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, 2008.

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 March 31, 2009, we had 3,558 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 seek 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 generally 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 March 31, 2009, 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. We expect that in 2009, cost of revenues will increase in absolute dollars but will decrease slightly as a percentage of revenues, as we incur expenses to expand our content offerings and our capacity to support new customers.

Sales and Marketing. Sales and marketing expenses are our largest operating expense, accounting for 46% of our revenues for the three months ended March 31, 2009. 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 sales expense before the recognition of the related revenues.

As our revenues increase, we plan to invest in sales and marketing by increasing the number of sales and marketing personnel to add new customers, increase sales to our existing customers and increase sales of our online press release distribution services. 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 2009, sales and marketing expenses will increase in absolute dollars and 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 2009, 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 personnel, professional fees, other corporate expenses and allocated overhead. We expect that in 2009, general and administrative expenses will increase in absolute dollars but will decrease as a percentage of revenues.

Amortization of Intangible Assets. Amortized intangible assets consist of customer relationships, a trade name and agreements not-to-complete 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, 2008, 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 generally 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 which 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 account for stock-based compensation in accordance with Statement of Financial Accounting Standard No. 123(R), Share-Based Payment (SFAS No. 123R), which requires stock-based compensation to be recognized as an expense in the financial statements over the vesting period based on the fair value of the award. We recognize compensation expense for stock-based compensation awards on a straight-line basis over the requisite service period of the award 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. We use the quoted closing market price of our common stock on the grant date to measure the fair value of our 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 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.

Business Combinations. We have completed acquisitions of businesses that have resulted in the recording of goodwill and identifiable definite-lived intangible assets based on the estimated fair value of those assets. Definite-lived intangible assets consist of acquired customer relationships, a trade name, agreements not-to-compete and purchased technology. Definite-lived intangible assets are amortized either on a straight-line or accelerated basis over their estimated useful lives ranging from two to seven years. Accounting for these acquisitions requires us to make determinations about the fair value of assets acquired, useful lives for definite-lived intangible assets, and liabilities assumed that involve estimates and judgments.

Goodwill and Long-Lived Assets. Goodwill is not amortized, but rather is assessed for impairment at least annually. Goodwill impairment is evaluated using a two step process. The first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The fair value of the reporting unit is allocated to all the assets and liabilities, including any previously unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

We assess the impairment of definite-lived intangible and other long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may no longer be fully recoverable. We determine the impairment, if any, by comparing the carrying value of the assets to future undiscounted net cash flows expected to be generated by the related assets. An impairment charge is recognized to the extent the carrying value exceeds the estimated fair value of the assets. There were no events or changes in circumstances through March 31, 2009 indicating that an interim assessment was necessary for goodwill or long-lived assets.

Income Taxes. We use the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax-credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by the valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Our judgments relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We file income tax returns in the U.S. federal jurisdictions and various state and foreign jurisdictions and are subject to U.S. federal tax, state and foreign tax examinations for years ranging from 2001 to 2008. Our judgments relative to the value of deferred tax assets and liabilities take into account estimates of the amount of future taxable income. Actual operating results and the underlying amount of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.

Historically, we have maintained a full valuation allowance on our deferred tax assets because we were unable to conclude that it is more likely than not that we would realize the tax benefits of these deferred tax assets. During 2008, we concluded that it is more likely than not that we will have future taxable income sufficient to realize certain

of our deferred tax assets and we reversed our valuation allowance against our U.S. deferred tax assets. As of March 31, 2009, we maintained a full valuation against our foreign deferred tax assets.

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 periods indicated.


                                                          Three Months
                                                        Ended March 31,
                                                        2008         2009

           Revenues                                        100 %       100 %
           Cost of revenues                                 19          19

           Gross profit                                     81          81
           Operating expenses:
           Sales and marketing                              46          46
           Research and development                          6           6
           General and administrative                       26          25
           Amortization of intangible assets                 4           2

           Total operating expenses                         82          79
           Income (loss) from operations                    (1 )         2
           Other income, net                                 3           1

           Income before provision for income taxes          2           3
           Provision for income taxes                        4           5

           Net loss                                         (2 )%       (2 )%

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
                                                                    March 31,
                                                                2008          2009

  Total deferred revenue (in thousands at end of period)     $   35,782     $ 41,045
  Net cash provided by operating activities (in thousands)   $    5,943     $  8,683
  Active subscription customers                                   2,646        3,558

Three Months Ended March 31, 2009 and 2008

Revenues. Revenues for the three months ended March 31, 2009 were $20.4 million, an increase of $2.5 million, or 14%, over revenues of $17.9 million for the comparable period in 2008. The increase in revenues was primarily due to the increase in the number of total active subscription customers to 3,558 as of March 31, 2009 from 2,646 as of March 31, 2008. 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 the increase in active subscription customers was $2.0 million. Revenue growth from transaction revenue was $558,000. Total deferred revenue as of March 31, 2009 was $41.0 million, representing an increase of $5.2 million, or 15%, over total deferred revenue of $35.8 million as of March 31, 2008.

Cost of Revenues. Cost of revenues for the three months ended March 31, 2009 was $3.9 million, an increase of $475,000, or 14%, over cost of revenues of $3.4 million for the comparable period in 2008. The increase in cost of revenues was primarily due to an increase of $283,000 in employee-related costs, $92,000 in third-party license and royalty fees and $80,000 in stock-based compensation. We had 149 full-time employee equivalents in our

professional and other support services group at March 31, 2009 compared to 133 full-time employee equivalents at March 31, 2008.

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended March 31, 2009 were $9.5 million, an increase of $1.3 million, or 16%, over sales and marketing expenses of $8.2 million for the comparable period in 2008. The increase was primarily due to an increase of $674,000 in employee-related costs from additional personnel, $619,000 in marketing program costs primarily to increase awareness and attract customers to our online press release services and $188,000 in stock-based compensation offset by a decrease of $261,000 in incentive compensation reflecting our relative sales performance against established incentive targets. Our sales and marketing headcount increased by 24% 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 218 full-time employee equivalents in sales and marketing at March 31, 2009 compared to 176 full-time employee equivalents at March 31, 2008.

Research and Development Expenses. Research and development expenses were $1.2 million in each of the three month periods ended March 31, 2009 and 2008. For the three months ended March 31, 2009, we capitalized $43,000 of employee-related costs for internally developed software. For the three months ended March 31, 2008, we did not capitalize any employee-related costs for internally developed software used in our subscription services. We had 31 full-time employee equivalents in research and development at March 31, 2009 compared to 36 full-time employee equivalents at March 31, 2008.

General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2009 were $5.0 million, an increase of $407,000, or 9%, over general and administrative expenses of $4.6 million for the comparable period in 2008. The increase in general and administrative expenses was primarily due to an increase of $122,000 in employee-related costs, $258,000 in professional fees, $111,000 in rents and facility costs relating to expansion of our offices and $127,000 in stock-based compensation, offset by a decrease of $222,000 in incentive compensation reflecting our relative performance against established incentive targets. We had 46 full-time employee equivalents in our general and administrative group at March 31, 2009 compared to 39 full-time employee equivalents at March 31, 2008.

Amortization of Intangible Assets. Amortization of intangible assets for the three months ended March 31, 2009 was $490,000, a decrease of $215,000, or 30%, compared to $705,000 for the comparable period in 2008. Intangible assets acquired in our purchase of Gnossos Software, Inc. in November 2004 were fully amortized in October 2008 resulting in decreased amortization.

Other Income (Expense). Other income for the three months ended March 31, 2009 was $219,000, a decrease of $371,000, or 63%, compared to $590,000 for the comparable period in 2008. The decline in interest yields in 2009 for fixed income securities resulted in decreased interest income.

Provision for Income Taxes. The provision for income taxes for the three months ended March 31, 2009 was $993,000, an increase of $297,000, or 43%, over the provision for income taxes of $696,000 for the comparable period in 2008. The provision for income taxes reflects our estimated annual effective tax rate for the respective years. For the three months ended March 31, 2009, our effective tax rate differs from the U.S. Federal statutory rate primarily due to operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain non-deductible expenses. For the three months ended March 31, 2008, our effective tax rate differed from the U.S. Federal statutory rate due to the effects of the change in the valuation allowance related to the expected utilization of U.S. net operating loss carryforwards in 2008 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.

Liquidity and Capital Resources

At March 31, 2009, our principal sources of liquidity were cash and cash equivalents totaling $73.8 million, investments totaling $19.1 million and net accounts receivable of $9.7 million.

Net cash provided by operating activities for the three months ended March 31, 2009 was $8.7 million reflecting a net loss of $478,000, depreciation and amortization charges of $910,000, stock-based compensation

. . .