FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In many but not all cases you can identify forward-looking statements by words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" or the negative of these terms or other similar expressions. These forward-looking statements include statements regarding our expectations, beliefs, or intentions about the future, and are based on information available to us at this time. We assume no obligation to update any of these statements and specifically decline any obligation to update or correct any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Actual events and results could differ materially from our expectations as a result of many factors, including those identified in this report. We urge you to review and consider those factors, and those identified from time to time in our reports and filings with the SEC, for information about risks and uncertainties that may affect our future results. All forward-looking statements we make after the date of this filing are also qualified by this cautionary statement and identified risks. Additional risk factors are discussed in our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2008 and our other reports filed with the SEC, to which reference should be made.

Executive Summary and Recent Business Developments

We have continued to prepare for growth by taking steps to enhance corporate governance, especially in the finance and accounting area. With the changes made this quarter, we believe that we are better positioned to meet the reporting and disclosure requirements in a timely manner for future filings.

We booked our largest sale to date this quarter to a state in the Midwestern U.S. During the second fiscal quarter of fiscal year 2009, we invoiced and recognized revenue on this order. The customer paid approximately $800,000 to one of our value-added resellers for the Cistera solution, and Cistera received payment from the reseller partner for an amount less the reseller discount. We believe that this transaction confirms the increasing demand for the Company's Event Alerting & Notification and Quality Assurance & Compliance solutions in the public sector-defined as state and local government and education. We have focused marketing and sales efforts on this industry segment, and have built up a large customer installed base over the years with state and local governments and educational institutions.

We have continued to support and benefit from Cisco's Industry Solutions Partner Network (ISPN) program and the incentives it provides for our Resellers to promote and incorporate third-party applications such as ours into their deployments. Capitalizing on this sales channel opportunity has been a major focus for the past several quarters, and that focus is now paying off. We have realized a number of opportunities and new relationships as a result of this program and our visibility within it.

We have worked to significantly restructure our partner program and began rolling the new program out to our channel partners this quarter. We've designed the program to ensure that we are effectively allocating resources to the "high producing" partners in each of our key markets. A key element of the program is formal partner commitments to specific revenue generation levels in return for product discounts and marketing and sales support. As this program matures, it will help us anticipate support requirements. We are working diligently to improve our revenue pipeline visibility with each organization. There has been a very positive response from partners regarding the new program, with a number of partners electing to increase their revenue commitments with us in order to qualify for the resource allocation benefits.

We are providing installation engineer certification classes for our partners in an effort to leverage our channel partners' resources in supporting increased demand for our products, and to allow us to recognize revenue upon acceptance of the convergence solutions by the reseller. This calendar year we have certified 24 additional installation engineers for ten partners, and more classes are scheduled. Another benefit of this program is the installation engineers are recognizing additional opportunities with the customer where Cistera solutions can be positioned, and recommending follow-on sales of our products. Subsequent application sales enhance the customers' "return on investment" as they already reside on the Cistera ConvergenceServer and can be activated with a license key.

On the research and development front, our engineers completed work on Cistera 1.8 that included enhancements to the platform and a number of the application engines. We expect to release Cistera 1.9 with additional enhancements this fiscal year. The hosted solution effort with Sylantro is continuing to develop albeit slower than anticipated due to the level of integration that was required to deliver full functionality. We have completed the technical integration that required buy-in and development changes from Aastra, Acme Packets and Polycom. We have several pilot opportunities with Sylantro, and are in talks with one of our resellers regarding a customer pilot. We will have product demonstrations and Greg Royal, the Company's founder and CTO, will speak at the Sylantro Global Summit in Las Vegas in October.

Restatements of Previously Issued Consolidated Financial Statements

We have restated our Consolidated Statement of Operations and Statement of Cash Flows for the three months ended June 30, 2007 to reflect a correction in our accounting for its PP1 Notes, PP1 Warrants, PP2 Notes, and PP2 Warrants. We intend to restate and refile our Annual Report on Form 10-KSB for the fiscal year ended March 31, 2007 and restate and refile our Quarterly Reports on Form 10-QSB for the periods ended June 30, 2007, September 30, 2007 and December 31, 2007 in a reasonably practicable time period.

In addition, we have restated our Consolidated Statement of Operations and Statement of Cash Flows for the three months ended June 30, 2007 to reflect a correction in our accounting for registration payment arrangements as required under FASB Staff Position No. 00-19-2, "Accounting for Registration Payment Arrangements" ("FSP 00-19-2"). FSP 00-19-02 was effective April 1, 2007 for the Company, and we incorrectly accounted for the registration payment arrangements as of the effective date (which required the recording of a cumulative effect of a change in accounting principle) and for the three months ended June 30, 2007. See further discussion in Note 4 to the consolidated financial statements included in this report.

The table below summarizes the impact to the Consolidated Statement of Operations:

                                                             Adjustments to Statements of Operations
                                                        Convertible           Registration
                                                     Promissory Notes           Payment
                                                       and Warrants           Arrangements          Total

Three months ended June 30 2007                      $        (370,715 )    $       (166,465 )   $   (537,180 )
Cumulative effect at April 1, 2007                          (1,288,668 )                   -       (1,288,668 )

  Total                                              $      (1,659,383 )    $       (166,465 )   $ (1,825,848 )

The table below summarizes the effect of the restatement adjustments on the Consolidated Statement of Operations for the three months ended June 30, 2007:

                                                     As previously
                                                       reported         Adjustments      As restated

Other income (expense)
Interest income                                      $       9,589     $           -     $      9,589
Interest expense                                          (158,135 )          84,711          (73,424 )
Amortization of discount on
  convertible promissory notes                                   -          (370,715 )       (370,715 )
Charge for estimated liquidated damages                          -          (251,176 )       (251,176 )
  Total other income (expense)                            (148,546 )        (537,180 )       (685,726 )

Net loss                                             $    (463,605 )   $    (537,180 )   $ (1,000,785 )

Basic & diluted net loss per share                   $       (0.06 )   $       (0.06 )   $      (0.12 )

Weighted average shares outstanding
 - basic and diluted                                     8,292,022                          8,292,022

The table below summarizes the effect of the restatement adjustments on the Consolidated Balance Sheet as of June 30, 2007:

                                                     As previously
                                                       reported        Adjustments       As restated

Current liabilities:
Accounts and related party payables                  $     381,089     $          -     $     381,089
Accrued liquidated damages                                       -          540,694           540,694
Accrued liabilities                                        444,716          (84,711 )         360,005
Deferred revenue                                           654,996                            654,996
Current portion of long-term debt, net of discount          95,408                             95,408
  Total current liabilities                              1,576,209          455,983         2,032,192

Convertible promissory notes, net of discount            3,485,491       (2,596,149 )         889,342
Deferred revenue                                           114,912                            114,912
  Total long-term liabilities                            3,600,403       (2,596,149 )       1,004,254

   Total liabilities                                     5,176,612       (2,140,166 )       3,036,446

Stockholders' equity (deficit):
Preferred stock                                                  -                                  -
Common stock                                                 8,292                              8,292
Additional paid-in capital                               8,739,970        4,820,830        13,560,800
Cumulative effect of adoption of FSP 00-19-2                     -         (755,115 )        (755,115 )
Accumulated deficit                                     (9,662,085 )     (1,925,549 )     (11,587,634 )
Total stockholders' equity (deficit)                      (913,823 )      2,140,166         1,226,343

TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY (DEFICIT)                                   $   4,262,789     $          -     $   4,262,789

The table below summarizes the effect of the restatement adjustments as well as the correction in errors in the reporting of components of cash flows from operations and cash flows from financing activities on the Consolidated Statement of Cash Flows for the three months ended June 30, 2007: