The section entitled "Management's Discussion and Analysis" set forth below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will," or "shall," or the negative of those terms. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements involve certain risks and uncertainties and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described under the heading

"Risk Factors" in Item 1A of this Annual Report on Form 10-K and, elsewhere in this Annual Report on Form 10-K. The forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to statements about the following: (1) our future success, (2) our research and development efforts,
(3) our future operating results and cash flow, (4) our ability to compete,
(5) the markets in which we operate, (6) our revenue, (7) cost of license revenue and cost of service revenue, (8) our selling and marketing costs,
(9) our general and administrative expenses (10) our research and development expenses, (11) the effect of critical accounting policies,(12) the possibility that we may seek to take advantage of opportunities in the equity and capital markets, (13) our belief that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements through the foreseeable future, (14) our focus on the continued development and enhancement of new product lines, including search technology and social media tools, and identification of new and emerging technology areas and discussions with channel partners for the sale and distribution of new product lines, (15) the effect of recent changes in tax laws on our financial statements, and (16) the possibility that we may seek to take advantage of strategic acquisition opportunities. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement. This discussion and analysis of the financial statements and results of operations should be read in conjunction with our audited consolidated financial statements, including the related notes thereto, contained elsewhere in this Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities.
On an on-going basis, we evaluate our estimates, including those related to revenue recognition and accounting for goodwill. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We have identified the accounting policies below as the policies critical to our business operations and the understanding of our results of operations. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements:
REVENUE RECOGNITION. We recognize revenue using the residual method. Under the residual method, revenue is recognized in a multiple element arrangement when company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. At the outset of the arrangement with the customer, we defer revenue for the fair value of our undelivered elements (e.g., maintenance) based on company-specific objective evidence of the amount at which such items are sold individually to our customers and recognize revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (e.g., software license) when the basic criteria of revenue recognition has been met.
Revenue attributable to an element in a customer arrangement is recognized when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable, collectability is probable and the arrangement does not require significant customization of the software. If, at the outset of the customer arrangement, we determine that the arrangement fee is not fixed or determinable, we defer the revenue and recognize the revenue when the arrangement fee becomes due and payable. Service revenue relates primarily to consulting services, maintenance and training. Maintenance revenue is initially deferred and then recognized ratably over the term of the maintenance contract, typically 12 months. Consulting and training revenue is recognized as the services are performed and is usually calculated on a time and materials basis. Such services primarily consist of implementation services related to the installation of our products and do not include significant customization to, or development of, the underlying software code. We do not have price protection programs, conditional acceptance agreements, and sales of our products are made without right of return. For contracts that require significant modification or customization to the software in accordance with customers' specifications, we recognize revenue using the completed-contract method. Under this method, revenue and expenses are deferred until customer acceptance of the finished product occurs. There was no revenue recognized using the completed-contract method for fiscal years 2012, 2011 or 2010.
GOODWILL. We assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable and at least annually during the fourth quarter of each fiscal year. Factors we consider to be important that would trigger an impairment review include the following:
• Significant underperformance relative to expected historical or projected future operating results;

• Timing of our revenue, significant changes in the manner of use of the acquired assets or the strategy for the overall business;

• Significant negative industry or economic trends;

• Significant decline in our stock price for a sustained period; and

• Our market capitalization falling below our net book value for a sustained period.

We do not amortize goodwill, but test for goodwill impairment following a two-step process. The first step is used to identify potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. Currently, we have one reporting unit for goodwill impairment testing. Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. Estimates of enterprise fair value are currently based on our stock price as reported by Nasdaq given our single reporting unit structure. No impairment of goodwill has been identified during any of the periods presented as the enterprise fair value significantly exceeded its carrying value. Due to the current adverse global economic conditions, we continue to monitor the fair value of our reporting unit to identify any potential goodwill impairment.
EMPLOYEE STOCK-BASED COMPENSATION. Share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period. We estimate the fair value of stock-based awards using a Black-Scholes valuation model. Determining the fair value of share-based awards at the grant date requires judgment, including estimating volatility, expected terms, and forfeitures. Volatility is estimated based on historical experience. Expected terms are based on historical experience and consideration of the awards' contractual terms, vesting schedule and future expectations. Forfeitures are based on our actual forfeiture rate as well as management judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted. See Note 5 in the accompanying consolidated financial statements under the subheading "Stock-Based Compensation".
INCOME TAXES. Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax bases of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Due to uncertainties surrounding the timing of realizing the benefits of the net operating loss carryforwards and tax credits in the future, we carry a full valuation allowance against net deferred tax assets in domestic and foreign jurisdictions, except France and Germany.
We accrue for uncertain tax positions when income tax positions do not meet a more-likely-than-not recognition threshold upon the application of the appropriate tax rules and in subsequent periods. Developments such as case law, changes in tax law, new rulings or regulations issued by taxing authorities, and interactions with the taxing authorities could affect whether a position should be recognized or the amount that should be reported.

RESULTS OF OPERATIONS
The following table sets forth certain Consolidated Statement of Operations data in total dollars, as a percentage of total net revenues and as a percentage change from the same period in the prior year. Cost of license revenues and cost of service revenues are expressed as a percentage of the related revenues. This information should be read in conjunction with the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

                                 Year Ended March 31, 2012                      Year Ended March 31, 2011                Year Ended March 31, 2010
                                             % of Net                                       % of Net                                        % of Net
                             Results         Revenues     % Change          Results         Revenues     % Change         Results           Revenues
                          (In thousands)                                 (In thousands)                               (In thousands)
Net revenues
Licenses                 $       3,974          30  %         (9 )%     $        4,378         32  %          4  %   $        4,223            30  %
Services                         9,372          70  %          1  %              9,292         68  %         (4 )%            9,714            70  %
Total net revenues              13,346         100  %         (2 )%             13,670        100  %         (2 )%           13,937           100  %
Operating expenses
Cost of revenues:
Cost of license revenues
(as a % of license
revenues)                           13           -  %        (24 )%                 17          -  %         31  %               13             -  %
Cost of service revenues
(as a % of service
revenues)                        1,823          19  %          6  %              1,714         18  %          1  %            1,700            18  %
Selling and marketing            5,202          39  %         12  %              4,637         34  %          7  %            4,337            31  %
Research and development         5,887          44  %         (1 )%              5,956         44  %         (3 )%            6,140            44  %
General and
administrative                   3,806          29  %         (9 )%              4,175         31  %          1  %            4,129            30  %
Total operating expenses        16,731         125  %          1  %             16,499        121  %          1  %           16,319           117  %

REVENUE
NET REVENUE. Our revenue is derived principally from two sources: fees from software licensing and fees for post contract technical support. We generally license our database and rapid application development software primarily on a per-CPU, per-server, per-port or per-user basis. Therefore, the addition of CPUs, servers, ports or users to existing systems increases our revenue from our installed base of licenses. Similarly, the reduction of CPUs, servers, ports or users from existing systems decreases our revenue from our installed base of customers. The timing of orders and customer ordering patterns has resulted in fluctuations in license revenue between quarters and year-to-year. Total revenue decreased by $0.3 million or 2%, for each fiscal year 2012 and 2011 when compared with the same periods in prior years. The decrease in license revenue in fiscal year 2012 of approximately $0.4 million or 9% was primarily due to lower orders of licenses from our existing customer base as fewer new users were added. The slight increase in service revenue in fiscal year 2012 of approximately $0.1 million or 1% was primarily due to higher professional services provided. The increase in license revenue in fiscal year 2011 of approximately $0.2 million or 4% was primarily due to customers' positive response to our newly introduced volume purchase plan of our Omnis product line. The decrease in service revenue in fiscal year 2011 of approximately $0.4 million or 4% was primarily due to non-renewal of support services from our existing customer base as a result of the continued challenging economic conditions and customers moving to other platforms.
We have been actively developing and marketing our newer product lines, including yolink and Postano. Revenue from these new products has been immaterial for the fiscal year ended March 31, 2012, and no revenue was recognized in the same periods in the prior years. While we are committed to research and development efforts that are intended to allow us to penetrate new markets and generate new sources of revenue, such efforts may not result in additional products, services or revenue. We can give no assurances as to customer acceptance of any new products or services, or the ability of the current or any new products and services to generate revenue.

OPERATING EXPENSES
COST OF LICENSE REVENUE. Cost of license revenue is comprised of direct costs associated with software license sales including software packaging, documentation, physical media costs and royalties. Cost of license revenue for fiscal year 2012 decreased by $4,000 or 24% when compared with fiscal year 2011 primarily due to lower TigerLogic Dashboard product royalties. Cost of license revenue for fiscal year 2011 increased by $4,000 or 31% when compared with fiscal year 2010 primarily due to increase in royalties relating to our TigerLogic Dashboard product that was released in August 2010.

COST OF SERVICE REVENUE. Cost of service revenue includes primarily personnel costs relating to consulting, technical support and training services. Cost of service revenue for the fiscal year 2012 increased $0.1 million or 6% when compared to the same period in prior year due to higher stock compensation expense for new stock options issued at the beginning of the fiscal year 2012, and higher travel expense to train new employees in our office in the United Kingdom. Cost of service revenue remained consistent in fiscal year 2011 when compared with fiscal year 2010.

SELLING AND MARKETING. Selling and marketing expense consists primarily of salaries, benefits, advertising, trade shows, travel and overhead costs for our sales and marketing personnel. Selling and marketing expense for the fiscal year 2012 increased approximately $0.6 million or 12% when compared to the same period in the prior year. The increase was due to higher personnel cost of approximately $0.4 million from added headcount, and higher marketing expenses relating to the Postano product of approximately $0.1 million, and higher lease expense for our office in Portland of approximately $0.1 million due to a new lease which became effective at the beginning of the fiscal year 2012. Selling and marketing expense for the fiscal year 2011 increased approximately $0.3 million or 7% when compared to the same period in the prior year. The increase was primarily due to higher salary expense of $0.2 million from headcount additions, higher consulting expense of $0.1 million for yolink and Postano product lines, and higher stock-based compensation expense of $0.2 million due to new stock options granted during the year. This increase was partially offset by lower marketing design expense of $0.2 million.

We anticipate that selling and marketing costs related to the yolink and Postano product lines may increase as we further develop the sales channels for these products and if customer acceptance of these products increases. In addition, if our continued research and development efforts are successful, including with respect to our yolink and Postano product lines, and as new products or services are created, we may incur increased sales and marketing expense to promote those new products in future periods.
RESEARCH AND DEVELOPMENT. Research and development expense consists primarily of salaries and other personnel-related expenses and overhead costs for engineering personnel, including employees in the United States and the United Kingdom and contractors in the United States. Research and development expense for the fiscal year 2012 decreased slightly by $0.1 million or 1% mainly due to lower depreciation and amortization expense of $0.2 million as our purchased software was fully amortized and certain computer equipment was also fully depreciated in the preceding year. Consulting expense also decreased by approximately $0.1 million, while personnel expense increased $0.1 million due to new hire in our United Kingdom office. Stock compensation expense also increased approximately $0.1 million due to new options issued to employees at the beginning of the fiscal year 2012. Research and development expense decreased approximately $0.2 million or 3% for the fiscal year 2011 when compared to the same period in the prior year mainly due to lower facility expense.
We are committed to our research and development efforts and expect research and development expenses to increase in future periods as we investigate further applications and delivery options for the yolink technology and Postano social media products, and as we build new technology platforms for our RAD product line and continue enhancing our MDMS product line. Such efforts may not result in additional new products, and new products may not generate sufficient revenue, if any, to offset the research and development expense. GENERAL AND ADMINISTRATIVE. General and administrative expense consists primarily of costs associated with our finance, human resources, legal and other administrative functions. These costs consist principally of salaries and other personnel-related expenses, professional fees, depreciation and overhead costs. General and administrative expense for the fiscal year 2012 decreased $0.4 million or 9% when compared to the same period in the prior year mainly due to lower legal expense of approximately $0.5 million as certain litigation matters ended in the prior year. This decrease was offset by an increase in stock option expense of approximately $0.1 million due to new options issued to employees at the beginning of the fiscal year 2012. General and administrative expense for fiscal year 2011 was consistent when compared to the same period in the prior year.
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of gains and losses on foreign currency transactions. Other income (expense) increased from $1,000 of expense in fiscal year 2011 to $64,000 of expense in fiscal year 2012 due to currency fluctuation of the British Pound and the Euro during fiscal year 2012 . Beginning in December 2009, the effect of foreign exchange rate changes on intercompany balance outstanding as of December 8, 2009, denominated in British Pounds, are accumulated in a separate component of equity as part of other comprehensive loss based on our determination that the settlement of this intercompany balance is not planned or anticipated in the foreseeable future and is therefore considered long-term in nature. Due to this approach and the fluctuation in British Pound exchange rate, other income (expense) for the fiscal year 2011 decreased to approximately $1,000 expense from approximately $777,000 of income when compared to the same period in the prior year. Due to the uncertainty in exchange rates, we may experience transaction gains or losses in future periods, the effect of which cannot be predicted at this time.

PROVISION FOR INCOME TAXES. Our effective tax benefit (expense) rate was
(2.8)% , (5.3%), and 0.1% for the fiscal years 2012, 2011, and 2010, respectively. The decrease in income tax provision for the fiscal year 2012 when compared to the fiscal year 2011 was due to lower earnings from our foreign subsidiaries, and the reduction to zero from $38,000 in the prior year in our uncertain tax position related to our German subsidiary. The increase in income tax provision for fiscal year 2011 when compared to fiscal year 2010 was due to higher earnings from our foreign subsidiaries, a $49,000 provision-to-return true up for our French subsidiary, and an increase in our uncertain tax position of $38,000 related to our German subsidiary.

Realization of deferred tax assets depends upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, we have offset our net deferred tax assets which are not more-likely-than-not to be realized with a valuation allowance. The utilization of our net operating losses could be subject to substantial annual limitation as a result of certain future events, such as acquisition or other significant equity events, which may be deemed as a "change in ownership" under the provisions of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations could result in the expiration of net operating losses and tax credits before utilization.

During the year ended March 31, 2012, the German tax authorities closed a tax audit of our subsidiary in Germany for the fiscal years 2005 to 2007, which resulted in a net tax expense of approximately $82,000. We also paid approximately $570,000 of the withholding tax for the fiscal years 2005-2011, which we believe to be fully refundable. As of March 31, 2012, we have received approximately $496,000 of the refund from the German tax authorities.

LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2012, we had $8.9 million in cash, of which approximately $0.6 million was held by our foreign subsidiaries and, if repatriated, would not be subject to material tax consequences. We believe that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements for the remainder of the fiscal year ending March 31, 2013 and through the foreseeable future. We are committed to research and development and marketing efforts that are intended to allow us to penetrate new markets and generate new sources of revenue and improve operating results. However, our research and development and marketing efforts have required, and will continue to require, cash outlays without the immediate or short-term receipt of related revenue. Our ability to meet our expenditure requirements is dependent upon our future financial performance, and this will be affected by, among other things, prevailing economic conditions, our ability to penetrate new markets and attract new customers, market acceptance of our new and existing products and services, the success of research and development efforts and other factors beyond our control.

On December 7, 2009, we entered into an amendment to our lease agreement dated November 9, 2004 with The Irvine Company relating to office space in Irvine, California. The amendment modified certain terms of the original lease as follows: (a) the lease term was extended to October 31, 2015; (b) the lease completely terminated as to the approximately 14,000 square foot portion of the premises from the original 29,000 square feet space; and (c) commencing on March 1, 2010, the total base rent over the new lease amendment term became approximately $1.5 million. The annual base rent ranges from approximately $215,000 during the first year to approximately $299,000 during the last year of the lease. The rent expense is being recognized on a straight line basis over the new lease term.
Effective May 1, 2010, we entered into a three-year term lease for approximately 4,500 square feet of office space located in Mountain View, California. Total base rent over the three-year term ending April 30, 2013 is approximately . . .