This discussion and analysis should be read in conjunction with the Company's financial statements and accompanying notes included in this report and the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2008 filed with the SEC on January 14, 2009. Our historic operating results are not necessarily indicative of results that may occur in future periods.

The following discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. These forward-looking statements include, among other things, statements regarding the Company's expected future financial performance, assets, liquidity and trends anticipated for the Company's business. These statements are based on the Company's current expectations, assumptions, estimates and projections about the Company's business and the Company's industry, which are based on information that is reasonably available to the Company as of the date of this report.
Forward-looking statements may include words such as "believes," "anticipates," "expects," "intends," "plans," "will," "may," "should," "estimates," "predicts," "forecasts," "guidance," "potential," "continue" or the negative of such terms or other similar expressions. We caution readers that these forward-looking statements are not assurances of our future performance or financial condition and are subject to and involve significant known and unknown risks, uncertainties and other factors that may cause the Company's actual operating results, financial condition, levels of activity, performance or achievement to be materially different from any future operating results, financial condition, levels of activity, performance or achievements that are expressed, forecasted, projected, implied in, anticipated or contemplated by the forward-looking statements. These known and unknown risks, uncertainties and other factors include, but are not limited to, those risks, uncertainties and factors discussed elsewhere in this report, in the Company's other SEC filings and in

Background and Overview

We design, develop, market and support high performance object-oriented database management systems and provide related maintenance and professional services. Our products and services address the complex data management needs of enterprises and

providers of products requiring data management functions. Our products and services collectively comprise our single operating segment, which we call "Data Management".

Our end-user customers typically use our products to manage data for business systems and to enable these systems to access and integrate data necessary for the customers' data management applications. Our data management products and services offer customers the ability to manage real-time, XML and other types of hierarchical and navigational data. We believe that by using our data management solutions, customers cut their hardware costs, accelerate and simplify their development efforts, significantly reduce administration costs and deliver products with a significant competitive edge.

Our Data Management business is currently comprised of the following key products:

† Versant Object Database or "VOD", previously known as VDS, a seventh generation object database management system that is used in high-performance, large-scale, real-time applications. We also offer several optional ancillary products for use with Versant Object Database to extend Versant Object Database's capabilities, provide compatibility and additional protection of stored data.

† FastObjects, an object-oriented database management system that can be embedded as a high performance component into customers' applications and systems.

† db4o, an open source object database software solution targeted towards the embedded device market.

Our Versant Object Database product offerings are used primarily by larger organizations, such as technology providers, telecommunications carriers, government defense agencies, defense contractors, healthcare companies and companies in the financial services and transportation industries, each of which have significant large-scale data management requirements. With the incorporation of Poet's FastObjects solution into our product line following our March 2004 merger with Poet, we expanded the scope of our solutions to also address the data management needs of smaller business systems. With the recent acquisition of db4o in December 2008, we further expanded the scope of our solutions to include the embedded device market.

Our customers' data management needs can involve many business functions, ranging from management of the use and sharing of a company's internal enterprise data to the processing of externally originated information such as customer enrollment, billing and payment transaction data. Our solutions have also been used to solve complex data management issues such as fraud detection, risk analysis and yield management.

In addition to our product offerings, to assist users in developing and deploying applications based on Versant Object Database, FastObjects and db4o, we offer a variety of services, including consulting, training and technical support services.

We license our products and sell associated maintenance, training and consulting services to end-users through our direct sales force and through value-added resellers, systems integrators and distributors.

In addition to these products and services, we resell related software developed by third parties. To date, substantially all of our revenues have been derived from the following data management products and related services:

† Sales of licenses for Versant Object Database and FastObjects;

† Maintenance and technical support services for our products;

† Consulting and training services;

† Nonrecurring engineering fees received in connection with providing services associated with Versant Object Database;

† The resale of licenses, and maintenance, training and consulting services for third-party products that complement Versant Object Database;

† Reimbursements received for out-of-pocket expenses, which we incurred and are recorded as revenues in our statements of income.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amount of our assets and liabilities at the date of our financial statements and of our revenues and expenses during the reporting period covered by our financial statements. We base these estimates and judgments on information reasonably available to us, such as our historical experience and industry trends, economic and seasonal fluctuations and on our own internal projections that we derive from that information. Although we believe our estimates to be reasonable under the circumstances, there can be no assurances that such estimates will be accurate given that the application of these accounting policies necessarily involves the exercise of subjective judgment and the making of assumptions regarding many future variables and uncertainties. We consider "critical" those accounting policies that require our most difficult, subjective or complex judgments, and that are the most important to the portrayal of our financial condition and results of operations. These critical accounting policies relate to revenue recognition, goodwill and acquired intangible assets, and income taxes.

During the first quarter of fiscal 2009, there were no significant changes in our critical accounting policies and estimates. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended October 31, 2008, filed with the SEC on January 14, 2009 (File No. 09526468) for a more complete discussion of our critical accounting policies and estimates.

Results of Operations

The following table sets forth, for the periods indicated, the percentage relationship of certain items from our condensed consolidated statement of income to total revenues:

                                                                    Three Months Ended
                                                                January 31,    January 31,
                                                                   2009           2008
                                                                       (unaudited)
Revenues:
License                                                                  58 %           63 %
Maintenance                                                              41             35
Professional services                                                     1              2
Total revenues                                                          100            100

Cost of revenues:
License                                                                   1              1
Amortization of intangible assets                                         1              1
Maintenance                                                               7              6
Professional services                                                     1              1
Total cost of revenues                                                   10              9

Gross profit                                                             90             91

Operating expenses:
Sales and marketing                                                      21             13
Research and development                                                 18             17
General and administrative                                               21             17
Total operating expenses                                                 60             47

Income from operations                                                   30             44
Interest and other income, net                                            3              3
Income from continuing operations before taxes                           33             47
Provision for income taxes                                                5              7
Net income from continuing operations                                    28             40
Net income from discontinued operations, net of income taxes              0              1
Net income                                                               28 %           41 %

Revenues



The following table summarizes license, maintenance and professional services
revenues for the three months ended January 31, 2009 and January 31, 2008 (in
thousands, except percentages):



                                                  Three Months Ended
                                  January 31,     January 31,           Change
                                     2009            2008        Amount    Percentage
                                          (unaudited)
Revenues:
License revenues                 $       3,243   $       3,962   $  (719 )        -18 %
Maintenance revenues                     2,314           2,230        84            4 %
Professional services revenues              62              92       (30 )        -33 %
Total                            $       5,619   $       6,284   $  (665 )        -11 %

Total Revenues. Total revenues are comprised of license fees, and revenues from maintenance, consulting, training and other support services. Fluctuations in total revenues are generally attributable to changes in product and customer mix, general trends in

information technology spending, as well as to changes in geographic mix and the corresponding impact of changes in foreign exchange rates. Further, product life cycles impact revenues periodically as old contracts end and new products are released. Our revenues as shown in the above table and in the accompanying statement of income for the three months ended January 31, 2008 included in this report do not include revenues from our disposed WebSphere consulting practice. Instead, as required by generally accepted accounting principles, our financial statements for the three months ended January 31, 2008 report former WebSphere activities as "net income from discontinued operations, net of income taxes".
See NOTE 9 of our "NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" in Item
1 of this Quarterly Report on Form 10-Q.

Our total revenues decreased by $665,000 (or 11%) for the three months ended January 31, 2009 from the corresponding period in fiscal 2008. This decrease resulted primarily from an approximate $719,000 (or 18%) decrease in license revenues offset by an approximate $84,000 (or 4%) increase in maintenance revenues for the three months ended January 31, 2009 compared to the corresponding period in fiscal 2008, and included an approximate $421,000 decrease in revenues (accounting for 63% of the $665,000 decrease in total revenues) resulting from unfavorable foreign currency exchange rate fluctuations.

No customer accounted for more than 10% of our total revenues for the three months ended January 31, 2009. One customer accounted for 23% of our total revenues for the three months ended January 31, 2008.

The inherently unpredictable business cycle of an enterprise software company makes discernment of continued and meaningful business trends difficult. In terms of license revenues, we are still experiencing lengthy sales cycles and customers' preference for licensing our software on an "as needed" basis, versus the historical practice of prepaying license fees in advance of usage, a factor which can adversely affect the amount of our license revenues. License revenues also are a factor in driving the amount of our services revenues, as new license customers typically enter into support and maintenance agreements with us, from which our maintenance revenues are derived.

License. License revenues represent license fees received and recognized from our End-Users and Value Added Resellers.

License revenues were $3.2 million for the three months ended January 31, 2009, a decrease of $719,000 (or 18%) from $4.0 million reported for the comparable period in fiscal 2008. The decrease in license revenues for the three months ended January 31, 2009 compared to the same three-month period in 2008 was mainly attributable to one significant license agreement with an Asia Pacific telecommunications customer (an independent software vendor) for approximately $1.4 million for the three months ended January 31, 2008 for which there was no comparably sized transaction in the first quarter of fiscal 2009, and to an approximate $248,000 decrease in license revenues in the first quarter of fiscal 2009 resulting from unfavorable foreign currency exchange rate fluctuations. These decreases were partially offset by license transactions closed with three European and U.S. customers for the three months ended January 31, 2009 for approximately $437,000, $328,000 and $217,000, respectively.

Maintenance. Maintenance and technical support revenues include revenues derived from maintenance agreements, under which we provide customers with internet and telephone access to support personnel and software upgrades, dedicated technical assistance and emergency response support options.

Maintenance revenues were $2.3 million for the three months ended January 31, 2009, an increase of $84,000 (or 4%) from $2.2 million reported for the comparable period in fiscal 2008. The increase in maintenance revenues was due primarily to approximately $340,000 of back maintenance revenues related to one European customer recognized in the first quarter of fiscal 2009. The increase in maintenance revenues for the three months ended January 31, 2009 was partially offset by an approximate $169,000 decrease in maintenance revenues resulting from unfavorable foreign currency exchange rate fluctuations, and an approximate $74,000 decrease in maintenance revenues related to the non renewal of maintenance agreements with three U.S. customers.

Professional Services. Professional services revenues consist of revenues from consulting, training and technical support as well as billable travel expenses incurred by our professional services organization.

Professional services revenues were $62,000 for the three months ended January 31, 2009, a decrease of $30,000 (or 33%) from $92,000 reported for the comparable period in fiscal 2008. The decrease in professional services revenues for the three months ended January 31, 2009 was mainly attributable to a decrease in consulting revenues from our European operations.

International Revenues. The following table summarizes our revenues by geographic area for the three months ended January 31, 2009 and January 31, 2008 (in thousands, except percentages):

                                       Three Months Ended
                                          January 31,
                                   Percentage                 Percentage             Change
                         2009      of revenues      2008      of revenues     Amount      Percentage
                                         (unaudited)
Revenues by
geographic area:
North America          $  2,096             37 %  $  2,002             32 %  $      94             5 %
Europe                    3,383             60 %     2,689             43 %        694            26 %
Asia                        140              3 %     1,593             25 %     (1,453 )         -91 %
              Total    $  5,619            100 %  $  6,284            100 %  $    (665 )         -11 %

International revenues (revenues from the European and Asian regions) represented approximately 63% of our total revenues for the three months ended January 31, 2009, as compared to 68% for the comparable period in 2008.

For the three months ended January 31, 2009, we experienced a decrease in revenues of approximately $1.5 million (or 91%) from the Asia Pacific region due primarily to the fact that in the first quarter of fiscal 2008 we recognized approximately $1.4 million in revenue from a significant license transaction with a telecommunications customer in that geographic region but had no such comparable transaction in the first quarter of fiscal 2009. We also experienced an increase in revenues of approximately $694,000 (or 26%) from our European operations due primarily to the closing of two license transactions for approximately $654,000 and back maintenance revenues from a European customer for approximately $340,000, which were partially offset by an approximate $421,000 decrease in revenues resulting from unfavorable foreign currency exchange rate fluctuations.

Since the Company's acquisition of Poet Holdings, Inc. in early 2004, we have generally derived a higher percentage of international revenues due to stronger demand for our products in Europe. We expect in the future to experience a somewhat stronger demand for our products in Europe as compared to our other geographic markets.

Cost of Revenues



The following table summarizes total cost of revenues for the three months ended
January 31, 2009 and January 31, 2008 (in thousands, except percentages):



                                                 Three Months Ended
                                            January 31,      January 31,              Change
                                               2009             2008           Amount      Percentage
                                                    (unaudited)
Cost of revenues:
Cost of license                            $          65    $          80    $      (15 )         -19 %
Amortization of intangible assets                     93               79            14            18 %
Cost of maintenance                                  383              384            (1 )           0 %
Cost of professional services                         36               27             9            33 %
Total                                      $         577    $         570    $        7             1 %

Total Cost of Revenues. Total cost of revenues was $577,000 for the three months ended January 31, 2009 remaining at a relatively consistent level in absolute dollars compared to $570,000 for the comparable period in fiscal 2008.

License. Cost of license revenues consists primarily of royalties, the cost of third party products which we resell to our customers, product media and packaging costs.

Cost of license revenues was $65,000 (or 2% of license revenues) for the three months ended January 31, 2009 remaining at a relatively consistent level compared to $80,000 (or 2% of license revenues) reported for the comparable period in fiscal 2008.

Amortization of Intangible Assets. Amortization of intangible assets consists of the amortization of intangible assets from our fiscal 2009 acquisition of db4o and fiscal 2004 acquisitions of Poet Holdings, Inc., FastObjects, Inc. and JDO Genie technology.

Amortization of intangible assets was $93,000 for the three months ended January 31, 2009, an increase of $14,000 (or 18%) from $79,000 reported for the comparable period in 2008. The increase was primarily due to the amortization of intangible assets recorded from the acquisition of db4o during the three months ended January 31, 2009. We expect to incur quarterly amortization charges of approximately $108,000 for the second quarter of fiscal 2009, and $95,000 and $77,000 for the third and fourth quarters of fiscal 2009, respectively.

Maintenance.Cost of maintenance revenues consists primarily of customer support personnel and related expenses, including payroll, employee benefits and allocated overhead.

Cost of maintenance revenues was $383,000 (or 17% of maintenance revenues) for the three months ended January 31, 2009 remaining at a relatively consistent level in absolute dollars compared to $384,000 (or 17% of maintenance revenues) reported for the comparable period in fiscal 2008. Cost of maintenance revenues as a percentage of maintenance revenues remained at the same level for the three months ended January 31, 2009 from the corresponding period in fiscal 2008, although maintenance revenues for the three months ended January 31, 2009 increased by 4% over revenues for the corresponding period in fiscal 2008.

Professional Services.Cost of professional services consists of salaries, bonuses, third party consulting fees and other costs associated with supporting our professional services organization.

Cost of professional services revenues was $36,000 (or 58% of professional services revenues) for the three months ended January 31, 2009 remaining at a relatively consistent level in absolute dollars compared to $27,000 (or 29% of professional services revenues) reported for the comparable period in fiscal 2008.

Operating Expenses



The following table summarizes our operating expenses for the three months ended
January 31, 2009 and January 31, 2008 (in thousands, except percentages):



                                   Three Months Ended
                              January 31,      January 31,           Change
                                 2009             2008         Amount    Percentage
                                      (unaudited)
Operating expenses:
Sales and marketing          $       1,186    $         841   $    345           41 %
Research and development               993            1,054        (61 )         -6 %
General and administrative           1,187            1,086        101            9 %
Total                        $       3,366    $       2,981   $    385           13 %

Total Operating Expenses. Total operating expenses were $3.4 million for the three months ended January 31, 2009, an increase of $385,000 (or 13%) from $3.0 million reported for the comparable period in 2008. This increase resulted primarily from an increase in our sales and marketing expenses and, to a lesser degree, from an increase in our general and administrative expenses, and were partially offset by a decrease of approximately $61,000 in our research and development expenses during the three months ended January 31, 2009, and included an approximate $253,000 decrease in operating expenses resulting from favorable foreign currency exchange fluctuations.

For the remainder of fiscal year 2009, we expect our overall quarterly operating expenses to be moderately lower than we experienced in the first quarter of this fiscal year as further explained below.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel and personnel related expenses, commissions earned by sales personnel, trade shows, travel and other marketing communication costs, such as advertising and other marketing programs.

Sales and marketing expenses were $1.2 million (or 21% of revenues) for the three months ended January 31, 2009 and $841,000 (or 13% of revenues) for the comparable period in fiscal 2008. The $345,000 (or 41%) increase in absolute dollars for the three months ended January 31, 2009 was primarily due to an approximate $275,000 non recurring separation payment made to a former

sales executive in the first quarter of fiscal 2009, an approximate $32,000 increase in salary and related expenses and consulting fees for one employee and two consultants added in connection with our acquisition of the db4o business assets, and an approximate $16,000 increase in marketing expenses related to advertising campaigns for db4o. These increases were partially offset by a decrease of approximately $91,000 due to favorable foreign currency exchange fluctuations. As db4o was acquired on December 1, 2008, only two months of sales and marketing expenditures as described above is reflected in the Company's statement of income for the three months ended January 31, 2009.

For the remainder of fiscal 2009, we expect our quarterly sales and marketing expenses to decrease moderately due primarily to the non recurring separation payment made in the first quarter of fiscal 2009, offset to a lesser degree by incremental costs related to db4o. Sales and marketing expense will continue to . . .