NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data, unless otherwise noted)

(Unaudited)

Note 1 – Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the results of Purple Communications, Inc. (formerly known as GoAmerica, Inc.) and its wholly-owned subsidiaries (collectively, the “Company”). Accordingly, certain information and footnote disclosures required in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The statements are subject to possible adjustments in connection with the annual audit of the Company’s accounts for the year ended December 31, 2009. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments except as otherwise disclosed herein), which the Company considers necessary for the fair presentation of its financial position as of June 30, 2009 and the results of its operations and its cash flows for the three and six month periods ended June 30, 2009 and 2008. Results for the interim periods are not necessarily indicative of results that may be expected for the entire year or for any other interim period. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 31, 2009.

The Company operates in a highly competitive environment subject to rapid technological change and emergence of new technology. Although management believes its services are transferable to emerging technologies, rapid changes in technology could have an adverse financial impact on the Company. In addition, as of June 30, 2009, the Company had 93% of its accounts receivable with the National Exchange Carriers Association (“NECA”). For the three and six months ended June 30, 2009, the Company generated 87% and 87%, respectively, of its total revenue with NECA compared with 97% and 97%, respectively, for the three and six months ended June 30, 2008.

The Company has incurred significant operating losses since its inception and, as of June 30, 2009, has an accumulated deficit of $291,635. During the six months ended June 30, 2009, the Company recorded a net loss of $2,706 and provided $177 of cash from operating activities. As of June 30, 2009, the Company had $6,449 in cash and cash equivalents.

Note 2 – Significant Accounting Policies:

Revenue Recognition-Relay Services

The Company derives revenue from relay and interpreting services which are recognized when persuasive evidence of an arrangement exists, the service has been delivered, the rates are fixed or determinable and collectability is reasonably assured. Using these criteria for revenue recognition, revenue is typically recognized when the services are rendered.

The Company collects sales taxes from its customers when required and maintains a policy to classify these tax collections as a current liability until remitted to the appropriate state agency and a corresponding reduction of revenue.

Endpoint Device Accounting

Endpoint devices primarily consist of Mobile Video Phones and Netbook computers and are treated under two different accounting policies. First, endpoint devices that are provided to end users at no charge are capitalized as a Company owned asset and amortized over the asset’s expected useful life. The amortization expense is included in costs of relay and interpreting services. Secondly, devices that are purchased by the end user at a subsidized price are charged to cost of services at the Company’s cost of the device net of the customer subsidy.

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Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations (“SFAS 141(R)”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS 141(R) applies to fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of SFAS 141 (R) did not have a material effect of the Company’s financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 . SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 applies to fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of SFAS 160 did not have a material effect on the Company’s financial condition or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, and Amendment of FASB Statement No. 133 . (“SFAS 161”) amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), to amend and expand the 35 disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the Company on January 1, 2009. Management has evaluated the effect of SFAS 161 with respect to its sole interest rate cap agreement. Due to the insignificant value of the instrument, SFAS 161 did not have a material effect on the Company’s financial condition or results of operations.

In April 2009, the FASB issued FSP SFAS No 115-2 and SFAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments , (“FSP No. 115-2 and 124-2”) which provides operational guidance for determining other-than-temporary impairments for debt securities. The Company adopted FSP No. 115-2 and 124-2 effective April 1, 2009. The adoption of FSP No. 115-2 and 124-2 did not have material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FSP SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP No. 157-4”) which provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. FSP No. 157-4 re-emphasizes that regardless of market conditions, the fair value measurement is an exit price concept as defined in SFAS No. 157, and clarifies and includes additional factors to consider in determining whether there has been a significant decrease in market activity for an asset or

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liability and provides additional clarification on estimating fair value when the market activity for an asset or liability has declined significantly. FSP No. 157-4 is applied prospectively to all fair value measurements where appropriate. The Company adopted the provisions of FSP No. 157-4 effective April 1, 2009. The adoption of FSP No. 157-4 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP-FAS No. 107-1 and APB 28-1, Disclosures about Fair Value of Financial Instruments (“FAS No. 107-1/APB 28-1”). This FSP extends to interim periods certain disclosures about fair value of financial instruments for publicly traded companies and amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009. The Company’s adoption of FAS No. 107-1/APB 28-1 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP-FAS No. 142-3, Determination of the Useful Life of Intangible Assets (“FAS 142-3”). FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The objective of the Staff Position is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (Revised 2007): Business Combinations (“SFAS 141R”) and other GAAP. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Management is currently evaluating the effect on the Company’s consolidated financial positions, results of operations and cash flows.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. SFAS No. 165 distinguishes events requiring recognition in the financial statements and those that may require disclosure in the financial statements. Furthermore, SFAS No. 165 requires disclosure of the date through which subsequent events were evaluated. SFAS No. 165 is effective for interim and annual periods after June 15, 2009. The Company adopted SFAS No. 165 for the quarter ended June 30, 2009, and have evaluated subsequent events through August 13, 2009.

In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (“FAS 168”). This statement provides for the FASB Accounting Standards Codification to become the single official source of authoritative, nongovernmental generally accepted accounting principles in the United States. FAS 168 does not change GAAP but reorganizes the literature. This statement is effective for interim and annual periods ending after September 15, 2009.

Note 3 – Series A Preferred Stock:

On August 1, 2007, the Company filed a Certificate of Designations, Powers, Preferences and Rights of the Series A Preferred Stock (“Series A Preferred Stock”) with the Secretary of State of the State of Delaware. Such certificate authorized and designated 290,135 shares of Series A Preferred Stock with a par value of $0.01 per share. The Series A Preferred Stock, plus all accrued and unpaid dividends, has a liquidation value of $5.17 per share and is convertible into shares of Common Stock, at any time after the date of issue, at a conversion price of $5.17, subject to adjustment for stock splits, stock dividends and issuances of additional shares of common stock for no consideration or for consideration that is less than the conversion price that is then in effect. The Series A Preferred Stock may be redeemed at the option of the holder or by the Company under certain circumstances. Each holder shall be entitled to the number of votes equal to the number of shares of Common Stock the Series A Preferred Stock could be converted into. The shares of Series A Preferred Stock will accrue cumulative cash dividends at a rate of 8% per annum, compounded quarterly from the date of issuance. Payment of dividends on the Series A Preferred Stock will be paid in preference to any dividend on common stock.

On August 1, 2007, the Company sold 290,135 shares of Series A Preferred Stock to Clearlake Capital Group (“Clearlake”) at a purchase price of $5.17 per share resulting in net proceeds of approximately $1,460. On August 1, 2007, the Company also entered into an agreement with Clearlake, which was later amended on September 12, 2007, allowing for the purchase of 7,446,809 additional shares of preferred stock, which was effected by Clearlake on January 10, 2008, in connection with the acquisitions more fully described in Note 10. The Company filed a restated certificate of incorporation increasing the authorized and designated shares of Series A Preferred Stock to allow for this transaction to be consummated. As of June 30, 2009, the Company had accrued approximately $5,006 of preferred dividends.

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Note 4 – Credit Agreement:

On August 1, 2007, the Company entered into a Credit Agreement (the “Credit Agreement”), with Clearlake as administrative agent and collateral agent, pursuant to which the Company received a $1,000 bridge loan, which was increased by $1,800 on September 14, 2007 and an additional increase of $800 on October 29, 2007. Interest on the loan was payable on the first business day following the end of each month, at the LIBOR rate, plus 8%. Interest was payable in cash, except that a portion of the interest equal to 4% is payable in kind in the form of additional loans. The loan was secured by substantially all of the assets of the Company and its principal subsidiaries and the stock of such principal subsidiaries. The credit agreements contained customary operating and financial covenants, including restrictions on the Company’s ability to pay dividends to its common stockholders, make investments, undertake affiliate transactions, and incur additional indebtedness, in addition to financial compliance requirements. On January 10, 2008, the loan was repaid in full, in the amount of $3,582, upon the closing of the Verizon transaction described in Note 10. Included in the amount paid was $50 of accrued interest expense incurred during January 2008.

Note 5 – Senior Debt:

First Lien Credit Facilities.

On January 10, 2008, the Company entered into a Credit Agreement (the “First Lien Credit Agreement”), dated as of January 10, 2008 (the “Closing Date”), with Churchill Financial LLC, as administrative agent (the “First Lien Administrative Agent”), and Ableco Finance LLC, as collateral agent (the “Collateral Agent”). The First Lien Credit Agreement provides for term loans of $40,000, all of which was borrowed on the Closing Date. The maturity date of the term loans is January 10, 2014, and the maturity date for revolving loans made from time to time is January 10, 2013. The Company is required to make quarterly repayments of principal on the term loans in the amount of $100 per quarter. Mandatory prepayments are also required to be made in the case of certain events, including asset sales, a portion of excess cash flow, proceeds from debt issuances and extraordinary receipts. Voluntary prepayments of principal of the term loans are subject to a prepayment penalty, expressed as a percentage of the principal amount so prepaid, of 2% from the Closing Date through but not including the first anniversary of the Closing Date, and 1% from the first anniversary of the Closing Date through but not including the second anniversary of the Closing Date. Mandatory prepayments are generally not subject to the payment of penalties except in the case of debt issuances, where the principal amount of term loans so prepaid is treated as though they were voluntary prepayments. In addition to the term loans, the credit facility provided for a revolving loan availability of up to $15,000, none of which was borrowed on the Closing Date. On December 3, 2008 the Company entered into the Third Amendment and Consent to the First Lien Credit Agreement which among other things allowed the Company to repurchase shares of the Company’s outstanding common stock. The amendment to the Credit Agreement provided for a $2,000 reduction in the Company’s revolving line of credit, reducing total availability to $13,000, all of which was available as of June 30, 2009. On March 31, 2009, the Company made a voluntary principal prepayment of debt in the amount $3,000 on its First Lien credit facility. In accordance with the credit agreement the payment was subject to a 1% prepayment penalty. Borrowing under the revolving line of credit is conditioned upon maintaining availability under the line of credit and unrestricted cash deposits in controlled accounts of at least $5,000 in the aggregate.

The First Lien Credit Agreement contains affirmative and restrictive covenants that require the Company to take or refrain from taking certain actions, including, among other things, the obligation to provide certain financial and other information and limitations on its ability to incur debt, make investments, pay dividends, change the nature of its business, engage in affiliate transactions, or sell assets. In addition, the Company must comply with financial covenants for maximum consolidated leverage, maximum amounts of capital expenditures, and certain amounts of revolver availability or cash and cash equivalents subject to control agreements in favor of the Collateral Agent. As of June 30, 2009 the Company was compliant with the above required covenants.

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Interest on the loans under the First Lien Credit Agreement is at variable rates which can be linked to LIBOR plus the applicable margin, or at a “base rate” of the higher of the U.S. prime rate quoted by The Wall Street Journal and the Federal Funds Rate plus 0.5% per annum, plus the applicable margin. The interest rate increases by 2% in the case of an event of default. The applicable margin is determined as follows:

As of June 30, 2009, the Company’s interest rate for the First Lien Credit Agreement was based on the LIBOR option plus 4.5% applicable margin.

In accordance with the Guaranty and Security Agreement entered into by the Company and the Collateral Agent on the Closing Date, the obligations of the Company under the First Lien Credit Agreement are secured by all of the assets of the Company.

In conjunction with the First Lien Credit Agreement, the Company incurred $1,115 of fees paid to the lenders and $662 of financing fees paid to third parties. Amounts paid to the lenders are presented as debt discount and are recorded as a reduction to the debt and are amortized over the life of the debt. Fees paid to third parties are classified as deferred financing costs and are amortized over the life of the debt. As of June 30, 2009, the unamortized balance relating to the debt discount equaled $841 and the unamortized balance relating to the deferred financing fees equaled $435.

Second Lien Credit Facilities and Intercreditor Agreement.

Concurrently with entering into the First Lien Credit Agreement, the Company entered into the Second Lien Credit Agreement (the “Second Lien Credit Agreement”), dated as of the Closing Date, with the lenders, and Clearlake, as administrative agent (the “Second Lien Agent”). The Second Lien Credit Agreement provides for term loans of $30,000, all of which was borrowed on the Closing Date. The maturity date of the loans is January 10, 2015, and there are no scheduled amortization payments. Mandatory prepayments, which are not subject to prepayment penalty, are required to be made in the case of certain events, including asset sales, a portion of excess cash flow, proceeds from debt issuances and extraordinary receipts. Voluntary prepayments of principal of the loans are subject to a prepayment penalty, expressed as a percentage of the principal amount so prepaid, of 2% from the Closing Date through but not including the first anniversary of the Closing Date, and 1% from the first anniversary of the Closing Date through but not including the fourth anniversary of the Closing Date. Mandatory prepayments are generally not subject to the payment of penalties except in the case of debt issuances, where the principal amount of loans so prepaid is treated as though they were voluntary prepayments. The affirmative, negative and financial covenants in the Second Lien Credit Agreement are substantially similar to those set forth in the First Lien Credit Agreement, except that in certain circumstances they are less restrictive than those set forth in the First Lien Credit Agreement. Loans under the Second Lien Credit Agreement bear interest at LIBOR plus 9% per annum, which rate increases by 2% in the case of an event of default.

In accordance with the Second Guaranty and Security Agreement entered into by the Company and the Second Lien Agent on the Closing Date, the obligations of the Company under the Second Lien Credit Agreement are secured by all of the assets of the Company and subject to certain exceptions and limitations, and subject to the Intercreditor Agreement (referred to below).

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The Intercreditor Agreement, dated as of the Closing Date, by and among the First Lien Administrative Agent, the Collateral Agent and the Second Lien Agent (the “Intercreditor Agreement”), provides for and governs, among other things, the relative priorities among the secured parties under the First Lien Obligations and the Second Lien Obligations. The Company acknowledged the Intercreditor Agreement but is not a party thereto. In conjunction with the Second Lien Credit Agreement, the Company incurred $1,162 of fees paid to the lenders. Amounts paid to lenders are presented as debt discount and are recorded as a reduction to the debt and are amortized over the life of the debt. As of June 30, 2009, the unamortized balance relating to this debt discount equaled $917. The Company paid $265 of financing fees to third parties which are classified as deferred financing costs and are amortized over the life of the debt. As of June 30, 2009, the unamortized balance relating to the deferred financing fees equaled $209.

A summary of the Company’s outstanding long term debt is as of June 30, 2009:

Aggregate maturities of long term debt of the Company due within the next five years are as follows:

During the three and six months ended June 30, 2009, the Company recognized $88 and $176, respectively, of interest expense from amortization of the debt discount compared to the three and six months ended June 30, 2008, of $88 and $166, respectively.

Note 6 – Earnings (Loss) Per Share:

The Company computes net loss per share under the provisions of SFAS No. 128, Earnings per Share (“SFAS 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).

Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by dividing the Company’s net loss for the period by the weighted-average number of shares of common stock outstanding during the period. As the Company had a net loss applicable to common stockholders for the six months ended June 30, 2009 and 2008, the impact of the assumed exercise of the stock options and warrants and conversion of the Series A Preferred Stocks is anti-dilutive and as such, 11,665,221 and 9,484,424, respectively, of common stock equivalent shares were excluded from the computation of diluted net loss per share as follows:

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Note 7 – Goodwill and Other Intangible Assets:

The Company follows SFAS No. 142, Goodwill and Other Intangible Assets . Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually or more frequently if impairment indicators arise. The Company believes there are no such impairment indicators at June 30, 2009.

Intangible assets consisted of the following at June 30, 2009:

The above intangible assets are amortized over their estimated life as follows:

There has been no change in the value of goodwill for the periods presented in these financial statements.

During the three months ended June 30, 2009 and 2008, the Company recognized $1,749 and $1,601, respectively, of amortization expense. During the six months ended June 30, 2009 and 2008, the Company recognized $3,495 and $3,030, respectively, of amortization expense. Based upon our intangible assets as of June 30, 2009 and the book value of those assets as of such date, amortization expense is expected to be approximately $6,731, $4,392, $2,046, $1,808 and $213 for the twelve month periods ended June 30, 2010, 2011, 2012, 2013 and 2014, respectively.

Note 8 – Stock-based Compensation:

The Company has a stock-based compensation program that provides our Board of Directors broad discretion in creating employee equity incentives. This program includes incentive and non-statutory stock options and non-vested stock awards (also known as restricted stock) granted under various plans, the majority of which are stockholder approved. As of June 30, 2009, the Company had 235,635 shares of common stock reserved for future issuance under our equity compensation plan and stock purchase plan.

Effective January 1, 2006, the Company adopted the provisions of SFAS 123R, requiring us to recognize expense related to the fair value of our stock-based compensation awards. The Company elected to use the modified prospective transition method as permitted by SFAS 123R and, therefore, we did not restate our financial results for prior periods.

During the six months ended June 30, 2009, the Company has issued stock options totaling 589,500 with a value of approximately $448 to certain employees and consultants at an exercise price ranging from $2.37 to $5.17 per share. The fair value of these options was calculated under the Black-Scholes option pricing model with the following assumptions:

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The Company recognizes compensation expense for employee stock option awards on a straight-line basis over the requisite service period of the award. With respect to all outstanding employee stock options, the Company will recognize a total of $6,888 compensation expense over a service period of one to four years. As of June 30, 2009, the Company had recognized $966 of non cash stock based compensation.

Stock option activity for the six months ended June 30, 2009, is as follows:

The weighted average grant date fair value per share during the six months ended June 30, 2009 and 2008, was $0.91 and $3.89, respectively.

The following table summarizes information about fixed price stock options outstanding at June 30, 2009:

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The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of our second quarter of 2009, which was $2.45, and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in the money options on June 30, 2009. This amount changes based on the fair market value of the Company’s stock.

The following table sets forth the total stock-based compensation expense resulting from stock options and vested restricted stock awards included in the Company’s condensed consolidated statements of operations:

Note 9 – Commitments and Contingencies:

Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened against the Company. Although we cannot predict the outcome of these matters, in the opinion of management, any liability arising from them will not have a material adverse effect on our financial position, results of operations or liquidity.

Mr. Edmond Routhier’s employment with the Company terminated effective May 22, 2009, pursuant to a separation and general release agreement. Mr. Routhier previously served as the Company’s President and Vice Chairman. Mr. Routhier’s agreement provides, among other things, that he will continue to have observation rights at regular meetings of the Board of Directors, and will continue to provide consulting services for a period of one year, during which time Mr. Routhier will receive salary continuation and health benefits. Additionally, during the first six months of the consultancy period, Mr. Routhier will have the right to exercise his options shares that were vested and exercisable as of May 22, 2009.

Mr. Dominic Gomez was appointed as the President of the Company pursuant to an employment agreement, dated June 1, 2009. Mr. Gomez is employed on a full-time basis as the Company’s President and receives an annual base salary of $275,000. The Compensation Committee may award Mr. Gomez additional cash bonus payments in amounts up to 100% of his base salary on an annual basis. On May 28, 2009, Mr. Gomez was granted an option to purchase 230,000 shares of the Company’s common stock at an exercise price of $2.37 per share pursuant to the Company’s 2005 Equity Compensation Plan. Such option vests in 48 equal monthly installments, commencing on May 14, 2009 and continuing on the fourteenth day of each month thereafter. The Compensation Committee also may make additional option grants or restricted stock awards

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to Mr. Gomez in its discretion from time to time. Mr. Gomez’s employment is on an “at will” basis, and may be terminated by the Company at any time, subject to its obligation to provide severance benefits under certain circumstances. If, after six months of employment, Mr. Gomez is terminated without cause or resigns for good reason (as each such term is defined in the employment agreement), he will be entitled to receive severance in an amount equal to one year’s base salary, as well as the right to continue in Company health and welfare benefit plans for one year after termination. After six months of employment with the Company, in the event of a change of control of the Company (as defined in the employment agreement), 25% of Mr. Gomez’s then-unvested stock options shall immediately vest. In addition, after a change of control of the Company occurring after six months of employment with the Company, all remaining unvested stock options of Mr. Gomez shall immediately vest if Mr. Gomez’s aggregate compensation is substantially diminished. Mr. Gomez will be reimbursed up to $5,000 per month for direct expenses for one or more of the following: (a) corporate housing, (b) rental car or other transportation services, and (c) professional clubs or organization membership. The employment agreement also contains certain confidentiality provisions and requires that the Company maintain standard directors and officers insurance covering Mr. Gomez in the same amount as the Company maintains for other directors and officers.

On March 10, 2009, the Company filed a complaint in Sacramento County Superior Court against American Sign Language Services Corporation, or ASLS, and other defendants alleging breach of contract and various tort claims in connection with the defendants’ operation of two video relay service call centers with the Company in 2008 and the defendants’ subsequent opening and operation of a competing call center. The complaint seeks compensatory and punitive damages in an amount to be determined at trial and injunctions prohibiting disclosure of the Company’s trade secrets. The defendants subsequently removed the case to the United States District Court for the Eastern District of California. On or about April 20, 2009, the defendants answered the Company’s complaint, and ASLS filed a counterclaim alleging breach of contract and various tort claims. ASLS seeks compensatory and exemplary damages, an order enjoining the Company from opening certain call centers and disgorgement of profits. The Company believes that ASLS’ counterclaim is without merit and intends to vigorously defend against such allegations. As of the filing of this quarterly report on Form 10-Q, the Company has not accrued any liability related to ASLS’ counterclaim, as the Company does not believe at such time that the Company’s liability to ASLS is probable and capable of being reasonably estimated. If the Company is not successful in defending such counterclaims, the Company could be liable for monetary damages that could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.

On June 25, 2009, the Company received a subpoena for documents from the grand jury for the United States District Court for the District of Columbia. We believe that other companies within our TRS industry are subject to similar investigations. The Company is in the process of providing documents in response to the subpoena. We are unable to predict the outcome of this investigation.

On June 26, 2009, the Company received subpoenas from the Securities and Exchange Commission (the “SEC”) for documents and the testimony of the Company’s Chief Financial Officer pursuant to a formal order of investigation into the Company. The Company is in the process of providing documents to the SEC. We are unable to predict the outcome of this investigation.

Note 10 – Acquisitions:

Acquisition of certain assets of Verizon TRS division

On January 10, 2008, the Company acquired certain assets of the Telecommunications Relay Services (“TRS”) division of MCI Communications Services, Inc. (“Verizon”), a leading provider of relay services transactions for $46,000 in cash and $5,500 of contingent cash consideration. The Verizon acquisition was financed through $33,500 of equity financing from the sale of 6,479,691 shares of Series A Preferred stock at a price of $5.17 per share (see Note 3) and $30,000 of senior debt financing (see Note 5). The Company consummated the acquisition in an effort to increase its volume and improve its results of operations.

The funding of the purchase price of the acquisition was as follows:

The components of purchase price was as follows:

Under the purchase method of accounting, the total purchase price is allocated to net tangible assets acquired based on their estimated fair values as of the date of the completion of the acquisition. Management has performed an assessment to identify and value intangible assets acquired in conjunction with this transaction. The fair value assigned to the identified intangible assets and goodwill are as follows:

Goodwill and trademarks are not amortized for financial reporting purposes, however, the amount will be amortized over a 15 year life for income tax purposes.

In connection with the Verizon acquisition, the Company entered into a Managed Services Agreement, dated August 1, 2007, with Stellar Nordia.

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Acquisition of Hands On Video Relay Services, Inc.

On January 10, 2008, the Company acquired Hands On Video Relay Services, Inc. (“HOVRS”), a California-based provider of video relay and interpreting services, for $35,000 in cash, 6,696,466 shares of its common stock valued at $5.17 per share and assumption of 276,246 stock options (see Note 8). The cash portion of the consideration was financed through $5,000 of equity financing from the sale of 967,118 shares of Series A Preferred stock at a price of $5.17 per share (see Note 3) and the issuance of $40,000 senior debt financing (see Note 5). The Company consummated the acquisition in an effort to increase its volume and improve its results of operations.

The funding of the purchase price of the acquisition was as follows:

The purchase price has been determined as follows:

Under the purchase method of accounting, the total purchase price is allocated to net tangible assets acquired based on their estimated fair values as of the date of the completion of the acquisition. Management has performed an assessment to identify and value intangible assets acquired in conjunction with this transaction. The fair values assigned to the tangible assets acquired, liabilities assumed, identified intangible assets and goodwill are as follows:

In conjunction with the closing of the HOVRS acquisition, the Company assumed certain outstanding operating and capital lease agreements in force on the date of closing.

Acquisition of Sign Language Associates, Inc. and Visual Language Interpreting, Inc.

On July 1, 2008 the Company acquired all of the outstanding stock of two sign language interpreting companies, Sign Language Associates (“SLA”) and Video Language Interpreting (“VLI”), for a total purchase price of $7,047. A total of $5,072 was paid at closing, which included a $250 escrow fund payment with the remaining

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installments due over the next two years contingent upon certain requirements within the stock purchase agreement. The Company used cash on hand to satisfy all related merger consideration. The Company consummated the acquisition in an effort to increase its volume and improve its results of operations.

The purchase price of these acquisitions, on an aggregated basis, has been determined as follows:

Under the purchase method of accounting, the total purchase price is allocated to net tangible assets acquired based on their estimated fair values as of the date of the completion of the acquisition. Based upon valuation reports provided by a professional valuation firm, the Company recorded identified intangible assets. The fair values assigned to the tangible assets acquired, liabilities assumed, identified intangible assets and goodwill are as follows:

Certain goodwill and trademarks are not amortized for financial reporting purposes, however, the amount will be amortized over a 15 year life for income tax purposes.

Note 11 – Income Taxes:

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109, Accounting for Income Taxes , and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Based on the Company’s evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements or adjustments to our deferred tax assets and related valuation allowance. The evaluation was performed for the tax years ended December 31, 2005, 2006, 2007 and 2008, the tax years which remain subject to examination by major tax jurisdictions as of June 30, 2009.

The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event the Company may have received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense.

The Company has federal net operating loss (“NOL”) carryforwards of approximately $189,969. The federal NOL carryforwards expire beginning in 2015. The Tax Reform Act of 1986 enacted a complex set of rules limiting the potential utilization of net operating loss and tax credit carryforwards in periods following a corporate “ownership change.” In general, for federal income tax purposes, an ownership change is deemed to occur if the

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percentage of stock of a loss corporation owned (actually, constructively and, in some cases, deemed) by one or more “5% shareholders” has increased by more than 50 percentage points over the lowest percentage of such stock owned during a three-year testing period. The Company believes that an ownership change has occurred with respect to the transactions previously described. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards attributable to periods before the change. The Company has not performed a detailed analysis to determine the amount of the potential limitations.

Note 12 – Related Party Transactions:

The Company entered into certain additional financing and equity agreements with Clearlake as a result of the transactions described in Note 10. Note 5 describes our credit agreements with Clearlake and Note 3 describes our sale of Series A Preferred Stock to Clearlake. On January 10, 2008, all outstanding amounts under the Credit Agreement with Clearlake (more fully described in Note 4) were repaid in full. The Company incurred $135 and $-0- related to consulting arrangement costs with Clearlake during the six month periods ended June 30, 2009 and 2008, respectively.

Note 13 – Stockholders’ Equity:

During the six months ended June 30, 2009, the Company entered into the following stock related transactions: