasing demands for capital. We may not be successful in raising additional
debt or equity capital and may not remain profitable. As a result, we may not
have sufficient financial resources to satisfy our obligations as they come due
in the short term.

DILUTION TO EXISTING STOCKHOLDERS WILL OCCUR UPON ISSUANCE OF SHARES WE HAVE
RESERVED FOR FUTURE ISSUANCE.

         On March 31, 2007, 33,585,431 shares of our common stock were issued
and outstanding, net of treasury shares. An additional 16,196,216 shares of our
common stock were reserved for issuance that would be issued as the result of
the exercise of warrants or the conversion of convertible notes and/or
convertible preferred stock. The issuance of these additional shares will reduce
the percentage ownership of our existing stockholders. The existence of these
reserved shares coupled with other factors, such as the relatively small public
float, could adversely affect prevailing market prices for our common stock and
our ability to raise capital through an offering of equity securities.

                                       10




<PAGE>

THE LOSS OF THE SERVICES OF OUR SENIOR EXECUTIVES AND KEY PERSONNEL WOULD LIKELY
CAUSE OUR BUSINESS TO SUFFER.

         Our success depends to a significant degree on the performance of our
senior management team. The loss of any of these individuals could harm our
business. We do not maintain key person life insurance for any officers or key
employees other than on the life of James M. Powers, Jr., our Chairman,
President and CEO, with that policy providing a death benefit to the Company of
$1.0 million. Our success also depends on the ability to attract, integrate,
motivate and retain additional highly skilled technical, sales and marketing and
professional services personnel. To the extent we are unable to attract and
retain a sufficient number of additional skilled personnel, our business will
suffer.

OUR INTELLECTUAL PROPERTY MAY BECOME SUBJECT TO LEGAL CHALLENGES, UNAUTHORIZED
USE OR INFRINGEMENT, ANY OF WHICH COULD DIMINISH THE VALUE OF OUR PRODUCTS AND
SERVICES.

         Our success depends in large part on our proprietary technology. If we
fail to successfully enforce our intellectual property rights, the value of
these rights, and consequently, the value of our products and services to our
customers, could diminish substantially. It may be possible for third parties to
copy or otherwise obtain and use our intellectual property or trade secrets
without our authorization, and it may also be possible for third parties to
independently develop substantially equivalent intellectual property. Currently,
we do not have patent protection in place related to our products and services.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect trade secrets or to determine the validity and scope of the
proprietary rights of others. While we have not received any notice of any claim
of infringement of any of our intellectual property, from time to time we may
receive notice of claims of infringement of other parties' proprietary rights.
Such claims could result in costly litigation and could divert management and
technical resources. These types of claims could also delay product shipment or
require us to develop non-infringing technology or enter into royalty or
licensing agreements, which agreements, if required, may not be available on
reasonable terms, or at all.

COMPETITION IN THE WEB CONFERENCING AND AUDIO CONFERENCING SERVICES MARKET IS
INTENSE AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY.

         The markets for Web conferencing and audio conferencing products and
services are relatively new, rapidly evolving and intensely competitive.
Competition in our market will continue to intensify and may force us to reduce
our prices, or cause us to experience reduced sales and margins, loss of market
share and reduced acceptance of our services. Many of our competitors have
larger and more established customer bases, longer operating histories, greater
name recognition, broader service offerings, more employees and significantly
greater financial, technical, marketing, public relations and distribution
resources than we do. We expect that we will face new competition as others
enter our market to develop Web conferencing and audio conferencing services.
These current and future competitors may also offer or develop products or
services that perform better than ours. In addition, acquisitions or strategic
partnerships involving our current and potential competitors could harm us in a
number of ways.

FUTURE REGULATIONS COULD BE ENACTED THAT EITHER DIRECTLY RESTRICT OUR BUSINESS
OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET-BASED
BUSINESS AND SERVICES.

         As commercial use of the Internet increases, federal, state and foreign
agencies could enact laws or adopt regulations covering issues such as user
privacy, content and taxation of products and services. If enacted, such laws or
regulations could limit the market for our products and services. Although they
might not apply to our business directly, we expect that laws or rules
regulating personal and consumer information could indirectly affect our
business. It is possible that such legislation or regulation could expose us to
liability which could limit the growth of our Web conferencing and audio
conferencing products and services. Such legislation or regulation could dampen
the growth in overall Web conferencing usage and decrease the Internet's
acceptance as a medium of communications and commerce.

WE DEPEND LARGELY ON ONE-TIME SALES TO GROW REVENUES WHICH MAKE OUR REVENUES
DIFFICULT TO PREDICT.

        While audio conferencing provides a more recurring revenue base, a high
percentage of our revenue is attributable to one-time purchases by our customers
rather than long-term, recurring, conferencing subscription type contracts. As a
result, our inability to continue to obtain new agreements and sales may result
in lower than expected revenue, and therefore, harm our ability to achieve or
sustain operations or profitability on a consistent basis, which could also


                                       11




<PAGE>

cause our stock price to decline. Further, because we face competition from
larger, better-capitalized companies, we could face increased downward pricing
pressure that could cause a decrease in our gross margins. Additionally, our
sales cycle varies depending on the size and type of customer considering a
purchase. Potential customers frequently need to obtain approvals from multiple
decision makers within their company and may evaluate competing products and
services before deciding to use our services. Our sales cycle, which can range
from several weeks to several months or more, combined with the license purchase
model makes it difficult to predict future quarterly revenues.

OUR OPERATING RESULTS MAY SUFFER IF WE FAIL TO DEVELOP AND FOSTER OUR VALUE
ADDED RESELLER OR DISTRIBUTION RELATIONSHIPS.

         We have an existing channel and distribution network that provides
growing revenues and contributes to our high margin software sales. These
distribution partners are not obligated to distribute our services at any
minimum level. As a result, we cannot accurately predict the amount of revenue
we will derive from our distribution partners in the future. The inability or
unwillingness of our distribution partners to sell our products to their
customers and increase their distribution of our products could result in
significant reductions in our revenue, and therefore, harm our ability to
achieve or sustain profitability on a consistent basis.

SALES IN FOREIGN JURISDICTIONS BY OUR INTERNATIONAL DISTRIBUTOR NETWORK AND US
MAY RESULT IN UNANTICIPATED COSTS.

         We have limited experience in international operations and may not be
able to compete effectively in international markets. We face certain risks
inherent in conducting business internationally, such as:

         o    our inability to establish and maintain effective distribution
              channels and partners;
         o    the varying technology standards from country to country;
         o    our inability to effectively protect our intellectual property
              rights or the code to our software;
         o    our inexperience with inconsistent regulations and unexpected
              changes in regulatory requirements in foreign jurisdictions;
         o    language and cultural differences;
         o    fluctuations in currency exchange rates;
         o    our inability to effectively collect accounts receivable; or,
         o    our inability to manage sales and other taxes imposed by foreign
              jurisdictions.

THE GROWTH OF OUR BUSINESS SUBSTANTIALLY DEPENDS ON OUR ABILITY TO SUCCESSFULLY
DEVELOP AND INTRODUCE NEW SERVICES AND FEATURES IN A TIMELY MANNER.

         With our focus on our Web and audio conferencing products and services,
our growth depends on our ability to continue to develop new features, products
and services around that software and product line including the ability to
operate our software in non-Windows based operating systems (e.g., MAC and
Linux). We may not successfully identify, develop, and market new products and
features in a timely and cost-effective manner. If we fail to develop and
maintain market acceptance of our existing and new products to offset our
continuing development costs, then our net losses will increase and we may not
be able to achieve or sustain profitability on a consistent basis.

IF WE FAIL TO OFFER COMPETITIVE PRICING, WE MAY NOT BE ABLE TO ATTRACT AND
RETAIN CUSTOMERS.

         Because the Web conferencing market is relatively new and still
evolving, the prices for these services are subject to rapid and frequent
changes. In many cases, businesses provide their services at significantly
reduced rates, for free or on a trial basis in order to win customers. Due to
competitive factors and the rapidly changing marketplace, we may be required to
significantly reduce our pricing structure, which would negatively affect our
revenue, margins and our ability to achieve or sustain profitability on a
consistent basis. We have an existing channel and distribution network that
provides growing revenues and contributes to our high margin software sales.
These distribution partners are not obligated to distribute our services at any
particular minimum level. As a result, we cannot accurately predict the amount
of revenue we will derive from our distribution partners in the future. The
inability of our distribution partners to sell our products to their customers
and increase their distribution of our products could result in significant
reductions in our revenue, and, therefore, harm our ability to achieve or
sustain profitability on a consistent basis.

                                       12




<PAGE>

IF WE ARE UNABLE TO COMPLETE OUR ASSESSMENT AS TO THE ADEQUACY OF OUR INTERNAL
CONTROLS OVER FINANCIAL REPORTING AS REQUIRED BY SECTION 404 OF THE
SARBANES-OXLEY ACT OF 2002, INVESTORS COULD LOSE CONFIDENCE IN THE RELIABILITY
OF OUR FINANCIAL STATEMENTS, WHICH COULD RESULT IN A DECREASE IN THE VALUE OF
OUR COMMON STOCK.

         As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission adopted rules requiring non-accelerated
public companies to include in their annual reports on Form 10-K for fiscal
years ending after December 15, 2007 a report of management on their company's
internal control over financial reporting, including management's assessment of
the effectiveness of their company's internal control over financial reporting
as of the company's fiscal year end. In addition, the accounting firm auditing a
public company's financial statements must also attest to and report on
management's assessment of the effectiveness of the company's internal control
over financial reporting, as well as, the operating effectiveness of the
company's internal controls for fiscal years ending after December 15, 2008.
There is a risk that we may not comply with all of its requirements. If we do
not timely complete our assessment or if our accounting firm determines that our
internal controls are not designed or operating effectively as required by
Section 404, our accounting firm may either disclaim its opinion as it is
related to management's assessment of the effectiveness of its internal controls
or may issue a qualified opinion on the effectiveness of our internal controls.
If our accounting firm disclaims its opinion or qualifies its opinion as to the
effectiveness of our internal controls, then investors may lose confidence in
the reliability of our financial statements, which could cause the market price
of our common stock to decline.

WE MAY ACQUIRE OTHER BUSINESSES THAT COULD NEGATIVELY AFFECT OUR OPERATIONS AND
FINANCIAL RESULTS AND DILUTE EXISTING STOCKHOLDERS.

         We may pursue additional business relationships through acquisitions
which may not be successful. We may have to devote substantial time and
resources in order to complete acquisitions and we therefore may not realize the
benefits of those acquisitions. Further, these potential acquisitions entail
risks, uncertainties and potential disruptions to our business. For example, we
may not be able to successfully integrate a company's operations, technologies,
products and services, information systems and personnel into our business.
These risks could harm our operating results and could adversely affect
prevailing market prices for our common stock.

ITEM 2.  PROPERTIES

         We maintain corporate headquarters in Phoenix, Arizona and have
occupied that 9,100 square foot Class A facility since the Company's inception
in 1998. The Phoenix office can accommodate up to 65 employees and is fully
equipped with up-to-date computer equipment and server facilities. On May 5,
2006, the Company extended its lease on its Phoenix location to February 28,
2012. The Phoenix lease requires a monthly rent and operating expenses of
approximately $25,000.

         We also maintain a 2,500 square foot Class B facility in Troy, New York
with an emphasis in that location on research and development, and technical
support. On July 5, 2006, we amended the New York lease that now expires on June
30, 2009. The New York lease requires a monthly rent and operating expenses of
$4,000.

         We also maintain offices in Springville, Utah, occupying a Class A
facility in two adjacent buildings in approximately 16,000 square feet. The
Springville lease expires in January of 2008. The Springville offices can
accommodate up to 100 employees and is fully equipped with up-to-date computer
equipment. The Springville lease requires a monthly rent and operating expenses
of approximately $15,000.

ITEM 3.  LEGAL PROCEEDINGS

NONE

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

                                       13




<PAGE>

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

             The following table sets forth certain information concerning the
executive officers of the Company (ages are as of March 31, 2007):

James M. Powers, Jr.  51   Chairman, President and Chief Executive Officer
James L. Dunn, Jr.    45   Senior Vice President, Chief Financial Officer and
                           General Counsel
Gary Moulton          38   Senior Vice President of Audio Conferencing Services


JAMES M. POWERS, JR.
Chairman, President and Chief Executive Officer

         Dr. James M. Powers, Jr. has served as Chairman, President and CEO of
the Company since December 1998. Dr. Powers led the Company through its initial
growth and acquisition phase and subsequent transformation to an integrated
communications company providing Web, audio, video, and Voice-over IP solutions.
Dr. Powers joined the Company through the merger with Liberty Dental Alliance,
Inc., a Nashville-based company where he was the founder, Chairman, and
President from 1997 to 1998. Dr. Powers was a founder and Chairman of Clearidge,
Inc., a privately held bottled water company in Nashville, Tennessee from 1993
to 1999, where he led Clearidge through 13 acquisitions over three years to
become one of the largest independent bottlers in the Southeast, before selling
the company to Suntory Water Group, Inc. Dr. Powers also was a founder and
Director of Barnhill's Buffet, Inc., a privately held chain of 48 restaurants in
the Southeast with over $100 million in annual revenues, which was sold in early
2006. He received his Bachelor of Science Degree from the University of Memphis,
a Doctor of Dental Surgery Degree from The University of Tennessee, and his MBA
from Vanderbilt University's Owen Graduate School of Management.

JAMES L. DUNN, JR.
Senior Vice President, Chief Financial Officer and General Counsel

         James L. Dunn, Jr., assisted with the formation of the Company and was
an integral part of the Company's initial public offering. Since the Company's
inception, Mr. Dunn has been responsible for all corporate development
activities, including most recently the acquisition of its Web conferencing and
audio conferencing assets. Mr. Dunn is an attorney and assumed the role of
General Counsel in March of 2000. He managed the legal transition of the Company
from its legacy business beginnings to its current Web and audio conferencing
focus. Mr. Dunn is also a CPA and assumed the role of CFO in June of 2005. He
received his law degree from Southern Methodist University School of Law in 1987
and his Bachelor's Degree in Business Administration-Accounting from Texas A & M
University in 1984.

GARY MOULTON
Senior Vice President of Audio Conferencing Services

         Gary Moulton brings more than 15 years of sales, management and
customer service experience to iLinc Communications. Moulton brings a decades
worth of audio services and audio conferencing experience to iLinc, having
founded Glyphics Communications in 1995. Moulton grew Glyphics into a leading
provider of phone conferencing and audio conferencing events, developing a
proprietary online seminar registration system for large audio events. As a
member of the Glyphics' Board of Directors and as President and Chief Executive
Officer, he was responsible for developing and implementing corporate vision and
strategy. Prior to starting Glyphics, Moulton was manager of inside sales and
customer service for Cookietree Bakeries, Inc., a national food service company.
Moulton also served for four years in the United State Marine Corps.


                                       14




<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION, HOLDERS, AND DIVIDENDS

         The Company's common stock has been traded on the American Stock
Exchange system under the symbol "ILC" since February 6, 2004. The following
table sets forth the range of the reported high and low sales prices of the
Company's common stock for the years ended March 31, 2007 and 2006:

         2007                                                       HIGH   LOW
         ---------                                                 ------ ------
         First Quarter ..........................................  $0.65  $0.34
         Second Quarter..........................................  $0.54  $0.39
         Third Quarter...........................................  $0.81  $0.49
         Fourth Quarter..........................................  $0.82  $0.55

         2006                                                      HIGH    LOW
         ---------                                                ------- ------
         First Quarter........................................... $0.38   $0.25
         Second Quarter.......................................... $0.30   $0.18
         Third Quarter........................................... $0.34   $0.15
         Fourth Quarter.......................................... $0.49   $0.24

         As of June 25, 2007, the closing price of our common stock was $0.71
per share and there were approximately 319 holders of record, as shown on the
records of the transfer agent and registrar of common stock. The number of
record holders does not bear any relationship to the number of beneficial owners
of the common stock.

         The Company has not paid any cash dividends on its common stock in the
past and does not plan to pay any cash dividends on its common stock in the
foreseeable future. The Company's Board of Directors intends, for the
foreseeable future, to retain earnings to finance the continued operation and
expansion of the Company's business.

EQUITY COMPENSATION PLANS

         The table below provides information relating to our equity
compensation plans as of March 31, 2007.

<TABLE>
<S>     <C>
                                                                                           Number of Securities
                                                                                         Remaining Available for
                                                                                          Future Issuance Under
                                          Number of Securities to    Weighted-Average       Compensation Plans
                                          be Issued Upon Exercise    Exercise Price of    (Excluding Securities
                                          of Outstanding Options,  Outstanding Options,     Reflected in First
Plan Category                               Warrants and Rights     Warrants and Rights          Column)
------------------------------------------------------------------------------------------------------------------

Equity compensation plans approved by
security holders                                 3,138,552                 $1.11                1,710,810

Equity compensation plans approved by
security holders                                   450,000                 $2.00                   ----

Equity compensation plans not approved
by security holders                                ----                     ----                   ----
                                         --------------------------                      -------------------------
Total                                            3,588,552                                      1,710,810
                                         ==========================                      =========================
</TABLE>

         In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its Chief
Executive Officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the Chief Executive Officer. The shares were valued at
$405,000 based on the closing price of the stock on the date of grant, which is
recorded as compensation expense ratably over the vesting period. The shares
100% vest after ten years from the date of grant or upon attaining the following
price performance criteria: 150,000 shares vest if the share price trades for
$4.50 per share for 20 consecutive days; 150,000 shares vest if the share price
trades for $8.50 per share for 20 consecutive days; and 150,000 shares vest if
the share price trades for $12.50 per share for 20 consecutive days.

         On June 23, 2006, the Compensation Committee of the Board of Directors
amended the vesting performance criteria hurdles as follows: 150,000 shares vest
if the share price trades for $1.00 per share for 20 consecutive days; 150,000
shares vest if the share price trades for $2.00 per share for 20 consecutive
days; and 150,000 shares vest if the share price trades for $3.00 per share for
20 consecutive days. All other aspects of the grant remained the same.


                                       15


<PAGE>

SALES OF UNREGISTERED SECURITIES

         There were no sales of unregistered securities during the fiscal year
ending March 31, 2007.

ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected financial data of the Company
(AMEX:ILC) that has been derived from the audited consolidated financial
statements. Effective January 1, 2004, the Company discontinued its dental
practice management services. The Company has restated its historical results to
reflect that business segment as a discontinued operation. The Company began its
current Web conferencing operations during the 2002 fiscal year. The selected
financial data should also be read in conjunction with the Company's
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report.

<TABLE>
<S>     <C>

                                                 YEAR ENDED  YEAR ENDED  YEAR ENDED  YEAR ENDED  YEAR ENDED
                                                  MARCH 31,   MARCH 31,   MARCH 31,   MARCH 31,   MARCH 31,
STATEMENT OF OPERATIONS DATA:                       2007        2006        2005       2004(*)     2003(*)
                                                  --------    --------    --------    --------    --------
Revenues
  Software licenses ...........................   $  4,177    $  3,014    $  3,274    $  2,240    $    446
  Subscription and audio services .............      7,501       7,070       5,052       1,195       1,117
  Maintenance and professional services .......      2,517       2,448       2,043       2,471       2,513
                                                  --------    --------    --------    --------    --------
    Total revenue .............................     14,195      12,532      10,369       5,906       4,076
Cost of revenues and operating expenses .......     12,372      11,749      13,743       7,293       6,748
                                                  --------    --------    --------    --------    --------
Income (loss) from operations .................      1,823         783     (3,374)     (1,387)     (2,672)
                                                  --------    --------    --------    --------    --------
Income (loss) from continuing operations before
  income taxes ................................        131      (1,254)     (5,199)     (2,293)     (3,889)

Income taxes ..................................         85          --          --          --          --
                                                  --------    --------    --------    --------    --------
Income (loss) from continuing operations ......         46      (1,254)     (5,199)     (2,293)     (3,889)
Income (loss) from discontinued operations ....         10          83        (128)        275         133
                                                  --------    --------    --------    --------    --------
Net income (loss) .............................         56      (1,171)     (5,327)     (2,018)     (3,756)
Preferred stock dividends .....................       (153)       (130)       (105)        (75)         --
Imputed preferred stock dividends .............         --         (55)         --        (247)         --
                                                  --------    --------    --------    --------    --------
Loss available to common shareholders .........   $    (97)   $ (1,356)   $ (5,432)   $ (2,340)   $ (3,756)
                                                  ========    ========    ========    ========    ========

Loss per common share - basic and
    Diluted
   From continuing operations .................   $     0.00    $  (0.05)   $  (0.23)   $  (0.16)   $  (0.25)
   From discontinued operations ...............         0.00          --          --        0.02        0.01
                                                  --------    --------    --------    --------    --------
   Net loss per common share .........   $     0.00    $  (0.05)   $  (0.23)   $  (0.14)   $  (0.24)
                                                  ========    ========    ========    ========    ========

BALANCE SHEET DATA:
Cash and cash equivalents .....................   $  1,057    $    466    $    532    $    292    $    409
Working capital (deficit) .....................        912      (1,941)     (4,251)     (3,113)     (2,984)
Assets of discontinued operations .............         --          --         114         301         620
Total assets ..................................     18,338      16,000      17,229      12,460      12,423
Long-term debt, less current maturities .......      8,399       8,467       8,822       6,404       7,901
Long-term debt discount and beneficial
  conversion feature...........................       (993)     (1,493)     (2,120)     (1,960)     (2,038)
Liabilities of discontinued operations ........         --          53         263          --          --
Total shareholders' equity ....................      6,451       4,370       3,670       3,366       2,320
______________

   (*) Effective January 1, 2004, the Company discontinued its dental practice
       management services. The Company has restated its historical results and
       selected financial data to reflect its dental segment as a discontinued
       operation.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

         The following table sets forth summary quarterly results of operations
for the Company for the years ended March 31, 2007 and 2006:


                                       16


<PAGE>

                                                                    FIRST      SECOND       THIRD       FOURTH
2007                                                               QUARTER     QUARTER     QUARTER     QUARTER
----                                                               --------    --------    --------    --------
                                                                              (IN THOUSANDS, EXCEPT
                                                                                PER SHARE AMOUNTS)
 Net revenue ...................................................   $  3,605    $  3,451    $  3,651    $  3,488
 Cost of revenues and operating expenses .......................      3,054       2,912       3,132       3,274
 Income from operations ........................................        551         539         519         214
 Income (loss) from continuing operations before income taxes ..        123         157         (35)       (114)
 Income taxes ..................................................         --          --          --          --
 Income (loss) from continuing operations ......................        123         157         (35)       (114)
 Income (loss) from discontinued operations ....................         11          (1)         --          --
 Income taxes ..................................................         --          --          --          --
 Net income (loss) .............................................   $    134    $    156    $    (35)   $   (114)
 Income taxes ..................................................         --          --          --         (85)
 Income (loss) available to common shareholders ................   $     95    $    116    $    (73)   $   (235)
 Basic and diluted per share data: (1)
   Income (loss) per common share from continuing operations ...   $   0.00    $   0.00    $  (0.00)   $  (0.01)
   Income (loss) per common share from discontinued
       operations ..............................................   $   0.00    $   0.00    $  (0.00)   $  (0.00)
 Weighted average common share outstanding:
   Basic .......................................................     28,818      33,020      33,190      33,411
   Diluted .....................................................     28,944      33,227      33,190      33,411

                                                                    FIRST      SECOND       THIRD       FOURTH
2006 (2)                                                           QUARTER     QUARTER     QUARTER     QUARTER
----                                                               --------    --------    --------    --------
                                                                              (IN THOUSANDS, EXCEPT
                                                                                PER SHARE AMOUNTS)
Net revenue ....................................................   $  2,673    $  3,005    $  3,274    $  3,580
Cost of revenues and operating expenses ........................      3,131       2,653       2,855       3,110
(Loss) income from operations ..................................       (458)        352         419         470
(Loss) income from continuing operations before income taxes ...       (892)       (526)        137          27
Income taxes ...................................................         --          --          --          --
(Loss) income from continuing operations .......................       (892)       (526)        137          27
Income from discontinued operations ............................          7           5          70           1
(Loss) income ..................................................   $   (885)   $   (521)   $    207    $     28
(Loss) income available to common shareholders .................   $   (910)   $   (602)   $    167    $    (11)
Basic and diluted per share data: (1)
  Loss per common share from continuing operations .............   $  (0.04)   $  (0.02)   $  (0.01)   $  (0.00)
  Income per common share from discontinued operations .........         --          --          --          --
Weighted average common share outstanding:
  Basic ........................................................     24,145      25,855      27,114      27,186
  Diluted ......................................................     24,145      25,855      27,115      27,186
</TABLE>

______________

(1)   Earnings per share are computed independently for each of the quarters
      presented. Therefore, the sum of the quarterly earnings per share does not
      equal the total computed for the year due to stock transactions that
      occurred.

(2)   Amounts previously reported in prior periods have changed due to
      reclassifications.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K THAT INVOLVE
WORDS LIKE "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995, THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
ANTICIPATED RESULTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED
TO, OUR DEPENDENCE ON OUR PRODUCTS OR SERVICES, MARKET DEMAND FOR OUR PRODUCTS
AND SERVICES, OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS AND CHANNEL PARTNERS,
OUR ABILITY TO EXPAND OUR TECHNOLOGICAL INFRASTRUCTURE TO MEET THE DEMAND FROM
OUR CUSTOMERS, OUR ABILITY TO RECRUIT AND RETAIN QUALIFIED EMPLOYEES, THE
ABILITY OF CHANNEL PARTNERS TO SUCCESSFULLY RESELL OUR SERVICES, THE STATUS OF
THE OVERALL ECONOMY, THE STRENGTH OF COMPETITIVE OFFERINGS, THE PRICING
PRESSURES CREATED BY MARKET FORCES, AND THE OTHER RISKS DISCUSSED HEREIN. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE BASED ON INFORMATION
AVAILABLE TO US AS OF THE DATE HEREOF. WE EXPRESSLY DISCLAIM ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN, TO REFLECT ANY CHANGE IN OUR EXPECTATIONS OR IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED. OUR
REPORTS ARE AVAILABLE FREE OF CHARGE AS SOON AS REASONABLY PRACTICABLE AFTER WE
FILE THEM WITH THE SEC AND MAY BE OBTAINED THROUGH OUR WEB SITE.

                                       17




<PAGE>

COMPANY OVERVIEW

         We sell our software solutions to large and medium-sized corporations
inside and outside of the Fortune 1000. We market our products using a direct
sales force and a distribution channel consisting of agents, distributors, value
added resellers and OEM partners. We allow customers to choose between
purchasing a perpetual license and subscribing to a term license, thereby
providing flexibility in pricing and payment methods. Our revenues are derived
from a mixture of sales of licenses of software, monthly recurring revenues from
annual maintenance, hosting and support agreements and from audio conferencing
products and services.

         Our Web collaboration software is sold on a perpetual license or
periodic license basis. A customer may choose to acquire a one-time perpetual
license (the "Purchase Model") or may rent our software on a periodic basis on
either a per-seat, per-month or per-minute basis (the "Subscription Model").
Should the customer choose to acquire the software using the Purchase Model,
then it may either elect to host our software behind its own firewall or it may
choose to have iLinc host it for the customer, depending upon the customer's
preferences, budget and IT capabilities. Customers who select the Purchase
Model, whether hosted by iLinc or the customer, may also subscribe for ongoing
customer support and maintenance and software upgrade services, by entering into
a support and maintenance contract with a term from one to five years. The
annual maintenance and support fee charged is initially based upon a percentage
of the purchase price that varies between 12% and 18% of the license fee paid
for the perpetual licenses, with the percentage depending upon the contractual
length and the timing of payment of the annual maintenance and support
agreement. If a customer chooses to have iLinc host its Purchase Model licenses,
then the customer is also charged an annual hosting fee equal to 10% of the
Purchase Model license fee that was paid for the perpetual license.

         During fiscal 2006, iLinc launched its Enterprise Unlimited perpetual
licensing model that enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web conferencing, as well as a named-user model
that permits a host to subscribe for a limited use room. Those customers who
qualify for the iLinc Enterprise Unlimited site license may subscribe to an
unlimited use license. The initial iLinc Enterprise Unlimited license fee is
determined based upon the number of employees within the customer's organization
and various other factors. The annual maintenance and support fees and hosting
fees associated with an iLinc Enterprise Unlimited license are then based upon a
fixed price or upon an associated rate per-seat license that is active on each
annual anniversary of the iLinc Enterprise Unlimited license agreement.
Customers may expand the number of active seats available to them at any time
with a corresponding increase in annual maintenance and hosting fees being
charged.

         Customers choosing the Subscription Model pay a fee per seat
(concurrent connection) on either a per-month or per-year basis depending upon
the length and term of the subscription agreement. Hosting and maintenance are
included as a part of the monthly or annual rental fees. Customers may also
obtain Web conferencing and audio conferencing on a per-minute basis using the
iLinc On-Demand product. Those choosing the iLinc On-Demand product pay on a
monthly basis typically without contractual commitment.

         In addition to the Web conferencing and audio conferencing products and
services, we offer custom content development services through a subcontractor
relationship and an off-the-shelf online library of content includes an online
mini-MBA program co-developed with the Tuck School of Business at Dartmouth
College. These other services are a small portion of our overall revenue base
and will likely phase out as an offered service over the next three years.

PERFORMANCE MEASURES AND INDICATORS

         In evaluating our operating performance, we consider levels of
revenues, gross profit, operating income and net income to be important
indicators. Over the past three fiscal years, we have succeeded in increasing
revenues at a faster rate than our cost of revenues and operating expenses.
Therefore, while revenues, cost of revenues and operating expenses all have
increased during this period, total cost of revenues as a percentage of revenues
and operating expenses as a percentage of revenues each have decreased over the
past three fiscal years. Our goal is for this trend to continue as we seek to
manage increases in expenses at the same time we seek to increase revenues.

         In evaluating our liquidity, we evaluate levels of current assets,
current liabilities and accounts receivable, aging of accounts receivable and
maturities of debt and obligations under long term leases. Our levels of current
assets, including accounts receivable, at March 31, 2007 were significantly
higher than our levels of current assets at March 31, 2006, while our current
liabilities at March 31, 2007 were approximately $700,000 less than our level of
current liabilities at March 31, 2006. As a result, we had working capital of
$912,000 at March 31, 2007 compared to a working capital deficit of $1.9 million
at March 31, 2006. Our accounts receivable, net of allowance for doubtful
accounts, were $2.5 million and $2.2 million at March 31, 2007 and March 31,
2006, respectively. Accounts receivable increased, which was consistent with
increased revenues when comparing fiscal 2007 to fiscal 2006. The aging of

                                       18




<PAGE>

receivables has remained consistent when comparing March 31, 2007 to March 31,
2006, with accounts receivable under 30 days making up 87% and 85% of the total
receivable balance, respectively. As indicated below, in the table under the
caption "Contractual Obligations" at March 31, 2007 long term debt due in less
than one year, capital lease obligations due in less than one year, interest
expense for the coming year and operating lease obligations for the coming year
aggregated $143,000, $45,000, $1.0 million and $539,000 respectively. We
anticipate that cash flow from operations should be sufficient to allow us to
meet these obligations without raising additional capital.

         As indicators of future financial performance, our management evaluates
current number of seats (concurrent license) sold, average sales price per
transaction, average sales cycle, quota achievement by the direct sales staff,
the number of current transactions, the average sales amount per transaction,
the percentage each product sold contributes to total revenue and the trends
indicated by these factors.

         External factors that our management considers in analyzing our
performance include projected growth rates for our industry, rates of
penetration of use of our product categories in the corporate sector and
telecommunications growth and rate structures. We consider these factors
important since they permit us to better project capital needs and growth trends
that support our assertions of profitability and cash flow. Analysis of these
trends indicates that we are having increasing success from our direct sales
staff, with that success is likely to translate into increasing revenue and an
increasing bottom line should overhead trends remain consistent with historical
patterns. We expect overhead to remain relatively flattened, except for
incremental increases in sales and marketing costs associated and in proportion
to revenue growth. We see increasing demand for audio conferencing and web
conferencing usage in the business, education and government sectors alike, and
we expect these trends to continue over the next three years.

         The following table shows certain items from our income statement as a
percentage of revenues:

<TABLE>
<S>     <C>
                                                       YEAR ENDED               YEAR ENDED               YEAR ENDED
                                                     MARCH 31, 2007           MARCH 31, 2006           MARCH 31, 2005
                                                -----------------------  ----------------------- ------------------------
Revenues
   Software licenses.........................   $     4,177       29.0%  $     3,014       24.1% $     3,274        31.6%
   Subscription and audio services...........         7,501       53.0%        7,070       56.4%       5,052        48.7%
   Maintenance and professional services.....         2,517       18.0%        2,448       19.5%       2,043        19.7%
                                                -----------------------  ----------------------- ------------------------
       Total revenues........................        14,195      100.0%       12,532      100.0%      10,369       100.0%
                                                -----------------------  ----------------------- ------------------------

Cost of revenues
   Software licenses.........................           131        0.9%           51        0.4%         154         1.5%
   Subscription and audio services...........         3,642       25.7%        3,881       31.0%       3,799        36.6%
   Maintenance and professional services.....           787        5.5%          827        6.6%         792         7.6%
   Amortization of acquired developed
     technology..............................           269        1.9%          376        3.0%         451         4.4%
                                                -----------------------  ----------------------- ------------------------
       Total cost of revenues................         4,829       34.0%        5,135       41.0%       5,196        50.1%
                                                -----------------------  ----------------------- ------------------------

Gross profit                                          9,366       66.0%        7,397       59.0%       5,173        49.9%
                                                -----------------------  ----------------------- ------------------------

Operating expenses
   Research and development..................         1,276        9.0%        1,392       11.1%       1,545        14.9%
   Sales and marketing.......................         3,696       26.0%        3,075       24.5%       4,078        39.3%
   General and administrative................         2,571       18.1%        2,147       17.1%       2,924        28.2%
                                                -----------------------  ----------------------- ------------------------
       Total operating expenses..............         7,543       53.1%        6,614       52.8%       8,547        82.4%
                                                -----------------------  ----------------------- ------------------------
Income (loss) from operations................   $     1,823       12.8%  $       783        6.2% $    (3,374)      (32.5%)
                                                -----------------------  ----------------------- ------------------------
</TABLE>

RESULTS OF OPERATIONS

REVENUES FROM CONTINUING OPERATIONS

         Total revenues generated from continuing operations for the 12 months
ended March 31, 2007 ("fiscal 2007") and March 31, 2006 ("fiscal 2006") were
$14.2 million and $12.5 million, respectively, an increase of $1.7 million or
13%. Software license revenues increased $1.2 million or 39% from $3.0 million
in fiscal 2006 to $4.2 million in fiscal 2007, as the result of agreements with
OEM licensing fees and channel sales of $694,000 and off-the-shelf courseware of


                                       19




<PAGE>

$204,000. In addition, direct sales increased by $265,000 as a result of an
increase in the number of licenses and the price per license sold. Subscription
and audio services revenues increased $431,000 or 6% from $7.1 million in fiscal
2006 to $7.5 million in fiscal 2007, as the result of increased audio per minute
usage of $280,000 and an increase in hosting revenues of $151,000, which are
driven by increases in license sales year on year and sustaining the customer
base. Maintenance and professional services revenues increased $69,000 or 3%
from $2.4 million in fiscal 2006 to $2.5 million in fiscal 2007, as the result
of an increase in maintenance fees of $247,000 from renewals as the customer
base continues to grow. In addition, we recognized an increase in training,
storage and recording revenues of $84,000. The increases were partially offset
by a decrease in our custom content revenues of $253,000. This is a variable
component of our revenues related to work performed by our subcontractor,
Interactive Alchemy. For fiscal 2007, software license revenues were 29% of
total revenue, subscription and audio services revenues were 53% of total
revenue and maintenance and professional services revenues were 18% of total
revenue, as compared to 24%, 56% and 20%, respectively, for fiscal 2006. We
expect software license revenues and indirect subscription license revenue to
continue to become a larger percentage of total revenues as total revenues
increase given our focus on the software Purchase Model and indirect sales
model. We expect sales from custom content services and off-the-shelf license
sales decline.

         Total revenues from continuing operations generated for fiscal 2006 and
fiscal 2005 were $12.5 million and $10.4 million, respectively, an increase of
$2.1 million or 20%. Software license revenues decreased $260,000 or 8% from
$3.3 million in fiscal 2005 to $3.0 million in fiscal 2006 as the result of a
reduction in non-core off-the-shelf sales. Subscription and audio services
revenue increased $2.0 million or 39% from $5.1 million in fiscal year 2005 to
$7.1 million in fiscal 2006, as a result of recognition of audio services
revenue for a full 12 months as opposed to ten months in fiscal 2005 as the
result of the Glyphics transaction. Maintenance and professional services
revenue increased $405,000 or 20% from $2.0 million in fiscal 2005 to $2.4
million in fiscal 2006, as the result of an increase in license revenue. Since
maintenance and hosting revenues are sold with license sales, increases in
license revenue will cause a proportionate increase in maintenance revenue, a
trend we expect to continue as license revenues rise. For fiscal 2006, software
license revenues were 24% of total revenue, subscription and audio services
revenues were 56% of total revenue and maintenance and professional services
revenue were 20% of total revenues, as compared to 37%, 49% and 20%,
respectively, for fiscal 2005.

COST OF REVENUES FROM CONTINUING OPERATIONS

         Cost of software license revenues is driven by the types of software
licenses sold. It consists of royalty fees paid on certain off-the-shelf
products, if any, sold, and sales rebates to distribution partners on the sale
of certain software products. Cost of software license revenues for fiscal 2007
and fiscal 2006 were $131,000 and $51,000 respectively, an increase of $80,000
or 150%. The increase was related to an increase in royalty fees arising from
the sale of certain off-the-shelf courseware. Cost of software license revenue
was approximately 0.9% of total revenues in fiscal 2007 and approximately 0.4%
of total revenues in fiscal 2006. We expect the cost of software license
revenues to remain a very small percentage of total license revenue, which will
arise only from royalties which may be due from the sale of off-the-shelf
courseware. Cost of software license revenues for fiscal 2006 and fiscal 2005
were $51,000 and $154,000, respectively, a decrease of $103,000 or 67%. The
decrease is related to a decrease in third party usage fees for the Company's
non-core off-the-shelf product. Cost of software license revenue was
approximately 0.4% of total revenues in fiscal 2006 and approximately 1.5% of
total revenues in fiscal 2005. We expect the cost of revenue for license sales
to remain a very small fraction of license revenue that is not likely to exceed
2%.

         Cost of subscription and audio services revenue uses a fully allocated
overhead method that includes an allocation of salaries and allocable expenses
resulting from the delivery of our hosted Web conferencing services, together
with all expenses associated with the delivery of our audio conferencing
services. Expenses related to our audio conferencing services that are accrued
as cost of revenues include salaries and allocable expenses of our telephone
operators, allocated facilities costs, allocated technical support costs for
support services, together with all direct telecommunication expenses for long
distance and local dial tone connectivity, and finally allocable depreciation
and amortization expense related to our audio conferencing assets. Cost of
subscription and audio services for fiscal 2007 and fiscal 2006 were $3.6
million and $3.9 million, respectively, a decrease of $239,000 or 6%. The
decrease was primarily a result of the complete depreciation in May 2006 of
certain audio conferencing and computer equipment, which resulted in a decrease
in depreciation expense of $620,000 in fiscal 2007. The decrease was partially
offset by increases in telecommunications costs of $314,000 related to the
increase in audio customer per-minute usage, salaries expense of $57,000 related
to an increase in operators to accommodate the increased usage, as well as, 2007
was the first fiscal year we were required to record stock compensation expense,
and office expenses of $83,000. The increase in office expense is primarily due

                                       20




<PAGE>

to a one-time elimination of liabilities associated with the Glyphics
acquisition in fiscal 2006 primarily related to maintenance expense for audio
bridges that was determined not to be due by the vendor. Overall, we expect the
cost of audio conferencing services to rise with increases in audio conferencing
revenue and the percentage to remain relatively consistent for the next three
years. Cost of subscription and audio conferencing revenue was approximately 25%
of total revenues in fiscal 2007 and approximately 31% of total revenues in
fiscal 2006.

         Cost of subscription and audio services revenues for fiscal 2006 and
fiscal 2005 were $3.9 million and $3.8 million, respectively, an increase of
$82,000 or 2%. The overall increase in costs was due to the inclusion of
revenues resulting from the Glyphics audio conferencing acquisition for a full
year in fiscal 2006 compared to ten months in fiscal 2005. The increase was
partially offset by a reduction of estimates of liabilities assumed with that
acquisition of $355,000, primarily in the second and third quarters of fiscal
2006. During fiscal 2006, we determined through review of the liabilities and
confirmation with Glyphics vendors that these liabilities were not owed and
could be eliminated as a one-time reduction to expenses. Cost of subscription
and audio conferencing revenues was approximately 31% of total revenues in
fiscal 2006 and approximately 37% of total revenues in fiscal 2005.

         Cost of maintenance and professional services' revenue include an
allocation of technical support personnel and facilities costs allocable to
those services revenues consisting primarily of a portion of our facilities
costs, communications and depreciation expenses. However, by far the largest and
most variable component of the cost of maintenance and professional services
arises from the amount due to our third-party subcontractor, which is a fixed
proportion of the custom content revenue earned. The cost of maintenance and
professional services for fiscal 2007 and fiscal 2006 was $787,000 and $827,000,
respectively, a decrease of $40,000 or 5%. Revenues from our custom content
subcontractor were down; therefore, the decrease in cost of maintenance and
professional services directly correlates to the decreased revenues. Cost of
maintenance and professional services revenue was approximately 7% of total
revenues in each of fiscal 2007 and fiscal 2006. We expect that the increase in
cost of maintenance and professional services revenue will vary proportionately
and directly with the amount of professional services revenue earned in a
quarter. Cost of maintenance and professional services revenue for fiscal 2006
and fiscal 2005 was $827,000 and $792,000, respectively, an increase of $35,000
resulting from an increase in custom content revenues. Cost of maintenance and
professional services revenue was approximately 7% of total revenues in fiscal
2006 and approximately 8% of total revenue in fiscal 2005.

         Amortization of acquired developed technology consists of amortization
of acquired software technology and other assets acquired in the Mentergy,
Glyphics and Quisic acquisitions. Amortization of acquired technology for fiscal
2007 and fiscal 2006 was $269,000 and $376,000, respectively, a decrease of
$107,000 which is related to the full amortization in fiscal 2006 of the
software technology from the Mentergy acquisition. Amortization of acquired
developed technology for fiscal 2006 and fiscal 2005 was $376,000 and $451,000,
respectively, a decrease of $75,000 which is related to the full amortization of
the software technology from the Quisic acquisition.

GROSS PROFIT

         As the result of the foregoing, the Company's gross profit (total
revenues less total cost of revenues) increased from $5.2 million in fiscal 2005
to $7.4 million in fiscal 2006 to $9.4 million in fiscal 2007. We expect to see
gross profit increase as revenues increase in dollar amount and as a percentage
as revenues rise since most of the cost of sales are either fixed (amortization)
or are associated only with audio conferencing and custom-content service
revenue.

OPERATING EXPENSES FROM CONTINUING OPERATIONS

         Total operating expenses consist of research and development expenses,
sales and marketing expenses and general and administrative expenses. We
incurred operating expenses of $7.5 million in fiscal 2007, an increase of
$929,000 or 14% from $6.6 million in fiscal 2006. This increase is due to
increases in sales and marketing expenses of $621,000, and in general and
administrative expenses of $424,000, which was partially offset by a decrease in
research and development expense of $116,000. Fiscal 2006 operating expenses
were $6.6 million, a decrease of $1.8 million or 21% from fiscal 2005 operating
expenses of $8.5 million. This decrease was due to a decrease in research and
development costs of $153,000, a decrease in sales and marketing costs of $1.0
million and a decrease in general and administrative costs of $777,000. Total
operating expenses were 53%, 53% and 82% of total revenues in fiscal 2007, 2006
and 2005, respectively. In fiscal 2006, our management established a program to
reduce operating expenses, the results of which are reflected in our levels of
operating expenses for fiscal 2007 and fiscal 2006 as compared to fiscal 2005.

         Research and development expenses represent expenses incurred in
connection with the continued development and enhancement of our software
products and new versions of our software. Those costs consist primarily of
salaries and benefits, telecommunication allocations, rent allocations, computer


                                       21




<PAGE>

equipment allocations and allocated depreciation and amortization expense.
Research and development expenses for fiscal 2007 and fiscal 2006 were $1.3
million and $1.4 million respectively, a decrease of $116,000 or 8%. During the
first quarter of fiscal 2007, we began capitalizing identified direct expenses
associated with a specific software development upon achieving technological
feasibility for version 9.0 of our Web collaboration software in accordance with
SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED,
OR OTHERWISE MARKETED. We will continue to capitalize those direct costs until
the new software product is ready for distribution and sale to our customers.
Once the product is released, we will amortize these software development costs
over a three year period. Most of the decrease in research and development
expenses for fiscal 2007 is attributable to the capitalization of those software
development costs that would otherwise have been expensed. For example, salary
and benefit expense and professional services expenses attributable to research
and development expense in fiscal 2007 decreased by $102,000 and $95,000,
respectively, but a substantial portion of this reduction represents expense
that was incurred, but capitalized. Office expense allocated to research and
development increased by $99,000 in fiscal 2007 because an annual quality
assurance service contract accounted for as a prepaid asset began to be
amortized as well as other new annual subscription software contracts during the
period. Taking into account the decrease in current expense in fiscal 2007
resulting from the capitalization of version 9.0 software development costs and
the increase in expense anticipated from amortization of those costs in fiscal
2008, accompanied by an increase in salary and benefit expense since a portion
of that expense had been capitalized in fiscal 2006 and 2007, we expect research
and development costs to increase in fiscal 2008. Research and development
expense was approximately 9% of total revenues in fiscal 2007 and approximately
11% of total revenues in fiscal 2006.

         Fiscal 2006 research and development expenses were $1.4 million, a
decrease of $153,000 or 10% from fiscal 2005 research and development expenses
of $1.5 million. The decrease is primarily the result of decreased salaries and
benefits of $178,000 related to an overall decrease in the number of employees
dedicated to research and development in fiscal 2006. Research and development
expense was approximately 11% of total revenues in fiscal 2006 and approximately
15% of total revenues in fiscal 2005.

         Sales and marketing expenses consist primarily of sales and marketing
salaries and benefits, and also include allocated travel and entertainment
costs, allocated advertising and other marketing expenses. Sales and marketing
expenses were $3.7 million and $3.1 million for fiscal 2007 and fiscal 2006,
respectively, an increase of $621,000 or 20%. The increase was a result of
increased expenses in advertising and marketing of $576,000 and in professional
services of $85,000. Sales and marketing expenses were 26% of total revenue in
fiscal 2007 and 25% of total revenue in fiscal 2006. We expect sales and
marketing expenses to increase in amount as revenues increase, but expect that
the percentage of sales and marketing expenses incurred in relation to total
revenue to remain consistent.

         Sales and marketing expenses were $3.1 million and $4.1 million for
fiscal 2006 and fiscal 2005, respectively, a decrease of $1.0 million or 24%.
The decrease primarily resulted from decreased salaries and related benefits of
$547,000 due to a decrease in the average number of sales and marketing
employees, decreases in marketing expenses, trade show attendance and
advertising costs resulting from a cost reduction program we implemented in
August 2005. Overall, overhead was reduced primarily in the second and third
quarter of fiscal 2006. In fiscal 2006 as compared to fiscal 2005, marketing
expenses decreased by $298,000, travel and entertainment expenses decreased
$51,000, recruiting fees decreased by $57,000 and general office and other
overhead expenses decreased by $154,000. Sales and marketing expense in fiscal
2006 also included costs related to the amortization of customer lists and
intangibles from the Glyphics acquisition of $200,000. Sales and marketing
expenses were 25% of total revenue in fiscal 2006 and 39% of total revenue in
fiscal 2005.

         General and administrative expenses consist of company-wide expenses
that are not directly related to research and development or sales and marketing
activities, with the bulk of those general and administrative expenses comprised
of salaries, rent and the costs directly associated with being a public company,
including accounting costs, legal costs and fees. During fiscal 2007 and 2006,
general and administrative expenses from continuing operations were $2.6 million
and $2.1 million, respectively, an increase of $424,000 or 20%. The increase is
primarily a result of increased office expenses of $134,000 resulting from
investments in annual software subscriptions for a new accounting general ledger
package, an equity administration package and a human resources package,
originally recorded as prepaid assets and amortized to office expense. In
addition general expenses that were previously allocated to all departments in
fiscal 2006, were being expensed directly to general and administrative
expenses. General and administrative expenses also consisted of increased
salaries and benefits of $164,000 resulting from fiscal 2007 being the first
year we recognized stock option compensation expense, net of a decrease in
professional services expense of $76,000 due to a change in the mix between
full-time employees and contractors, increased telecommunications expenses of
$54,000, an increase in bad debt expense of $35,000, a decrease in gain on sale
of assets of $33,000 and increased travel and entertainment of $30,000. In

                                       22




<PAGE>

addition, other taxes increased $117,000 as a result of a reduction in tax
liability of $81,000 for the three months ended December 31, 2005 related to the
release of a tax liability that was recorded as an estimate as part of the
Glyphics acquisition. The overall increase in general and administrative
expenses were partially offset by decreases in legal fees of $20,000 and board
and investor relations expenses of $15,000. General and administrative expenses
from continuing operations were 18% of total revenues in fiscal 2007 and 17% of
total revenues in fiscal 2006

         During fiscal 2006 and 2005, general and administrative expenses from
continuing operations were $2.1 million and $2.9 million, respectively, a
decrease of $777,000 or 27%. General and administrative expenses decreased
primarily due to an expense management initiative led by management, which took
effect primarily in the second and third quarters of fiscal 2006. The overall
decrease in general and administrative expense was primarily comprised of
decreases in bad debt expense of $102,000, salaries and related benefits of
$21,000, contract labor of $61,000, accounting fees of $198,000, consulting fees
of $94,000, recruiting fees of $33,000, legal fees of $21,000 and investor
relations expense of $23,000. Tax liabilities also decreased by $83,000 of which
$81,000 related to the release of a tax liability that was recorded as an
estimate as part of the Glyphics acquisition. After further review and
confirmation from the tax authority, the Company determined that the tax
liability would not be realized, and therefore the liability was eliminated and
a corresponding reduction of the expense was recorded as a one-time reduction.
In addition, in fiscal 2006, we recognized a gain on the sale of fixed assets of
$40,000. General and administrative expenses from continuing operations were 17%
of total revenue in fiscal 2006 and 28% of total revenue in fiscal 2005.

EARNINGS FROM OPERATIONS

         For fiscal 2007, we reported earnings from operations of $1.8 million
as compared to earnings from operations of $783,000 for fiscal 2006, an increase
of $1.0 million or 133%. We posted income from operations of $783,000 for fiscal
2006 and a loss from operations of $3.4 million for fiscal 2005, a positive
change of $4.2 million.

         We expect to continue to increase earnings from operations by
increasing revenues at a faster rate than our increases in expenses.

 INTEREST EXPENSE FROM CONTINUING OPERATIONS

         Interest expense from continuing operations on outstanding debt
instruments for fiscal 2007 and fiscal 2006 was $1.0 million and $1.0 million,
respectively, a decrease of $48,000 or 5%. This decrease was the result of
paying off shareholders notes and debt. Non-cash interest expense, arising from
the beneficial conversion feature of our debt, for fiscal 2007 and fiscal 2006
was $531,000 and $856,000, respectively, a decrease of $325,000 or 38%. This
decrease resulted from conversions in fiscal 2006, which accelerated the
amortization of the beneficial conversion feature related to the debt converted.

         Interest expense from continuing operations paid on outstanding debt
instruments for fiscal 2006 and fiscal 2005 was $1.0 million and $1.1 million,
respectively, a decrease of $40,000 or 4% primarily due to the reduction in
outstanding debt. Non-cash interest expense, arising from the beneficial
conversion feature of our debt, for fiscal 2006 and fiscal 2005 was $856,000 and
$853,000, respectively, an increase of $3,000 or less than 1%.

         We expect interest expense from continuing operations to increase
slightly in fiscal 2008 as the result of (i) the increased interest rate
accruing on our Senior Notes due 2010 from 10% to 12% per annum (which began in
January 2007) in connection with the agreement of the holders of those Senior
Notes to extend the Senior Notes' maturity from July 15, 2007 to July 15, 2010
and (ii) the amortization discussed below under the caption "Loss on
Extinguishment of Debt." We expect non-cash interest expense resulting from the
beneficial conversion feature of our debt to remain consistent in fiscal 2008,
because the amortization is straight-line. Should there be any debt conversions
in fiscal 2008, the interest will increase in order to accelerate the beneficial
conversion feature related to the proportion of debt converted.

INCOME TAX EXPENSE FROM CONTINUING OPERATIONS

         The Company recorded income tax expense of $85,000. This expense
resulted from the recognition of the deferred income tax liability related to
the tax deductible goodwill recognized on the Company's purchase of Quisic and
LearnLinc. The Company has recorded a valuation allowance for its deferred tax
assets due to the lack of profitable operating history. The Company recorded a
valuation allowance for its deferred tax asset because it concluded it is
not likely it would be able to realize the tax assets due to the lack of
profitable operating history of its implementation of the Web conferencing and
audio conferencing business plan. Based on the financial results for the year
ending March 31, 2007, the Company has begun to exhibit the ability to generate
taxable income. In the event the Company was to determine that it would be able
to realize its deferred tax assets in the future, an adjustment to the deferred
tax asset would increase net income through a tax benefit in the period such a
determination was made the Company has met the more likely than not threshold
for such recognition.

         The Company recorded no tax expense during fiscal 2006 and 2005 as a
result of the losses it incurred in those years.

LOSS ON EXTINGUISHMENT OF DEBT

         In December, 2006, we negotiated a modification of the terms our Senior
Notes, to extend the maturity date from July 15, 2007 to July 15, 2010. In
exchange for the extension, the interest rate increased from 10% per annum to
12% per annum, with the new, increased interest rate beginning to accrue on
January 16, 2007, and continuing thereafter at that rate until maturity or the
Senior Note is fully paid. All other terms and provisions of the Senior Notes
remained unchanged. In connection with this matter, the placement agent received
a commission of $87,000 together with a warrant to purchase 100,000 shares of
our common stock at an exercise price of $0.66 per share. The warrant has a
three year term which expires in December 2009. Also, in connection with this
matter, the note agent received an expense reimbursement of $14,000. In
accordance with EIFT 96-19, DEBTOR'S ACCOUNTING FOR A MODIFICATION OR EXCHANGE
OF DEBT INSTRUMENTS, the debt extension was accounted for as an extinguishment
of the existing debt and the creation of the new debt. As a result, we recorded
a one-time loss on extinguishment of debt of $162,000 resulting from the
acceleration of interest expense accounted for as debt discount and deferred
offering costs under the original terms of the senior debt. The direct expenses
of $101,000 and the estimated fair value of the warrant of $42,000 were recorded
as a deferred offering cost and both are being amortized as a component of
interest expense over the term of the Senior Notes.

RESULTS OF DISCONTINUED OPERATIONS

         Effective January 1, 2004, we discontinued our dental practice
management services. Results of operations from this segment are presented as
discontinued operations for fiscal years 2007, 2006 and 2005 in accordance with
SFAS 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. We
do not expect to recognize further income or incur further expenses related to
our discontinued legacy practice management business.

 LIQUIDITY AND CAPITAL RESOURCES

 GENERAL

         Historically, we have generated cash from capital raising activities
and from cash flow from operations. We have used cash to fund our operations and
for research and development activities. In June 2006, we raised $2.0 million of
gross proceeds in a private placement of 5.4 million shares of common stock.
Notes 9 and 10 to our audited financial statements at and for fiscal years 2005,
2006 and 2007 contain detailed information regarding our capital raising
activities prior to the June 2006 private placement. Also, the discussion below
under the caption "Outstanding Preferred Stock and Indebtedness" explains some
of the impact events surrounding our capital raising activities have had on our
financial statements.

         At March 31, 2007, we had a working capital surplus of $912,000
compared to a working capital deficit of $1.9 million at March 31, 2006. Total
current assets were $4.9 million at March 31, 2007 compared to $2.7 million at
March 31, 2006. The increase in total current assets results principally from
generation of cash from proceeds of a private placement in June 2006 of $2.0
million and increased cash flow from operations as well as an increase of
approximately $323,000 in net accounts receivable resulting from increased
levels of sales. Our accounts receivable, net of allowance for doubtful accounts
were $2.5 million and $2.2 million at March 31, 2007 and March 31, 2006,
respectively. The increase in receivables is consistent with an increase in
revenues year on year. The aging of receivables has remained consistent at March
31, 2007 when compared to March 31, 2006, with accounts under 30 days comprising
87% and 85% of the total receivable balance, respectively. Also contributing to
the increase in total current assets were an increase of approximately $736,000
in prepaid expenses and other current assets as the result of the issuance of a
warrant on July 1, 2006 for up to 1,000,000 shares of the Company's common stock
to an agent. The warrant is subject to vesting provisions based on net collected
revenue targets achieved through the agent and certain value added resellers
over a five year period, effective June 30, 2006. As of March 31, 2007, none of
the revenue targets had been achieved. As a result, we recorded a prepaid asset
and corresponding additional paid-in capital of $467,000 as the fair value. We
also had an increase in contracts related to annual subscription software
agreements related to research and development and accounting activities that we


                                       24




<PAGE>

prepaid in addition to an increase in annual sales and marketing agreements we
initiated during fiscal 2007. Total current liabilities were $4.0 million at
March 31, 2007 compared to $4.7 million at March 31, 2006. Contributing to the
decrease in current liabilities were a $1.1 million decrease in accrued
liabilities resulting from payments of a royalty earn-out of $1.1 million
related to our purchase of certain assets from Mentergy, Inc., as well as,
reductions of $56,000 in the current portion of long-term debt, $88,000 in trade
accounts payable and $25,000 in current portion of capital lease liabilities.
Deferred revenue increased from $566,000 to $1.5 million at March 31, 2007
compared to $917,000 at March 31, 2006, as the result of increased license sales
and renewals based on sustaining our customer base.

CONTRACTUAL OBLIGATIONS

         The following schedule details all of the Company's indebtedness and
the required payments related to such obligations at March 31, 2007 (IN
THOUSANDS):

<TABLE>
<S>     <C>
                                                   DUE IN                                 DUE IN YEARS
                                                  LESS THAN     DUE IN      DUE IN YEAR     FOUR AND       DUE AFTER
                                     TOTAL        ONE YEAR     YEAR TWO        THREE          FIVE        FIVE YEARS
                                  -----------------------------------------------------------------------------------
Long term debt*.................  $    8,542     $      143   $       72    $       79    $     8,240     $       8
Capital lease obligations*......         268             45           63            71             72            17
Interest expense................       4,395          1,024        1,015         1,000          1,356            --
Operating lease obligations.....       1,922            539          384           345            654            --
Base salary commitments under
   employment agreements........       1,017            575          442            --             --            --
                                  -----------------------------------------------------------------------------------
Total contractual obligations...  $   16,144     $    2,326   $    1,976    $    1,495    $    10,322     $      25
                                  ===================================================================================
</TABLE>

         *EXCLUDES INTEREST.

         The lease obligations above include commitments in accordance with
amendments to the lease for the Phoenix location that was renegotiated and
extended subsequent to March 31, 2007 (see Note 16 in Notes to Consolidated
Financial Statements).

         We plan to continue to focus on managing overhead while increasing
revenue in an effort to solidify our working capital position. We believe that
we will have sufficient working capital and liquidity to meet our operating
needs, fund our planned research and development activities and to satisfy our
contractual obligations in fiscal 2008 without the need to raise additional
capital.

CASH FLOWS FROM CONTINUING OPERATIONS

         Cash provided by operating activities was $407,000 and $634,000 during
fiscal 2007 and 2006, respectively. Cash used by operating activities was $2.6
million during fiscal 2005. In fiscal 2007, cash provided by operating
activities was primarily attributable to non-cash expenses of depreciation and
amortization of $959,000, non-cash accretion of debt discount to interest
expense of $380,000, income from continuing operations of $46,000, loss on debt
extinguishment of $162,000 due to the extension of our Senior Notes, non-cash
stock option expense of $151,000, an increase in the provision for bad debts of
$145,000 and an increase of $442,000 in deferred revenue. These items were
offset by increases in accounts receivable of $469,000, prepaid expenses and
other current assets of $37,000 and a decrease in accounts payable and accrued
liabilities of $1.5 million. Depreciation and amortization expense was
significantly less in fiscal 2007 than fiscal 2006 because a portion our assets
were fully depreciated in May 2006. Fiscal 2007 was the first year in which we
were required to recognize non-cash stock option expense.

         Cash provided by operating activities was $634,000 during fiscal 2006.
Cash provided by operating activities during fiscal 2006 was primarily
attributable to non-cash expenses of depreciation and amortization of $1.7
million, accretion of debt discount to interest expense of $626,000 and net debt
conversion expense of $249,000. These items were partially offset by increases
in accounts receivable of $352,000, decreases in accounts payable and accrued
liabilities of $452,000 and a net loss of $1.3 million.

         Cash used in operating activities was $2.6 million during fiscal 2005.
Cash used in operating activities during fiscal 2005 was primarily attributable
to a net loss of $5.2 million and increases in accounts receivable of $450,000.
These items were partially offset by increases in accounts payable and accrued
liabilities of $465,000 and non-cash expenses and revenues totaling $2.6
million.

                                       25




<PAGE>

CASH FLOWS FROM INVESTING ACTIVITIES

         Cash used in investing activities was $1.1 million, $292,000, and
$194,000 in fiscal years 2007, 2006, and 2005, respectively. Cash used in
investing activities during fiscal 2007 was primarily due to $504,000 in
investments in certificates of deposit, $255,000 in capital expenditures and
$367,000 in capitalized software development. Cash used in investing activities
during fiscal 2006 was primarily due to acquisition royalty earnout of $261,000
and capital expenditures of $55,000. Cash used in investing activities during
fiscal 2005 was primarily due to capital expenditures of $153,000.

CASH PROVIDED BY FINANCING ACTIVITIES

         Cash provided by financing activities was $1.3 million during fiscal
2007. Cash used in financing activities was $395,000 during fiscal 2006 and cash
provided by financing activities was $2.9 million during fiscal 2005. Cash
provided by financing activities in fiscal 2007 was attributable to $2.0 million
in gross proceeds from the issuance of common stock in a private placement and
additional proceeds from the exercise of stock options of $5,000, partially
offset by stock issuance expenses of $263,000, repayment of $189,000 in
long-term debt and capital leases, payment of $157,000 in preferred dividends
and payment of financing costs of $101,000. Cash used in financing activities in
fiscal 2006 was primarily a result of repayment of long-term debt and capital
lease liabilities of $308,000 and $157,000, respectively, plus payment of
dividends on preferred stock in the amount of $116,000. Cash provided by
financing activities during fiscal 2005 was primarily due to proceeds from the
issuance of long-term debt of $4.3 million, partially offset by the repayment of
long-term debt and capital lease liabilities of $514,000 and $328,000,
respectively, as well as payment of dividends on preferred stock.

OUTSTANDING INDEBTEDNESS AND PREFERRED STOCK

         The Company currently has outstanding unsecured subordinated
convertible notes due March 29, 2012, 115,000 issued and outstanding shares of
Series A Convertible Preferred Stock and 59,500 issued and outstanding shares of
Series B Convertible Preferred Stock, together with $2,962,000 in principal
amount of Senior Notes. All of the foregoing securities were issued in
connection with the Company's capital raising activities. A detailed discussion
of the terms of these securities and the impact of issuance of and certain
events surrounding these securities on our financial statements follows.

         In March 2002, the Company issued $5,775,000 in principal amount of the
Convertible Notes, the proceeds of which were used to extinguish an existing
line of credit. The Convertible Notes bear interest at the rate of 12% per annum
and require quarterly interest payments, with the principal due at maturity on
March 29, 2012. The holders of the Convertible Notes may convert the principal
into shares of the Company's common stock at the fixed price of $1.00 per share.
The Company may force redemption by conversion of the principal into common
stock at the fixed conversion price, if at any time the 20 trading day average
closing price of the Company's common stock exceeds $3.00 per share. The
Convertible Notes are subordinated to any present or future senior indebtedness.
In connection with the issuance of the Convertible Notes, the Company also
issued warrants to purchase 5,775,000 shares of the Company's common stock for
an exercise price of $3.00 per share. Those warrants expired on March 29, 2005
without exercise. There was no financial impact on the Company's income
statement as a result of the expiration of these warrants. The fair value of the
warrants was estimated using a Black-Scholes pricing model with the following
assumptions: contractual and expected life of three years, volatility of 75%,
dividend yield of 0%, and a risk-free rate of 3.87%. A discount to the
Convertible Notes of $1,132,000 was recorded using this value, which is being
amortized to interest expense over the 10-year term of the Convertible Notes. As
the carrying value of the Convertible Notes is less than the conversion value, a
beneficial conversion feature of $1,132,000 was calculated and recorded as an
additional discount to the Convertible Notes and is being amortized to interest
expense over the ten year term of the Convertible Notes. Upon conversion, any
remaining discount and beneficial conversion feature will be expensed in full at
the time of conversion.

         During fiscal 2006, holders with a principal balance of $525,000 agreed
to convert their Convertible Notes and $8,000 of accrued interest into 1,971,088
shares of the Company's common stock, the resale of which was registered under
the Securities Act of 1933 at a price of $0.25, $0.26 and $0.30 per share. Since
the actual conversion price for the convertible debt was less than the fixed
conversion price of $1.00, the Company recorded conversion expense of $338,000
for fiscal 2006. During fiscal 2006, the Company accelerated the amortization of
the deferred offering costs and the discount and beneficial conversion feature
associated with the $525,000 in Convertible Notes that were converted in 2006 by
expensing $50,000 and $137,000, respectively at the time of conversion. No
conversion of Convertible Notes or related acceleration of amortization of costs
occurred during fiscal 2007.

                                       26




<PAGE>

         On September 16, 2003, the Company completed its private placement of
Series A Preferred Stock with detachable warrants. The Company sold 30 units at
$50,000 each and raised a total of $1,500,000. Each unit consisted of 5,000
shares of Series A Preferred Stock and a warrant to purchase 25,000 shares of
common stock. The Series A Preferred Stock has a liquidation preference of
$10.00 per share and is convertible into the Company's common stock at a price
of $0.50 per share (or 20 shares of common stock for each share of Series A
Preferred Stock), subject to adjustment, and the warrants were immediately
exercisable at a price of $1.50 per share with a three-year term. These warrants
expired in 2006 without financial impact on the Company's income statement. The
Company pays an 8% annual dividend ($0.08 per share annually) to holders of the
Series A Preferred Stock, and the dividend is cumulative. The Series A Preferred
Stock is non-voting and non-participating. The cash proceeds of the private
placement of Series A Preferred Stock were allocated pro rata between the
relative fair values of the Series A Preferred Stock and warrants at issuance
using the Black-Scholes valuation model for valuing the warrants. The aggregate
value of the warrants and the beneficial conversion discount of $247,000 are
considered a deemed dividend in the calculation of loss per share. During the
2005 fiscal year, holders of 22,500 shares of Series A Preferred Stock converted
those shares into 450,000 shares of the Company's common stock. During fiscal
2007, holders of 12,500 shares of Series A Preferred Stock converted those
shared into 250,000 shares of the Company's common stock. The underlying common
stock that has been or may be issued on conversion of the Series A Preferred
Stock has been registered for resale under the Securities of Act of 1933.

         In April of 2004, the Company completed a private placement of
$3,187,000 in principal amount of Senior Notes and 1,634,550 shares of common
stock that provided gross proceeds of $4.25 million. The Senior Notes were
issued as a series of notes pursuant to a unit purchase and agency agreement.
The Senior Notes are unsecured, but are senior in right of payment to all
existing and future indebtedness of the Company. The placement agent received a
commission equal to 10% of the gross proceeds together with a warrant for the
purchase of 163,455 shares of the Company's common stock with an exercise price
equal to 120% of the price paid by investors. The Senior Notes originally bore
interest at a rate of 10% per annum with accrued interest due and payable on a
quarterly basis beginning July 15, 2004, with principal due at maturity on July
15, 2007. The Senior Notes are redeemable by the Company at 100% of the
principal value at any time after July 15, 2005. The Senior Notes and common
stock were issued with a debt discount of $768,000. The fair value of the
warrants was estimated and used to calculate a discount of $119,000 of which
$68,000 was allocated to the Senior Notes and $51,000 was allocated to equity.
The total discount allocated to the Senior Notes of $836,000 is being amortized
as a component of interest expense over the term of the Senior Notes which is
approximately 39 months. The common stock issued in the 2004 Senior Note
offering was registered with the SEC pursuant to a resale prospectus dated
August 2, 2005.

         Effective August 1, 2005, holders of Senior Notes with a principal
balance totaling $225,000 converted their Senior Notes and accrued interest of
$800 into 903,205 shares of the Company's common stock at a price of $0.25 per
share. Since the actual conversion price for the debt was greater than the
market value of the common stock at the date of conversion, the Company recorded
a gain on conversion of $9,000 for the period ended December 31, 2005. In
connection with this conversion, during fiscal 2006, the Company accelerated the
amortization of the deferred offering costs and the discount associated with the
debt converted by expensing $10,000 and $35,000, respectively at the time of
conversion. On November 9, 2005, the placement agent warrants originally issued
with an exercise price of $0.78 per common share were exchanged for 163,455
common shares at an exercise price of $0.25 per share, in which the Company
received $41,000 in cash. The transaction resulted in an increase in deferred
offering costs of $7,000 and an adjustment to additional paid-in capital of
$7,000.

         No conversion of debt to equity or acceleration of amortization of
costs related to conversions of Senior Notes occurred during fiscal 2007.

         In December, 2006, the Company negotiated a modification of the terms
of the Senior Notes to extend the maturity date from July 15, 2007 to July 15,
2010. In exchange for the extension, the interest rate increased from 10% per
annum to 12% per annum, with the new, increased interest rate beginning to
accrue on January 16, 2007. All other terms and provisions of the Senior Notes
remained unchanged. The placement agent received a commission of $87,000
together with a warrant to purchase of 100,000 shares of the Company's common
stock at an exercise price of $0.66 per share. The warrant has a three year term
ending in December 2009. The note agent received an expense reimbursement of
$14,000. In accordance with EITF 96-19, DEBTOR'S ACCOUNTING FOR A MODIFICATION
OR EXCHANGE OF DEBT INSTRUMENTS, the debt extension was accounted for as an
extinguishment of the existing debt and the creation of the new debt. As a
result, the Company recorded a one-time loss on extinguishment of debt of
$162,000 in fiscal 2007 resulting from the acceleration of interest expense
accounted for as debt discount and deferred offering costs under the original
terms of the Senior Notes. The direct expenses of $101,000 incurred in
connection with effecting the amendment and the estimated fair value of the
warrant of $42,000 were recorded as a deferred offering cost and both will be
amortized as a component of interest expense over the term of the Senior Notes.

                                       27




<PAGE>

         On September 30, 2005, the Company executed definitive agreements with
nine investors to issue 70,000 shares of its Series B Preferred Stock and
warrants to purchase 700,000 shares of its common stock in a private placement.
Of the total Series B Preferred Stock issued, 15,000 shares of Series B
Preferred Stock with warrants to purchase 150,000 shares of common stock were
issued to four individuals in exchange for their cash investment of $150,000;
15,000 shares of Series B Preferred Stock with warrants to purchase 150,000
shares of common stock were issued to two vendors in exchange for an offset of
their accounts payable balance in the amount of $150,000; and 40,000 shares of
Series B Preferred Stock with warrants to purchase 400,000 shares of common
stock were issued to three institutional investors in exchange for the offset of
accrued liabilities in the amount of $400,000. The Company recorded a gain on
debt conversion of $50,000 associated with this transaction since the
liabilities outstanding were $450,000 at the time of the transaction. The Series
B Preferred Stock bears an 8% dividend ($0.08 per share annually), was sold
using a deemed $10.00 per share issue price, and is convertible into 2,800,000
shares of the Company's common stock using a conversion price of $0.25 per
share. The warrants are exercisable at an exercise price equal to $0.50 per
share and expire on the third anniversary of the issue date of September 30,
2005. The aggregate value of the warrants of $55,000 is considered a deemed
dividend in the calculation of loss per share. During fiscal 2007, holders of
10,000 shares of Series B Preferred Stock converted those shares into 420,000
shares of the Company's common stock. The exchange was not required and the
conversion of those preferred shares into common shares and was without
accounting impact on the Company's income statement.

OFF BALANCE SHEET TRANSACTIONS

         There are no off-balance sheet transactions, arrangements, obligations
(including contingent obligations) or other relationships of the Company with
unsolicited entities or other persons that have or may have a material effect on
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources of the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. The more
significant areas requiring use of estimates relate to revenue recognition,
accounts receivable and notes receivable valuation reserves, realizability of
intangible assets, realizability of deferred income tax assets and the
evaluation of contingencies and litigation. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. The results of such estimates form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may materially
differ from these estimates under different assumptions or conditions.

         The Company considers an accounting policy to be critical if it
requires an accounting estimate that requires the Company to make assumptions
about matters that are highly uncertain at the time the accounting estimate is
made. In addition, different estimates that the Company reasonably could have
used for the accounting estimate in the current period, or changes in the
accounting estimate that are reasonably likely to occur from period to period
would have a material impact on the presentation of the Company's financial
condition, changes in financial condition or results of operations. The Company
believes there are a number of accounting policies that are critical to
understanding our historical and future performance. The critical accounting
policies include revenue recognition, sales reserves, allowance for doubtful
accounts, software development costs, intangible assets, income taxes and
stock-based compensation. These critical accounting policies that affect the
Company's more significant judgments and estimates used in the preparation of
its consolidated financial statements are described below.

REVENUE RECOGNITION

         Our revenues are generally classified into three main categories:
software license revenues, subscription and audio services revenues and
maintenance and professional services revenues. Software license revenues are
generated from the sale of our iLinc suite of Web conferencing software on a
software purchase model basis and from the sale of our off-the-shelf courseware.
Subscription and audio services revenues are generated from the sale of our


                                       28




<PAGE>

iLinc Suite of Web conferencing software on an Application Service Provider
("ASP") model basis, the sale of our iLinc Suite software on a per-minute basis,
and includes all revenues from the provision of audio conferencing services, as
well as, all service contracts that might include hosting and training services.
Maintenance and professional service revenues are generated from the sale of
maintenance contracts related to our iLinc suite of Web conferencing software on
a purchase model basis and from the sale of professional services that are
associated with our custom content development services.

SALES OF SOFTWARE LICENSES

         Because we offer the iLinc Suite software in one of two forms, the
first being a purchase model and the second being an ASP or per-minute model, we
have separate revenue recognition policies applicable to each licensing model.
With each sale of our Web conferencing products and services, we execute written
contracts with our customers that govern the terms and conditions of each
software license sale, hosting agreement, maintenance and support agreement, and
other services arrangements. We do not typically execute written agreements for
the sale of audio conferencing services.

         In connection with the Company's sales of software licenses, whether on
a purchase model basis or periodic license basis, the Company adopted Statement
of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION as issued by the American
Institute of Certified Public Accountants. In accordance with SOP 97-2, the
Company recognizes revenue from the sale of software licenses if all of the
following conditions are met: first, there is persuasive evidence of an
arrangement with the customer; second, the product has been delivered to the
customer; third, the amount of the fees to be paid by the customer is fixed or
determinable; and, fourth, collection of the fee is probable.

         Each of these factors, particularly the determination of whether a fee
is fixed and determinable and the collectability of the resulting receivable,
requires the application of the judgment and the estimates of management.
Therefore, significant management judgment is utilized and estimates must be
made in connection with the revenue we recognize in any accounting period. We
analyze various factors, including a review of the nature of the license or
product sold, the terms of each specific transaction, the vendor specific
objective evidence of the elements required by SOP 97-2, any contingencies that
may be present, our historical experience with like transactions or with like
products, the creditworthiness of the customer and other current market and
economic conditions. Changes in our judgment based upon these factors and others
could impact the timing and amount of revenue that we recognize, and ultimately
the results of operations and our financial condition. Therefore, the
recognition of revenue is a key component of our results of operations.

         At the time of the sale of our software licenses on a purchase license
basis, we assess whether the fee associated with the transaction is fixed or
determinable based on the payment terms associated with the transaction before
recording immediate revenue recognition, assuming all other elements of revenue
recognition are present. Billings to our customers are generally due within 30
to 90 days, with payment terms up to 180 days available to certain credit worthy
customers. We believe that we have sufficient history of collecting all amounts
within these normal payment terms and to conclude that the fee is fixed or
determinable at the time of the perpetual license sale. We consider all
arrangements with payment terms longer than 180 days not to be fixed or
determinable and for arrangements involving the extended payment terms exceeding
180 days, revenue recognition occurs when payments are collected, assuming all
other elements of revenue recognition are present.

         In addition, in assessing whether collection is probable or not for a
given transaction, and therefore whether we should recognize the revenue, we
make estimates regarding the creditworthiness of the customer. Initial
creditworthiness is assessed through internal credit check processes, such as
credit applications or third party reporting agencies. Creditworthiness for
transactions to existing customers primarily relies upon a review of their prior
payment history. We do not request collateral or other security from our
customers. If we determine that collection of a fee is not reasonably assured,
we defer the fee and recognize revenue at the time collection becomes reasonably
assured, which is generally upon the receipt of payment or other change in
circumstance.

         During fiscal 2006, iLinc launched its Enterprise Unlimited perpetual
licensing model that enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web conferencing, with revenue recognized at the
time of the sale of the Enterprise Unlimited perpetual license. The annual
maintenance and support fees and hosting fees associated with an iLinc
Enterprise Unlimited license are based upon a fixed rate per seat license that
is active on each annual anniversary of the iLinc Enterprise Unlimited license
agreement and that is approximately equivalent to the 12% to 18% charged for
concurrent seat perpetual license contracts. Customers may expand the number of
active seats available to them at any time with a corresponding increase in
annual maintenance and hosting fees being charged with the additional revenue
recognized on a straight-line basis over the period of the contract.

                                       29




<PAGE>

SALES OF CONCURRENT LICENSES ON AN ASP AND PER-MINUTE BASIS

         Historically and on a continuing basis, a majority of our license
revenue has been generated under the software purchase model basis, with revenue
recognized based on a one-time sale of a perpetual license. In addition to that
purchase model software sale, we also offer a more flexible concurrent
connection seat license and a pay-per-minute usage based model. Under our ASP
model, a customer may subscribe to a certain number of concurrent connections or
seats for a fixed period, often a year. Under this ASP method, we recognize the
revenue associated with these monthly, fixed-fee subscription arrangements each
month on a straight-line basis over the term of the agreement. Other customers
choose to avoid annual commitments and instead use our Web conferencing and
audio conferencing products and services based upon a per-minute or usage-based
pricing model. Per-minute customers may also include those customers on an ASP
model that incur overage fees for usage in excess of the permitted number of
seats or minutes in excess of the minimum commitment. The per-minute fees that
include overage fees are charged at the end of each month and recorded as
revenue at the end of each month as the services are provided. Customers with
contractually established minimum per-minute fees are assessed the greater of
the established minimum or the actual usage at the end of each month. Customers
wishing to avoid monthly commitments may use the e-commerce portion of our Web
site that permits the use of our Web conferencing services on a pay-per-use
basis, with no monthly minimum, purchasing the services and paying for those
services online by credit card.

SALES OF MAINTENANCE, HOSTING, AND OTHER RELATED SERVICES

         The Company offers with each sale of its software products a software
maintenance, upgrade, and support arrangement. These contracts may be elements
in a multiple-element arrangement or may be sold in a stand-alone basis.
Revenues from maintenance and support services are recognized ratably on a
straight-line basis over the term that the maintenance service is provided.
Maintenance contracts typically provide for 12-month terms with maintenance
contracts available up to 36 months. The Company typically charges 12% to 18% of
the software purchase price for a 12-month contract with discounts available for
longer-term agreements. The annual maintenance and support fees and hosting fees
associated with an iLinc Enterprise Unlimited license are based upon a fixed
rate per seat license that is active on each annual anniversary of the iLinc
Enterprise Unlimited license agreement and that is approximately equivalent to
the 12% to 18% charged for concurrent seat perpetual license contracts.

         The Company also typically charges 10% for hosting of purchase
model software sales for customers who do not wish to install and host the iLinc
Suite on their own premises or that of a co-location facility. Charges for
hosting are likewise spread ratably over the term of the hosting agreement, with
the typical hosting agreement having a term of 12 months, with renewal on an
annual basis.

         Revenues from consulting, training, and education services are
recognized either as the services are performed, ratably over a subscription
period, or upon completing a project milestone if defined in the agreement.
These consulting, training, and education services, are not considered essential
to the functionality of our products as these services do not alter the product
capabilities, do not require specialized skills, and are often performed by the
customer or our VAR's customers without access to those services.

         Implementation, consulting, training, translation and other event-type
services may also be sold in conjunction with the sale of our software products.
Those services are generally recognized as the services are performed or earlier
when all other revenue recognition criteria have been met. Although the Company
may provide implementation, training and consulting services on a time and
materials basis, a significant portion of these services have been provided on a
fixed-fee basis.

         Should the sale of our software involve an arrangement with multiple
elements (for example, the sale of a software license along with the sale of
maintenance and support to be delivered over the contract period), we allocate
revenue to each component of the arrangement using the residual-value method
based on the fair value of the undelivered elements. We defer revenue from the
arrangement equivalent to the fair value of the undelivered elements and
recognize the remaining amount at the time of the delivery of the product or
when all other revenue recognition criteria have been met. Fair values for the
ongoing maintenance and support obligations are based upon separate sales of
renewals of maintenance contracts. Fair value of services, such as training or
consulting, is based upon separate sales of these services to other customers.
Thus, these types of arrangements require us to make judgments about the fair
value of undelivered arrangements.

                                       30




<PAGE>

SALES OF CUSTOM CONTENT DEVELOPMENT SERVICES

         A component of our maintenance and professional services revenue is
derived from custom content development services. The sale of custom content
development services often involves the execution of a master service agreement
and corresponding work orders describing the deliverable due, the costs
involved, the project milestones, and the payments required. These custom
content development services are primarily outsourced to a subcontractor,
Interactive Alchemy. For contracts and revenues related exclusively to custom
content development services, the Company recognizes revenue and profit as work
progresses on custom content service contracts using the
percentage-of-completion method. This method relies on estimates of total
expected contract revenue and costs as each job progresses throughout the
relevant contract period. The Company follows this method since reasonably
dependable estimates of the costs applicable to various stages of a custom
content service contract can be made. Recognized revenues and profit are subject
to revisions as the custom content service contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. Customers sometimes request
modifications to projects in progress which may result in significant revisions
to cost estimates and profit recognition, and the Company may not be successful
in negotiating additional payments related to the changes in scope of requested
services. Should this arise, the provision for any estimated losses on
uncompleted custom content service contracts are made in the period in which
such losses become evident. There were no such losses at March 31, 2007 for any
custom content development services. For arrangements requiring customer
acceptance, revenue is deferred until the earlier of the end of the acceptance
period or until written notice of acceptance is received from the customer.

SALES BY DISTRIBUTORS

         The Company has engaged organizations within the United States of
America and in other countries that market and sell its products and services
through their sales distribution channels that are value added resellers (VARs).
The VARs primarily sell, on a non-exclusive basis, our iLinc suite of Web
conferencing products and predominately sell purchase-model perpetual licenses
for installation and hosting by the VAR's customer. The Company's VAR contracts
have terms of one to two years and are automatically renewed for an additional
like term unless either party terminates the agreement for breach or other
financial reasons. Each VAR purchases the product from the Company and resells
the product to its customers. Under those VAR agreements, the Company records
only the amount paid by the VAR as revenue and recognizes revenue when all
revenue recognition criteria have been met. The Company also engages
organizations that act as mere agents or distributors of its products
("Agents"), without title passing to the Agent and with the Agent only receiving
a commission on the consummation of the sale to our customer. The Company
records revenue on sales by Agents on a gross basis before commissions due to
the Agent and only when all revenue recognition criteria are met as would be
with a sale by the Company directly to a customer not involving an agent.

SALES RESERVES

         The sales reserve is an estimate for losses on receivables resulting
from customer credits, cancellations and terminations and is recorded, if at
all, as a reduction in revenue at the time of the sale. Increases to sales
reserve are charged to revenue, reducing the revenue otherwise reportable. The
sales reserve estimate is based on an analysis of the historical rate of
credits, cancellations and terminations. The accuracy of the estimate is
dependent on the rate of future credits, cancellations and terminations being
consistent with the historical rate. If the rate of actual credits,
cancellations and terminations is different than the historical rate, revenue
would be different from what was reported. As of March 31, 2007, we did not
believe that an accrual for sales reserves was necessary, and we will continue
to assess the adequacy of the sales reserve account balance on a quarterly
basis.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

         We record an allowance for doubtful accounts to provide for losses on
accounts receivable due to customer credit risk. Increases to the allowance for
doubtful accounts are charged to general and administrative expense as bad debt
expense. Losses on accounts receivable due to financial distress or failure of
the customer are charged to the allowance for doubtful accounts. The allowance
estimate is based on an analysis of the historical rate of credit losses. The
accuracy of the estimate is dependent on the future rate of credit losses being
consistent with the historical rate. If the rate of future credit losses is
greater than the historical rate, then the allowance for doubtful accounts may
not be sufficient to provide for actual credit losses.

         The allowance for doubtful accounts is $117,000 and $120,000,
respectively, as of March 31, 2007 and 2006 and is based on our historical
collection experience. Any adjustments to these accounts are reflected in the
income statement for the current period, as an adjustment to revenue in the case
of the sales reserve and as a general and administrative expense in the case of
the allowance for doubtful accounts.

                                       31




<PAGE>

SOFTWARE DEVELOPMENT COSTS

         The Company accounts for software development costs in accordance with
Statements of Financial Accounting Standards ("SFAS") No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, whereby
costs for the development of new software products and substantial enhancements
to existing software products are expensed as incurred until technological
feasibility has been established, at which time any additional costs are
capitalized. Technological feasibility is established upon completion of a
working model. Costs of maintenance and customer support are charged to expense
when related revenue is recognized or when those costs are incurred, whichever
occurs first. In May of 2006, the Company began production of version 9.0 of its
Web collaboration software. In accordance with SFAS No. 86, the Company began
capitalizing certain direct and indirect software development costs that
included expenses related to employee payroll costs, consultant fees, dedicated
computer hardware costs and specialized software license costs associated with
this project. As of March 31, 2007, the Company capitalized costs totaling
$367,000. Version 9.0 was completed and released to customers in June 2007. The
Company will begin amortization of these capitalized costs, using straight-line
amortization over a three year period beginning July 2007.

INTANGIBLE ASSETS

         On April 1, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS and as a result, the Company's goodwill is no longer
amortized. SFAS No. 142 requires that goodwill be tested annually (or more
frequently if impairment indicators arise) for impairment. Upon initial and
subsequent application of SFAS No. 142, the Company determined there was no
impairment of goodwill. The Company has established the date of March 31 on
which to value its goodwill.

         The Company has made acquisitions of companies having operations or
technology in areas within its strategic focus and has recorded goodwill and
other intangible assets associated with its acquisitions. Future adverse changes
in market conditions or poor operating results of the underlying acquired
operations could result in losses or an inability to recover the carrying value
of the goodwill and other intangible assets thereby possibly requiring an
impairment charge in the future. The Company has determined that impairment of
that goodwill and intangible assets was not required. The Company's management
believes no such impairment exists at March 31, 2007.

         Debt issuance costs are amortized using the straight-line method over
the term of the related debt obligations.

         Other intangibles primarily consist of the LearnLinc and Glyphics
purchase consideration that was allocated to purchased software and customer
relationship intangibles. Such other intangibles are amortized over their
expected benefit period of 24 to 72 months.

INCOME TAXES

         The Company utilizes the liability method of accounting for income
taxes in accordance with SFAS No. 109 ACCOUNTING FOR INCOME TAXES. Under this
method, deferred taxes are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted marginal tax rates currently in effect when the differences reverse.

         The Company has recorded a valuation allowance for its deferred tax
assets due to the lack of profitable operating history. The Company recorded a
valuation allowance for its deferred tax asset because it concluded it is
not likely it would be able to realize the tax assets due to the lack of
profitable operating history of its implementation of the Web conferencing and
audio conferencing business plan. Based on the financial results for the year
ending March 31, 2007, the Company has begun to exhibit the ability to generate
taxable income. In the event the Company was to determine that it would be able
to realize its deferred tax assets in the future, an adjustment to the deferred
tax asset would increase net income through a tax benefit in the period such a
determination was made the Company has met the more likely than not threshold
for such recognition.

STOCK-BASED COMPENSATION

         In December 2004, the FASB issued SFAS No. 123R, SHARE-BASED PAYMENT
("SFAS 123R"). Under this new standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic method in
accordance with APB 25. Instead, companies are required to account for such
transactions using a fair-value method and to recognize the expense over the

                                       32




<PAGE>

service period. SFAS 123R became effective for the Company for periods beginning
after March 31, 2006 and allows for several alternative transition methods. The
Company adopted SFAS 123R effective April 1, 2006, which requires recognition of
compensation expense for all stock option or other equity-based awards that vest
or become exercisable after the option's effective date. The Company elected the
modified prospective application transition method of adoption and, as such,
prior period financial statements have not been restated. Under this method, the
fair value of all stock options granted or modified after adoption must be
recognized in the Consolidated Statement of Operations and total compensation
cost related to non-vested awards not yet recognized, as determined under the
original provisions of SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, must
also be recognized in the Consolidated Statement of Operations as vesting
occurs.

GUARANTEES AND INDEMNIFICATIONS

         The Company provides a limited 90-day warranty for certain of its
software products. Historically, claims by customers under this limited warranty
have been minimal, and as such, no warranty accrual has been provided for in the
Company's consolidated financial statements.

         In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS -- AN INTERPRETATION OF FASB
STATEMENTS NO. 5, 57 AND 107 AND RESCISSION OF FIN 34. The following is a
summary of the Company's agreements that the Company has determined are within
the scope of FIN No. 45.

         Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences arising as a result of the officers
or directors serving in such capacity. The term of the indemnification period is
for the officer or director's lifetime. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited. However, the Company has a director and officer
liability insurance policy that limits its exposure and enables it to recover a
portion of any future amounts paid. As a result of its insurance policy
coverage, the Company believes the estimated fair value of these indemnification
agreements is minimal and has no liabilities recorded for these agreements as of
March 31, 2007.

         The Company enters into indemnification provisions under (i) its
agreements with other companies in its ordinary course of business, typically
with business partners, contractors, and customers, landlords and (ii) its
agreements with investors. Under these provisions the Company generally
indemnifies and holds harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of the Company's activities or, in
some cases, as a result of the indemnified party's activities under the
agreement. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. The
Company has not incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes
the estimated fair value of these agreements is minimal. Accordingly, the
Company has no liabilities recorded for these agreements as of March 31, 2007.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2006, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 06-03 ("EITF 06-03"), HOW TAXES COLLECTED FROM
CUSTOMERS AND REMITTED TO GOVERNMENTAL AUTHORITIES SHOULD BE PRESENTED IN THE
INCOME STATEMENT (THAT IS, GROSS VERSUS NET PRESENTATION). EITF 06-03 provides
that the presentation of taxes assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a
customer on either a gross basis (included in revenues and costs) or on a net
basis (excluded from revenues) is an accounting policy decision that should be
disclosed. The provisions of EITF 06-03 became effective as of December 31,
2006. Our adoption of ETIF 06-03 has not and is not expected to have a material
effect on our consolidated financial position or results of operations.

         In July, 2006, the FASB issued FASB Interpretation No. 48, ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109
(FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute
for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for us
beginning in the first quarter of fiscal 2008. We are in the process of
determining the effect, but believe the impact of the adoption of FIN 48 will
not be significant to our financial position or results of operations.

         In September 2006, the FASB issued SFAS No. 157, FAIR VALUE
MEASUREMENTS (SFAS 157), which provides guidance on how to measure assets and
liabilities that use fair value. SFAS 157 will apply whenever another US GAAP
standard requires (or permits) assets or liabilities to be measured at fair
value but does not expand the use of fair value to any new circumstances. This
standard also will require additional disclosures in both annual and quarterly
reports. SFAS 157 will be effective for fiscal 2009. We are currently
evaluating the potential impact this standard may have on its financial position
and results of operations.

         On February 15, 2007, the FASB issued SFAS No. 159, THE FAIR VALUE
OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES (SFAS No. 159). Under this
Standard, we may elect to report financial instruments and certain other items
at fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS No. 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS No. 133 hedge accounting are not met. SFAS No. 159 is effective for
years beginning after November 15, 2007. Early adoption within 120 days of the
beginning of our 2008 fiscal year is permissible, provided we have not yet
issued interim financial statement for 2008 and have adopted SFAS No. 157. We
are currently evaluating the potential impact of adopting this Standard.

         In September 2006, SEC issued SAB No. 108, CONSIDERING THE EFFECTS OF
PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING CURRENT YEAR MISSTATEMENTS. SAB No.
108 requires analysis of misstatements using both an income statement (rollover)
approach and a balance sheet (iron curtain) approach in assessing materiality
and provides for a one-time cumulative effect transition adjustment. SAB No. 108
is effective for our fiscal year 2007 annual financial statements. We adopted
SAB 108 effective April 1, 2006. We noted an accumulation of prior period errors
related to the accounting for tax deductible goodwill. We have analyzed these
amounts both quantitatively and qualitatively and have concluded that they are
not material to the periods affected. During the fourth quarter of fiscal 2007,
we increased beginning accumulated deficit and net deferred income tax liability
by $214,000 (Note 17 to the consolidated financial statements).



                                       33




<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The following discusses our exposure to market risk related to changes
in interest rates, equity prices and foreign currency exchange rates. Market
risk generally represents the risk of loss that may result from the potential
change in the value of a financial instrument as a result of fluctuations in
interest rates and market prices. We have not traded or otherwise bought and
sold derivatives nor do we expect to in the future. We also do not invest in
market risk sensitive instruments for trading purposes.

         We provide our products and services to customers in the United States,
Europe and elsewhere throughout the world. Sales are predominately made in U.S.
Dollars, however, we have sold products that were payable in Euros and Canadian
Dollars. A strengthening of the U.S. Dollar could make our products and services
less competitive in foreign markets.

         The primary objective of the Company's investment activity is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the Company maintains
its portfolio of cash equivalents in a variety of money market funds.

         As of March 31, 2007, the carrying value of our outstanding convertible
redeemable subordinated notes and unsecured senior notes was approximately $8.1
million at fixed interest rates of 10% to 12%. In certain circumstances, we may
redeem this long-term debt. Our other components of indebtedness of $432,000
bear interest rates of 6% to 10.25%. Increases in interest rates could increase
the interest expense associated with future borrowings, if any. We do not hedge
against interest rate increases.

                                       34




<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA


                          INDEX TO FINANCIAL STATEMENTS

                                                                         PAGE(S)
                                                                         -------
  FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm.................   36
Report of Independent Registered Public Accounting Firm.................   37
Consolidated Balance Sheets at March 31, 2007 and 2006..................   38
Consolidated Statements of Operations
      for the years ended March 31, 2007, 2006 and 2005 ................   39
Consolidated Statements of Shareholders' Equity
     for the years ended March 31, 2007, 2006 and 2005..................   40
Consolidated Statements of Cash Flows
     for the years ended March 31, 2007, 2006 and 2005..................   42
Notes to Consolidated Financial Statements..............................   43

  FINANCIAL STATEMENTS SCHEDULE:
Report of Independent Registered Public Accounting Firm.................   75
Report of Independent Registered Public Accounting Firm.................   76
Report of Independent Registered Public Accounting Firm.................   77
Schedule II - Valuation and Qualifying Accounts
     for the years ended March 31, 2007, 2006 and 2005..................   78

All other schedules are omitted because they are not applicable.


                                       35




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Stockholders and Board of Directors
of iLinc Communications, Inc. and Subsidiaries:


We have audited the accompanying consolidated balance sheet of iLinc
Communications, Inc. and subsidiaries as of March 31, 2007 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of iLinc
Communications, Inc. and subsidiaries as of March 31, 2007 and the consolidated
results of its operations and cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.

As described in Note 3 to the consolidated financial statements, the Company
adopted a new principle of accounting for share-based payments in accordance
with Financial Accounting Standards Board Statement No. 123R, "Share-Based
Payment."

As discussed in Note 17 to the consolidated financial statements, the Company
recorded a cumulative effect adjustment as of April 1, 2006, in connection with
the adoption of SEC Staff Accounting Bulletin No. 108, "Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements."



/s/  Moss Adams LLP
    Scottsdale, Arizona
    June 28, 2007

                                       36




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Stockholders and Board of Directors
of iLinc Communications, Inc. and Subsidiaries:


We have audited the accompanying consolidated balance sheet of iLinc
Communications, Inc. and subsidiaries as of March 31, 2006 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of iLinc
Communications, Inc. and its subsidiaries as of March 31, 2006, and the
consolidated results of its operations and cash flows for each of the two years
then ended, in conformity with accounting principles generally accepted in the
United States of America.



/s/  Epstein, Weber & Conover, PLC
     Scottsdale, Arizona
     June 13, 2006


                                       37




<PAGE>

<TABLE>
<S>     <C>
                           ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS, EXCEPT SHARE DATA)

                                                                          MARCH 31, 2007   MARCH 31, 2006
                                                                           -------------    -------------
ASSETS
Current assets:
  Cash and cash equivalents ............................................   $       1,057    $         466
  Certificates of deposit ..............................................             504               --
  Accounts receivable, net of allowance for doubtful accounts of
    $117 and $120, at March 31, 2007 and 2006, respectively ............           2,530            2,207

  Note receivable ......................................................              14               12
  Prepaid expenses and other current assets ............................             766               30
                                                                           -------------    -------------
      Total current assets .............................................           4,871            2,715

  Property and equipment, net ..........................................             691              336
  Goodwill .............................................................          11,206           11,206
  Intangible assets, net ...............................................           1,556            1,731

  Other assets .........................................................              14               12
                                                                           -------------    -------------
      Total assets .....................................................   $      18,338    $      16,000
                                                                           =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt ...................................   $         143    $         199
   Accounts payable trade ..............................................           1,169            1,257
   Accrued liabilities .................................................           1,119            2,213

   Current portion of capital lease liabilities ........................              45               70
   Deferred revenue ....................................................           1,483              917
                                                                           -------------    -------------
      Total current liabilities ........................................           3,959            4,656

   Long-term debt, less current maturities, net of discount and
      beneficial conversion feature of $993 and $1,493, at March
      31, 2007 and 2006, respectively ..................................           7,406            6,974

   Capital lease liabilities, less current maturities ..................             223               --

   Deferred tax liability                                                            299               --
                                                                           -------------    -------------

      Total liabilities ................................................          11,887           11,630
                                                                           -------------    -------------

Commitments and contingencies

Shareholders' equity:
   Preferred stock series A and B, 10,0000,000 shares authorized:
   Preferred stock series A, $.001 par value, 115,000 and 127,500
     shares issued and outstanding, liquidation preference of
     $1,150,000 and $1,275,000, at March 31, 2007 and 2006,
     respectively ......................................................              --               --
   Preferred stock series B, $.001 par value, 59,500 and 70,000
     shares issued and outstanding, liquidation preference of
     $595,000 and $700,000, at March 31, 2007 and 2006, respectively ...              --               --
   Common stock, $.001 par value, 100,000,000 shares authorized,
     35,017,843 and 28,923,168 issued, at March 31, 2007 and 2006,
     respectively ......................................................              35               29
   Additional paid-in capital ..........................................          46,614           44,228
   Accumulated deficit .................................................         (38,790)         (38,479)
   Less: 1,432,412 treasury shares at cost .............................          (1,408)          (1,408)
                                                                           -------------    -------------
      Total shareholders' equity .......................................           6,451            4,370
                                                                           -------------    -------------

      Total liabilities and shareholders' equity .......................   $      18,338    $      16,000
                                                                           =============    =============

         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.


                                               38




<PAGE>

                                   ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                  YEAR ENDED MARCH    YEAR ENDED MARCH   YEAR ENDED MARCH
                                                                      31, 2007            31, 2006           31, 2005
                                                                   ---------------    ---------------    ---------------
Revenues
   Software licenses ...........................................   $         4,177    $         3,014    $         3,274
   Subscription and audio services .............................             7,501              7,070              5,052
   Maintenance and professional services .......................             2,517              2,448              2,043
                                                                   ---------------    ---------------    ---------------
       Total revenues ..........................................            14,195             12,532             10,369
                                                                   ---------------    ---------------    ---------------

Cost of revenues
   Software licenses ...........................................               131                 51                154
   Subscription and audio services .............................             3,642              3,881              3,799
   Maintenance and professional services .......................               787                827                792
   Amortization of acquired developed technology ...............               269                376                451
                                                                   ---------------    ---------------    ---------------
       Total cost of revenues ..................................             4,829              5,135              5,196
                                                                   ---------------    ---------------    ---------------

Gross profit ...................................................             9,366              7,397              5,173
                                                                   ---------------    ---------------    ---------------

Operating expenses
   Research and development ....................................             1,276              1,392              1,545
   Sales and marketing .........................................             3,696              3,075              4,078
   General and administrative ..................................             2,571              2,147              2,924
                                                                   ---------------    ---------------    ---------------
       Total operating expenses ................................             7,543              6,614              8,547
                                                                   ---------------    ---------------    ---------------
Income (loss) from operations ..................................             1,823                783             (3,374)
                                                                   ---------------    ---------------    ---------------

Interest expense ...............................................              (993)            (1,041)            (1,081)
Amortization of beneficial debt conversion .....................              (531)              (856)              (853)
                                                                   ---------------    ---------------    ---------------
       Total interest expense ..................................            (1,524)            (1,897)            (1,934)
Net gain (loss) on settlement of debt and other
obligations ....................................................                 8               (257)                82
Loss on extinguishment of debt .................................              (162)                --                 --
Interest income (charges) and other ............................               (14)               117                 25
Gain on foreign currency translation ...........................                --                 --                  2
                                                                   ---------------    ---------------    ---------------
Income (loss) from continuing operations before income
taxes ..........................................................               131             (1,254)            (5,199)
Income taxes ...................................................               (85)                --                 --
                                                                   ---------------    ---------------    ---------------

Income (loss) from continuing operations .......................               46             (1,254)            (5,199)
Income (loss) from discontinued operations .....................               10                 83               (128)
                                                                   ---------------    ---------------    ---------------
Net income (loss) ..............................................                56             (1,171)            (5,327)
   Series A and B preferred stock dividends ....................              (153)              (130)              (105)
   Imputed preferred stock dividends ...........................                --                (55)                --
                                                                   ---------------    ---------------    ---------------
Loss available to common shareholders ..........................   $           (97)   $        (1,356)   $        (5,432)
                                                                   ===============    ===============    ===============
Loss per common share, basic and diluted
   From continuing operations ..................................   $          0.00    $         (0.05)   $         (0.23)
   From discontinued operations ................................              0.00                 --                 --
                                                                   ---------------    ---------------    ---------------
     Loss per common share .....................................   $          0.00    $         (0.05)   $         (0.23)
                                                                   ===============    ===============    ===============

Number of shares used in calculation of income (loss) per share:
   Basic and diluted ...........................................            32,110             26,075             23,179
                                                                   ===============    ===============    ===============


                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.


                                                       39




<PAGE>

                                           ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                         (IN THOUSANDS)


                                       CONVERTIBLE PREFERRED
                                                STOCK             COMMON STOCK       ADDITIONAL                            TOTAL
                                        --------------------   -------------------    PAID-IN   ACCUMULATED   TREASURY SHAREHOLDERS'
                                         SHARES      AMOUNT     SHARES     AMOUNT     CAPITAL     DEFICIT      STOCK      EQUITY
                                        ---------   --------   --------   --------    --------    --------    --------    -------
Balances, April 1, 2004 ..............        150         --     19,257         19      36,395     (31,640)     (1,408)     3,366

Glyphics acquisition .................         --         --      2,819          3       2,760          --          --      2,763
Warrant expense ......................         --         --         --         --          90          --          --         90
Vesting of restricted
   stock grant .......................         --         --         --         --          40          --          --         40
Issuance of common stock in
   private placement (net of
   expenses) .........................         --         --      1,635          2       1,734         (51)         --      1,685
Convertible notes converted to
   common stock ......................         --         --        714          1         493          --          --        494
Preferred stock conversions ..........        (23)        --        450         --          --          --          --         --
Debt converted to common stock .......         --         --        551         --         583          --          --        583
Preferred stock dividends ............         --         --         --         --          --        (105)         --       (105)
Stock option exercises ...............         --         --        151          1          80          --          --         81
Net loss .............................         --         --         --         --          --      (5,327)         --     (5,327)
                                        ---------   --------   --------   --------    --------    --------    --------    -------
Balances, March 31, 2005 .............        127         --     25,577         26      42,175     (37,123)     (1,408)     3,670

Warrant grant ........................         --         --         --         --           6          --          --          6
Series A preferred stock dividends ...         --         --         --         --          --        (103)         --       (103)
Series B preferred stock dividends ...         --         --         --         --          --         (27)         --        (27)
Vesting of restricted stock grant ....         --         --         --         --          40          --          --         40
Warrant exercise .....................         --         --        164          1          40          --          --         41
Warrant conversion expense due to
   warrant repricing .................         --         --         --         --           7          --          --          7
Issuance of Series B preferred
   stock in private placement
   from accounts payable and
   accrued liabilities conversion ....         55         --         --         --         550          --          --        550
Issuance of Series B preferred
   stock in private placement ........         15         --         --         --         150          --          --        150
Imputed preferred stock dividend .....         --         --         --         --          55         (55)         --         --
Conversion of 2002
   convertible redeemable
   subordinated notes and accrued
   interest to common stock ..........         --         --      1,971          2         531          --          --        533
Conversion expense associated with
   conversion of 2002 convertible
   redeemable subordinated notes
   to common stock ...................         --         --         --         --         338          --          --        338
Conversion of 2004 senior
   unsecured promissory notes to
   common stock ......................         --         --        903         --         225          --          --        225
Gain on conversion of 2004 senior
   unsecured promissory notes to
   common stock ......................         --         --         --         --          (9)         --          --         (9)
Issuance of common shares held in
   escrow to Glyphics shareholders ...         --         --        308         --         120          --          --        120
Net loss .............................         --         --         --         --          --      (1,171)         --     (1,171)
                                        ---------   --------   --------   --------    --------    --------    --------    -------
Balances, March 31, 2006 .............        197   $     --     28,923   $     29    $ 44,228    $(38,479)   $ (1,408)   $ 4,370

                                                               40




<PAGE>

                                           ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                         (IN THOUSANDS)
                                                          (CONTINUED)


                                       CONVERTIBLE PREFERRED
                                                STOCK             COMMON STOCK       ADDITIONAL                            TOTAL
                                        --------------------   -------------------    PAID-IN   ACCUMULATED   TREASURY SHAREHOLDERS'
                                         SHARES      AMOUNT     SHARES     AMOUNT     CAPITAL     DEFICIT      STOCK      EQUITY
                                        ---------   --------   --------   --------    --------    --------    --------    -------
Cumulative effect of
adjustments from adoption of
SAB No. 108...........................         --         --         --         --          --        (214)         --       (214)
                                        ---------   --------   --------   --------    --------    --------    --------    -------
Adjusted Balances, April 1, 2006......        197   $     --     28,923   $     29    $ 44,228    $(38,693)   $ (1,408)   $ 4,156
Warrant grant ........................         --         --         --         --          57          --          --         57
Series A preferred stock dividends ...         --         --         --         --          --        (101)         --       (101)
Series B preferred stock dividends ...         --         --         --         --          --         (52)         --        (52)
Vesting of restricted stock grant ....         --         --         --         --          41          --          --         41
Fair value of unvested warrant
   issued in agent agreement .........         --         --         --         --         467          --          --        467
Stock option compensation expense ....         --         --         --         --         110          --          --        110
Conversion of Preferred A stock to
   common stock ......................        (12)        --        250         --          --          --          --         --
Conversion of Preferred B stock to
   common stock ......................        (10)        --        420          1          (1)         --          --         --
Issuance of common stock in
   private placement .................         --         --      5,405          5       1,995          --          --      2,000
Costs incurred in connection with
   issuance of common stock in
   private placement .................         --         --         --         --        (288)         --          --       (288)
Stock option exercises ...............         --         --         19         --           5          --          --          5
Net income ...........................         --         --         --         --          --          56          --         56
                                        ---------   --------   --------   --------    --------    --------    --------    -------
Balances, March 31, 2007 .............        175   $     --     35,017   $     35    $ 46,614    $(38,790)   $ (1,408)   $ 6,451
                                        =========   ========   ========   ========    ========    ========    ========    =======

                         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.


                                                               41




<PAGE>

                                   ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (IN THOUSANDS)

                                                                   FOR THE YEAR    FOR THE YEAR      FOR THE YEAR
                                                                 ENDED MARCH 31,  ENDED MARCH 31,  ENDED MARCH 31,
                                                                      2007             2006             2005
                                                                  -------------    -------------    -------------
Cash flows from continuing operating activities:
Net income (loss) from continuing operations...................   $          46    $      (1,254)   $      (5,199)
Adjustments to reconcile income (loss) from continuing
operations to cash provided by (used in) continuing
operating activities:
   Provision for bad debts ....................................             145              111              212
   Gain on disposal of fixed assets ...........................               2               --                6
   Loss on debt extinguishment ................................             162               --               --
   Depreciation and amortization ..............................             959            1,684            1,657
   Warrant expense ............................................              15                6               90
   Deferred income tax expense..................................             85               --               --
   Loss on CNLearn note receivable settlement .................              --                8               --
   Debt conversion expense, net ...............................              --              249               --
   Gain on sale of assets to Learn Something ..................              --              (40)              --
   Stock compensation expense .................................             151               40               40
   Net gain on settlement of debt and other obligations .......              (8)              --              (82)
    Accretion of debt discount to interest expense ............             380              626              676
   Stock issued for contingent compensation ...................              --               60               --
 Changes in operating assets and liabilities, net of
 business acquisitions:
     (Increase) in accounts receivable ........................            (469)            (352)            (450)
     (Increase) decrease in prepaid expenses and other
       current assets .........................................             (35)              39               39
     (Increase) decrease in other assets ......................              (2)               6               13
     (Decrease) increase in accounts payable and accrued
       liabilities ............................................          (1,466)            (452)             465
     Increase (decrease) in deferred revenue ..................             442              (97)             (85)
                                                                  -------------    -------------    -------------
        Net cash provided by (used in) operating activities ...             407              634           (2,618)
                                                                  -------------    -------------    -------------


Cash flows from investing activities:
   Capital expenditures .......................................            (255)             (55)            (153)
   Capitalization of software development costs ...............            (367)              --               --
   Acquisitions, net of cash acquired .........................              --               (4)               4
   Acquisition royalty earnout ................................              --             (261)             (70)
   Investment in certificates of deposit ......................            (504)              --               --
   Proceeds from sale of software and fixed assets ............               9               20               --
   Repayment of notes receivable ..............................              43                8               25

                                                                  -------------    -------------    -------------
        Net cash used in investing activities .................          (1,074)            (292)            (194)
                                                                  -------------    -------------    -------------
Cash flows from financing activities:
   Proceeds from issuance of common stock .....................           2,000               --               --
   Proceeds from issuance of preferred stock ..................              --              150               --
   Preferred stock dividends ..................................            (157)            (116)            (105)
   Proceeds from issuance of long-term debt ...................              --               19            4,250
   Stock issuance expense .....................................            (263)              --               --
   Proceeds from exercise of stock options ....................               5               --               81
   Proceeds from exercise of stock warrants ...................              --               41               --
   Repayment of long-term debt ................................            (124)            (308)            (514)
   Repayment of capital lease liabilities .....................             (65)            (157)            (328)
   Financing costs incurred ...................................            (101)             (24)            (448)
                                                                  -------------    -------------    -------------
        Net cash provided by (used in) financing activities...            1,295             (395)           2,936

Cash flows from continuing operations .....................                 628              (53)             124
Cash flows from discontinued operations .....................               (37)             (13)             116
                                                                  -------------    -------------    -------------
        Net change in cash and cash equivalents ...............             591              (66)             240
Cash and cash equivalents, beginning of period ................             466              532              292
                                                                  -------------    -------------    -------------
Cash and cash equivalents, end of period ......................   $       1,057    $         466    $         532
                                                                  =============    =============    =============

 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. SEE SUPPLEMENTAL SCHEDULE IN FOOTNOTE 15.


                                                       42
</TABLE>




<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION AND NATURE OF OPERATIONS AND BASIS OF PRESENTATION

         Headquartered in Phoenix, Arizona, iLinc Communications, Inc., a
Delaware Corporation, is a leading provider of Web conferencing, audio
conferencing and collaboration software and services. The Company develops and
sells software that provides real-time collaboration and training using
Web-based tools. The Company's four-product iLinc Suite, comprised of LearnLinc,
MeetingLinc, ConferenceLinc, and SupportLinc, is an award winning virtual
classroom, Web conferencing and collaboration suite of software. With its Web
collaboration, conferencing and virtual classroom products, the Company provides
simple, reliable and cost-effective tools for remote presentations, meetings and
online events. The Company's software is based on a proprietary architecture and
code that finds its origins as far back as 1994, in what the Company believes to
be the beginnings of the Web collaboration industry. Versions of the iLinc Suite
have been translated into six languages, and became available in version 9.0 in
June 2007. The Company's customers may choose from several different pricing and
licensing options for the iLinc Suite depending upon their needs. Uses for the
four-product suite of Web collaboration software include online business
meetings, sales presentations, training sessions, product demonstrations and
technical support assistance. The Company sells its software solutions to large
and medium-sized corporations inside and outside of the Fortune 1000. The
Company markets its products using a direct sales force and a distribution
channel consisting of agents, distributors, value added resellers and OEM
partners. The Company allows customers to choose between purchasing a perpetual
license and subscribing to a term license, providing for flexibility in pricing
and payment methods. The Company's revenues are a mixture of high margin
perpetual and periodic licenses of software, monthly recurring revenues from
annual maintenance, hosting and support agreements and other products and
services and audio conferencing services.

         The Company maintains corporate headquarters in Phoenix, Arizona and
has occupied that 9,100 square foot Class A facility since the Company's
inception in 1998. The Phoenix office can accommodate up to 65 employees and is
fully equipped with up-to-date computer equipment and server facilities. The
Phoenix lease requires a monthly rent and operating expenses of approximately
$25,000 and will expire on February 28, 2012.

         The Company also maintains a 2,500 square foot Class B facility in
Troy, New York with an emphasis in that location on research and development,
and technical support. On July 5, 2006, the Company amended the New York lease
that now expires on June 30, 2009. The New York lease requires a monthly rent
and operating expenses of approximately $4,000.

         In addition, the Company maintains offices in Springville, Utah,
occupying a Class A facility in two adjacent buildings. The first building
houses its administrative and IT functions, with 10,000 square feet of space,
with the second housing the operator complex and sales organizations with 6,122
square feet. The Springville lease began in 2003 and has a term of five years
that expires January 2, 2008. The Springville offices can accommodate up to 100
employees and is fully equipped with up-to-date computer equipment. The
Springville lease requires a monthly rent and operating expenses of
approximately $15,000.

2.       DISCONTINUED OPERATIONS

         Effective January 1, 2004, the Company discontinued its dental practice
management services. In accordance with Statements of Financial Accounting
Standards ("SFAS") 144, ACCOUNTING FOR IMPAIRMENT ON DISPOSAL OF LONG-LIVED
ASSETS, the Company has restated its historical results to reflect its dental
practice management service business segment as a discontinued operation.


                                       43




<PAGE>

         A summary of the results from discontinued operations for the years
ended March 31, 2007, 2006, and 2005 are as follows:

<TABLE>
<S> <C>
                                                       FOR THE YEARS ENDED MARCH 31,
                                                 ----------------------------------------
                                                    2007          2006            2005
                                                 -----------   -----------    -----------
                                                             (IN THOUSANDS)
Net revenue ..................................   $        --   $        --    $        --
Operating expenses ...........................            --             3             --
                                                 -----------   -----------    -----------
Income (loss) from operations ................            --            (3)            --
Interest expense .............................            --            (1)           (36)
Interest income ..............................            --            --             --
Gain on termination of service agreements
  with Affiliated Practices ..................            10            87             42
Gain on debt forgiveness .....................            --            --             15
Loss on settlement of capital lease ..........            --            --           (149)
Tax expense ..................................            --
                                                 -----------   -----------    -----------
Net income (loss) from discontinued operations   $        10   $        83    $      (128)
                                                 ===========   ===========    ===========
</TABLE>

         Interest expense of $0, $1,000, and $36,000 for fiscal years 2007,
2006, and 2005, respectively, was allocated to the discontinued dental practice
management services business segment since it relates to specific debts that
were incurred in order to provide the dental practice management services.

         Discontinued operations generated cash flows through the third quarter
of fiscal 2007.

         A summary of the assets and liabilities of its discontinued operations
are as follows:


                                                            AS OF MARCH 31,
                                                            2007         2006
                                                         ----------   ----------
                                                             (IN THOUSANDS)

              Notes receivable, net ..................   $       --   $       --
              Capital lease settlement liability .....   $       --   $       53


3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements of the Company include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. The more significant areas requiring use of estimates and judgment
relate to revenue recognition, accounts receivable and notes receivable
valuation reserves, realizability of intangible assets, realizability of
deferred income tax assets and the evaluation of contingencies and litigation.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. The
results of such estimates form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may materially differ from these estimates under
different assumptions or conditions.

                                       44




<PAGE>

REVENUE RECOGNITION

         The Company's revenues are generally classified into three main
categories: license revenues, Subscription and audio services revenues and
maintenance and professional services revenues. License revenues are generated
from the sale of the Company's iLinc suite of Web conferencing software on a
software purchase model basis under the traditional perpetual model or the iLinc
Enterprise Unlimited model launched in fiscal 2006 and from the sale of its
off-the-shelf courseware. Subscription and audio services revenues are generated
from the sale of its iLinc Suite of Web conferencing software on an Application
Service Provider ("ASP") model basis, the sale of its iLinc Suite software on a
per-minute basis, and includes all revenues from the provision of audio
conferencing services, as well as, all service contracts that might include
hosting, and training services. Maintenance and professional services revenues
are generated from the sale of maintenance contracts related to its iLinc suite
of Web conferencing software on a purchase model basis and from the sale of
professional services that are associated with its custom content development
services.

Sales of Software Licenses

         Because the Company offers the iLinc Suite software in one of two
forms, the first being a purchase model and the second being an ASP or
per-minute model, the Company has separate revenue recognition policies
applicable to each licensing model. With each sale of its Web conferencing
products and services, the Company executes written contracts with its customers
that govern the terms and conditions of each software license sale, hosting
agreement, maintenance and support agreement and other services arrangements.
The Company does not typically execute written agreements for the sale of audio
conferencing services.

         In connection with the Company's sales of software licenses, whether on
a purchase model basis or periodic license basis, the Company adopted Statement
of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION, as issued by the
American Institute of Certified Public Accountants. In accordance with SOP 97-2
the Company recognizes revenue from the sale of software licenses if all of the
following conditions are met: first, there is persuasive evidence of an
arrangement with the customer; second, the product has been delivered to the
customer; third, the amount of the fees to be paid by the customer is fixed or
determinable; and, fourth, collection of the fee is probable.

         Each of these factors, particularly the determination of whether a fee
is fixed and determinable and the collectability of the resulting receivable,
requires the application of the judgment and the estimates of management.
Therefore, significant management judgment is utilized and estimates must be
made in connection with the revenue the Company recognizes in any accounting
period. The Company analyzes various factors, including a review of the nature
of the license or product sold, the terms of each specific transaction, the
vendor specific objective evidence of the elements required by SOP 97-2, any
contingencies that may be present, its historical experience with like
transactions or with like products, the creditworthiness of the customer, and
other current market and economic conditions. Changes in its judgment based upon
these factors and others could impact the timing and amount of revenue that the
Company recognizes, and ultimately the results of operations and its financial
condition. Therefore, the recognition of revenue is a key component of its
results of operations.

         At the time of the sale of its software license on a purchase license
basis, the Company assesses whether the fee associated with the transaction is
fixed or determinable based on the payment terms associated with the transaction
before recording immediate revenue recognition, assuming all other elements of
revenue recognition are present. Billings to its customers are generally due
within 30 to 90 days, with payment terms up to 180 days available to certain
credit worthy customers. The Company believes that it has sufficient history of
collecting all amounts within these normal payment terms and to conclude that
the fee is fixed or determinable at the time of the perpetual license sale.

         In addition, in assessing whether collection is probable or not for a
given transaction, and therefore whether the Company should recognize the
revenue, the Company makes estimates regarding the creditworthiness of the
customer. Initial creditworthiness is assessed through internal credit check
processes, such as credit applications or third party reporting agencies.
Creditworthiness for transactions to existing customers primarily relies upon a
review of their prior payment history. The Company does not request collateral
or other security from its customers. If the Company determines that collection
of a fee is not reasonably assured, it defers the fee and recognizes revenue at
the time collection becomes reasonably assured, which is generally upon the
receipt of payment or other change in circumstance.

                                       45




<PAGE>

         During fiscal 2006, iLinc launched its Enterprise Unlimited perpetual
licensing model that enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web conferencing, with revenue recognized at the
time of the sale of the Enterprise Unlimited perpetual license. The annual
maintenance and support fees and hosting fees associated with an iLinc
Enterprise Unlimited license are based upon a fixed rate per seat license that
is active on each annual anniversary of the iLinc Enterprise Unlimited license
agreement and that is approximately equivalent to the 12% to 18% for maintenance
and 10% for hosting charged for concurrent seat perpetual license contracts.
Customers may expand the number of active seats available to them at any time
with a corresponding increase in annual maintenance and hosting fees being
charged with the additional revenue recognized on a straight-line basis over the
period of the contract.

Sales of Concurrent Licenses on an ASP and Per-minute Basis

         Historically and on a continuing basis, a majority of the Company's
license revenue has been generated under the software purchase model basis, with
revenue recognized based on a one-time sale of a perpetual license. In addition
to that purchase model software sale, the Company also offers a more flexible
concurrent connection seat license and a pay-per-minute usage based model. Under
its ASP model, a customer may subscribe to a certain number of concurrent
connections or seats for a fixed period, often a year. Under this ASP method,
the Company recognizes the revenue associated with these monthly, fixed-fee
subscription arrangements each month on a straight-line basis over the term of
the agreement in accordance with Emerging Issues Task Force ("EITF") 00-03,
APPLICATION OF AICPA SOP 97-2 TO ARRANGEMENTS THAT INCLUDE THE RIGHT TO USE
SOFTWARE STORED ON ANOTHER ENTITY'S HARDWARE. Other customers choose to avoid
annual commitments and instead use its Web conferencing and audio conferencing
products and services based upon a per-minute or usage-based pricing model.
Per-minute customers may also include those customers on an ASP model that incur
overage fees for usage in excess of the permitted number of seats or minutes in
excess of the minimum commitment. The per-minute fees that include overage fees
are charged at the end of each month and recorded as revenue at the end of each
month as the services are provided. Customers with contractually established
minimum per-minute fees are assessed the greater of the established minimum or
the actual usage at the end of each month. Customers wishing to avoid monthly
commitments may use the e-commerce portion of the Company's Web site that
permits the use of its Web conferencing services on a pay-per-use basis, with no
monthly minimum, purchasing the services and paying for those services online by
credit card.

Sales of Maintenance, Hosting and other Related Services

         The Company offers with each sale of its software products a software
maintenance, upgrade and support arrangement. These contracts may be elements in
a multiple-element arrangement or may be sold on a stand-alone basis. Revenues
from maintenance and support services are recognized ratably on a straight-line
basis over the term that the maintenance service is provided. Maintenance
contracts typically provide for 12-month terms with maintenance contracts
available up to 36 months. The Company typically charges 12% to 18% of the
software purchase price for maintenance for a 12-month contract with discounts
available for longer-term agreements. The Company also typically charges 10% of
the software purchase price for hosting of purchase model software sales for
customers who do not wish to install and host the iLinc Suite on their own
premises or that of a co-location facility. Charges for hosting are likewise
spread ratably over the term of the hosting agreement, with the typical hosting
agreement having a term of 12 months, with renewal on an annual basis. The
annual maintenance and support fees and hosting fees associated with an iLinc
Enterprise Unlimited license are based upon a fixed rate per seat license that
is active on each annual anniversary of the iLinc Enterprise Unlimited license
agreement and that is approximately equivalent to the 12% to 18% charged for
concurrent seat perpetual license contracts.

         Revenues from consulting, training and education services are
recognized either as the services are performed, ratably over a subscription
period, or upon completing a project milestone if defined in the agreement.
These consulting, training and education services are not considered essential
to the functionality of its products as these services do not alter the product
capabilities, do not require specialized skills and are often performed by the
customer or its VAR's customers without access to those services.

         Implementation, recording, storage, consulting, training, translation
and other event type services may also be sold in conjunction with the sale of
its software products. Those services are generally recognized as the services
are performed or earlier when all other revenue recognition criteria have been
met. Although the Company may provide implementation, training and consulting
services on a time and materials basis, a significant portion of these services
have been provided on a fixed-fee basis.

         Event services revenues derived from hosted webinars or conference
calls are recognized upon completion of the events.

                                       46




<PAGE>

         Should the sale of its software involve an arrangement with multiple
elements (for example, the sale of a software license along with the sale of
maintenance and support to be delivered over the contract period), the Company
allocates revenue to each component of the arrangement using the residual value
method based on the fair value of the undelivered elements. The Company defers
revenue from the arrangement equivalent to the fair value of the undelivered
elements and recognizes the remaining amount at the time of the delivery of the
product or when all other revenue recognition criteria have been met. Fair
values for the ongoing maintenance and support obligations are based upon
separate sales of renewals of maintenance contracts. Fair value of services,
such as training or consulting, is based upon separate sales of these services
to other customers. Thus, these types of arrangements require us to make
judgments about the fair value of undelivered arrangements.

Sales of Custom Content Development Services

         A component of the Company's maintenance and professional services
revenue is derived from custom content development services. The sale of custom
content development services often involves the execution of a master service
agreement and corresponding work orders describing the deliverable due, the
costs involved, the project milestones and the payments required. These custom
content development services are primarily outsourced to a subcontractor,
Interactive Alchemy. For contracts and revenues related exclusively to custom
content development services, the Company recognizes revenue and profit as work
progresses on custom content service contracts using the
percentage-of-completion method. This method relies on estimates of total
expected contract revenue and costs as each job progresses throughout the
relevant contract period. The Company follows this method since reasonably
dependable estimates of the costs applicable to various stages of a custom
content service contract can be made. Recognized revenues and profit are subject
to revisions as the custom content service contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. Customers sometimes request
modifications to projects in progress which may result in significant revisions
to cost estimates and profit recognition, and the Company may not be successful
in negotiating additional payments related to the changes in scope of requested
services. Should this arise, the provision for any estimated losses on
uncompleted custom content service contracts are made in the period in which
such losses become evident. There were no such losses at March 31, 2007, 2006,
and 2005 for any custom content development services. For arrangements requiring
customer acceptance, revenue is deferred until the earlier of the end of the
acceptance period or until written notice of acceptance is received from the
customer.

Sales by VARs and Agents

         The Company has engaged organizations within the United States of
America and in other countries that market and sell its products and services
through their sales distribution channels that are value added resellers (VARs).
The VARs primarily sell, on a non-exclusive basis, its iLinc suite of Web
conferencing products and predominately sell purchase-model perpetual licenses
for installation and hosting by the VAR's customer. The Company's VAR contracts
have terms of one to two years and are automatically renewed for an additional
like term unless either party terminates the agreement for breach or other
financial reasons. Each VAR purchases the product from the Company and resells
the product to its customers. Under those VAR agreements, the Company records
only the amount paid by the VAR as revenue and recognizes revenue when all
revenue recognition criteria have been met. The Company also engages
organizations that act as mere agents or distributors of its products
("Agents"), without title passing to the Agent and with the Agent only receiving
a commission on the consummation of the sale to its customer. The Company
records revenue on sales by Agents on a gross basis before commissions due to
the Agent and only when all revenue recognition criteria are met as would be
with a sale by the Company directly to a customer not involving an agent.

Sales Reserve

         The sales reserve is an estimate for losses on receivables resulting
from customer credits, cancellations and terminations and is recorded, if at
all, as a reduction in revenue at the time of the sale. Increases to sales
reserve are charged to revenue, reducing the revenue otherwise reportable. The
sales reserve estimate is based on an analysis of the historical rate of
credits, cancellations and terminations. The accuracy of the estimate is
dependent on the rate of future credits, cancellations and terminations being
consistent with the historical rate. If the rate of actual credits,
cancellations and terminations is different than the historical rate, revenue
would be different from what was reported. As of March 31, 2007 and 2006, the
Company did not believe that an accrual for sales reserve was necessary, but
continues to assess the adequacy of the sales reserve account balance on a
quarterly basis.

                                       47




<PAGE>

Allowance for Doubtful Accounts

         The Company records an allowance for doubtful accounts to provide for
losses on accounts receivable due to customer credit risk. Increases to the
allowance for doubtful accounts are charged to general and administrative
expense as bad debt expense. Losses on accounts receivable due to financial
distress or failure of the customer are charged to the allowance for doubtful
accounts. The allowance estimate is based on an analysis of the historical rate
of credit losses. The accuracy of the estimate is dependent on the future rate
of credit losses being consistent with the historical rate. If the rate of
future credit losses is greater than the historical rate, then the allowance for
doubtful accounts may not be sufficient to provide for actual credit losses.

         The allowance for doubtful accounts for iLinc Web collaboration product
sales was $117,000 and $120,000 as of March 31, 2007 and 2006, respectively, and
is based on its historical collection experience. Any adjustments to these
accounts are reflected in the income statement for the current period, as an
adjustment to revenue in the case of the sales reserve and as a general and
administrative expense in the case of the allowance for doubtful accounts.

BARTER TRANSACTIONS

         In accordance with Accounting Principles Board ("APB") Opinion No. 29,
ACCOUNTING FOR NONMONETARY TRANSACTIONS, and SFAS No. 153, EXCHANGES ON
NONMONETARY ASSETS, for the 12 months ended March 31, 2007, the Company recorded
license sale revenues as a result of certain barter transactions that involved
the exchange of hardware or services from various providers. As the exchanges
related to either dissimilar assets or were similar but otherwise recognizable
assets, thus the exchange was considered a culmination of the earnings process,
and therefore the Company recorded the sale of its software as software license
revenue at the exchanged fair value of the hardware or services received.

         On September 28, 2006, the Company entered into a reciprocal OEM
agreement with ThinkEngine Networks, Inc., a provider of TDM and IP capable
conferencing bridges and media servers. ThinkEngine purchased a private label
OEM license in a barter exchange in which the Company acquired hardware
conferencing bridges for use by the Company. The Company recognized $225,000 of
license revenue related to this barter transaction. The Company recorded an
asset with a value of $255,000, paid $30,000 and recorded $30,000 of
depreciation expense through March 31, 2007.

         On December 12, 2006, the Company entered into a reciprocal services
agreement with Measured Progress, a provider of testing services. Measured
Progress purchased iLinc Suite seats and an annual event room license in a
barter exchange in which the Company acquired services and access to computer
hardware for scale testing of the Company's software. The Company recognized
$60,000 of license revenue during the year and deferred $75,000 of license
revenue and $17,000 for maintenance and hosting revenue that are being
recognized ratably over a 12 month period. The Company also recorded a prepaid
asset of $152,000 and is amortizing it over the 12 month period of the service
contract. Amortization expense through March 31, 2007 of $51,000 has been
recorded.

SOFTWARE DEVELOPMENT COSTS

         The Company accounts for software development costs in accordance with
SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED, whereby costs for the development of new software products
and substantial enhancements to existing software products are expensed as
incurred until technological feasibility has been established, at which time any
additional costs are capitalized. Technological feasibility is established upon
completion of a working model. Costs of maintenance and customer support are
charged to expense when related revenue is recognized or when those costs are
incurred, whichever occurs first. In May, 2006, the Company began production of
version 9.0 of its Web collaboration software. In accordance with SFAS No. 86
the Company began capitalizing certain direct and indirect software development
costs that included expenses related to employee payroll costs, consultant fees,
dedicated computer hardware costs and specialized software license costs
associated with this project. As of March 31, 2007, the Company capitalized
costs totaling $367,000. Version 9.0 was complete and released to customers in
June 2007. The Company will begin amortization of these capitalized costs, using
straight-line amortization over a three year period beginning July 2007. All
other software development costs have been charged to research and development
expense in the accompanying consolidated statements of operations.

ADVERTISING COSTS

         Advertising costs are expensed as incurred. The Company's advertising
expense at March 31, 2007, 2006 and 2005 was $35,000, $40,000 and $22,000,
respectively.

                                       48




<PAGE>

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid debt investments with remaining
maturities of three months or less at the date of acquisition to be cash
equivalents.

         The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000. The Company's accounts at these
institutions may, at times, exceed the federally insured limits. At March 31,
2007 and 2006, the Company had approximately $857,000 and $350,000,
respectively, in excess of FDIC insured limits.

CERTIFICATE OF DEPOSIT

         The Company holds various certificates of deposit at financial
institutions. These certificates have maturities of six months from the date of
acquisition, which precludes them from being accounted for as a cash equivalent.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful life of the various
classes of depreciable assets as follows:

       Furniture & Fixtures                 5 years
       Equipment                            5 years
       Computer Equipment                   3-5 years
       Leasehold Improvements               shorter of 5 years or lease term

         Maintenance and repairs are charged to expense whereas renewals and
major replacements are capitalized. Gains and losses from dispositions are
included in general and administrative operating expenses.

INTANGIBLE ASSETS

         On April 1, 2002, the Company adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS and as a result, the Company's goodwill is no longer
amortized. SFAS No. 142 requires that goodwill be tested annually (or more
frequently if impairment indicators arise) for impairment. Upon initial and
subsequent application of SFAS No. 142, the Company determined there was no
impairment of goodwill. The Company has established the date of March 31 on
which to conduct its annual impairment test.

         The Company has made acquisitions of companies having operations or
technology in areas within its strategic focus and has recorded goodwill and
other intangible assets associated with the acquisitions (see Note 8). Future
adverse changes in market conditions or poor operating results of the underlying
acquired operations could result in losses or an inability to recover the
carrying value of the goodwill and other intangible assets thereby possibly
requiring an impairment charge in the future. The Company has
determined that impairment of that goodwill and intangible assets was not
required.

         Debt issuance costs, which are included in other intangible assets, are
amortized using the straight-line method which approximates the same results had
the interest method been used, over the term of the related debt obligations. At
March 31, 2007 and 2006, debt issuance costs, net of accumulated amortization,
were $512,000 and $587,000, respectively. Amortization of debt issuance costs
have been reflected in interest expense in the accompanying consolidated
statements of operations and total $149,000, $229,000, and $194,000 for the
years ended March 31, 2007, 2006, and 2005, respectively. These intangibles are
amortized over their expected lives of between 39 months and 120 months. The
$149,000 of amortization for the year ended March 31, 2007 includes $76,000
related to the March 2002 Convertible Note Offering, $63,000 related to the 2004
Private Placement Offering, and $10,000 related to the refinanced 2004 Private
Placement Offering. As a result of the debt extension of the Senior Notes from
the 2004 Private Placement Offering treated as a debt extinguishment in
accordance with EITF 96-19 DEBTOR'S ACCOUNTING FOR A MODIFICATION OR EXCHANGE OF
DEBT INSTRUMENTS, in December 2006 the Company wrote off $272,000 of gross
deferred financing costs and $232,000 of accumulated amortization of deferred
financing costs as part of a loss on extinguishment of debt. The $229,000 of
amortization for the year ended March 31, 2006 includes $131,000 related to the
March 2002 Convertible Note Offering and $98,000 related to the 2004 Private
Placement Offering. Included in the March 2002 Convertible Note Offering,
amortization of $50,000 was accelerated due to the conversion of $525,000 of the
notes into 1,917,088 shares of the Company's common stock. Included in the April
2004 Private Placement Offering, amortization of $10,000 was accelerated due to
the conversion of $225,000 of the offering debt into 903,205 shares of the
Company's common stock.

                                       49




<PAGE>

         Other intangibles primarily consist of the Glyphics and LearnLinc
purchase consideration (see Note 8), that was allocated to purchased software
and customer relationship intangibles (see Note 6). Such other intangibles are
amortized over their expected benefit period of 24 to 72 months.

LONG-LIVED ASSETS

         The Company reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The carrying amount of a long-lived asset is considered
impaired when anticipated undiscounted cash flows expected to result from the
use of the asset and its eventual disposition are less than its carrying amount.
No impairment charges were recorded for the years ended March 31, 2007, 2006,
and 2005.

CUSTOMER CONCENTRATIONS

         Accounts receivable represent license agreements entered into and
services rendered by the Company with its customers. The Company performs
periodic credit reports before recognizing sales to certain customers, but does
not receive collateral related to the receivables.

         Revenues included one customer with transactions approximating 6%, 8%,
and 6% of net revenues for the years ended March 31, 2007, 2006, and 2005,
respectively. Revenues from international customers for the years ended March
31, 2007, 2006, and 2005 approximated $456,000, $566,000, and $391,000,
respectively.

         Accounts receivable balances for two customers totaled approximately 9%
and 6%, respectively at March 31, 2007 and accounts receivable balances for two
customers totaled approximately 9% and 7% of the total balance outstanding at
March 31, 2006.

INCOME TAXES

         The Company utilizes the liability method of accounting for income
taxes in accordance with SFAS No. 109 ACCOUNTING FOR INCOME TAXES. Under this
method, deferred taxes are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted marginal tax rates currently in effect when the differences reverse.

         The Company has recorded a valuation allowance for its deferred tax
assets due to the lack of profitable operating history. The Company recorded a
valuation allowance for its deferred tax asset because it concluded it is
not likely it would be able to realize the tax assets due to the lack of
profitable operating history of its implementation of the Web conferencing and
audio conferencing business plan. Based on the financial results for the year
ending March 31, 2007, the Company has begun to exhibit the ability to generate
taxable income. In the event the Company was to determine that it would be able
to realize its deferred tax assets in the future, an adjustment to the deferred
tax asset would increase net income through a tax benefit in the period such a
determination was made the Company has met the more likely than not threshold
for such recognition.

STOCK-BASED COMPENSATION

         In December 2004, the FASB issued SFAS No. 123R, SHARE-BASED PAYMENT
("SFAS 123R"). Under this new standard, companies are no longer able to account
for share-based compensation transactions using the intrinsic method in
accordance with APB 25. Instead, companies are required to account for such
transactions using a fair-value method and to recognize the expense over the
service period. SFAS 123R became effective for the Company for periods beginning
after March 31, 2006 and allows for several alternative transition methods. The
Company adopted SFAS 123R, effective April 1, 2006, which requires recognition


                                       50




<PAGE>

of compensation expense for all stock option or other equity-based awards that
vest or become exercisable after the option's effective date. The Company
elected the modified prospective application transition method of adoption and,
as such, prior period financial statements have not been restated. Under this
method, the fair value of all stock options granted or modified after adoption
must be recognized in the Consolidated Statement of Operations and total
compensation cost related to non-vested awards not yet recognized, as determined
under the original provisions of SFAS 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION must also be recognized in the Consolidated Statement of Operations
as vesting occurs.

         Prior to April 1, 2006, the Company accounted for share-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
related interpretations and elected the disclosure option of SFAS No. 123 as
amended by SFAS No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - COMPENSATION
AND DISCLOSURE. Under the prior method, the Company measured compensation
expense for stock options as the excess, if any, of the estimated fair market
value of the Company's stock at the date of grant over the exercise price and
provided pro forma disclosure of net income and earnings per share in the notes
to the financial statements.

INCOME/LOSS PER SHARE

         Basic income/loss per share are computed by dividing net income/loss
available to common stockholders by the weighted-average number of common shares
outstanding for each reporting period presented. Diluted earnings per share are
computed similar to basic earnings per share while giving effect to all
potential dilutive common stock equivalents that were outstanding during each
reporting period. For the 12 months ended March 31, 2007, 2006 and 2005, options
and warrants to purchase 2,732,937, 5,285,528 and 4,524,137 shares of common
stock, respectively, were excluded from the computation of diluted earnings per
share because of their anti-dilutive effect.

         Additionally, for the 12 months ended March 31, 2007, 2006 and 2005
preferred stock and debt convertible into 9,780,000, 10,450,000 and 8,175,000
shares of common stock, respectively, were excluded from the computation of
diluted income/loss per share because inclusion of such would be antidilutive.
Furthermore, a restricted stock grant of 450,000 shares has been excluded from
the income/loss per share calculations because the measurement date stock price
exceeds the average stock price for all periods presented.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts of cash and cash equivalents, accounts receivables
and accounts payable approximate fair values due to the short-term maturities of
these instruments. The carrying amounts of the Company's long-term borrowings
and notes receivables as of March 31, 2007 and 2006, approximate their fair
value based on the Company's current incremental borrowing rates for similar
type of borrowing arrangements.

GUARANTEES AND INDEMNIFICATIONS

         The Company provides a limited 90-day warranty for certain of its
software products. Historically, claims by customers under this limited warranty
have been minimal, and as such, no warranty accrual has been provided for in the
Company's consolidated financial statements.

         In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45
GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS -- AN INTERPRETATION OF FASB
STATEMENTS NO. 5, 57 AND 107 AND RESCISSION OF FIN 34. The following is a
summary of the Company's agreements that the Company has determined are within
the scope of FIN No. 45.

         Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences arising as a result of the officer's
or director's serving in such capacity. The term of the indemnification period
is for the officer's or director's lifetime. The maximum potential amount of
future payments the Company could be required to make under these
indemnification agreements is unlimited. However, the Company has a director and
officer liability insurance policy that limits its exposure and enables it to
recover a portion of any future amounts paid. As a result of its insurance
policy coverage, the Company believes the estimated fair value of these
indemnification agreements is minimal and has no liabilities recorded for these
agreements as of March 31, 2007.

                                       51




<PAGE>

         The Company enters into indemnification provisions under (i) its
agreements with other companies in its ordinary course of business, typically
with business partners, contractors, and customers, landlords and (ii) its
agreements with investors. Under these provisions the Company generally
indemnifies and holds harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of the Company's activities or, in
some cases, as a result of the indemnified party's activities under the
agreement. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. The
Company has not incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes
the estimated fair value of these agreements is minimal. Accordingly, the
Company has no liabilities recorded for these agreements as of March 31, 2007.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2006, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 06-03 ("EITF 06-03"), HOW TAXES COLLECTED FROM
CUSTOMERS AND REMITTED TO GOVERNMENTAL AUTHORITIES SHOULD BE PRESENTED IN THE
INCOME STATEMENT (THAT IS, GROSS VERSUS NET PRESENTATION). EITF 06-03 provides
that the presentation of taxes assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a
customer on either a gross basis (included in revenues and costs) or on a net
basis (excluded from revenues) is an accounting policy decision that should be
disclosed. The provisions of EITF 06-03 became effective as of December 31,
2006. The Company's adoption of ETIF 06-03 has not and is not expected to have a
material effect on its consolidated financial position or results of operations.

         In June, 2006, the FASB issued FASB Interpretation No. 48, ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109
(FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute
for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for the Company
beginning in the first quarter of fiscal 2008. The Company is in the process of
determining the impact of the adoption of FIN 48 on the Company's financial
position or results of operations.

         In September 2006, the FASB issued SFAS No. 157, FAIR VALUE
MEASUREMENTS (SFAS 157), which provides guidance on how to measure assets and
liabilities that use fair value. SFAS 157 will apply whenever another US GAAP
standard requires (or permits) assets or liabilities to be measured at fair
value but does not expand the use of fair value to any new circumstances. This
standard also will require additional disclosures in both annual and quarterly
reports. SFAS 157 will be effective for fiscal 2009. The Company is currently
evaluating the potential impact this standard may have on its financial position
and results of operations.

         On February 15, 2007, the FASB issued SFAS No. 159, THE FAIR VALUE
OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES (SFAS No. 159). Under this
Standard, the Company may elect to report financial instruments and certain
other items at fair value on a contract-by-contract basis with changes in value
reported in earnings. This election is irrevocable. SFS No. 159 provides an
opportunity to mitigate volatility in reported earnings that is caused by
measuring hedged assets and liabilities that were previously required to use a
different accounting method than the related hedging contracts when the complex
provisions of SFAS No. 133 hedge accounting are not met. SFAS No. 159 is
effective for years beginning after November 15, 2007. Early adoption within 120
days of the beginning of the Company's 2008 fiscal year is permissible, provided
the Company has not yet issued interim financial statement for 2008 and has
adopted SFAS No. 157. Management is currently evaluating the potential impact of
adopting this St andard.

         In September 2006, the SEC staff issued Staff Accounting Bulletin No.
108, CONSIDERING THE EFFECTS OF PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING
MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS (SAB 108). SAB 108 was issued
in order to eliminate the diversity of practice in how public companies quantify
misstatement of financial statements, including misstatements that were not
material to prior years' financial statements. The Company is required to adopt
the provisions of SAB 108 in its financial statements for the 2007 fiscal year.
The Company adopted SAB 108 effective April 1, 2006. During the fourth quarter
of 2007, the Company increased beginning accumulated deficit and net deferred
income tax liability by $214,000 (Note 17).

RECLASSIFICATIONS

         Certain prior year balances in the consolidated financial statements
have been reclassified to conform to the fiscal 2007 presentation.

4.       NOTE RECEIVABLE

         In September 2006, a note receivable, relating to royalty payments past
due in the amount of $54,000 was executed with the Company's subcontractor,
Interactive Alchemy. The note bears interest of 7.5% and was due in four monthly
installments of $14,000 beginning in December 2006. At March 31, 2007,
Interactive Alchemy had paid $42,000 on the note, with the final payment of
$14,000 plus interest remaining. Subsequent to March 31, 2007, on May 25, 2007,
Interactive Alchemy paid the note plus interest in full.

         In June 2005, a note receivable relating to the sale of software in the
amount of $25,000 was settled for $17,500. The Company recognized a loss on
settlement of $7,500. The remaining note receivable bears interest at 10%, with
interest and principal due in monthly installments through October 31, 2006.
This note relates to the September 2005 sale of software acquired during the
acquisition of Quisic for $40,000, of which $20,000 was paid up front and the
remainder recorded as a note receivable, which resulted in a gain on sale of
software for $40,000. The Company subsequently collected $10,000 on this note
and wrote-off the remaining $10,000.

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<PAGE>

5.       PROPERTY AND EQUIPMENT, NET

         Property and equipment consisted of the following:

                                                                  MARCH 31,
                                                             ------------------
                                                              2007       2006
                                                             -------    -------
                                                               (IN THOUSANDS)
         Furniture and fixtures ...........................  $   335    $   349
         Equipment ........................................      298        298
         Computer equipment ...............................    3,043      2,400
         Leasehold improvements ...........................       36         29
                                                             -------    -------
            Total property and equipment ..................    3,712      3,076
         Less: accumulated depreciation ...................   (3,021)    (2,740)
                                                             -------    -------
            Property and equipment, net ...................  $   691    $   336
                                                             =======    =======

         Depreciation expense for the years ended March 31, 2007, 2006 and 2005
was $342,000, $940,000 and $845,000, respectively.

6.       GOODWILL AND INTANGIBLE ASSETS, NET

         Goodwill consisted of the following:

                                                                  MARCH 31,
                                                              ----------------
                                                                2007    2006
                                                              -------  -------
                                                               (IN THOUSANDS)
         Goodwill...........................................  $11,206  $11,206
                                                              =======  =======

         The changes in the carrying amount of the goodwill for the years ended
March 31, 2007 and 2006 (IN THOUSANDS):

         Balance, March 31, 2005 .....................................   $10,797
            Mentergy acquisition, royalty accrual ....................       280
            Glyphics acquisition .....................................         9
            Issuance of Glyphics escrow shares .......................       120
                                                                         -------
         Balance, March 31, 2006 .....................................   $11,206
         Balance, March 31, 2007 .....................................   $11,206

         During fiscal 2002, the Company acquired certain assets of LearnLinc
Corporation, a wholly owned subsidiary of Mentergy, Inc. As part of the
agreement, the Company agreed to pay a royalty of 20% for all cash revenues
collected from the sale or license of LearnLinc software over a three-year
period up to November 4, 2005. The offset to the royalty accrual was recorded as
goodwill. The Company included $618,000 in fiscal 2005 and $280,000 in fiscal
2006 up to November 4, 2005.

         The Company acquired Glyphics in the first quarter of fiscal 2005,
which resulted in the Company recording $989,000 of goodwill. See note 8 for
further details.

         At March 31, 2006, the Company also recorded $120,000 to goodwill for
the issuance of shares to the Glyphics shareholders that had been held in
escrow. See note 10 for further details.

         In accordance with SFAS 142, the Company does not amortize goodwill.
SFAS 142 requires that goodwill be tested annually (or more frequently if
impairment indicators arise) for impairment. The Company has established the
date of March 31, 2007 on which to conduct its annual impairment test. Future
adverse changes in market conditions or poor operating results of the underlying
acquired operations could result in losses or an inability to recover the
carrying value or the goodwill and other intangible assets thereby possibly
requiring an impairment charge in the future. The Company's management believes
that no impairment exists at March 31, 2007.

                                       53




<PAGE>

<TABLE>
<S>     <C>
                                                   ------------------------------------------------
                                                                     MARCH 31, 2007
                                                   ------------------------------------------------
                                                   WEIGHTED
                                                   AVERAGE      GROSS
                                                   REMAINING   CARRYING     ACCUMULATED
                                                     LIVES      AMOUNT      AMORTIZATION     NET
                                                   ------------------------------------------------
                                                    (YEARS)                (IN THOUSANDS)
         AMORTIZED INTANGIBLE ASSETS:
            Deferred financing costs                 4.57       $   919     $   (407)      $   512
            Purchased software                       0.17         1,481       (1,437)           44
            Customer relationships                   3.17         1,230         (597)          633
            Capitalized software development costs   3.0            367           --           367
                                                                -----------------------------------
                                                                $ 3,997     $ (2,441)      $ 1,556
                                                                ===================================

                                                   ------------------------------------------------
                                                                     MARCH 31, 2006
                                                   ------------------------------------------------
                                                   WEIGHTED
                                                   AVERAGE      GROSS
                                                   REMAINING   CARRYING     ACCUMULATED
                                                     LIVES      AMOUNT      AMORTIZATION     NET
                                                   ------------------------------------------------
                                                    (YEARS)                (IN THOUSANDS)
         AMORTIZED INTANGIBLE ASSETS:
            Deferred financing costs                 5.10       $ 1,080     $   (493)      $   587
            Purchased software                       1.17         1,481       (1,169)          312
            Customer relationships                   4.17         1,230         (398)          832
                                                                -----------------------------------
                                                                $ 3,791     $ (2,060)      $ 1,731
                                                                ===================================


AGGREGATE AMORTIZATION EXPENSE FOR INTANGIBLES (IN THOUSANDS) :

                                                  For the year ended March 31, 2007           $618
                                                  For the year ended March 31, 2006           $744
                                                  For the year ended March 31, 2005           $812

ESTIMATED AMORTIZATION EXPENSE (IN THOUSANDS):
                                                                Fiscal Year
                                                                -----------
                                                                   2008         $   452
                                                                   2009             438
                                                                   2010             438
                                                                   2011             153
                                                                   2012              75
                                                                Thereafter           --
                                                                                --------
                                                                                $ 1,556
                                                                                ========
</TABLE>

         As a result of the debt extension treated as a debt extinguishment in
accordance with EITF 96-19, DEBTOR'S ACCOUNTING FOR A MODIFICATION OR EXCHANGE
OF DEBT INSTRUMENTS, in December 2006 the Company wrote-off $272,000 of gross
deferred financing costs and $232,000 of accumulated amortization of deferred
financing costs as part of the loss on extinguishment of debt.

CAPITALIZATION OF SOFTWARE DEVELOPMENT COSTS

         In May of 2006, the Company began production of version 9.0 of its Web
collaboration software. In accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS
OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, the Company began
capitalizing certain direct and indirect software development costs that
included expenses related to employee payroll costs, consultant fees, dedicated
computer hardware costs and specialized software license costs associated with
this project. As of March 31, 2007, the Company capitalized costs totaling
$367,000. Version 9.0 was completed and released to customers in June 2007 and
the Company began amortization of these capitalized costs, using straight-line
amortization over a three year period in July 2007.

                                       54




<PAGE>

7.       ACCRUED LIABILITIES

         Accrued liabilities consisted of the following:

                                                               MARCH 31,
                                                       -------------------------
                                                          2007          2006
                                                       -----------   -----------
                                                             (IN THOUSANDS)
         Accrued state sales tax ....................           77           233
         Accrued interest ...........................          290           343
         Amounts related to acquisitions ............           --             8
         Amounts payable to third party providers ...          258         1,006
         Amounts payable to Interactive Alchemy .....           62            36
         Accrued salaries and related benefits ......          394           453
         Deferred rent liability ....................           --            27
         Liabilities from discontinued operations ...           --            53
         Other ......................................           38            54
                                                       -----------   -----------
            Total accrued liabilities ...............  $     1,119   $     2,213
                                                       ===========   ===========

8.       BUSINESS COMBINATIONS

GLYPHICS CORPORATION

         The Company executed an agreement to acquire substantially all of the
assets of and assume certain liabilities of Glyphics, a Utah based private
company. The acquisition had a stated effective date of June 1, 2004 and was
fully consummated on June 14, 2004. The purchase price of $5.349 million was
based on a multiple of the Glyphics' 2003 annual audio conferencing business
revenues (as defined in the asset purchase agreement). The purchase price was
paid with the assumption of specific liabilities, with the balance paid using
its common stock at the fixed price of $1.05 per share.

         In exchange for the assets received, the Company assumed $2.466 million
in debt and issued 3.1 million shares of its common stock at the date of
acquisition. 704,839 shares of the Company's common stock were held in escrow
subject to the claims of the Company for: (1) the amount, if any, that the
audited audio conferencing business revenues (as defined in the asset purchase
agreement) earned by the Company during the 12 months after the closing date are
less than the audited audio conferencing business revenues (as defined in the
asset purchase agreement) recorded by Glyphics during the 12 months ending
December 31, 2003, (2) the representations and warranties made by Glyphics and
its shareholders in the asset purchase agreement, and (3) the amount if any that
the liabilities accrued or paid by the Company are in excess of those
specifically scheduled and assumed as part of the asset purchase agreement.

         On April 18, 2006, 704,839 shares were released from escrow related to
the acquisition of Glyphics. Of that amount, 396,706 were returned to iLinc
Communications due to the Company assuming obligations of $377,815 greater than
scheduled in the purchase agreement. The remaining 308,133 shares were issued to
the Glyphics shareholders at $0.39 per share based on the closing price of the
agreement date of April 18, 2006. These shares were recorded as outstanding on
March 31, 2006, pursuant to the terms of the Escrow Agreement. The common stock
issued in this transaction was registered with the SEC pursuant to a resale
prospectus dated August 2, 2005. Operating results associated with audio
conferencing operations are included as of June 1, 2004. The purchase price
recorded was calculated as follows:

                                                                          AMOUNT
                                                                          ------
         Issuance of iLinc's common stock (valued at $0.98 per share
                 using the five day average closing price) .............  $2,763
         Issuance of iLinc's common stock (valued at $0.39 per share
               using the closing price at April 18, 2006 ...............     120
         Assumed liabilities ...........................................   2,466
                                                                          ------
            Total purchase price .......................................  $5,349
                                                                          ======

                                       55




<PAGE>

         The total purchase price was allocated to assets acquired, in
accordance with SFAS No. 141, BUSINESS COMBINATIONS, based upon estimated fair
market values as determined by an appraisal report obtained from an independent
appraisal firm. The excess purchase price over the estimated fair market value
of the tangible and intangible assets acquired was allocated to goodwill. As
this transaction is intended to qualify as a tax-free acquisition, the tax bases
of the acquired assets remain unchanged. As a result, a deferred tax liability
of $1,132,000 has been established in an amount equal to the Company's statutory
tax rate multiplied by the difference between the allocated book value of
acquired non-goodwill assets and the tax bases of those assets. This increase to
deferred tax liability resulted in a corresponding increase to the acquired
goodwill. However, due to the presence of a valuation allowance against the net
deferred tax asset, a second entry was then recorded to report the impact of the
necessary decrease to the valuation allowance, with the offset being a reduction
in acquired goodwill. The purchase price may change due to the ultimate
resolution of charges against the escrow account, if any. The net result of
these entries was to increase the deferred tax liability and decrease the
valuation allowance by the same amount.

          The purchase price of Glyphics has been allocated as follows:

                                                                    PURCHASE
                                                                PRICE ALLOCATION
                                                                ---------------
                                                                 (IN THOUSANDS)
         Current assets ..................................      $           618
         Property and equipment ..........................                1,609
         Goodwill ........................................                1,118
         Identifiable intangible assets ..................                2,004
         Current liabilities .............................               (1,356)
         Notes payable ...................................                 (753)
         Capital leases ..................................                 (357)
         Common stock ....................................                   (3)
         Additional paid-in capital ......................               (2,880)
                                                                ---------------
         Total ...........................................      $            --
                                                                ===============

         Operating results of Glyphics are included in the accompanying
statement of operations for the year ended March 31, 2005 for the period June 1,
2004 through March 31, 2005. The following unaudited pro forma summary of
condensed financial information presents the Company's combined results of
operations as if the acquisition of Glyphics had occurred at the beginning of
each period presented, after including the impact of certain adjustments
including: (i) elimination of sales between the two companies and (ii) increase
in amortization of the identifiable intangible assets and an increase in
depreciation expense recorded as part of the acquisition.

         The pro forma financial information presented does not purport to
indicate what the combined results of operations would have been had the
combination occurred at the beginning of the periods presented or the results of
operations that may be obtained in the future.


                                       56




<PAGE>

                                                                  -------------
                                                                    YEAR ENDED
                                                                  MARCH 31, 2005
                                                                  -------------
Revenues .......................................................  $      10,906
Loss from continuing operations ................................         (3,604)
 Net loss from continuing operations ...........................         (5,440)

Loss per basic and diluted share from continuing operations ....  $       (0.24)

 Weighted average shares outstanding:
    Basic and diluted ..........................................         23,328


9.       LONG-TERM DEBT

         Long-term debt consisted of the following:

                                                                  MARCH 31,
                                                             ------------------
                                                              2007        2006
                                                             -------    -------
                                                               (IN THOUSANDS)

         2002 Convertible redeemable subordinated notes ...  $ 5,100    $ 5,100
         2004 Senior unsecured promissory notes ...........    2,962      2,962
         Shareholders' notes payable ......................       51        157
         Notes payable ....................................      429        447
                                                             -------    -------
                                                               8,542      8,666

         Less: Current portion of long-term debt ..........     (143)      (199)
               Discount ...................................     (497)      (896)
               Beneficial conversion feature ..............     (496)      (597)
                                                             -------    -------
         Long-term debt, net of current portion ...........  $ 7,406    $ 6,974
                                                             =======    =======

         In March 2002, the Company completed a private placement offering (the
"Convertible Note Offering") raising capital of $5,775,000 that was used to
extinguish an existing line of credit. Under the terms of the Convertible Note
Offering, the Company issued unsecured subordinated convertible notes (the
"Convertible Notes). The Convertible Notes bear interest at the rate of 12% per
annum and require quarterly interest payments, with the principal due at
maturity on March 29, 2012. The holders of the Convertible Notes may convert the
principal into shares of the Company's common stock at the fixed price of $1.00
per share. The Company may force redemption by conversion of the principal into
common stock at the fixed conversion price, if at any time the 20 trading day
average closing price of the Company's common stock exceeds $3.00 per share.
These notes are subordinated to any present or future senior indebtedness. As a
part of the Convertible Note Offering the Company also issued warrants to
purchase 5,775,000 shares of the Company's common stock for an exercise price of
$3.00 per share. Those warrants expired on March 29, 2005 without exercise. The
fair value of the warrants was estimated using the Black-Scholes pricing model
with the following assumptions: contractual and expected life of three years,
volatility of 75%, dividend yield of 0% and a risk-free rate of 3.87%. A
discount to the Convertible Notes of $1,132,000 was recorded using this value,
which is being amortized to interest expense over the 10-year term of the
Convertible Notes. As the carrying value of the notes is less than the
conversion value, a beneficial conversion feature of $1,132,000 was calculated
and recorded as an additional discount to the notes and is being amortized to
interest expense over the ten year term of the Convertible Notes. Upon
conversion, any remaining discount and beneficial conversion feature will be
expensed in full at the time of conversion. During fiscal 2004, holders with a
principal balance totaling $150,000 converted their notes into 150,000 common
shares of the Company. During fiscal 2006 holders with a principal balance of
$525,000 converted their notes and $8,000 of accrued interest into 1,971,088
shares of the Company's common stock at a price of $0.25, $0.26 and $0.30 per
share. Since the actual conversion price for the convertible debt was less than
the fixed conversion price of $1.00, the Company recorded conversion expense of
$338,000 for the period ending March 31, 2006. During fiscal 2006, the Company
accelerated the amortization of the deferred offering costs and the discount and
beneficial conversion feature associated with the debt by expensing $50,000 and
$137,000, respectively, at the time of conversion. No conversion of debt of
acceleration of amortization of costs occurred during the year ended March 31,
2007 for the Convertible Note Offering.

                                       57




<PAGE>

         In April of 2004, the Company completed a private placement offering of
unsecured senior notes (the "2004 Senior Note Offering") that provided gross
proceeds of $4.25 million. Under the terms of the 2004 Senior Note Offering, the
Company issued $3,187,000 in unsecured senior notes and 1,634,550 shares of the
Company's common stock. The senior notes were issued as a series of notes
pursuant to a unit purchase and agency agreement. The senior notes are
unsecured. The placement agent received a commission equal to 10% of the gross
proceeds together with a warrant for the purchase of 163,455 shares of the
Company's common stock with an exercise price equal to 120% of the price paid by
investors. The senior notes bear interest at a rate of 10% per annum and accrued
interest is due and payable on a quarterly basis beginning July 15, 2004, with
principal due at maturity on July 15, 2007. The senior notes are redeemable by
the Company at 100% of the principal value at any time after July 15, 2005. The
notes and common stock were issued with a debt discount of $768,000. The fair
value of the warrants was estimated and used to calculate a discount of $119,000
of which $68,000 was allocated to the notes and $51,000 was allocated to equity.
The total discount allocated to the notes of $836,000 is being amortized as a
component of interest expense over the term of the notes which is approximately
39 months. The senior notes are unsecured obligations of the Company but are
senior in right of payment to all existing and future indebtedness of the
Company. The common stock issued in the 2004 Senior Note Offering was registered
with the SEC pursuant to a resale prospectus dated August 2, 2005. Effective
August 1, 2005, holders with a principal balance totaling $225,000 converted
their senior notes and accrued interest of $800 into 903,205 shares of the
Company's common stock at a price of $0.25 per share. Since the actual
conversion price for the debt was greater than the market value of the stock at
the date of conversion, the Company recorded a gain on conversion of $9,000 for
the year ended March 31, 2006. During fiscal 2006, the Company accelerated the
amortization of the deferred offering costs and the discount associated with the
debt by expensing $10,000 and $35,000, respectively, at the time of conversion.
On November 9, 2005, placement agent warrants originally issued with an exercise
price of $0.78 per common share were converted to 163,455 common shares at an
exercise price of $0.25 per share, in which the Company received $41,000 in
cash. The transaction resulted in an increase in deferred offering costs of
$7,000 and an adjustment to additional paid-in capital of $7,000. No conversion
of debt to equity or acceleration of amortization of costs related to such
conversions occurred during the year ended March 31, 2007. In December, 2006,
the Company negotiated a modification of the terms of the senior notes to extend
the maturity date from July 15, 2007 to July 15, 2010. In exchange for the
extension, the interest rate increased from 10% per annum to 12% per annum, with
the new increased interest rate to begin to accrue under the amendment on
January 16, 2007, and continue thereafter at that rate until maturity or the
senior notes are fully paid. All other terms and provisions of the senior notes
remained unchanged. The placement agent received a commission of $87,000
together with a warrant for the purchase of 100,000 shares of the Company's
common stock with an exercise price of $0.66 per share. The warrant is effective
as of December 15, 2006 and has a three year term. The note agent received an
expense reimbursement of $14,000. In accordance with EITF 96-19, DEBTOR'S
ACCOUNTING FOR A MODIFICATION OR EXCHANGE OF DEBT INSTRUMENTS, the debt
extension was accounted for as an extinguishment of the existing debt and the
creation of the new debt. As a result, the Company recorded a one-time loss on
extinguishment of debt of $162,000 resulting from the acceleration of interest
expense accounted for as debt discount and deferred offering costs under the
original terms of the senior debt. The direct expenses of $101,000 and the
estimated fair value of the warrant of $42,000 were recorded as a deferred
offering cost and both will be amortized as a component of interest expense over
the term of the senior notes.

         In connection with the Company's initial public offering (IPO) in March
of 1998, the Company issued notes to certain shareholders who had provided
capital prior to the IPO. These notes were originally due in April of 2005 and
required quarterly payments of interest only at the rate of 10%. During the
first quarter of fiscal 2006, many of the noteholders agreed to extend the
maturity date and accept installment payments that were due during the year
ended March 31, 2006. The outstanding principal balance on these notes was
$51,000 and $157,000 as of March 31, 2007 and 2006, respectively, with no claims
of default by the holders of the outstanding IPO notes. The Company has agreed
to make installment payments for the outstanding principal balance plus accrued
interest. notes.

         In connection with the Company's acquisition of Glyphics (Note 8), the
Company assumed $753,000 in loan obligations. At March 31, 2007, $92,000 is
currently due in the short term. The rates of interest on these notes range from
6% to 10.25% per annum. An additional $337,000 is due over the next five years.

                                       58




<PAGE>

         The aggregate maturities of long-term debt excluding capital leases for
each of the next five years subsequent to March 31, 2007 were as follows (IN
THOUSANDS):


         2008.......................................................  $     143
         2009.......................................................         72
         2010.......................................................         79
         2011.......................................................      3,047
         2012.......................................................      5,193
         Thereafter.................................................          8
                                                                      ----------
                                                                      $   8,542
                                                                      ==========

10.      CAPITALIZATION

PREFERRED STOCK

         The Company has the authority to issue ten million shares of preferred
stock, par value $0.001 per share.

         On September 16, 2003, the Company completed its private placement of
Series A convertible preferred stock (the "Series A Preferred Stock") with
detachable warrants. The Company sold 30 units at $50,000 each and raised a
total of $1,500,000. Each unit consisted of 5,000 shares of Series A Preferred
Stock, par value $0.001 and a warrant to purchase 25,000 shares of common stock.
The Series A Preferred Stock is convertible into the Company's common stock at a
price of $0.50 per share, and the warrants are immediately exercisable at a
price of $1.50 per share with a three-year term. Accordingly, each share of
Series A Preferred Stock is convertible into 20 shares of common stock and
retains a $10 liquidation preference. The Company pays an 8% dividend to holders
of the Series A Preferred Stock, and the dividend is cumulative. The Series A
Preferred Stock is non-voting and non-participating. The shares of Series A
Preferred Stock will not be registered under the Securities Act of 1933, as
amended, and were offered in a private placement providing exemption from
registration. The cash proceeds of the private placement of Series A Preferred
Stock were allocated pro-rata between the relative fair values of the Series A
Preferred Stock and warrants at issuance using the Black-Scholes valuation model
for valuing the warrants. The aggregate value of the warrants and the beneficial
conversion discount of $247,000 were considered a deemed dividend in the
calculation of loss per share. During the 2005 fiscal year, holders of 22,500
shares converted to 450,000 shares of common stock. During the 2007 fiscal year,
holders of 12,500 shares converted to 250,000 shares of common stock. The
underlying common stock that would be issued upon conversion of the preferred
stock and upon exercise of the associated warrants has been registered with the
SEC and may be sold pursuant to a resale prospectus dated May 24, 2004.

         On September 30, 2005, the Company executed definitive agreements with
nine investors to issue 70,000 unregistered shares of its Series B Preferred
Stock, par value $0.001 (the "Series B Preferred Stock") and warrants to
purchase 700,000 shares of its common stock (the "Warrants") in a private
transaction that was exempt from registration under Section 4(2) of the
Securities Act of 1933. The Series B Preferred Stock bears an 8% dividend, was
sold using a deemed $10.00 per share issue price, and is convertible into
2,800,000 shares of the Company's common stock using a conversion priced of
$0.25 per share. The Warrants that are exercisable at an exercise price equal to
$0.50 per share expire on the third anniversary of the issue date of September
30, 2005. The aggregate value of the warrants of $55,000 is considered a deemed
dividend in the calculation of loss per share. During the 2007 fiscal year,
holders of 10,500 shares of Series B Preferred Stock converted those shares into
420,000 shares of the Company's common stock.

COMMON STOCK

         As of March 31, 2007, the Company is authorized to issue 100 million
shares of common stock with a $0.001 par value. As of March 31, 2007 the Company
had 35,017,843 issued and 1,432,412 shares held in treasury. The Company has
acquired treasury stock from certain affiliated practices for the payment of
receivables and purchase of property and equipment as a part of its discontinued
operations.

         In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its Chief
Executive Officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the Chief Executive Officer. The shares were valued at


                                       59




<PAGE>

$405,000 based on the closing price of the stock on the date of grant, which is
recorded as compensation expense ratably over the vesting period. The shares
100% vest after ten years from the date of grant or upon attaining the following
share price performance criteria: 150,000 shares vest if the share price trades
for $4.50 per share for 20 consecutive days; 150,000 shares vest if the share
price trades for $8.50 per share for 20 consecutive days; and 150,000 shares
vest if the share price trades for $12.50 per share for 20 consecutive days. In
December 2001, in connection with the restricted stock grant, the Company loaned
the Chief Executive Officer $179,000 to fund the immediate tax consequences of
the grant. The Company recognized a $179,000 charge to income at the date of
grant. On June 23, 2006 the Board of Directors, at the recommendation of the
Compensation Committee amended the vesting performance criteria hurdles as
follows: 150,000 shares vest if the share price trades for $1.00 per share for
20 consecutive days; 150,000 shares vest if the share price trades for $2.00 per
share for 20 consecutive days; and 150,000 shares vest if the share price trades
for $3.00 per share for 20 consecutive days. All other aspects of the grant
remained the same.

         On April 18, 2006, 704,839 shares were released from escrow related to
the acquisition of Glyphics. Of that amount, 396,706 were returned to iLinc
Communications due to the Company assuming obligations of $377,815 greater than
scheduled in the purchase agreement. The remaining 308,133 shares were issued to
the Glyphics shareholders at $0.39 per share based on the closing price of the
agreement date of April 18, 2006. These shares were recorded as outstanding on
March 31, 2006 pursuant to the terms of the Escrow Agreement.

         On June 9, 2006, the Company completed a private placement of 5,405,405
unregistered, restricted shares of common stock providing $2.0 million in gross
cash proceeds. The Company has used the proceeds for working capital and general
corporate purposes. The Company paid its placement agent an underwriting
commission of $185,000, of which $25,000 was recorded as deferred offering costs
as of March 31, 2006, and the Company incurred additional offering expenses of
approximately $103,000. Pursuant to the registration rights agreement between
the parties, the Company filed a Registration Statement on Form S-3 to enable
the resale of the shares by the investors which was declared effective on
September 29, 2006.


WARRANTS

         The following table summarizes information about stock purchase
warrants outstanding at March 31, 2007:

<TABLE>
<S>     <C>
                                        WARRANTS OUTSTANDING               WARRANTS EXERCISABLE
                           ---------------------------------------------  ----------------------
                                           WEIGHTED    WEIGHTED AVERAGE                WEIGHTED
                                            AVERAGE       REMAINING                    AVERAGE
                             NUMBER OF     EXERCISE      CONTRACTUAL       NUMBER OF   EXERCISE
                              SHARES         PRICE       LIFE (YEARS)       SHARES       PRICE
                           -------------  ----------  ------------------  -----------  ---------
   $   0.32 - $   0.32           50,000    $  0.32           2.0              50,000   $   0.32
   $   0.40 - $   0.40           50,000    $  0.40           2.0              50,000   $   0.40
   $   0.42 - $   0.42          543,182    $  0.42           4.2             543,182   $   0.42
   $   0.44 - $   0.44          132,972    $  0.44           3.5             132,972   $   0.44
   $   0.50 - $   0.50          700,000    $  0.50           1.5             700,000   $   0.50
   $   0.55 - $   0.55           50,000    $  0.55           2.0              50,000   $   0.55
   $   0.66 - $   0.66          100,000    $  0.66           2.7             100,000   $   0.66
   $   1.50 - $   1.50          171,510    $  1.50           3.8             171,510   $   1.50
                           -------------                                  -----------
                              1,797,664                                    1,797,664
                           =============                                  ===========
</TABLE>

         On November 19, 2003, the Company issued a warrant to purchase 250,000
shares of common stock to an advisor of the Company in exchange for certain
advisory and consulting services pursuant to a written advisory agreement that
will be provided to the Company over a three-year contractual period. The
warrants are exercisable for shares of the Company's common stock at a price of
$0.40. The warrants contain a provision that prohibited the delivery of shares
even if exercised until after February 5, 2004. The warrants are currently
treated as a variable plan grant; accordingly, the warrants will be revalued at
each quarter end and the portion related to the cumulative expired services
period less prior charges recorded will be recorded as a charge to expense
during the period. The warrants were valued using the Black-Scholes model to
calculate a fair value of $0.73 per share at March 31, 2004. A portion of the
fair value totaling $20,000 was recognized for fiscal 2004. During fiscal 2005,
the remaining balance of the warrants was expensed for $90,000.

                                       60




<PAGE>

         In January 2005, in connection with the restructuring of the payments
on loan obligations due in connection with the acquisition of Glyphics, the
Company issued a warrant for 50,000 shares with an exercise price of $0.55. The
loan was guaranteed by Gary Moulton, the Company's senior vice president of
audio services, as well as a shareholder of the Company, both of whom were
formerly owners of Glyphics. The warrant expired in January 2007. The fair value
of the warrant of $8,000 was estimated using the Black-Scholes pricing model
with the following assumptions: contractual and expected life of two years,
volatility of 72%, dividend yield of 0% and a risk-free rate of 3.1%.

         In June 2005, in connection with the restructuring of the payments, the
Company issued a warrant for 50,000 shares to the Glyphics shareholder with an
exercise price of $0.32. The warrant expires in June 2007. The fair value of the
warrant of $6,500 was estimated using the Black-Scholes pricing model with the
following assumptions: contractual and expected life of two years, volatility of
71%, dividend yield of 0%, and a risk-free rate of 3.6%. On April 1, 2006, the
Company issued an additional warrant for 50,000 shares with an exercise price of
$0.40. The warrant expires in April 2009. The fair value of the warrant of
$15,000 was estimated using the Black-Scholes pricing model with the following
assumptions: contractual and expected life of three years, volatility of 125%,
dividend yield of 0% and a risk-free rate of 4.83%. In April 2006, the
expiration dates of the warrants issued in January 2005 and August 2005 were
extended to March 31, 2009. Based on an analysis using the Black-Scholes pricing
model, no adjustment was made to the fair value of the two extended warrants.
Subsequent to year end on April 1, 2007, the Company issued an additional
warrant for 50,000 shares with an exercise price of $0.66. The warrant expires
April 2010. The fair value of the warrant of $21,000 was estimated using the
Black-Scholes pricing model with the following assumptions: contractual and
expected life of three years, volatility of 101%, dividend yield of 0% and a
risk-free rate of 4.54%.

         On July 1, 2006, the Company issued a warrant for up to 1,000,000
shares of the Company's common stock, par value $0.001 per share, with an
exercise price of $0.55 per share to an agent of the Company in connection with
an agent agreement effective June 30, 2006. The warrant expires on July 1, 2011.
The warrant is subject to vesting provisions based on net collected revenue
targets achieved through the agent and certain value added resellers over a five
year period. As of March 31, 2007, none of the revenue targets had been
achieved. Therefore, no expense was recorded in the fiscal year. In accordance
with EITF 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN
EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS AND SERVICES, the
Company recorded a prepaid asset and corresponding additional paid-in capital of
$467,000 as the fair value of the 1,000,000 shares at March 31, 2007 using the
Black-Scholes pricing model with the following assumptions: contractual and
expected life of 4.25 years, volatility of 90%, dividend yield of 0% and a
risk-free rate of 4.54%.

11.      INCOME TAXES

         Significant components of the provision for income taxes were as
follows (in thousands):

<TABLE>
                                                 YEAR ENDED        YEAR ENDED      YEAR ENDED
                                                  MARCH 31,        MARCH 31,        MARCH 31,
                                                    2007              2006            2005
                                               ---------------  ---------------  ---------------
<S>                                                        <C>           <C>              <C>
         Current tax expense:
            Federal ...................                     --           (1,010)          (2,033)
            State .....................                     --           (1,915)            (359)
                                               ---------------  ---------------  ---------------
              Total current                                 --           (2,925)          (2,392)
                                               ---------------  ---------------  ---------------
         Deferred tax expense:
            Federal ...................                     85            1,010            2,033
            State .....................                     --            1,915              359
                                               ---------------  ---------------  ---------------
              Total deferred                                85            2,925            2,392
                                               ---------------  ---------------  ---------------
         Provision for income taxes....                     85               --               --
                                               ===============  ===============  ===============
</TABLE>

         The Company incurred income tax expense of $85,000 for the years ended
March 31, 2007 related to recognition of a deferred tax liability from
amortization of goodwill from the Quisic and LearnLinc acquisitions and no
income tax expense for the year ended March 31, 2006 due to the loss incurred in
that period.

                                       61




<PAGE>

         Significant components of the Company's deferred tax assets
(liabilities) were as follows (in thousands):

                                                                MARCH 31,
                                                         ----------------------
                                                           2007          2006
                                                         --------      --------
         Deferred tax assets:
            Reserves for uncollectible accounts...       $     45      $     48
            Deferred revenue .....................             87            17
            Accrued expenses .....................             55           194
            Property and equipment ...............            235           269
             Intangible Assets ...................             28            --
             Stock based compensation ............             58            --
            Net operating loss carryforward ......         14,952        15,355
                                                         --------      --------
               Total deferred tax assets .........       $ 15,460      $ 15,883
                                                         --------      --------

         Deferred tax liabilities:
            Glyphics book/tax differences ........           (262)       (1,132)

            Intangible assets ....................           (299)       (1,124)
                                                         --------      --------
              Total deferred tax liabilities .....           (561)       (2,256)
                                                         --------      --------

         Net deferred tax asset ..................         14,899        13,627
            Less: valuation allowance ............        (15,198)      (13,627)
                                                         --------      --------
                Net deferred tax liability .......       $   (299)     $     --
                                                         ========      ========


         The differences between the statutory federal tax rate and the
Company's effective tax rate on continuing operations were as follows (in
thousands):

<TABLE>
<S>     <C>
                                                                   YEAR ENDED       YEAR ENDED       YEAR ENDED
                                                                    MARCH 31,        MARCH 31,        MARCH 31,
                                                                      2007             2006             2005
                                                                   -----------      -----------      -----------

         Tax (benefit) at U.S. Statutory rate (34%) ..........     $        48      $      (398)     $    (1,811)
         State income taxes (benefit), net of federal tax ....               7              (70)            (319)
         Permanent book/tax differences ......................              68                -              (18)
         Prior year true-up ..................................          (1,610)              --               --
         Change in valuation allowance, net ..................           1,572              462            2,148
                                                                   -----------      -----------      -----------
            Total tax expense (benefit) ......................     $        85      $        --      $        --
                                                                   ===========      ===========      ===========
</TABLE>

         At March 31, 2007, the Company had federal and State of Arizona net
operating loss carry-forwards available to reduce future taxable income of
approximately $42,306,000 and $10,408,000, respectively, which begin to expire
in 2013 and 2008, respectively. The Company has certain net operating losses in
other states relating to its acquisitions (see Note 8). The Company is currently
quantifying such net operating losses and evaluating the Company's ability to
use them. The Company has recorded a valuation allowance for its deferred
tax assets due to the lack of profitable operating history. The Company recorded
a valuation allowance for its deferred tax asset because it concluded it is not
likely it would be able to realize the tax assets due to the lack of profitable
operating history of its implementation of the Web conferencing and audio
conferencing business plan. Based on the financial results for the year ending
March 31, 2007, the Company has begun to exhibit the ability to generate taxable
income. In the event the Company was to determine that it would be able to
realize its deferred tax assets in the future, an adjustment to the deferred tax
asset would increase net income through a tax benefit in the period such a
determination was made the Company has met the more likely than not threshold
for such recognition.

         In accordance with Internal Revenue Code Section 382, the annual
utilization of net operating loss carry-forwards and credits existing prior to a
change in control, as defined, in the Company or a company the Company has
acquired may be substantially limited. Accordingly, the utilization of a
substantial portion of the Company's net operating loss carry-forwards may be
limited, such as net operating loss carry-forwards that are either related to
the acquisition of ThoughtWare Technologies, Learning-Edge, Inc., Glyphics, and
other acquired entities, or are related to current operations during which
change in control events may have occurred. The net change in the valuation
allowance for the year ended March 31, 2007 was $1,572,000. The net change in
the valuation allowance for the year ended March 31, 2006 was $1,913,000.

                                       62




<PAGE>

12.      STOCK OPTION PLANS

         The Company grants stock options under its amended and restated 1997
Stock Compensation Plan (the "Plan"). The Company calculates the fair value of
options on the day of grant and amortizes the fair value over the vesting
period. Under SFAS 123R, the Company recognized $151,000 net of taxes, of
compensation expense related to stock options and vesting of stock grants in the
year ended March 31, 2007. The following table summarizes stock-based
compensation expense related to employee stock options and vesting of employee
stock grants under SFAS 123R for the year ended March 31, 2007, which was
allocated by employee among various expense categories as follows (in thousands
except per share amounts).

<TABLE>
<S>     <C>
                                                                             ------------
                                                                             FOR THE YEAR
                                                                                ENDED
                                                                               MARCH 31,
                                                                                 2007
                                                                             ------------
         Stock-based compensation expense for stock options included:
           Cost of sales .................................................   $         14
           Research and development ......................................             11
           Sales and marketing ...........................................             43
           General and administrative ....................................             42
                                                                             ------------
                  Total ..................................................            110

         Stock-based compensation expense employee stock
           grants included general and administrative costs ..............             41

                                                                             ------------

         Stock-based compensation expense related to employee
           stock options and employee stock grants included
           in income from operations .....................................            151
         Tax benefit .....................................................             --
                                                                             ------------

         Stock-based compensation expense related to employee
           stock options and employee stock grants, net of tax ...........   $        151
                                                                             ------------

         Decrease in basic earnings per share ............................   $         --
         Decrease in diluted earnings per share ..........................   $         --
</TABLE>

         As stock-based compensation expense recognized in the Consolidated
Statement of Operations for the year ended March 31, 2007 is based on options
ultimately expected to vest, it has been reduced for expected forfeitures. SFAS
123R requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Forfeitures were estimated based on historical experience.

                                       63




<PAGE>

         The following table reflects net income and diluted net income per
share pro forma information assuming application of SFAS 123 for the 12 months
ended March 31, 2006 and 2005 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

<TABLE>
<S>     <C>
                                                                         FOR THE YEAR     FOR THE YEAR
                                                                         ENDED MARCH      ENDED MARCH
                                                                           31, 2006        31, 2005
                                                                         ------------    --------------
         Net loss available to common shareholders, as reported
            for the prior period (1) .................................   $     (1,356)   $       (5,432)
         Stock-based employee compensation expense included in
            reported net loss for the prior period ...................             40                40
         Total stock-based employee compensation expense related
            to employee stock options and vesting of employee
            stock grants, net of tax .................................           (191)             (352)
                                                                         ------------    --------------
         Total Pro Forma net loss available to common shareholders, including the
            effect of stock-based compensation expense ...............   $     (1,507)   $       (5,744)
                                                                         ============    ==============

         Basic and diluted loss per common share:
            As reported for the prior period (1) .....................   $      (0.05)   $        (0.23)
                                                                         ============    ==============
            Including the effect of stock-based compensation
               expense ...............................................   $      (0.06)   $        (0.25)
                                                                         ============    ==============


(1)      Net loss and net loss per share prior to fiscal 2007 did not include
         stock-based compensation expense for employee stock options under SFAS
         123 because the Company did not adopt the recognition provisions of
         SFAS 123.

         Upon adoption of SFAS 123R, the Company continued to calculate the
value of each employee stock option, estimated on the date of grant, using the
Black-Scholes model in accordance with SFAS 123R. The weighted average fair
value of employee stock options granted during the 12 months ended March 31,
2007, 2006 and December 31, 2005 was $0.43 per share, $0.22 per share and $0.56
per share, respectively, using the following weighted-average assumptions:

                                                      2007            2006            2005
                                                      ----            ----            ----
         Risk free interest rate                  4.43 - 5.11%    4.18 - 4.55%    4.19 - 4.71%
         Dividend yield                                0%              0%              0%
         Volatility factors of the expected
            market price of the Company's
            common stock                           92% - 109%     110% - 125%       73 - 90%
         Weighted-average expected life of
            Options                                 10 years        10 years        10 years

DETERMINING FAIR VALUE

         VALUATION AND AMORTIZATION METHOD. The Company estimates the fair value of stock
options granted using the Black-Scholes option valuation model approach. The Company
amortizes the fair value on a straight-line basis. All options are amortized over
the requisite service periods of the awards, which are generally the vesting
periods.

         EXPECTED TERM. The expected term of the options granted represents the
period of time that they are outstanding. Management estimated the expected term
of the options granted based on the period of time the options will be
outstanding. Management has determined that there were no meaningful differences
in option exercise activity based on the demographics tested.

         EXPECTED VOLATILITY. The Company estimates the volatility of its options at the
date of grant based on the historic volatility of its common stock for the
previous two years.

         RISK-FREE INTEREST RATE. The Company bases the risk-free interest rate that it
uses in the Black-Scholes option valuation model on the implied yield in effect
at the time of the option grant on U.S. Treasury bond issues with equivalent
remaining terms.

         DIVIDENDS. The Company has never paid a cash dividend on its common stock and
does not anticipate paying any cash dividends in the foreseeable future.
Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes
option valuation model.

         FORFEITURES. SFAS 123R requires the Company to estimate forfeitures at the time
of grant and revise those estimates in subsequent periods if actual forfeitures
differ from those estimates. The Company uses historical data to estimate pre-vesting
option forfeitures and record shared-based compensation expense only for those
awards that are expected to vest. For purposes of calculating pro forma
information under SFAS 123 for period prior to fiscal 2007, the Company also estimated
forfeitures at the time of grant.

                                       64




<PAGE>

         Stock option activity for the year ended March 31, 2007 was as follows:

                                                                             WEIGHTED
                                                                             AVERAGE
                                                             WEIGHTED       CONTRACTUAL      AGGREGATE
                                          SHARES SUBJECT      AVERAGE          LIFE       INTRINSIC VALUE
                                           TO OPTIONS      EXERCISE PRICE   (IN YEARS)    (IN THOUSANDS)

Options outstanding at April 1, 2006 ....   2,637,864         $  1.07
   Options granted ......................     731,000         $  0.47
   Options exercised ....................     (19,270)        $  0.25
   Options forfeited and expired ........    (211,042)        $  0.38
                                           ----------
Options outstanding at March 31, 2007 ...   3,138,552         $  0.98          6.14           $ 443
                                           ----------
Options exercisable at March 31, 2007....   2,381,859         $  1.15          5.21           $ 276
                                           ----------
</TABLE>

         The aggregate intrinsic value in the table above represents total
pretax intrinsic value (the difference between the Company's closing stock price
on March 31, 2007 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had
all option holders exercised their options on March 31, 2007. This amount
changes based on the fair market value of the Company's common stock. Total
intrinsic value of options exercised for the year ended March 31, 2007 was
$5,000. The Company issues new shares of common stock upon the exercise of stock
options.

         At March 31, 2007, 1,710,810 shares were available for future grants
under the Company's amended and restated Stock Compensation Plan (the "Plan").

         At March 31, 2007, the Company had approximately $182,000 of total
unrecognized compensation expense, net of estimated forfeitures, related to
stock option plans that will be recognized over the weighted average period of
2.55 years.

         Under the Plan, as amended, the Company is authorized to issue
5,500,000 shares of common stock pursuant to "Awards" granted to officers and
key employees in the form of stock options. The number of shares authorized as
available for issue under the plan was increased from 3,500,000 at the 2005
Annual Meeting of Stockholders held on August 19, 2005.

         There were 3,138,552 and 2,637,864 options outstanding under the Plan,
at March 31, 2007 and 2006, respectively. The Compensation Committee of the
Board of Directors administers the Plan. Stock options granted to employees have
a contractual term of ten years (subject to earlier termination in certain
events) and have an exercise price no less than the fair market value of the
Company's common stock on the date grant. The options vest at varying rates over
a one to five year period.

                                       65




<PAGE>

         Following is a summary of the status of the Company's stock options as
of March 31, 2007:
<TABLE>
<S>     <C>
                                                     NUMBER OF     WEIGHTED
                                                       SHARES      AVERAGE     WEIGHTED AVERAGE
                                                     UNDERLYING    EXERCISE     FAIR-VALUE OF
                                                      OPTIONS       PRICES     OPTIONS GRANTED
                                                     ----------   ----------   ----------------
Outstanding at March 31, 2004...................     2,282,855      $1.43

Granted.........................................       702,900       0.66           $ 0.56
                                                                               ================
Exercised.......................................      (151,160)      0.51
Forfeited.......................................      (370,688)      0.72
Expired.........................................       (25,889)      6.13
                                                     ----------   ----------
Outstanding at March 31, 2005...................     2,438,018      $1.32

Granted.........................................       815,500       0.29           $ 0.22
                                                                               ================
Exercised.......................................            --         --
Forfeited.......................................      (606,307)      1.01
Expired.........................................        (9,347)      1.05
                                                     ----------   ----------
Outstanding at March 31, 2006...................     2,637,864      $1.07

Granted.........................................       731,000       0.47           $ 0.43
                                                                               ================
Exercised.......................................       (19,270)      0.25
Forfeited.......................................      (128,646       0.33
Expired.........................................       (82,396)      0.46
                                                     ----------   ----------
Outstanding at March 31, 2007...................     3,138,552      $0.98
                                                     ==========   ==========

         The following table summarizes information about stock options
outstanding at March 31, 2007:

                                           OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                                --------------------------------------- ----------------------
                                             WEIGHTED  WEIGHTED AVERAGE              WEIGHTED
                                             AVERAGE      REMAINING                  AVERAGE
                                 NUMBER OF   EXERCISE    CONTRACTUAL     NUMBER OF   EXERCISE
                                  SHARES      PRICE      LIFE (YEARS)     SHARES      PRICE
                                ----------- ---------- ---------------- ----------- ----------
           $  0.24 - $  0.36       382,375    $  0.25        8.5           212,818   $  0.25
           $  0.39 - $  0.59     1,435,079    $  0.46        6.6         1,038,965   $  0.48
           $  0.60 - $  0.90       637,000    $  0.72        7.2           449,166   $  0.72
           $  0.92 - $  1.38       104,125    $  1.02        6.4           100,937   $  1.02
           $  1.94 - $  2.91       490,000    $  2.18        2.3           490,000   $  2.18
           $  6.13 - $  9.19        89,973    $  7.71        1.4            89,973   $  7.71
                                -----------                             -----------
                                 3,138,552                               2,381,859
                                ===========                             ===========
</TABLE>

         During the 2007 fiscal year, 19,270 options were exercised by employees
of the Company.

         In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its Chief
Executive Officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the Chief Executive Officer. The shares were valued at
$405,000 based on the closing price of the stock on the date of grant, which is
recorded as compensation expense ratably over the vesting period. The shares
100% vest after ten years from the date of grant or upon attaining the following
share price performance criteria: 150,000 shares vest if the share price trades
for $4.50 per share for 20 consecutive days; 150,000 shares vest if the share
price trades for $8.50 per share for 20 consecutive days; and 150,000 shares
vest if the share price trades for $12.50 per share for 20 consecutive days. In
December 2001, in connection with the restricted stock grant, the Company loaned
the Chief Executive Officer $179,000 to fund the immediate tax consequences of
the grant. The Company recognized a $179,000 charge to income at the date of
grant. On June 23, 2006 the Board of Directors, at the recommendation of the
Compensation Committee amended the vesting performance criteria hurdles as
follows: 150,000 shares vest if the share price trades for $1.00 per share for
20 consecutive days; 150,000 shares vest if the share price trades for $2.00 per
share for 20 consecutive days; and 150,000 shares vest if the share price trades
for $3.00 per share for 20 consecutive days. All other aspects of the grant
remained the same.

                                       66




<PAGE>

13.      COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

         The Company leases a portion of its property and equipment under the
terms of capital and operating leases. Currently, the Company has capital leases
for computer hardware and software ranging in terms from 3 to 5 years. The
capital leases bear interest at varying rates ranging from 10.0% to 15.0% and
require monthly payments.

         Assets recorded under capital leases, at March 31, 2007, consisted of
the following (IN THOUSANDS):

         Cost.....................................................  $       227
         Less: accumulated depreciation...........................           (5)
                                                                    ------------
         Total....................................................  $       222
                                                                    ============

         Future minimum lease payments under capital leases and non-cancelable
operating leases with initial or remaining terms of one or more years consisted
of the following at March 31, 2007 (IN THOUSANDS):

                                                             CAPITAL   OPERATING
         2008............................................   $     67  $     539
         2009............................................         85        384
         2010............................................         85        345
         2011............................................         42        341
         2012............................................         42        313
         Thereafter......................................         17         --
                                                            --------- ----------
         Total minimum obligations.......................        338  $   1,922
                                                                      ==========
         Less: amount representing interest..............        (70)
                                                            ---------
         Present value of minimum obligations............        268


         Less: current portion...........................        (45)
                                                            ---------
         Long-term obligation at March 31, 2007..........   $    223
                                                            =========

         The Company incurred rent expense of $508,000, $604,000 and $569,000 in
fiscal 2007, 2006 and 2005, respectively. The Company occupies space in Phoenix,
Arizona, where the Company is headquartered. The Company also leases space in
Springville, Utah as a result of the acquisition of Glyphics and space in Troy,
New York, with an emphasis in that location on research and development and
technical support.

         On May 5, 2006, the Company amended the lease on its Phoenix location,
which was set to expire February 28, 2007. The term was extended to February 28,
2012, and square footage and the related expense were reduced as a result of the
amendment. In addition, a cancellation clause was added. Under the cancellation
terms, the Company may cancel the lease, with nine months' notice effective
February 28, 2009 or February 28, 2010 with a nine-month or six-month base rent
penalty, respectively. After this amendment, the Phoenix lease requires a
monthly rent and operating expense of approximately $25,000.

         On July 5, 2006, the Company amended the lease on its New York
location, which had expired December 31, 2005. The new lease term is effective
July 1, 2006 through June 30, 2009. Under the terms of the new lease the monthly
rent and operating expenses are approximately $4,000

         The lease related to the Springville location expires in January, 2008
and requires a monthly rent and operating expenses of approximately $15,000.

 SUBCONTRACTOR AGREEMENT

         On April 29, 2006, the Company amended its agreement with its custom
content subcontractor, Interactive Alchemy. The original agreement was a
three-year agreement effective May 1, 2003. The amendment dated April 29, 2006
extends the agreement for an additional non-cancelable two-year term effective
May 1, 2006. Under the revised agreement, Interactive Alchemy will continue to
provide custom content development services to the Company for the Company's
customers in


                                       67




<PAGE>

exchange for a fixed percentage of the Company's custom content fee. The amount
due is limited to a cap of $200,000 in the first year and $450,000 in the second
year of the amended agreement. The Company records gross custom content revenue
for its customers with a corresponding fixed percentage commission due to
Interactive Alchemy as a cost of sale.

ROYALTY AGREEMENTS

         In conjunction with the acquisition of certain assets from Mentergy,
Inc. ("Mentergy"), the Company agreed to provide a royalty earn-out payment that
is due upon collection of cash received from the sales of its Web conferencing
software. The royalty earn-out was originally equal to 20% for all revenues
collected from the sale of that Web conferencing software over a three-year
period beginning November 4, 2002. The Company accounts for any such amounts
collected as additional purchase consideration in accordance with EITF 95-8,
ACCOUNTING FOR CONTINGENT CONSIDERATION PAID TO THE SHAREHOLDERS OF AN ACQUIRED
ENTERPRISE IN A PURCHASE BUSINESS COMBINATION at the time such amounts are
accrued as revenue. The Company had accrued Mentergy royalties totaling $52,000
and $890,000 as of March 31, 2007 and March 31, 2006, respectively (the "Royalty
Accrual Amount"). In the prior year, the royalty was calculated on the accrual
basis for consistency with the Company's revenue recognition policies. Since the
royalty agreement term ended on November 4, 2005, the obligation at March 31,
2006 was adjusted to reflect amounts due on the collection of cash received on
the sales of Web conferencing software through November 4, 2005. On October 10,
2005, Mentergy and the Company executed a payment agreement. Through March 31,
2007, the Company had paid $1.1 million, net of interest, to Mentergy in
accordance with the royalty and payment agreement. The Company then paid in full
all amounts due to Mentergy with the payment of $52,000, net of interest, on
April 2, 2007.

EMPLOYMENT AGREEMENTS

         The Company has entered into employment agreements with Mr. Powers, Mr.
Dunn, and Mr. Moulton. All are officers, and Mr. Powers is also Chairman of the
Board of Directors. Each of these agreements provides for an annual base salary
in an amount not less than the initial specified amount and entitles the
employee to participate in all of the Company's compensation plans. Each
agreement establishes a base annual salary and provides the eligibility for an
annual award of bonuses based on the management incentive compensation plan (as
adopted and amended by the Compensation Committee of the Board of Directors from
year to year), and is subject to the right of the Company to terminate their
respective employment at any time without cause. Mr. Powers' and Mr. Dunn's
employment agreements provide for continuous employment for a one-year term that
renews automatically unless otherwise terminated. Mr. Dunn's employment
agreement permits Mr. Dunn to work outside the corporate offices, and Mr. Dunn
relocated to Houston in June of 2005. Mr. Moulton's agreement provides for
continuous employment for a two-year term. Under each of the employment
agreements, if the Company terminates the employee's employment without cause
(as therein defined), Mr. Powers, Mr. Dunn, and Mr. Moulton will be entitled to
a payment equal to 12 months' salary. Additionally, Mr. Powers' and Mr. Dunn's
employment agreements provide for a severance payment equal to one (1) year's
compensation in the event of termination of employment following a "change in
control" of the Company (as defined therein) except that should Mr. Dunn obtain
employment with the successor organization in a comparable position, then the
Company shall not be responsible for the severance payment. Each of the
foregoing agreements also contains a covenant limiting competition with iLinc
for one year following termination of employment except for Mr. Moulton's which
limits competition with iLinc for nine months following termination. The
aggregate potential payment under such agreements would be $1.0 million as of
March 31, 2007.


14.      RELATED PARTY TRANSACTIONS

         There were no related party transactions between the Company and
related parties during the fiscal year ending March 31, 2007.

                                       68




<PAGE>

         On July 21, 2005, James L. Dunn Jr., the Company's CFO, purchased a
note from one of the IPO Note holders. The note had a principal balance of
$8,375 and was purchased at a discount. Mr. Dunn extended the term of the note
that was then due until April 1, 2006. The note was paid in full in July 2006.
On September 30, 2005, the father of James L. Dunn Jr. invested $25,000 in the
Company's Series B Preferred Stock Offering and acquired 2,500 shares of iLinc
Communications' Series B Preferred Stock and a Warrant to purchase 25,000 shares
of the Company's common stock. The Warrant is exercisable immediately at an
exercise price of $0.50 and expires on September 30, 2008. Mr. James L. Dunn,
Jr. has no direct and beneficial interest in his father's investment.

         On July 31, 2005, the Company exchanged a convertible promissory note
that had been issued in March of 2002 to Peldawn, LLC, of which Mr. Dan
Robinson, a member of the Company's Board of Directors, is a partner. The note
had an original principal balance of $25,000 and was originally convertible at
$1.00 per share. As part of the Company's plan to decrease debt and increase
shareholders' equity, in combination with holders of $525,000 principal balance
of 2002 convertible redeemable notes, the note including principal and accrued
interest was exchanged using a price of $0.30 per share into 84,183 shares of
the Company's common stock. Due to the revised conversion terms of the
convertible notes, the Company recorded $12,000 of conversion expense. The
transaction resulted in accelerated amortization of the deferred offering costs
and the discount and beneficial conversion features associated with the debt by
expensing $2,400 and $6,500, respectively, at the time of conversion. The
conversion price was above the fair market value of the Company's common stock
on the date of conversion and was on the same terms as like holders.

         On August 16, 2005, Dr. James Powers, the Company's CEO, and his wife,
exchanged convertible promissory notes that had been issued in March 2002. The
notes had an original balance of $50,000 and were originally convertible at
$1.00 per share. As part of the Company's plan to decrease debt and increase
shareholders' equity, in combination with holders of $525,000 principal balance
of 2002 convertible redeemable notes, the notes were converted at a price of
$0.26 per share into 192,308 share of the Company's common stock. Due to the
revised conversion terms of the convertible notes, the Company recorded $36,000
of conversion expense. The transaction resulted in accelerated amortization of
the deferred offering costs and the discount and beneficial conversion features
associated with the debt by expensing $4,800 and $13,000, respectively, at the
time of conversion. The conversion price was above the market value of the
Company's common stock on the date of the conversion and was on the same terms
as like holders.

         On September 30, 2005, Mr. Kent Petzold, a member of the Company's
Board of Directors, invested in the Company's Series B Preferred Stock offering
and acquired 5,000 shares of iLinc Communications Series B Preferred Stock and a
Warrant exercisable for 50,000 shares of the Company's common stock. Mr. Petzold
paid $50,000 in the aggregate for such securities on the same terms as all other
investors in the offering. The Warrant is immediately exercisable at an exercise
price of $0.50 and expires on September 30, 2008.

15.      SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<S>     <C>
                                                                    YEAR           YEAR           YEAR
                                                                    ENDED          ENDED          ENDED
                                                                   MARCH 31,      MARCH 31,      MARCH 31,
                                                                     2007          2006           2005
                                                                  -----------   -----------   -----------
                                                                              (IN THOUSANDS)
Cash paid
   Interest ...................................................   $     1,045   $       933   $     1,010
Supplemental information on non-cash transactions
   Warrants issued in connection with 3rd party
     distribution agreement ...................................           467            --            --
   Debt conversion into common shares .........................            --           225           583
   Convertible redeemable subordinated notes and accrued
     interest converted into common shares ....................            --           531           494
   Issuance of common stock in connection with acquisitions ...            --           120         2,763
   Accounts payable and accrued liabilities converted
     into common shares .......................................            --           550            --
   Accounts receivable converted into note receivable .........            54            --            --
   Warrants issued in connection with debt refinancing ........            42            --            --
   Warrants issued with preferred stock .......................            --            55            --
   Warrant conversion expense due to warrant repricing ........            --             7            --
   Addition of fixed assets and prepaid maintenance with capital
     leases ...................................................           268            --            --
   Addition of assets with barter transactions ................           466            --            --
   Repayment of accrued liabilities with deferred revenue .....             8            --            --
   Conversion of preferred stock to common stock ..............             1            --            --
   SAB 108 prior period adjustment ............................           214            --            --
</TABLE>

                                       69




<PAGE>

16.      SUBSEQUENT EVENTS

         The Company has a note payable that was assumed in the Glyphics
Acquisition. The principal balance at March 31, 2007 was $398,000. On April 1,
2007, the maturity date of the note was extended from April 1, 2007 to April 1,
2012, with monthly payments of approximately $8,000 at a variable rate of
monthly interest equal to the prime rate.

         On April 1, 2006, the Company issued a warrant for 50,000 shares of
common stock with an exercise price of $0.66 in connection with the extension of
the $398,000 loan. The warrant expires in April 2010. The fair value of the
warrant of $21,000 was estimated using the Black-Scholes pricing model with the
following assumptions: contractual and expected life of three years, volatility
of 101%, dividend yield of 0% and a risk-free rate of 4.54%.

17.     IMPACT OF STAFF ACCOUNTING BULLETIN NO. 108 (SAB 108)

         In September 2006, the SEC issued SAB 108. SAB 108 expresses SEC staff
views regarding the process by which misstatements in financial statements are
evaluated for purposes of determining whether those misstatements are material
to our financial statements. SAB 108 was effective for fiscal years ending after
November 15, 2006. The transition provisions of the bulletin permit the Company
to adjust its beginning accumulated deficit for the cumulative effect of
immaterial errors relating to prior years. The Company adopted SAB 108 in the
fourth quarter of fiscal 2007, with an effective date of April 1, 2006.
Traditionally, there have been two widely-recognized methods for quantifying the
effects of financial statement misstatements: the "roll-over" method and the
"iron curtain" method. The roll-over method focuses primarily on the impact of a
misstatement on the income statement, including the reversing effect of prior
year misstatements, but its use can lead to the accumulation of misstatements in
the balance sheet. The iron curtain method focuses primarily on the effect of
correcting the period-end balance sheet with less emphasis on the reversing
effects of prior year errors on the income statement. We previously used the
roll-over method for quantifying identified financial statement misstatements.

         In SAB 108, the SEC staff established an approach that requires
quantification of financial statement misstatements based on the effect of the
misstatements on each of our financial statements and the related financial
statement disclosures. This model is commonly referred to as a "dual approach"
because it requires quantification of errors under both the iron curtain and the
roll-over methods. In accordance with the bulletin, we have adjusted beginning
accumulated deficit for 2007 in the accompanying financial statements for the
items described below.


                                       70



<PAGE>

         INCOME TAXES - For income tax purposes, the Company is amortizing the
goodwill recognized on its assets purchases of Quisic and LearnLinc. For book
purposes, this goodwill is not amortized. This difference in book and tax
accounting results in a deferred income tax liability. SFAS No. 109 requires the
expected timing of future reversals of deferred tax liabilities to be taken into
account when evaluating the realizability of deferred tax assets. Generally, the
reversal of deferred tax liabilities related to indefinite-lived intangible
assets and goodwill normally should not be considered a source of future taxable
income when assessing the realization of deferred tax assets. The Company
historically has had no net deferred income tax assets because the Company has
recorded a valuation allowance for its deferred tax asset as it concluded
it is not likely it would be able to realize the tax assets due to the lack of
profitable operating history. As such, the recognition of the deferred income
tax liability related to the tax deductible goodwill would have resulted in a
charge to the income tax provision. The effect of not recording a deferred
income tax provision for this matter was not material to the statements of
operations in any individual year. However, the accumulated difference on the
balance sheet has become material to the balance sheet. Therefore, in order to
correct the net deferred income tax liability for the tax deductible goodwill,
the Company adjusted the beginning accumulated deficit for fiscal 2007 by
$214,000.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Effective January 1, 2007, Epstein, Weber & Conover, PLC ("Epstein
Weber") combined its practice with Moss Adams LLP ("Moss Adam") and therefore
resigned as the independent registered public accounting firm for iLinc
Communications, Inc. (the "Company"). According to information provided to the
Company, all of the partners of Epstein Weber have become partners of Moss
Adams.

ITEM 9A. CONTROLS AND PROCEDURES

         The Company evaluated the design and operation of its disclosure
controls and procedures to determine whether they are effective in ensuring that
it discloses the required information in a timely manner and in accordance with
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and forms of the Securities and Exchange Commission. Management, including
its principal executive officer and principal financial officer, supervised and
participated in the evaluation. The principal executive officer and principal
financial officer concluded, based on their review, that its disclosure controls
and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), are
effective and ensure that (i) it discloses the required information in reports
that it files under the Exchange Act and that the filings are recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) information required
to be disclosed in reports that it files under the Exchange Act is accumulated
and communicated to the Company's management, including its principal executive
officer and principal financial officer, to allow timely decisions regarding
required disclosure.

         During the fourth quarter ended March 31, 2007, no changes were made to
its internal controls over financial reporting that materially affected or were
reasonably likely to materially affect these controls subsequent to the date of
their evaluation.

                                       71



<PAGE>

ITEM 9B. OTHER

PERFORMANCE GRAPH

         The following line graph compares the percentage change from March 31,
2001 through March 31, 2007 for (i) the Company's common stock, (ii) a peer
group (the "Peer Group") of companies selected by the Company that are
e-Learning and Web conferencing companies located in the United States, (iii)
and the AMEX Composite Index. The companies in the Peer Group historically
included Click2Learn, Digital Think, Docent, Learn2, Mentergy, Saba Software,
Skillsoft, and Smart Force, but Click2Learn and Docent merged to become SumTotal
Systems, Inc., Digital Think was purchased by Convergys Corporation and Mentergy
and Learn2 had ceased to trade, and West Corp likewise ceased to trade and
therefore the 2007 data point includes: Convergys Corporation, SumTotal Systems,
Inc., Saba Software, Skillsoft, and WebEx.


                        [PERFORMANCE GRAPH APPEARS HERE]


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this item with respect to the Company's
directors and executive officers and compliance by the Company's directors,
executive officers and certain beneficial owners of the Company's common stock
with Section 16(a) of the Exchange Act will be set forth under the captions
"Election of Directors" and "Section 16 Reports" in the Company's definitive
Proxy Statement (the "2007 Proxy Statement") for its 2007 annual meeting of
stockholders, which sections are incorporated herein by reference. The Company's
Code of Ethics is incorporated herein by this reference and available at the
Company' Web site located at www.ilinc.com.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item will be set forth in the section
entitled "Executive Compensation" in the 2007 Proxy Statement, which section is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

         The information required by this item will be set forth in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
2007 Proxy Statement, which section is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will be set forth in the section
entitled "Certain Transactions" in the 2007 Proxy Statement, which section is
incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Moss Adams LLP audited the Company's consolidated financial statements
for the year ended March 31, 2007. Epstein Weber & Conover, PLC audited the
Company's consolidated financial statements for the years ended March 31, 2005
and 2006.

AUDIT AND NON-AUDIT FEES

         Aggregate fees for professional services rendered to the Company by
Moss Adams LLP, the Company's principal auditors, Epstein, Weber & Conover, PLC
and by by BDO Seidman, LLP for the year ended March 31, 2006 were $16,600,
$73,230 and $60,000, respectively. Total aggregate fees for professional
services for the years ended March 31, 2007 and 2006, respectively were as
follows:

                  SERVICES PROVIDED                        2007           2006
                                                         -----------------------
                  Audit Fees .....................       $ 80,780       $109,600
                  Audit Related Fees .............             --             --
                  All Other Fees .................          9,050          1,680
                                                         -----------------------
                       Total .....................       $ 89,830       $111,280
                                                         =======================

Audit Fees

         The aggregate fees billed for the years ended March 31, 2007 and 2006,
were for the audits of the Company's consolidated financial statements and
reviews of the Company's interim consolidated financial statements included in
the Company's annual and quarterly reports, and for services provided with
respect to the Company's other regulatory filings. The fees reflected above for
2007 do not include audit fees of $30,000 and other fees of $30,000 paid to BDO
Seidman, LLP for the fiscal year ended March 31, 2007.

Audit Related Fees

         The aggregate fees billed for the years ended March 31, 2007 and 2006
were primarily for services provided for review and consultation on acquisition,
capital raising and tender offer transactions.

                                       72




<PAGE>

Audit Committee Pre-Approval Policies and Procedures

         The Audit Committee has implemented pre-approval policies and
procedures related to the provision of audit and non-audit services. Under these
procedures, the Audit Committee pre-approves both the type of services to be
provided by its auditor and the estimated fees related to these services.

         During the approval process, the Audit Committee considers the impact
of the types of services and the related fees on the independence of the
auditor. The services and fees must be deemed compatible with the maintenance of
the auditor's independence, including compliance with SEC rules and regulations.


                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)   FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms.

Consolidated Balance Sheets as of March 31, 2007 and 2006.

Consolidated Statements of Operations for the years ended March 31, 2007, 2006,
and 2005.

Consolidated Statements of Shareholders' Equity for the years ended March 31,
2007, 2006, and 2005.

Consolidated Statements of Cash Flows for the years ended March 31, 2007, 2006,
and 2005.

Notes to the Consolidated Financial Statements.

(a)(2)   FINANCIAL STATEMENT SCHEDULES

Reports of Independent Registered Public Accounting Firms

The following financial statement schedule is filed as a part of this Report
under Schedule II on page 78. Schedule II -- Valuation and Qualifying Accounts
for the three fiscal years ended March 31, 2007. All other schedules called for
by Form 10-K are omitted because they are inapplicable or the required
information is shown in the financial statements, or notes thereto, included
herein.

(a)(3)   EXHIBITS.

 EXHIBIT
  NUMBER        DESCRIPTION OF EXHIBITS
-----------     -----------------------

    3.1(1)      Restated Certificate of Incorporation of the Company
    3.2(1)      Bylaws of the Company
    3.3(2)      Restated Certificate of Incorporation of the Company
    3.4(2)      Amendment of Bylaws of the Company
    3.5(3)      Restated Certificate of Incorporation of the Company
    3.6(9)      Certificate of Designations of Series A Preferred Stock
    3.7(10)     Certificate of Amendment of Restated Certificate of
                Incorporation of the Company
    3.8         Revised Certificate of Designations of Series B Preferred Stock
    4.1(1)      Form of certificate evidencing ownership of common stock of the
                Company
    4.6(2)      Form of certificate evidencing ownership of common stock of the
                Company
    4.7(3)      Form of Convertible Redeemable Subordinated Note
    4.9(9)      Form of Redeemable Warrant (2003 Private Placement Offering)
    *10.1(14)   The Company's amended and restated stock compensation plan
    *10.9(2)    Employment Agreement dated November 12, 2000 between the Company
                and James M. Powers, Jr.
    *10.11(15)  Employment Agreement dated February 15, 2001 between the Company
                and James L. Dunn, Jr. with Amendments
    10.16(6)    Asset Purchase Agreement by and among the Company and Quisic
                Corporation. Common Stock Purchase Agreement by and between the
                Company and investors
    10.17(7)    Asset Purchase Agreement by and among the Company, and Mentergy,
                Inc.
    10.18(16)   Subcontractor Agreement between the Company and Interactive
                Alchemy, Inc. with Amendments
    10.20(12)   Note Purchase Agreement dated February 12, 2004 between the
                Company and certain creditors
    10.21(12)   Unit Purchase and Agency Agreement dated April 19, 2004 between
                the Company and Cerberus Financial, Inc.
    10.22(12)   Placement Agency Agreement dated March 10, 2004 between the
                Company and Peacock, Hislop, Staley, and Given, Inc.
    10.23(11)   Asset Purchase Agreement and Plan of Reorganization by and
                between the Company and Glyphics Communications, Inc.
    *10.24(13)  Employment Agreement dated June 1, 2004 between the Company and
                Gary L. Moulton, as amended
    10.25(16)   Securities Purchase Agreements effective June 9, 2006
    10.26(16)   Registration Rights Agreements effective June 9, 2006
    10.27(17)   Amendment to Unit Purchase and Agency Agreement
    +12         Ratio of Earnings to Fixed Charges
    14.1(13)    Code of Ethics
    16(8)       Letter re Change in Certifying Accountant

                                       73




<PAGE>

    +21.1       Subsidiaries of the Registrant
    +23.1       Consent of Moss Adams LLP
    +23.1       Consent of Epstein, Weber & Conover, PLC
    +31.1       Chief Executive Officer Section 302 Certification
    +31.2       Principal Financial Officer Section 302 Certification
    +32.1       Chief Executive Officer Section 906 Certification
    +32.2       Principal Financial Officer Section 906 Certification

----------------------------
(1)          Previously filed as an exhibit to iLinc's Registration Statement on
             Form S-1 (No. 333-37633), and incorporated herein by reference.
(2)          Previously filed as an exhibit to iLinc's Annual Report on Form
             10-K for the year ended March 31, 2001.
(3)          Previously filed as an exhibit to iLinc's Annual Report on Form
             10-K for the year ended March 31, 2002.
(4)          Previously filed as an exhibit to iLinc's Form 8-K filed
             October 16, 2001.
(5)          Previously filed as an exhibit to iLinc's Form 8-K filed
             January 30, 2002.
(6)          Previously filed as an exhibit to iLinc's Form 8-K filed
             July 2, 2002.
(7)          Previously filed as an exhibit to iLinc's Form 8-K filed December
             20, 2002.
             December 20, 2002.
(8)          Previously filed as an exhibit to iLinc's Form 8-K filed April 3,
             2003.
(9)          Previously filed as an exhibit to iLinc's Quarterly Report on Form
             10-Q for the fiscal quarter ended December 31, 2003.
(10)         Previously filed as an exhibit to iLinc's Quarterly Report on Form
             10-Q for the fiscal quarter ended December 31, 2003.
(11)         Previously filed as an exhibit to iLinc's Form 8-K filed June 14,
             2004.
(12)         Previously filed as an exhibit to iLinc's Annual Report on Form
             10-K for the year ended March 31, 2004.
(13)         Previously filed as an exhibit to iLinc's Quarterly Report on Form
             10-Q for the fiscal quarter ended December 31, 2004.
(14)         Previously filed as an exhibit to iLinc's Annual Proxy Statement
             dated July 14, 2005.
(15)         Previously filed as an exhibit to iLinc's Quarterly Report on Form
             10-Q for the fiscal quarter ended December 31, 2005.
(16)         Previously filed as an exhibit to iLinc's Annual Report on Form
             10-K for the year ended March 31, 2006.
(17)         Previously filed as an exhibit to iLinc's Form 8-K filed
             December 12, 2006.

*    Management contract or compensatory plan or arrangement required to be
     filed as an exhibit pursuant to the requirements of Item 15 of Form 10-K.
+    Furnished herewith as an Exhibit

                                       74




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------



To the Stockholders and Board of Directors
     of iLinc Communications, Inc. and Subsidiaries:

In connection with our audit of the consolidated financial statements of iLinc
Communications, Inc. and subsidiaries referred to in our report dated June 28,
2007, which is included in the Company's annual report on Form 10-K, we have
also audited Schedule II for the year ended March 31, 2007. In our opinion, this
schedule when considered in relation to the basic Consolidated Financial
Statements taken as a whole presents fairly, in all material respects, the
information to be set forth therein.



/s/  Moss Adams LLP
    Scottsdale, Arizona
    June 28, 2007


                                       75




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Stockholders and Board of Directors
     of iLinc Communications, Inc. and Subsidiaries:

In connection with our audit of the consolidated financial statements of iLinc
Communications, Inc. and subsidiaries referred to in our report dated June 13,
2006, which is included in the Company's annual report on Form 10-K, we have
also audited Schedule II for the year ended March 31, 2006. In our opinion, this
schedule presents fairly, in all material respects, the information to be set
forth therein.



/s/  Epstein, Weber & Conover, PLC
    Scottsdale, Arizona
    June 13, 2006


                                       76




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Stockholders and Board of Directors
     of iLinc Communications, Inc. and Subsidiaries:

In connection with our audit of the consolidated financial statements of iLinc
Communications, Inc. and subsidiaries referred to in our report dated June 24,
2005, which is included in the Company's annual report on Form 10-K, we have
also audited Schedule II for the year ended March 31, 2005. In our opinion, this
schedule presents fairly, in all material respects, the information to be set
forth therein.



/s/  Epstein, Weber & Conover, PLC
    Scottsdale, Arizona
    June 24, 2005


                                       77





<PAGE>

                           ILINC COMMUNICATIONS, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                                   SCHEDULE II

<TABLE>
<S>     <C>
                                                            ADDITION            DEDUCTIONS
                                                            --------      ------------------------
FISCAL                                        BALANCE AT    CHARGED
                                                  THE       TO BAD                      WRITE-OFFS   BALANCE AT
                                             BEGINNING OF    DEBT         RECOVERIES    CHARGED TO     END OF
  YEAR               DESCRIPTION                PERIOD      DEXPENSE          (1)       ALLOWANCE      PERIOD
--------- ---------------------------------  ------------   --------      ----------    ----------     ------
  2007     Accounts receivable - allowance
            for doubtful accounts...........     $120         $145           $  --         $148         $117

  2006     Accounts receivable - allowance
            for doubtful accounts...........     $ 84         $114           $   3         $ 75         $120

  2005     Accounts receivable - allowance
            for doubtful accounts...........     $ 24         $233           $   5         $168         $ 84


(1) This amount represents recoveries for accounts which were not charged off;
 accordingly, these recoveries are reflected as a decrease in allowance and
 decrease to bad debt expense as the collection of recoveries are reflected as
 applications to the respective accounts and notes receivable.

                                       78





<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned; thereunto duly authorized, in the City of
Phoenix, State of Arizona, on June 29, 2007.


                                             ILINC COMMUNICATIONS, INC.


                                        By: /s/ JAMES M. POWERS, JR.
                                            ------------------------------------
                                            James M. Powers, Jr.,
                                            Chairman of the Board, President and
                                            Chief Executive Officer


                                        By: /s/ JAMES L. DUNN, JR.
                                            ------------------------------------
                                            James L. Dunn, Jr.
                                            Senior Vice President and
                                            Chief Financial Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.

NAME                                        CAPACITY                                             DATE
----                                        --------                                             ----

/s/ JAMES M. POWERS, JR.                    Chairman of the Board, President and Chief           June 29, 2007
----------------------------------          Executive Officer (Principal Executive Officer)
James M. Powers, Jr.

/s/ JAMES H. COLLINS                        Director                                             June 29, 2007
----------------------------------
James H. Collins

/s/ KENT PETZOLD                            Director                                             June 29, 2007
----------------------------------
Kent Petzold

/s/ DANIEL T. ROBINSON, JR.                 Director                                             June 29, 2007
----------------------------------
Daniel T. Robinson, Jr.

/s/ CRAIG W. STULL                          Director                                             June 29, 2007
----------------------------------
Craig W. Stull



                                       79
</TABLE>