The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2007.

This report includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as "anticipate," "believe," "estimate," "may," "intend," "expect," "will," "should," "seeks" or other similar expressions. Forward-looking statements reflect our plans, expectations and beliefs, and involve inherent risks and uncertainties, many of which are beyond our control. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in "Risk Factors" in Item 1A of Part II.

Overview

We are a leading provider of on-demand software for public relations management. Our web-based software suite helps organizations of all sizes fundamentally change the way they communicate with both the media and the public, optimizing their public relations and increasing their ability to measure its impact. Our on-demand software addresses the critical functions of public relations including media relations, news distribution and news monitoring. We deliver our solutions over the Internet using a secure, scalable application and system architecture, which allows our customers to eliminate expensive up-front hardware and software costs and to quickly deploy and adopt our on-demand software.

We sell access to our on-demand software primarily through our direct sales channel. As of September 30, 2008, we had 3,144 active subscription customers from a variety of industries, including financial and insurance, technology, healthcare and pharmaceutical and retail and consumer products, as well as government agencies, not-for-profit organizations and educational institutions. We define active subscription customers as unique customer accounts that have an active subscription and have not been suspended for non-payment.

We are also a provider of online distribution of press releases. We enable our customers to achieve visibility on the Internet by distributing search engine optimized press releases directly to various news sites and the public. We offer an on-demand solution which allows our customers to widely distribute press releases containing important elements of content-rich media such as images, podcasts and video messages designed to drive Internet traffic to websites and increase brand awareness.

We plan to continue the expansion of our customer base by expanding our direct distribution channels, expanding our international market penetration and selectively pursuing strategic acquisitions. As a result, we plan to hire additional personnel, particularly in sales and professional services, and expand our domestic and international selling and marketing activities, increase the number of locations around the world where we conduct business and develop our operational and financial systems to manage a growing business. We also intend to identify and acquire companies which would either expand our solution's functionality, provide access to new customers or markets, or both.

Sources of Revenues

We derive our revenues from subscription agreements and related services and from the online distribution of press releases. Our subscription agreements contain multiple service elements and deliverables, which include use of our on-demand software, hosting services, content and content updates, implementation and training services and customer support. The typical term of our subscription agreements is one year; however, our customers may purchase subscriptions with multi- year terms. We invoice our customers in advance of their annual subscription, with payment terms that require our customers pay us within 30 days of invoice. Our subscription agreements are non-cancelable, though customers typically have the right to terminate their agreements for cause if we materially breach our obligations under the agreement. Additionally, we derive revenue on a per-transaction basis from the online distribution of press releases. We generally receive payment in advance of the distribution of the press release.

Professional services revenue consists primarily of data migration, training and configuration services sold separately after the initial subscription agreement. Typically, our professional service engagements are billed on a fixed fee basis with payment terms requiring our customers to pay us within 30 days of invoice. Revenues from professional services sold separately from subscription agreements have not been material to our business. During the three months ended September 30, 2008, professional services sold separately accounted for less than 3% of our revenues.

Cost of Revenues and Operating Expenses

Cost of Revenues. Cost of revenues consists primarily of compensation for training, editorial and support personnel, hosting infrastructure, press release distribution, acquisition, maintenance and amortization of content, amortization of purchased technology, amortization of capitalized software development costs, depreciation associated with computer equipment and software and allocated overhead. We allocate overhead expenses such as employee benefits, computer and office supplies, management information systems and depreciation for computer equipment based on headcount. As a result, indirect overhead expenses are included in cost of revenues and each operating expense category.

We believe content is an integral part of our solution and provides our customers with access to broad, current and relevant information critical to their public relations efforts. We expect to continue to make investments in both our own content as well as content acquired from third parties and to continue to enhance our proprietary information database and news on-demand service. In September 2008, we launched our new United Kingdom and Ireland media database. We expect that in the remainder of 2008, cost of revenues will increase in absolute dollars but will remain relatively consistent as a percentage of revenues, as we incur expenses to maintain our content offerings and our capacity to support new customers.

Sales and Marketing. Sales and marketing expenses are our largest operating expense, accounting for 45% of our revenues for the nine months ended September 30, 2008. Sales and marketing expenses consist primarily of compensation for our sales and marketing personnel, sales commissions and incentives, marketing programs, including lead generation, events and other brand building expenses and allocated overhead. We expense our sales commissions at the time a subscription agreement is executed by the customer, and we recognize substantially all of our revenues ratably over the term of the corresponding subscription agreement. As a result, we incur incremental sales expense before the recognition of the related revenues.

As our revenues increase, we plan to continue to invest heavily in sales and marketing by increasing the number of sales personnel in order to add new customers and increase sales to our existing customers. We also plan to expand our marketing activities in order to build brand awareness and generate additional leads for our growing sales personnel. We expect that in the remainder of 2008, sales and marketing expenses will increase in absolute dollars but will remain relatively consistent as a percentage of revenues.

Research and Development. Research and development expenses consist primarily of compensation for our software application development personnel and allocated overhead. We have historically focused our research and development efforts on increasing the functionality and enhancing the ease of use of our on-demand software. Because of our hosted, on-demand model, we are able to provide all of our customers with a single, shared version of our most recent application. As a result, we do not have to maintain legacy versions of our software, which enables us to have relatively low research and development expenses as compared to traditional enterprise software business models. We expect that in the remainder of 2008, research and development expenses will increase in absolute dollars as we upgrade and extend our service offerings and develop new technologies, but will remain relatively consistent as a percentage of revenues.

General and Administrative. General and administrative expenses consist of compensation and related expenses for executive, finance, accounting and administrative and personnel, professional fees, other corporate expenses and allocated overhead. We expect that in the remainder of 2008, general and administrative expenses will increase in absolute dollars and increase slightly as a percentage of revenues.

Amortization of Intangible Assets. Amortized intangible assets consist of customer relationships, a trade name and agreements not-to-compete acquired in business combinations.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 2 to the accompanying consolidated financial statements and in our annual report on Form 10-K for the year ended December 31, 2007, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition. We recognize revenues in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by Staff Accounting Bulletin No. 104, Revenue Recognition. We recognize revenues when there is persuasive evidence of an arrangement, the service has been provided to the customer, the collection of the fee is probable and the amount of the fees to be paid by the customer is fixed or determinable. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue.

Our subscription agreements contain multiple service elements and deliverables. These elements include access to our software and often specify initial services including implementation and training. Our subscription agreements do not provide customers the right to take possession of the software at any time.

Our revenue recognition policy considers all elements in our multiple element subscription agreements as a single unit of accounting and, accordingly, we recognize all associated fees over the subscription period, which is typically one year. We recognize our revenue over the subscription period because the access to our software is the last element delivered to the customer and the predominant element of our agreements. In applying the guidance in Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21), we determined that we do not have objective and reliable evidence of the fair value of the subscription to our on-demand software after delivery of specified initial services. When we sell this subscription separately from professional services the price charged varies and, therefore, we cannot objectively and reliably determine the subscription's fair value. As a result, subscription revenues are recognized ratably over the subscription period. Professional services sold separately from a subscription arrangement are recognized as the services are performed.

We distribute press releases over the Internet that are indexed by major search engines and distributed directly to various news sites, journalists and other key constituents. We recognize revenue on a per-transaction basis when the press releases are made available to the public.

Sales Commissions. Sales commissions are expensed when a subscription agreement is executed by the customer. As a result, we incur incremental sales expense before the recognition of the related revenues.

Stock-Based Compensation. We recognize stock-based compensation in accordance with Statement of Financial Accounting Standard No. 123(R), Share-Based Payment (SFAS No. 123R). Our share-based arrangements include stock option awards and restricted stock awards.

We use the Black-Scholes option pricing model to measure the fair value of our option awards. We became a public entity in December 2005, and therefore have a limited history of volatility. Accordingly, the expected volatility is based primarily on the historical volatilities of similar entities' common stock over the most recent period commensurate with the estimated expected term of the awards. The expected term of an award is based on the "simplified" method allowed by Staff Accounting Bulletin No. 107, as amended by Staff Accounting Bulletin No. 110 (SAB No. 110) whereby the expected term is equal to the midpoint between the vesting date and the end of the contractual term of the award. The risk-free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. We have not paid dividends and do not anticipate paying a cash dividend in the foreseeable future and, accordingly, use an expected dividend yield of zero.

We recognize compensation expense for our option awards on a straight-line basis over the requisite service period of the award.

The fair value of our restricted stock awards is determined based on the quoted closing market price of our common stock at the grant date and is recognized on a straight-line basis over the related vesting period.

Stock-based compensation expense recognized is based on the estimated portion of the awards that are expected to vest. We apply estimated forfeiture rates based on analyses of historical data, including termination patterns and other factors.

Income Taxes. We make certain estimates and judgments in determining the need for the valuation allowance for deferred income taxes. At each balance sheet date, we assess the likelihood we would be able to recover our U.S. deferred tax assets. We consider all available positive and negative evidence in assessing the need for the valuation allowance. We also consider our historical operating results and our estimates of future taxable income in assessing the need for the valuation allowance. As a result of our analysis at June 30, 2008, we concluded that it was more likely than not that we would generate sufficient future taxable income to realize our deferred tax assets. Accordingly, we reversed the valuation allowance against our U.S. deferred tax assets. We recorded an income tax benefit of $4.9 million in the nine months ended September 30, 2008 primarily related to the reversal of the valuation allowance. The assumptions we used to estimate future taxable income are consistent with the forecasts used to manage our business. However, should there be a change in our estimates or our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that recovery is not likely.

Results of Operations

The following tables set forth selected unaudited consolidated statements of
operations data for each of the periods indicated as a percentage of total
revenues for the respective periods.


                                                                Three Months                      Nine Months
                                                            Ended September 30,               Ended September 30,
                                                             2007             2008            2007              2008

Revenues                                                          100 %         100 %              100 %          100 %
Cost of revenues                                                   18            19                 19             19

Gross profit                                                       82            81                 81             81
Operating expenses:
Sales and marketing                                                45            44                 45             45
Research and development                                            7             7                  7              7
General and administrative                                         24            28                 26             27
Amortization of intangible assets                                   5             3                  5              4

Total operating expenses                                           81            82                 83             83
Income (loss) from operations                                       1            (1 )               (2 )           (2 )
Other income (expense), net                                         4             2                  4              3

Income before provision (benefit) for income taxes                  5             1                  2              1
Provision (benefit) for income taxes                                2             -                  1             (9 )

Net income                                                          3 %           1 %                1 %           10 %

The following table sets forth our total deferred revenue and net cash provided by operating activities for each of the periods indicated and number of active subscription customers as of the last day of each of the periods indicated.

                                                      Three Months Ended            Nine Months Ended
                                                        September 30,                 September 30,
                                                      2007           2008          2007           2008

Total deferred revenue (in thousands at end of
period)                                            $   29,332      $ 37,880      $  29,332      $ 37,880
Net cash provided by operating activities (in
thousands)                                         $    3,199      $  4,855      $   9,712      $ 17,300
Active subscription customers                           2,214         3,144          2,214         3,144

Three Months Ended September 30, 2008 and 2007

Revenues. Revenues for the three months ended September 30, 2008 were $20.0 million, an increase of $4.9 million, or 32%, over revenues of $15.1 million for the comparable period in 2007. The increase in revenues was primarily due to the increase in the number of total active subscription customers to 3,144 as of September 30, 2008 from 2,214 as of September 30, 2007. The increase in active subscription customers was the result of additional sales personnel focused on acquiring new customers and renewing existing customers. Revenue growth from active subscription customers was $3.8 million. Total deferred revenue as of September 30, 2008 was $37.9 million, representing an increase of $8.6 million, or 29%, over total deferred revenue of $29.3 million as of September 30, 2007.

Cost of Revenues. Cost of revenues for the three months ended September 30, 2008 was $3.7 million, an increase of $1.0 million, or 37%, over cost of revenues of $2.7 million for the comparable period in 2007. The increase in cost of revenues was primarily due to $376,000 in employee related costs from additional personnel, $183,000 in third-party license and royalty fees, $171,000 in stock-based compensation and $113,000 in hosting infrastructure costs. We had 150 full-time employee equivalents in our professional and other support services group at September 30, 2008 compared to 107 full-time employee equivalents at September 30, 2007

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended September 30, 2008 were $8.8 million, an increase of $2.1 million, or 31%, over sales and marketing expenses of $6.7 million for the comparable period in 2007. The increase was primarily due to $878,000 in employee related costs from additional personnel, $157,000 in sales commissions and incentive based compensation, $522,000 in marketing program costs and $414,000 in stock-based compensation. Our sales and marketing headcount increased by 36% as we hired additional sales personnel to focus on acquiring new customers and increasing revenues from existing customers and marketing personnel to expand our activities to build brand awareness. We had 206 full-time employee equivalents in sales and marketing at September 30, 2008 compared to 152 full-time employee equivalents at September 30, 2007.

Research and Development Expenses. Research and development expenses for the three months ended September 30, 2008 were $1.3 million, an increase of $257,000, or 24%, over research and development expenses of $1.0 million for the comparable period in 2007. The increase in research and development expenses was primarily due to $188,000 in employee related costs from additional personnel and $39,000 in stock-based compensation. We had 29 full-time employee equivalents in research and development at September 30, 2008 compared to 27 full-time employee equivalents at September 30, 2007.

General and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2008 were $5.6 million, an increase of $2.0 million, or 55%, over general and administrative expenses of $3.6 million for the comparable period in 2007. The increase in general and administrative expenses was primarily due to $80,000 in employee related costs from additional personnel, $215,000 in rents and facility costs relating to expansion of our offices, $177,000 in professional fees and $1.1 million in stock-based compensation. We had 46 full-time employee equivalents in our general and administrative group at September 30, 2008 compared to 43 full-time employee equivalents at September 30, 2007.

Other Income (Expense). Other income for the three months ended September 30, 2008 was $500,000, a decrease of $158,000, or 24%, compared to $658,000 for the comparable period in 2007. The decline in interest rate yields for fixed income securities resulted in decreased interest income in 2008.

Provision for Income Taxes. The provision for income taxes for the three months ended September 30, 2008 was $62,000, a decrease of $342,000, or 85%, over the provision for income taxes of $404,000 for the comparable period in 2007. The provision for income taxes reflects our estimated annual effective tax rate for the respective years. Our effective tax rate differs from the U.S. Federal statutory rate due to the reversal of the valuation allowance and, to a lesser extent, state income taxes, certain non-deductible expenses and operating losses in foreign jurisdictions for which no tax benefit is currently available.

Nine Months Ended September 30, 2008 and 2007

Revenues. Revenues for the nine months ended September 30, 2008 were $56.9 million, an increase of $15.2 million, or 36%, over revenues of $41.7 million for the comparable period in 2007. The increase in revenues was due to the increase in the number of total active subscription customers to 3,144 as of September 30, 2008 from 2,214 as of September 30, 2007. The increase in active subscription customers was the result of additional sales personnel focused on acquiring new customers and renewing existing customers. Revenue growth from active subscription customers was $12.0 million. Total deferred revenue as of September 30, 2008 was $37.9 million, representing an increase of representing an increase of $8.6 million, or 29%, over total deferred revenue of $29.3 million as of September 30, 2007.

Cost of Revenues. Cost of revenues for the nine months ended September 30, 2008 was $10.8 million, an increase of $2.8 million, or 35%, over cost of revenues of $8.0 million for the comparable period in 2007. The increase in cost of revenues was primarily due to $1.0 million in employee related costs from additional personnel, $706,000 in third-party license and royalty fees, $362,000 in hosting infrastructure costs and $444,000 in stock-based compensation. We had 150 full-time employee equivalents in our professional and other support services groups at September 30, 2008 compared to 107 full-time employee equivalents at September 30, 2007

Sales and Marketing Expenses. Sales and marketing expenses for the nine months ended September 30, 2008 were $25.5 million, an increase of $6.5 million, or 34%, over sales and marketing expenses of $19.0 million for the comparable period in 2007. The increase was primarily due to $2.9 million in employee related costs from additional personnel, $847,000 in sales commissions and incentive based compensation, $1.6 million in marketing program costs and $1.1 million in stock-based compensation. Our sales and marketing headcount increased by 36% as we hired additional sales personnel to focus on acquiring new customers and increasing revenues from existing customers and marketing personnel to expand our marketing activities to build brand awareness. We had 206 full-time sales and marketing employee equivalents at September 30, 2008 compared to 152 full-time employee equivalents at September 30, 2007.

Research and Development Expenses. Research and development expenses for the nine months ended September 30, 2008 were $3.9 million, an increase of $1.1 million, or 40%, over research and development expenses of $2.8 million for the comparable period in 2007. The increase in research and development expenses was primarily due to $547,000 in employee related costs from additional personnel and an increase of $141,000 in stock-based compensation. For the nine months ended September 30, 2008, we capitalized $23,000 of employee related costs for internally developed software used in our subscription services. For the nine months ended September 30, 2007, we capitalized $341,000 of employee-related costs for internally developed software. We had 29 full-time research and development employee equivalents at September 30, 2008 compared to 27 full-time employee equivalents at September 30, 2007.

General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2008 were $15.6 million, an increase of $4.9 million, or 46%, over general and administrative expenses of $10.7 million for the comparable period in 2007. The increase in general and administrative expenses was primarily due to $417,000 in employee related costs from additional personnel, $611,000 in professional fees, $403,000 in rents and facility costs relating to expansion of our offices and $2.6 million in stock-based

compensation. We had 46 full-time employee equivalents in our general and administrative group at September 30, 2008 compared to 43 full-time employee equivalents at September 30, 2007.

Other Income (Expense). Other income for the nine months ended September 30, . . .