01 Communique Laboratory Inc. (ONE) is currently involved in two high

profile patent licensing litigations, which could result in significant licensing

revenue and open the door to a broader patent licensing program. ONE has a

suite of products in the remote access services, support and online meeting

markets. These products are protected in part by their patents. ONE plans to

participate in the growth of these markets by continuing to develop and market

products and services to end users, as well as enter into agreements with

competitive companies making use of the Company’s IP rights. We believe the

Company is well positioned to win these legal battles, which could result in large

awards and running royalty agreements that would support much higher share

prices. Given the recent sell-off in the stock, we believe investors should be

opportunistic and acquire positions ahead of potential catalysts in the

LOGM case including the trial set for May 2nd, 2011.

Our $3.00 price target is based on a DCF, which assumes ONE is successful

in signing LogMeIn (LOGM) in 2011, Citrix in 2012, and 30% of the

remaining remote access market by 2014. Our model assumes a royalty rate of

9% and includes back damages at the same rate. We have not included treble

back damages, although ONE is asking the court to consider awarding damages

based on willful infringement. Treble damages would increase our target to $5.34

per share. We have discounted the cash flows at 15% and applied no terminal

multiple past 2022, when the patent expires. Exhibit 1 illustrates the valuation

sensitivity using a royalty range of 5% to 11.5% (industry average), across a

number of different scenarios.

Q1 Results are Essentially Inline

ONE reported Q1/F2011 revenues of $135,265, up 80% year-over-year and

above our $83,000 estimate. This was attributed to an increase in licensing

revenue, likely due to the settlement with Dell. Cash operating expenses

increased 140% year-over-year to $940,224, which was higher than our $236,000

estimate. This was due to higher R&D spend (due to the release of I’m In Touch

Meeting) and higher than expected litigation expenses attributed to the LogMeIn

litigation. While Baker & Hostetler have taken the case on a contingency basis,

ONE has to pay out of pocket expenses, which led to the increase in the quarter.

We believe that Baker & Hostetler has incurred ~$11 million in legal fees so far

across both cases. We expect operating costs to remain at a similar level in

Q2/F2011.

The Company generated EBITDA of ($835,400) and incurred an adjusted

loss of 1¢ per diluted share. This was lower than our estimate of ($153,600) in

EBITDA and break-even bottom line. The Company consumed $142,500 in cash

and exited the quarter with $4.9 million or 8¢ per diluted share. We anticipate

cash to decline again next quarter (~$500K), but for the Company to be cash flow

positive in 2H/F2011 assuming a win in the LogMeIn case. Given the uncertainty

around settlement timing, potential appeals and potential licensees from other

companies there may be significant variability in our quarterly estimates. We

focus on a DCF to value the Company for this reason.

Near-Term Catalysts are Centered on Litigation

The LogMeIn case is fast approaching and we believe that if ONE is

successful, it would set the stage for the rest of the market to take a license.

The LogMeIn case is scheduled to go to trial on May 2nd, 2011. In the meantime,

investors are waiting for a decision on LogMeIn’s Summary Judgment, which

was heard before Judge Hilton on February 25th, 2011. This ruling could be filed

any day now, and if denied, could be a catalyst for the stock. See our note

published on 02/02/2011 “We See Little Merit in LogMeIn’s Motion for

Summary Judgment” for details on LogMeIn’s position and our view as to why

we believe the summary judgment will be denied. As we approach trial, we

expect negotiations between the two parties to intensify.

Judge Lioi could rule on whether to lift the stay on the Citrix case at any

time. While we are uncertain as to the delay in Judge Lioi’s decision, we believe

the stay should be lifted given Judge Hilton (in the LogMeIn case) denied

LogMeIn’s motion to stay the case. Recall Judge Hilton stated “it appears that

the chances of the USPTO reversing the validity of the patent are remote”.

Although the two cases are independent with independent Judges, we believe a

positive ruling in the LogMeIn case may lead to the stay being lifted in the Citrix

case.

Reiterating Strong Buy Rating and $3.00 Target

Our $3.00 Target Includes the Opportunity from Ongoing Litigation

Our price target of $3.00 assumes that LogMeIn takes a license in 2011,

Citrix in 2012 and 30% of the remaining remote access market is signed by

2014, all at a 9% royalty rate. We have used a discount rate of 15%. Investors

should consider that if ONE is successful in signing licensees our discount rate

would decrease, resulting in higher future price target calculations. Our current

target also does not include any potential licenses from the web conferencing,

VoIP, and online gaming markets, which we believe could eventually lead to

additional revenue streams.

Licensing Agreements Would Lead to Strong Operating Leverage

ONE’s operating expenses are very low given the Company has hired Baker

& Hostetler on a contingency basis; therefore successful licensing

agreements would generate strong earnings growth. Assuming ONE is

successful in signing LogMeIn and Citrix, we believe the Company could

generate
.30 of recurring EPS annually. As the Company adds licensees and

meaningful earnings, we believe investors will look to value the Company on an

earnings-basis. Currently the peer group is trading at a P/E multiple of 13x 2011

(see Exhibit 2). Valuing ONE using a similar multiple and
.30 in earnings

power would support a future price target of $3.90.