MAM SOFTWARE GROUP, INC. - FORM 10-Q

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

	December 31,			June 30,
	2010			2010
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	1,555		$	1,196
Accounts receivable, net of allowance of $136 and $192		2,605			2,520
Inventories		282			366
Prepaid expenses and other current assets		579			371
Total Current Assets		5,021			4,453

Property and Equipment, net		801			856

Other Assets
Goodwill		9,096			8,924
Amortizable intangible assets, net		2,425			2,757
Software development costs, net		1,457			1,520
Other long-term assets		96			49
TOTAL ASSETS	$	18,896		$	18,559

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	1,378		$	1,551
Accrued expenses and other		1,764			1,758
Payroll and other taxes		224			364
Current portion of settlement liability		-			326
Derivative liabilities		793			291
Current portion of long-term debt		739			5,000
Current portion of deferred revenue		509			641
Sales tax payable		682			598
Income tax payable		796			659
Total Current Liabilities		6,885			11,188

Long-Term Liabilities
Deferred revenue, net of current portion		168			345
Deferred income taxes		378			642
Settlement liability, net of current portion		-			525
Long-term debt, net of current portion		1,426			168
Other		337			359
Total Liabilities		9,194			13,227

Commitments and contingencies

Stockholders' Equity
Preferred stock: Par value $0.0001 per share; 10,000,000 shares authorized, 1,792,662 and 0 issued and outstanding, respectively		–			–
Common stock: Par value $0.0001 per share; 150,000,000 shares authorized, 138,733,246 and 84,862,880 shares issued and outstanding, respectively		14			8
Additional paid-in capital		32,728			29,503
Accumulated other comprehensive loss		(729	)		(768	)
Accumulated deficit		(22,311	)		(23,411	)
Total Stockholders' Equity		9,702			5,332
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	18,896		$	18,559

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

F-1

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)

	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
Revenues	$	6,149		$	6,746		$	12,751		$	12,958
Cost of revenues		2,326			2,487			5,321			5,434
Gross profit		3,823			4,259			7,430			7,524

Operating expenses
Research and development		733			763			1,552			1,607
Sales and marketing		469			620			1,087			1,264
General and administrative		1,279			2,322			1,975			3,227
Depreciation and amortization		271			289			539			571
Total operating expenses		2,752			3,994			5,153			6,669

Operating income		1,071			265			2,277			855

Other income (expense)
Interest expense		(118	)		(352	)		(535	)		(730	)
Interest income		-			-			-			-
Change in fair value of derivative liabilities		(112	)		277			(164	)		315
Gain on settlement of liability		52			-			52			50
Other, net		-			(1	)		-			(1	)
Total other expense, net		(178	)		(76	)		(647	)		(366	)

Income before provision for income taxes		893			189			1,630			489
Provision for income taxes		230			426			530			646
Net income (loss)		663			(237	)		1,100			(157	)

Foreign currency translation income (loss)		(295	)		(234	)		39			(108	)
Total comprehensive income (loss)	$	368		$	(471	)	$	1,139		$	(265	)

Earnings (loss) per share attributed to common stockholders:
Basic	$	0.01		$	-		$	0.01		$	-
Diluted	$	0.01		$	-		$	0.01		$	-

Weighted average shares outstanding :
Basic		126,009,626			83,765,095			105,861,027			83,630,793
Diluted		127,788,467			83,765,095			106,583,793			83,630,793

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

F-2

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	For the Six Months Ended
	December 31, December 31,
	2010			2009

Cash flows from operating activities:

Net Income (loss)	$	1,100		$	(157	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Bad debt expense		28			44
Depreciation and amortization		539			571
Debt discount and debt issuance cost amortization		84			315
Fair value of stock issued for services		171			32
Gain on settlement of liability		(52	)		(50	)
Deferred income taxes		(264	)		(102	)
Change in fair value of derivative liabilities		164			(315	)
Warrants issued for settlement of service agreement		-			36

Changes in assets and liabilities
Accounts receivable		(61	)		(995	)
Inventories		95			(141	)
Prepaid expenses and other assets		(259	)		122
Accounts payable		(199	)		266
Payroll and other taxes		(145	)		61
Deferred revenue		(326	)		(371	)
Accrued expenses & other liabilities		(485	)		1,275

Net cash provided by operating activities		390			591

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

F-3

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

(In thousands)

Cash flows from investing activities :
Purchase of property and equipment		(25	)		(68	)
Capitalized software development costs		(13	)		(67	)
Net cash used in investing activities		(38	)		(135	)

Cash flows from financing activities:

Proceeds from sale of common stock, net of cash issuance costs		3,194			-
Proceeds from long-term debt		2,075			-
Payments on long-term debt		(5,132	)		(221	)
Net cash provided by (used in) financing activities		137			(221	)

Effect of exchange rate changes		(130	)		177
Net increase (decrease) in cash and cash equivalents		359			412
Cash and cash equivalents, beginning of period		1,196			1,663
Cash and cash equivalents, end of period	$	1,555		$	2,075

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	455		$	414
Income taxes	$	648		$	175

Supplemental disclosures of non-cash investing and financing activities :
Value of distributed shares	$	-		$	-
Value of retired shares	$	-		$	-
Cumulative effect to retained earnings due to adoption of accounting standard	$	-		$	461
Cumulative effect to additional paid-in-capital due to adoption of accounting standard	$	-		$	868
Cumulative effect to debt discount due to adoption of accounting standard	$	-		$	310
Issuance of stock options for accrued liabilities	$	134		$	-
Issuance of common stock for accrued liabilities	$	70		$	-
Reclassification of non-employee warrants from additional paid-in-capital to derivative liabilities	$	338		$	-

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

F-4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

NOTE 1. MANAGEMENT’S REPRESENTATIONS

The condensed consolidated financial statements included herein have been prepared by MAM Software Group, Inc., formerly known as Aftersoft Group, Inc. (“MAM” or the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information normally included in the condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2011. It is suggested that the condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010, which was filed with the SEC on September 15, 2010. The Company has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto, other than as disclosed in the accompanying notes.

NOTE 2. BASIS OF PRESENTATION

MAM is a former subsidiary of Auto Data Network, Inc. (“ADNW”), a publicly traded company, the stock of which is currently traded on the pink sheets under the symbol ADNW.PK. On November 24, 2008, ADNW distributed a dividend of the 71,250,000 shares of MAM common stock that ADNW owned at such time in order to complete the previously announced spin-off of MAM’s businesses.

MAM is a leading provider of business and supply chain management content and e-commerce solutions primarily to automotive parts manufacturers, retailers, tire and service chains, independent installers and wholesale distributors in the automotive aftermarket. The Company conducts its businesses through wholly owned subsidiaries with operations in Europe and North America. MAM Software Ltd. (“MAM Ltd.”) is based in Barnsley, United Kingdom (“U.K.”) and Aftersoft Network, N.A., Inc., (“ASNA”) has offices in the United States (“U.S.”) in Dana Point, California and Allentown, Pennsylvania.

Principles of Consolidation

The condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in the condensed consolidated financial statements.

F-5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Certain amounts in the June 30, 2010 and December 31, 2009, consolidated financial statements have been reclassified to conform to the current year presentations.

Reclassifications

Concentrations of Credit Risk

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.

Cash and Cash Equivalents

The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2010 and June 30, 2010, the Company did not have balances in these accounts in excess of the FDIC insurance limits. For banks outside of the U.S., the Company maintains its cash accounts at financial institutions which it believes to be credit worthy. Bank accounts maintained outside the U.S. are not insured by FDIC Insurance limits.

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

Customers

The Company performs periodic evaluations of its customers and maintains allowances for potential credit losses as deemed necessary. The Company generally does not require collateral to secure its accounts receivable. Credit risk is managed by discontinuing sales to customers who are delinquent. The Company estimates credit losses and returns based on management’s evaluation of historical experience and current industry trends. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

No customer accounted for more than 10% of the Company’s accounts receivable at December 31, 2010 and June 30, 2010. No one customer accounted for more than 10% of the Company’s revenue for the three and six month periods ending December 31, 2010 and one customer accounted for approximately 19.4% and 15.2% of the Company’s revenue for the three and six month periods ended December 31, 2009.

Segment Reporting

The Company operates in one reportable segment. The Company evaluates financial performance on a Company-wide basis. The Company’s chief operating decision-maker is the chief executive officer, who evaluates the company as a single operating segment.

Geographic Concentrations

The Company conducts business in the U.S., Canada and the U.K. For customers headquartered in their respective countries, the Company derived 24% of its revenues from the U.S., 3% from Canada and 73% from its U.K. operations during the three months ended December 31, 2010, compared to 21% from the U.S., 1% from Canada and 78% from the U.K. for the three months ended December 31, 2009.

F-6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

The Company derived 24% of its revenues from the U.S., 1% from Canada and 75% from its U.K. operations during the six months ended December 31, 2010 compared to 24% of its revenues from the U.S., 1% from Canada and 75% from its U.K. operations during the six months ended December 31, 2009. At December 31, 2010, the Company maintained 64% of its net property and equipment in the U.K. and the remaining 36% in the U.S.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company’s management include, but are not limited to, the collectibility of accounts receivable, the realizability of inventories, the fair value of investments in available-for-sale securities, the recoverability of goodwill and other long-lived assets, valuation of deferred tax assets, the valuation of derivative liabilities, and the estimated value of warrants and shares issued for non-cash consideration. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, investments in available-for-sale securities, accounts receivable, accounts payable, accrued expenses and debt instruments.

Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three categories:

Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

Determining which category an asset or liability falls within the hierarchy may require significant judgment. The Company evaluates its hierarchy disclosures each quarter.

Available-for-Sale Securities

Management determines the appropriate classification of its investments in equity securities with readily determinable fair values that are not accounted for under the equity method of accounting at the time of purchase and re-evaluates such classification as of each balance sheet date. The specific identification method is used to determine the cost basis of securities disposed of. Unrealized gains and losses on the marketable securities are included as a separate component of accumulated other comprehensive income (loss), net of tax. At December 31, 2010 and June 30, 2010, investments consist of corporate stock with a carrying value of $0. During the year ended June 30, 2009 the Company wrote-down its investment in available-for-sale securities to $0, which is now the Company’s new cost basis in the securities. In the event the fair value of the securities increases, the Company will not recognize any gain on the securities unless they are sold.

F-7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

Inventories

Inventories are stated at the lower of cost or current estimated market value. Cost is determined using the first-in, first-out method. Inventories consist primarily of hardware that will be sold to customers. The Company periodically reviews its inventories and records a provision for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Once established, write-downs of inventories are considered permanent adjustments to the cost basis of the obsolete or excess inventories.

Property and Equipment

Property and equipment are stated at cost, and are being depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the related lease terms. Equipment under capital lease obligations is depreciated over the shorter of the estimated useful lives of the related assets or the term of the lease. Maintenance and routine repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the condensed consolidated statements of operations and comprehensive income (loss). Depreciation and amortization expense was $49,000 and $53,000 for the three months ended December 31, 2010 and 2009, respectively and was $95,000 and $103,000 for the six months ended December 31, 2010 and 2009, respectively.

Software Development Costs

Costs incurred to develop computer software products to be sold or otherwise marketed are charged to expense until technological feasibility of the product has been established. Once technological feasibility has been established, computer software development costs (consisting primarily of internal labor costs) are capitalized and reported at the lower of amortized cost or estimated realizable value. Purchased software development cost is recorded at its estimated fair market value. When a product is ready for general release, its capitalized costs are amortized on a product-by-product basis. The annual amortization is the greater of: the ratio that current gross revenue for a product bear to the total of current and anticipated future gross revenues for that product: and, the straight-line method over the remaining estimated economic life (a period of three years) of the product including the period being reported on. If the future market viability of a software product is less than anticipated, impairment of the related unamortized development costs could occur, which could significantly impact the recorded loss of the Company. Amortization expense was $43,000 and $55,000 for the three months ended December 31, 2010 and 2009, respectively, and $87,000 and $106,000 for the six months ended December 31, 2010 and 2009, respectively.

F-8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31 2010

Amortizable Intangible Assets

Amortizable intangible assets consist of completed software technology, customer relationships and automotive data services and are recorded at cost. Completed software technology and customer relationships are amortized using the straight-line method over their estimated useful lives of 8 to 10 years, and automotive data services are amortized using the straight-line method over their estimated useful lives of 20 years. Amortization expense on amortizable intangible assets was $179,000 and $181,000 for the three months ended December 31, 2010 and 2009, respectively, and $357,000 and $362,000 for the six months ended December 31, 2010 and 2009, respectively.

Goodwill

Goodwill and intangible assets that have indefinite useful lives are not to be amortized but rather are tested at least annually for impairment.

Goodwill is subject to impairment reviews by applying a fair-value-based test at the reporting unit level, which generally represents operations one level below the segments reported by the Company. As of December 31, 2010, the Company does not believe there is an impairment of its goodwill. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue which could result in additional impairment of goodwill in the future.

For the six months ended December 31, 2010, goodwill activity was as follows:

Balance, July 1, 2010	$	8,924,000
Effect of exchange rate changes		172,000
Balance, December 31, 2010	$	9,096,000

Long-Lived Assets

The Company’s management assesses the recoverability of long-lived assets (other than goodwill discussed above) upon the occurrence of a triggering event by determining whether the carrying value of the long-lived asset can be recovered through projected undiscounted future cash flows over its remaining life. The amount of long-lived asset impairment, if any, is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management. At December 31, 2010, management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue, which could result in impairment of long-lived assets in the future.

Issuance of Stock to Non-Employees for Non-Cash Consideration

All issuances of the Company’s equity instruments to non-employees have been assigned a per share amount equaling either the market value of the equity instruments issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the equity instruments on the dates issued.

F-9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. An asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes.

Stock-Based Compensation

For valuing stock options awards, the Company has elected to use the Black-Scholes Merton (“Black – Scholes”) option pricing valuation model. For the expected term, the Company has historically used a simple average of the vesting period and the contractual term of the option. Volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate during the expected term of the option. For volatility the Company considers its own volatility as applicable for valuing its options and warrants. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The risk-free interest rate is based on the relevant U.S. Treasury Bill Rate at the time of each grant. The dividend yield represents the dividend rate expected to be paid over the option’s expected term; the Company currently has no plans to pay dividends.

On June 12, 2008, the Company’s shareholders approved the MAM Software Group Inc. 2007 Long-Term Stock Incentive Plan (the “LTIP”). The maximum aggregate number of shares of common stock that may be issued under the LTIP, including stock awards and stock appreciation rights, is limited to 15% of the shares of common stock outstanding on the first trading day of any fiscal year. The Company issued restricted shares to management and board members in Fiscal 2010 and Fiscal 2011, and issued stock options to employees in Fiscal 2011 under this plan (see Note 7).

Revenue Recognition

Software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product component has occurred, the fee is fixed and determinable, and collectibility is probable. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria are met.

The Company accounts for delivered elements in accordance with the selling price when arrangements include multiple product components or other elements and vendor-specific objective evidence exists for the value of all undelivered elements. Revenues on undelivered elements are recognized once delivery is complete.

In those instances where arrangements include significant customization, contractual milestones, acceptance criteria or other contingencies (which represents the majority of the Company’s arrangements), the Company accounts for the arrangements using contract accounting, as follows:

When customer acceptance can be estimated, expenditures are capitalized as work in process and deferred until completion of the contract at which time the costs and revenues are recognized.

When customer acceptance cannot be estimated based on historical evidence, costs are expensed as incurred and revenue is recognized at the completion of the contract when customer acceptance is obtained.

F-10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company records amounts collected from customers in excess of recognizable revenue as deferred revenue in the accompanying condensed consolidated balance sheets.

Revenues for maintenance agreements, software support, on-line services and information products are recognized ratably over the term of the service agreement.

Advertising Expense

The Company expenses advertising costs as incurred. For the three months ended December 31, 2010 and 2009, advertising expense totaled $12,000 and $4,000, respectively. For the six months ended December 31, 2010 and 2009, advertising expense totaled $31,000 and $32,000, respectively.

Gain on Extinguishment of Liability for Services

The Company realized $52,000 of income from a settlement with a creditor for the three months and six months ended December 31, 2010, which is included in other income (expense) in the accompanying condensed consolidated statements of operations and comprehensive income (loss) (see Note 6).

The Company realized $50,000 of income from a settlement with a creditor for the six months ended December 31, 2009, which is included in other income (expense) in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

Foreign Currency

Management has determined that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the U.K. subsidiaries are translated into U.S. dollars at the period-end exchange rates. Income and expenses are translated at an average exchange rate for the period and the resulting translation gain (loss) adjustments are accumulated as a separate component of stockholders’ equity, which totaled ($295,000) and ($234,000) for the three months ended December 31, 2010 and 2009, respectively, and $39,000 and ($108,000) for the six months ended December 31, 2010 and 2009, respectively.

Foreign currency gains and losses from transactions denominated in other than respective local currencies are included in income. The Company had no foreign currency transaction gains (losses) for all periods presented.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources. For the three and six months ended December 31, 2010 and 2009, the components of comprehensive income (loss) consist of changes in foreign currency translation gains (losses).

F-11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. Deferred taxation is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company's consolidated balance sheets at December 31, 2010 and June 30, 2010, and has not recognized interest and/or penalties in the consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 31, 2010.

Basic and Diluted Earnings (Loss) Per Share

Basic earnings (loss) per share (“BEPS”) is computed by dividing the net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share (“DEPS”) is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares issuable upon the exercise of stock options and warrants using the “treasury stock” method. The computation of DEPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. For the three and six months ended December 31, 2010 and 2009, there were no dilutive shares and a total of 10,845,834 common stock purchase warrants and debt convertible into 2,257,745 shares were excluded from the computation of diluted loss per share as their effect would have been anti-dilutive. For the three and six months ended December 31, 2009 a total of 21,798,135 common stock purchase warrants and debt convertible into 3,361,345 shares were excluded from the computation of diluted loss per share as their effect would have been anti-dilutive.

The following tables present the computation of the basic and diluted earnings per share of the three and six months ended December 31, 2010.

Three months Ended December 31, 2010	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic EPS:
Net income		663,000		-		-
Earnings available to common stockholders		663,000		126,009,626	$	0.01

Effect of dilutive securities:
Options and warrants		-		1,778,841		-
Diluted EPS:
Earnings available to common stockholders plus assumed exercises		663,000		127,788,467	$	0.01

F-12

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

Six months Ended December 31, 2010	Numerator (Income)		Denominator (Shares)		Per Share Amount
Basic EPS:
Net income		1,100,000		-		-
Earnings available to common stockholders		1,100,000		105,861,027	$	0.01

Effect of dilutive securities:
Options and warrants		-		722,766		-
Diluted EPS:
Earnings available to common stockholders plus assumed exercises		1,100,000		106,583,793	$	0.01

Derivative Liabilities

On July 1, 2009, the Company adopted the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. As a result of the adoption, 5,083,333 of the Company’s issued and outstanding common stock purchase warrants previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment. These warrants have an average exercise price of $0.143 and expiration dates of December 31, 2013. In addition, amounts related to the embedded conversion feature of convertible notes issued previously treated as equity pursuant to the derivative treatment exemption were also no longer afforded equity treatment. As such, effective July 1, 2009, the Company reclassified the fair value of these common stock purchase warrants and recorded the fair value of the embedded conversion features, which both have exercise price reset features, from equity to liability status as if these warrants and embedded conversion features were treated as a derivative liability since the earliest date of issue in December 2007. On July 1, 2009, the Company reclassified from additional paid-in capital, as a cumulative effect adjustment, approximately $868,000 to derivative liabilities, increased the debt discount and derivative liabilities by a gross amount of approximately $310,000, decreased accumulated deficit by approximately $619,000 for the change in fair value of derivative liabilities for the period from December 2007 through June 30, 2009 and increased accumulated deficit by approximately $158,000 for additional amortization of debt discount for the period from December 2007 through June 30, 2009.

F-13

All future changes in the fair value of these warrants will be recognized in earnings until such time as the warrants are exercised or expire. These common stock purchase warrants do not trade in an active securities market, and as such, the Company estimates the fair value of these warrants using Black-Scholes and the following assumptions:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

The fair value of the common stock purchase warrants was $522,000 and the embedded conversion feature was $0 on December 31, 2010. The fair value of the common stock purchase warrants was $291,000 and the embedded conversion feature was $0 on June 30, 2010. During the three months ended December 31, 2010, the Company repaid the convertible term loan (see Note 5) thus eliminating the embedded conversation feature. The total value of these warrants increased from $291,000 to $522,000 for the six months ended December 31, 2010. As such, the Company recognized a loss of approximately $179,000 and $231,000 from the change in fair value of these warrants for the three and six months ended December 31, 2010.

On December 2, 2010 the Company accounted for all unexercised stock purchase warrants as derivative liabilities because if all outstanding options and warrants were exercised there would be insufficient authorized shares to fulfill the request. As of that date, additional paid-in-capital was reduced by $338,000 and derivative liabilities were increased by $338,000. The fair value of the warrants was $271,000 as of December 31, 2010 and the Company recorded earnings of $67,000 for the three month and six month periods for these warrants.

	December 31,	June 30,
	2010	2010
Annual dividend yield	0.0%	0.0%
Average expected life (years)	1.08 - 4.0	0.42 - 3.50
Risk-free interest rate	0.55% - 1.79%	0.39% - 2.65%
Expected volatility	98% - 151%	82% - 137%

Expected volatility is based primarily on historical volatility. Historical volatility was computed using weekly pricing observations for recent periods. The Company believes this method produces an estimate that is representative of the Company’s expectations of future volatility over the expected term of these warrants. The Company currently has no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants. The risk-free rate is based on the U.S. Treasury rate that corresponds to the expected term of the warrants and conversion feature.

F-14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Liabilities measured at fair value on a recurring basis are summarized as follows (unaudited):

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of warrants	$	-	$	-	$	793,000	$	793,000

Total	$	-	$	-	$	793,000	$	793,000

The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 Inputs:

Balance as of June 30, 2010	$	291,000
Warrants reclassified from additional paid-in-capital to derivative liabilities		338,000
Change in fair value of derivative liabilities		164,000
Balance as of December 31, 2010	$	793,000

The Company has no assets that are measured at fair value on a recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis during the three and six months ended December 30, 2010 and 2009, respectively.

NOTE 3. TRANSACTIONS WITH FORMER PARENT COMPANY

On November 24, 2008, ADNW distributed a dividend of the 71,250,000 shares of the Company’s common stock that ADNW owned at such time in order to complete the spin-off of then-Aftersoft’s businesses. The dividend shares were distributed in the form of a pro rata dividend to the holders of record as of November 17, 2008 (the “Record Date”) of ADNW’s common and convertible preferred stock. Each holder of record of shares of ADNW common and preferred stock as of the close of business on the Record Date was entitled to receive 0.6864782 shares of the Company’s common stock for each share of common stock of ADNW held at such time, and/or for each share of ADNW common stock that such holder would own, assuming the convertible preferred stock owned on the Record Date was converted in full. Prior to the spin-off, ADNW owned approximately 77% of the Company’s issued and outstanding common stock. Subsequent to and as a result of the spin-off, the Company is no longer a subsidiary of ADNW.

ADNW attempted to settle an old outstanding obligation of ADNW of $775,000 with Mr. Arthur Blumenthal (see Note 6) for 4,400,000 shares of ADNW common stock. The value of the shares declined and Mr. Blumenthal elected not to accept the ADNW shares as full compensation, and later demanded that the Company settle ADNW’s liability with additional or different consideration. In April 2008, the Company accepted the 4,400,000 shares from ADNW valued at $484,000 in exchange for attempting to settle ADNW’s liability. The difference between the value of the ADNW shares and the amount of ADNW’s initial obligation of $291,000 was recorded as general and administrative expense in the consolidated statement of operations during such period. In February 2010, Mr. Blumenthal commenced a civil action against the Company and on April 2010, a settlement agreement was entered into with respect to such civil action (See Note 6).

During the year ended June 30, 2009, the Company liquidated 5,231,622 common shares of ADNW for net proceeds of $842,000, and issued 2,000,000 common shares of ADNW in settlement of ADNW obligations. As a result of the Company’s ownership of certain ADNW securities, the Company received approximately 13,965,295 shares of its own common stock in connection with the spin-off dividend distribution. On December 31, 2008, the Company retired 13,722,112 of the shares. The remaining 243,183 shares were used by the Company for rounding of fractional shares issued in respect of the spin-off dividend, to make adjustments for the benefit of the holders of ADNW’s Series B Convertible Preferred Stock which received fewer shares in connection with the spin-off than the number to which they were entitled as a result of a calculation error relating to the Series B conversion rate, and for other minor adjustments.

F-15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As a result of the above transactions, the Company no longer owns any shares of ADNW stock as of December 31, 2010.

NOTE 4. INVESTMENT IN AVAILABLE -FOR-SALE SECURITIES

The Company received a total of 4,433,284 shares of First London PLC (formerly First London Securities), from the sale of EXP Dealer Software Limited ("EXP"). The shares had been listed for trading on the London Plus Exchange but effective September 30, 2009, the shares were delisted.

Because trading in the shares of First London PLC has been halted, the Company determined that it no longer could value the securities using Level 2, but required a Level 3 classification. Based on the Company's inability to obtain current financial statements and the fact that trading in the shares of First London PLC has been halted, the Company fully impaired the value of the securities during the year ended June 30, 2009.

NOTE 5. LONG -TERM DEBT

Long-term debt consists of the following as of December 31, 2010 and June 30, 2010:

	December 31, 2010			June 30, 2010
	(unaudited)

HSBC term loan	$	1,941,000		$	-
ComVest term loan, net of debt discount of $0 and $71,000,respectively		-			3,912,000
ComVest revolver		-			1,000,000
Secured notes		211,000			243,000
Other notes		13,000			13,000
		2,165,000			5,168,000
Less current portion		(739,000	)		(5,000,000	)
Long term portion	$	1,426,000		$	168,000

HSBC Bank plc

On October 25, 2010, MAM Ltd., entered into a three-year term loan agreement with HSBC Bank plc (“HSBC”) as lender (the “HSBC Term Loan”). The HSBC Term Loan provides for £1,324,550 (approximately $2.0 million at the exchange rate on October 25, 2010) with a term of three years from the date the HSBC Term Loan is first drawn down. The HSBC Term Loan is repayable in thirty-six (36) monthly installments, inclusive of interest, together with such sums in the final month to discharge the balance of the HSBC Term Loan. The proceeds of the HSBC Term Loan were used to fully repay the residual balance of the credit facility due to ComVest Capital LLC (“ComVest”) from the Company, (see below).

The interest rate under the HSBC Term Loan is 2.9% per annum over HSBC’s Sterling Base Rate, as published from time to time, which totaled 3.4% at December 31, 2010. A prepayment fee of 1.5% of the amount prepaid will be payable by the Company in the event of the Term Loan being refinanced to another lender.

F-16

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

The HSBC Term Loan is secured by the following instruments: a guarantee granted by the Company, ASNA and MAM Software Inc. in favor of HSBC pursuant to which each would guarantee the repayment of the HSBC Term Loan (the “Guarantee”); an all assets debenture granted by MAM Ltd. in favor of HSBC including a first fixed charge over book debts and stock, which would create fixed and floating charges over the assets and undertaking of MAM Ltd.for the provision of the HSBC Term Loan (the “Debenture”); and a mortgage of the life insurance policies in favor of MAM Ltd. in relation to a Company employee and the Company’s CEO.

ComVest Loan Agreement

On October 26, 2010, the Company repaid in full the ComVest Revolving Credit and Term Loan Agreement (the “Loan Agreement”) from the proceeds from the HSBC Term Loan.

On December 21, 2007, the Company entered into a Loan Agreement with ComVest, as lender, pursuant to which ComVest agreed to extend a $1,000,000 secured revolving Credit Facility and a $5,000,000 Term Loan. The Loan Agreement contained customary affirmative and negative covenants, which included maximum limits for capital expenditures per fiscal year, and ratios for liquidity. In connection with obtaining a waiver for a violation of loan covenants at March 31, 2008, the Company reduced the exercise price from $0.3125 per share to $0.11 per share for one million warrants held by ComVest (see below), recognizing the incremental fair value of the modified warrants of $24,000 as additional interest expense.

As of June 30, 2008, in connection with obtaining a waiver for a violation of loan covenants, the Company and ComVest amended the Loan Agreement and modified certain covenants. The cash flow ratio coverage was reduced and the lender agreed to extend from January 1, 2009 until January 1, 2010 the start of the loan amortization. As part of the amendment, ComVest required the Company to reduce the exercise price from $0.39 to $0.11 for 2,000,000 warrants held by ComVest (see below). The incremental fair value of the modified warrants is $15,000, which was recorded as an additional debt discount and was being amortized over the remaining life of the term loan. As of December 31, 2008, in connection with obtaining a waiver for violation of certain loan covenants, the Company and ComVest agreed to increase the interest on the $1,000,000 Credit Facility (described below) from 9.5% to 11%. The amendment did not meet the requirements of a Modification or Exchange of Debt Instruments, therefore no adjustment to the consolidated financial statements was required. Pursuant to a waiver and amendment, the annual interest rate was restored to 9.5% as the Company became compliant with the covenant as of the close of the quarter ended on March 31, 2009.

As of March 31, 2010, the Company did not meet the required ratio of (a) Earnings Before Interest, Depreciation, and Amortization, minus capital expenditures incurred to (b) debt service (all interest and principal payments) (“Debt Service”) (the “EBIDA Ratio”) of 1.25:1 as required by the amended Loan Agreement. The Company’s failure to maintain this ratio constituted an event of default under the terms of the Loan Agreement. Under the terms of the Loan Agreement, if any event of default occurs, the full principal amount of the Note, together with interest and other amounts owing in respect thereof, to the date of acceleration became, at ComVest’s election, immediately due and payable in cash. On June 2, 2010, the Company paid ComVest a Forbearance Fee of $25,000 to waive the default until June 20, 2010 and on June 17, 2010, ComVest raised the interest rate from 9.5% to 13.5%, for the Revolving Credit Note and from 11% to 16% for the Term Note.

F-17

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

(Unaudited)

As of June 30, 2010, the Company did not meet the required EBIDA Ratio of 1.25:1 as required by the amended Loan Agreement. The Company’s failure to maintain this ratio constituted an event of default under the terms of the Loan Agreement. Under the terms of the Loan Agreement, if any event of default occurred, the full principal amount of the Note, together with interest and other amounts owed in respect thereof, to the date of acceleration became, at ComVest’s election, immediately due and payable in cash. On September 8, 2010, the Company entered into a “Forbearance Agreement” with ComVest. Under the Forbearance Agreement, ComVest agreed to forbear the exercise of its rights and remedies under the Loan Agreement until November 30, 2010. The Company made a nonrefundable payment to ComVest of $50,000 upon the execution and delivery of the fee and agreed to make an additional payment of $75,000 by the earlier of November 30, 2010 or the Company’s payment in full of its obligation to ComVest. The above-mentioned fees are included in interest expense in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 31, 2010, respectively. On October 26, 2010, the Company repaid in full the ComVest Loan Agreement from the proceeds from the HSBC Term Loan.

Credit Facility and Revolving Credit Note. Pursuant to the terms of the Loan Agreement, the Credit Facility became available on December 21, 2007 (the “Closing Date”), and the initial maturity date was November 30, 2009. The Company had the option of extending the maturity date of the Credit Facility for one additional year, through November 30, 2010 upon written notice to ComVest provided that no default or event of default had occurred and was continuing at that time, and provided that the maturity date of the Credit Facility had not been accelerated due to prepayment in full of the Term Loan. On September 9, 2009, the Company notified ComVest of its election to extend the maturity date of the credit facility to November 30, 2010.

The Credit Facility provided for borrowing capacity of an amount up to (at any time outstanding) the lesser of the borrowing base at the time of each advance under the Credit Facility, or $1,000,000. The borrowing base at any time was an amount determined in accordance with a borrowing base report the Company was required to provide to ComVest, based upon the Company’s Eligible Accounts and Eligible Inventory, as such terms are defined in the Loan Agreement.

In connection with the Credit Facility, the Company issued a Revolving Credit Note (the “Credit Note”) payable to ComVest in the principal amount of $1,000,000, which bore interest at a rate per annum equal to the greater of (a) the prime rate, as announced by Citibank, N.A. from time to time, plus two percent (2%), or (b) nine and one-half percent (9.5%). The interest rate, which was 9.5% from the Closing Date through December 31, 2008, had been increased from 9.5% to 11% in connection with obtaining a waiver from ComVest for violation of certain loan covenants as described above. As of April 1, 2009, the Company had regained compliance with the loan covenants and the interest rate was reduced from 11% back to 9.5%. The applicable interest rate was increased by four hundred (400) basis points during the continuance of any event of default under the Loan Agreement. Interest was computed on the daily unpaid principal balance and was payable monthly in arrears on the first day of each calendar month commencing January 1, 2008. Interest was also payable upon maturity or acceleration of the Credit Note.

The Company had the right to prepay all or a portion of the principal balance on the Credit Note at any time, upon written notice, with no penalty. The Credit Note was secured pursuant to the provisions of certain Security Documents.

F-18