This report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "believe," "hope," "assume," "estimate," "plan," "will" and other similar words and expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements as a result of certain factors, including those described herein and in our most recently filed Annual Report on Form 10-K and other documents filed with the SEC. We undertake no obligation to publicly release any revisions to the forward-looking statements or to reflect events and circumstances after the date of this document.

Critical Accounting Policies, Estimates and Judgments

There have been no material changes in our critical accounting policies, estimates and judgments during the nine month period ended September 30, 2009 compared to the disclosures in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2008, other than as disclosed herein.

Revenue Recognition

From time to time, a customer may return to us some or all of the software purchased. While our software and reseller agreements generally do not provide for a specific right of return, we may accept product returns in certain circumstances. To date, sales returns have been infrequent and not significant in relation to our total revenues. We make an estimate of our expected returns and provide an allowance for sales returns in accordance with ASC 605-15 (formerly SFAS No. 48), Revenue Recognition When Right of Return Exists. Management specifically analyzes our revenue transactions, customer software installation patterns, historical return patterns, current economic trends and customer payment terms when evaluating the adequacy of the allowance for sales returns.

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Results of Operations

Revenues

  Total revenues decreased 9% during the three months ended September 30, 2009,
to $7.5 million, as compared to $8.2 million for the three months ended
September 30, 2008. Total revenues decreased 10% during the nine months ended
September 30, 2009, to $23.7 million, as compared to $26.3 million for the nine
months ended September 30, 2008. A summary of our revenues by geographic region
is as follows (dollars in thousands, unaudited):


                       Software
                       Licenses        %       Services        %        Total         %
Three Months Ended:
September 30, 2009
Americas              $    1,608        60 %   $   2,179        45 %   $  3,787        50 %
Europe                       969        36         1,952        41        2,921        39
Asia Pacific                  86         4           748        14          834        11
Total                 $    2,663       100 %   $   4,879       100 %   $  7,542       100 %
September 30, 2008
Americas              $    1,669        80 %   $   2,428        40 %   $  4,097        50 %
Europe                       384        18         2,740        45        3,124        38
Asia Pacific                  43         2           927        15          970        12
Total                 $    2,096       100 %   $   6,095       100 %   $  8,191       100 %

Nine Months Ended:
September 30, 2009
Americas              $    6,413        74 %   $   6,677        44 %   $ 13,090        56 %
Europe                     1,960        23         6,193        41        8,153        34
Asia Pacific                 303         3         2,169        15        2,472        10
Total                 $    8,676       100 %   $  15,039       100 %   $ 23,715       100 %
September 30, 2008
Americas              $    5,237        61 %   $   7,895        45 %   $ 13,132        50 %
Europe                     2,347        28         7,205        41        9,552        36
Asia Pacific                 937        11         2,629        14        3,566        14
Total                 $    8,521       100 %   $  17,729       100 %   $ 26,250       100 %

We experienced declines in revenues for the nine months ended September 30, 2009 as compared to the same period of 2008 as a result of a decline in general global economic conditions and the fact that we operate in a very competitive industry. Financial comparisons discussed herein may not be indicative of future performance. We believe a significant challenge we face is to persuade prospective customers with limited budgets to purchase our products and services instead of investing in competing IT projects.

Software license revenues increased 29% during the three months ended September 30, 2009, to $2.7 million, as compared to $2.1 million for the three months ended September 30, 2008 due to more license deals closing in the three months ended September 30, 2009 than in the three months ended September 30, 2008, and due to a significant transaction that closed during the three months ended September 30, 2009. Software license revenues increased 2% during the nine months ended September 30, 2009, to $8.7 million, as compared to $8.5 million for the nine months ended September 30, 2008. The increase is attributable to our having closed a significant transaction during the third quarter of 2009.

Services revenues consisting of consulting revenues, customer training revenues and maintenance revenues decreased 21% during the three months ended September 30, 2009, to $4.9 million, as compared to $6.1 million for the three months ended September 30, 2008. Services revenues consisting of consulting revenues, customer training revenues and maintenance revenues decreased 15% during the nine months ended September 30, 2009, to $15.0 million, as compared to $17.7 million for the nine months ended September 30, 2008. Maintenance revenues decreased 18% for the three months ended September 30, 2009, to $3.6 million, as compared to $4.4 million for the three months ended September 30, 2008. Maintenance revenues decreased 16% for the nine months ended September 30, 2009, to $11.2 million, as compared to $13.3 million for the nine months ended September 30, 2008. This decrease in maintenance revenues was due to a decline in the renewal of our customers' annual maintenance commitments, which we believe is primarily due to limitations on customers' IT budgets. Consulting and training revenues decreased 29% for the three months ended September 30, 2009, to $1.2 million, as compared to $1.7 million for the three months ended September 30, 2008. Consulting and training revenues decreased 14% for the nine months ended September 30, 2009, to $3.8 million, as compared to $4.4 million for the nine months ended September 30, 2008. We believe this decrease in consulting revenues is primarily attributable to our existing customers' limited IT budgets.

Cost of Revenues

  Cost of software license revenues includes the costs of product media,
duplication, packaging and other manufacturing costs, as well as royalties
payable to third parties for software that is either embedded in, or bundled and
licensed with our products. Cost of services consists primarily of
employee-related costs, third-party consultant fees incurred on consulting
projects, post-contract customer support and instructional training services. A
summary of our cost of revenues is as follows (dollars in thousands, unaudited):

                       Three Months Ended September 30,                  Nine Months Ended September 30,
                   2009            %(1)       2008        %(1)         2009         %(1)       2008        %(1)
Cost of
software
licenses         $       6            0 %   $     7          0 %   $      26           0 %   $    20          0 %
Cost of
services             1,784           24       2,218         27         5,707          24       6,626         25
Total cost of
revenues         $   1,790           24 %   $ 2,225         27 %   $   5,733          24 %   $ 6,646         25 %


_______________________

Cost of software licenses decreased 14% during the three months ended September 30, 2009, to $6,000, as compared to $7,000 for the three months ended September 30, 2008. Cost of software licenses increased 30% during the nine months ended September 30, 2009, to $26,000, as compared to $20,000 for the nine months ended September 30, 2008. This increase is primarily the result of an increase in the portion of license revenues generated from royalty-bearing products.

Cost of services decreased 18% during the three months ended September 30, 2009, to $1.8 million, as compared to $2.2 million for the three months ended September 30, 2008. Cost of services decreased 14% during the nine months ended September 30, 2009, to $5.7 million, as compared to $6.6 million for the nine months ended September 30, 2008. These decreases are the result of a reduction in consulting expenses and employee related expense resulting from a decrease in services revenue.

Gross margin increased to 76% during the three months ended September 30, 2009 as compared to 73% for the three months ended September 30, 2008. This increase is the result of a reduction in cost of revenue. Gross margin increased to 76% during the nine months ended September 30, 2009, as compared to 75% for the nine months ended September 30, 2008.

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A summary of operating expenses, including as a percentage of total revenues, is set forth in the following table (dollars in thousands, unaudited):

                              Three Months Ended                              Nine Months Ended
                                 September 30,                                  September 30,
                    2009         %(1)       2008         %          2009        %(1)        2008         %
  Research and
  development      $ 2,169         29 %   $ 2,217         27 %   $  6,346         27 %   $  6,863         26 %
  Sales and
  marketing          2,024         27       1,937         24        6,002         25        5,783         22
  General and
  administrative     1,006         13       1,659         20        3,603         15        4,960         19
  Restructuring
  (credit)
  charge                (4 )        0           6         (0 )         50          0          (17 )        0
  Total
  operating
  expenses         $ 5,195         69 %   $ 5,819         71 %   $ 16,001         67 %   $ 17,589         67 %


_______

Research and development expenses remained constant at $2.2 million during the three months ended September 30, 2009, as compared the three months ended September 30, 2008. Research and development expenses decreased 9% during the nine months ended September 30, 2009, to $6.3 million, as compared to $6.9 million for the nine months ended September 30, 2008. This decrease was the result of reductions in contractor related expenses.

Sales and marketing expenses increased 5% during the three months ended September 30, 2009, to $2.0 million, as compared to $1.9 million for the three months ended September 30, 2008. Sales and marketing expenses increased 3% during the nine months ended September 30, 2009, to $6.0 million, as compared to $5.8 million for the nine months ended September 30, 2008. These increases were the result of marketing expansions in 2009.

General and administrative expenses decreased 41% during the three months ended September 30, 2009, to $1.0 million, as compared to $1.7 million for the three months ended September 30, 2008. General and administrative expenses decreased 28% during the nine months ended September 30, 2009, to $3.6 million, as compared to $5.0 million for the nine months ended September 30, 2008. These decreases are primarily a result of a reduction in headcount plus a one-time reduction of approximately $200,000 due to the reversal of an accrued legal fee from the local governmental regulatory entity of our subsidiary for the nine months ended September 30, 2009. The reversal was due to the final settlement with the local subsidiary government's filing and other regulatory requirements.

Interest income, net decreased 75% for the three months ended September 30, 2009, to $117,000, as compared to $478,000 for the three months ended September 30, 2008. Interest income, net decreased 53% for the nine months ended September 30, 2009, to $601,000, as compared to $1,280,000 for the nine months ended September 30, 2008. The decreases are due to a decline in interest rates.

Gain on revaluation of warrants for the three months ended September 30, 2009 was a total gain of $154,000, as compared to a gain of $581,000 for the three months ended September 30, 2008. Gain on revaluation of warrants for the nine months ended September 30, 2009 was $147,000, as compared to a gain of $3,661,000 for the nine months ended September 30, 2008. These changes are primarily due to fluctuations in our stock price during the relevant periods and the reduction in time to maturity.

Other income (expense), net during the three months ended September 30, 2009, was income of $867,000, as compared to expense of $876,000 for the three months ended September 30, 2008. Other income (expense), net during the nine months ended September 30, 2009, was an income of $669,000, as compared to an income of $458,0000 for the nine months ended September 30, 2008. The changes were primarily due to unrealized gain or loss on foreign exchange transactions. Additionally, the quarter ended June 30, 2009, included a reversal of royalty accrual of $290,000 as a result of the statute of limitation expiring as of June 30, 2009.

Benefit (provision) for income taxes expense during the three months ended September 30, 2009, was a benefit of $104,000, as compared to a provision of $41,000 for the three months ended September 30, 2008. Provision for income taxes expense during the nine months ended September 30, 2009, was $116,000, as compared to $328,000 for the nine months ended September 30, 2008. The provision for fiscal year 2009 was primarily related to Federal alternative minimum taxes (AMT) and state income taxes. A component of the expense also includes an accrual related to an ongoing income tax audit of a foreign subsidiary for the tax year ended December 31, 2006 and an offsetting benefit for the release of deferred revenue accrual upon the execution of an income tax accounting method change completed in the third quarter of 2009. Both of these items are accounted for under ASC 740-10 (formerly FIN 48), Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No.109.

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Liquidity and Capital Resources

Overview

We continue to maintain a strong cash position on our Condensed Consolidated Balance Sheet. As of September 30, 2009, we had $63.2 million of cash and cash equivalents and short-term investments with no long-term debt borrowings, as compared to a balance of $61.9 million at December 31, 2008. The increase was due primarily to operations and the $600,000 of cash received from our subtenant relating to the early settlement of termination of the sublease in the nine months ended September 30, 2009.

Revenues for the first nine months of 2009 were $23.7 million, as compared to revenues of $26.3 million for the first nine months of 2008. License revenue for the first nine months of 2009 was $8.7 million compared to $8.5 million for the first nine months of 2008. The majority of our license and subscription revenue for the third quarter of 2009 was generated by our BroadVisionÒBusiness Agility Suite™, Commerce Agility Suite™, QuickSliver™, CLEAR™, and Clearvale™ solutions. We have entered into licensing agreements with new and existing customers, such as the Department of Defence, India; Exempla Healthcare; ClubMed; Siemens AG and several other brand name global customers. License revenues decreased in Europe and Asia Pacific regions as compared to the third quarter of 2008, due to decreased demand for our products and weak macroeconomic conditions.

We continued to focus on expense control in the third quarter of 2009. Operating expenses for the third quarter of 2009 were $5.2 million, as compared to $5.8 million for the third quarter of 2008. For the three months ended September 30, 2009 and 2008, we had a gain of $154,000 and $581,000, respectively, on the revaluation of warrants. For the three months ended September 30, 2009, net income was $1.8 million, or $0.41 per diluted share. This compares to net income of $289,000, or $0.06 per diluted share, for the three months ended September 30, 2008.

The following table represents our liquidity at September 30, 2009 and December 31, 2008 (dollars in thousands):

                                                  September 30,       December 31,
                                                      2009                2008
                                                   (unaudited)
      Cash and cash equivalents                  $        36,085     $       52,884
      Short-term investments                     $        27,094     $        9,004
   Restricted cash, current portion              $            20     $           20
       Restricted cash, net of current portion   $         1,000     $        1,000
       Working capital                           $        54,610     $       51,070
       Working capital ratio                                4.97               3.37

Cash Provided By Operating Activities

Cash provided by operating activities was $1.6 million for the nine months ended September 30, 2009, and was mainly attributable to a $3.3 million operating profit (excluding restructuring charges and revaluation of warrants), a decrease of $2.3 million in accounts receivables and unearned revenue accounts, and an additional $600,000 of cash received from our subtenant relating to the early settlement and termination of the sublease during last quarter. .

Cash provided by operating activities was $8.3 million for the nine months ended September 30, 2008. Net cash provided by operating activities in this period consisted primarily of $3.1 million in operating profit (excluding restructuring charges and revaluation of warrants) generated from sales margin improvement and company-wide cost reduction efforts, plus the increase of $5.2 million in the other areas, such as prepaid, other current assets, unearned revenue accounts, accounts receivable and other liabilities.

Cash Used For Investing Activities

Cash used for investing activities was $18.1 million for the nine months ended September 30, 2009. This figure reflects the purchase of short-term investments in bonds and certificates of deposit. Cash used for investing activities was $70,000 for the nine months ended September 30, 2008. This figure reflects receipt of a $35,000 dividend from a cost method investment previously written off, offset by $105,000 in expenditures for the purchase of property and equipment.

Cash Provided By Financing Activities

Cash provided by financing activities was $409,000 for the nine months ended September 30, 2009, primarily consisting of cash received in employees' purchases of common stock under the Employee Stock Purchase Plan ("Purchase Plan"). Cash provided by financing activities was $594,000 for the nine months ended September 30, 2008, primarily consisting of cash received in connection with the exercise of stock options and employees' purchases of common stock under the Purchase Plan.

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Leases and Other Contractual Obligations

We lease our headquarters facility and other facilities under non-cancelable operating lease agreements expiring through the year 2012. A total of $1.0 million of restricted cash as shown on our Condensed Consolidated Balance Sheets represents collateral for the letter of credit which has been issued in connection with our facility lease obligation.