SOUNDBITE COMMUNICATIONS INC

Lease Commitment

In April 2013, the Company extended its lease through September 2014 for approximately 37,000 square feet of office space for its headquarters in Bedford, Massachusetts. The original terms of the lease commenced in September 2007 and would have expired in September 2013. Based upon the terms of the lease extension, monthly base rent payments of $69,000 will commence in October 2013 for an annual lease commitment of $828,000.

Cost Savings Activity. In order to lower our cost of operations, in early January 2013, we eliminated two research and development positions, four sales and marketing positions and two general and administrative positions. Compensation expense was unaffected by this action in the first quarter of 2013, however, as termination costs offset the cost savings resulting from the reduction in headcount.

We recognized a net loss of $1.4 million for the three months ended March 31, 2013 as compared to $247,000 in the same period of 2012. The difference principally reflects an increase in our operating loss of $157,000, in addition to a decrease in income tax (provision) benefit of $928,000 mainly due to the $887,000 release of valuation allowance against our deferred tax assets in the first quarter of 2012 due to the recognition of deferred tax liabilities related to the acquisition of intangible assets from 2ergo Americas. .

Cash provided by operating activities increased by $1.1 million in the three months ended March 31, 2013, compared to the same period in the prior year. Our operating cash flow in the three months ended March 31, 2013 reflected a net loss of $1.4 million, which included non-cash charges and changes in working capital of $3.0 million consisting primarily of (a) a decrease in accounts receivable, prepaid expenses and other assets of $2.5 million, (b) depreciation and amortization expense of $771,000, and (c) stock-based compensation expense of $292,000, partially offset by a decrease in accounts payable and accrued expenses of $642,000. The decrease in accounts receivable and prepaid expenses mainly reflected the timing of receipts from our clients and the decrease in accounts payable and accrued expenses was due to timing of payments.

Our services involve the storage and transmission of clients’ proprietary information. Cloud-based services such as ours are particularly subject to security breaches by third parties, including attacks on information technology and infrastructure by hackers, viruses, and other disruptions. Breaches of our security measures also might result from employee error or malfeasance or other causes, including as a result of adding new communications services and capabilities to our platforms. In the event of a security breach, a third party could obtain unauthorized access to our clients’ contact list information and other data. Failure to prevent, detect and recover from security breaches also could result in loss of revenues, disruptions in our business, misuse of our assets, loss of trade secrets and confidential information, incurrence of legal claims or proceedings, errors in reporting, inefficiencies in processing, negative media attention, loss of sales, and interference with regulatory compliance.

We rely on information technology and other systems to maintain, use and transmit clients’ proprietary information. Techniques used to obtain unauthorized access or to sabotage systems change frequently, and they typically are not recognized until after they have been launched against a target. As a result, we could be unable to anticipate, and implement adequate preventative measures against, these techniques.