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 (the "Securities Act"), 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 Form 10-Q and elsewhere in this Form 10-Q. The forward-looking statements contained in this Form 10-Q include, but are not limited to statements about the following:
(1) our future success, (2) our ability to integrate acquired products and technologies and realize the anticipated synergies from the acquired businesses
(3) our research and development efforts, (4) our future operating results and cash flow, (5) our ability to compete, (6) the markets in which we operate,
(7) our revenue, (8) cost of license revenue and cost of service revenue,
(9) our selling and marketing costs, (10) our general and administrative expenses (11) our research and development expenses, (12) the effect of critical accounting policies,(13) the possibility that we may seek to take advantage of opportunities in the equity and capital markets, (14) our belief that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements through the foreseeable future, (15) our focus on the continued development and enhancement of new product lines, including search technology and social media products, and identification of new and emerging technology areas and discussions with channel partners for the sale and distribution of new product lines, (16) the effect of recent changes in tax laws on our financial statements, and (17) 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.

Overview

We were incorporated in the State of Delaware in August 1987. We were originally incorporated as Blyth Holdings, Inc. and our name was changed to Omnis Technology Corporation in September 1997. Effective December 1, 2000, we completed the acquisition of PickAx, Inc., a Delaware corporation ("PickAx"). Concurrent with the acquisition, we changed our name to Raining Data Corporation. On April 17, 2008, we changed our name to TigerLogic Corporation. Reference to "we," "our," "us" or the "Company" in this Form 10-Q means TigerLogic Corporation and our subsidiaries.

On January 17, 2013, we completed our acquisition of Storycode, Inc, a privately held mobile app publishing company. Pursuant to the terms of the Agreement and Plan of Merger dated December 27, 2012, as amended (the "Merger Agreement"), Storycode became a wholly-owned subsidiary. In accordance with the Merger Agreement, we issued an aggregate of 1,696,329 shares of our common stock with a fair value of approximately $3.9 million and may issue an additional 444,468 shares with a fair value as of the acquisition closing date of approximately $1.0 million, subject to an 18-month holdback pursuant to the Merger Agreement, which holdback share number may be adjusted from time to time. We also substituted 822,320 options to purchase our common stock for options to purchase Storycode's common stock. In addition, we made cash payments aggregating approximately $0.5 million, of which $100,000 was paid to Storycode during the quarter ended December 31, 2012 in the form of a bridge loan and applied to the purchase price at closing. We are currently in the process of determining the amount that will be recorded as purchase consideration and the allocation of the total purchase consideration to the tangible and intangible net assets acquired. We intend to integrate Storycode's technology into our Postano social media visualization platform to create, what we believe, will be a new kind of social platform with unique mobile distribution capabilities. This new platform will be designed to allow brands to use original and fan-generated content to develop engaging experiences across the worldwide web, live events, and mobile environment. In addition to the complimentary technology, the Storycode team brings to us additional expertise in the areas of user experience, data visualization,and creative services.

Products

Our principal business consists of 1) the design, development, sale, and support of software infrastructure; 2) Internet search enhancement tools; and 3) a social media visualization platform. Our products allow customers to create and enhance flexible software applications for their own needs. Our database and rapid application development software may be categorized into the following product lines: Multidimensional Database Management Systems ("MDMS") and Rapid Application Development ("RAD") software tools. Many of our database software products are based on the proprietary Pick Universal Data Model ("Pick UDM") and are capable of handling data from many sources. Our Internet search enhancement tools include the yolink browser plug-in, yolink API for web sites, and yolink search plug-in for WordPress sites. Our Postano product is a real-time social media visualization platform. We intend to integrate Storycode's mobile app technology into the Postano social media visualization platform to create a new kind of interactive social platform for brands to easily and quickly create immersive mobile applications.

We primarily sell our database and rapid application development software products through established distribution channels consisting of OEMs, system integrators, specialized vertical application software developers and consulting organizations. Our Internet search enhancement tools and social media visualization platform are generally sold through our web sites, as well as through co-marketing arrangements with third parties. We also sell all of our products directly through our sales personnel to end user organizations. Outside the United States, we maintain direct sales offices in the United Kingdom, France and Germany. We generally license our database and rapid application development software on a per-CPU, per-server, per-port or per-user basis. We license our yolink and Postano product lines at prices based on usage measured in a variety of ways. We may make both our yolink and Postano products available to users for free under certain circumstances. We also provide continuing software maintenance and support, and other professional services relating to our products, including consulting and training services. The majority of our revenue to date has been principally derived from MDMS and RAD software products. For the three and nine months ended December 31, 2012, approximately 30% and 29%, respectively, of our revenue came from sales through our offices located outside the United States, and no single customer accounted for more than 10% of our revenue.

In addition, one of the elements of our business strategy involves expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, or enhance our technological capabilities. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the acquisitions or dispositions of assets and technology, including tangible and intangible assets such as intellectual property.

TigerLogic Postano and Storycode

Postano is a real-time social media visualization platform, integrated with our yolink search technology that allows companies and individuals to collect content from various social media sources, and to display that content either within existing web pages hosted by us, or within existing web pages hosted by others, or in interactive tabs on Facebook. In addition, brands use Postano during marketing events and promotions to increase audience participation and engagement by displaying fan-generated live tweets, Instagram photos and more, in real-time. Postano is designed primarily for commercial use, with pricing based on a number of factors including, the number of Postanos, features and support levels desired. Through December 31, 2012, revenue recognized from Postano product has been immaterial.

We intend to integrate Storycode's mobile applications technology into the Postano social media visualization platform to create what we believe, will be a new kind of interactive social platform. This new platform will be designed to allow the use of original and fan-generated content to develop interactive experiences for consumers across the web, live events, and mobile environment to drive improved consumer loyalty with visually based engagement in real-time.

TigerLogic Yolink

Yolink is a next-generation search enhancement technology that increases the effectiveness of search functionality across web sites and services. Yolink can search both structured markup, such as HTML, and binary code documents as well as unstructured, raw text documents by layering a common semantic model across them, and using this to organize and effect full-text searches across documents. Yolink searches behind links and through web sites to retrieve content based on keyword search terms. To facilitate the user's review of search results, each keyword is highlighted with a unique color. This capability is especially useful for reviewing and searching through the many web pages that contain hundreds, if not thousands, of embedded hyperlinks. Yolink technology can be applied to many platforms and Internet delivery methodologies. Yolink application programming interfaces (known as APIs) allow developers to integrate yolink search technologies with their web sites, services or applications. Yolink is available for download at www.yolink.com. Through December 31, 2012, revenue recognized from the yolink search technology has been immaterial.

Multi-dimensional Databases (MDMS)

The MDMS product line consists principally of the D3 Data Base Management System ("D3"), which runs on many operating systems, including IBM AIX, Linux and Windows. D3 allows application programmers to create new business solution software in less time than it normally takes in many other environments. Our MDMS products also include mvEnterprise, a scalable multi-dimensional database solution that allows the user to leverage the capabilities of the UNIX operating system, and mvBase, a multi-dimensional database solution that runs on all Windows platforms.

Version 9.0 of D3 and version 3.0 of mvBase, released in September 2010, include bundled support for .NET, providing developers a cost effective solution for developing applications utilizing Microsoft Visual Studio; and bundled support for Java, allowing development of applications utilizing Java.

The TigerLogic Dashboard, released in August 2010, is a development tool that allows Pick UDM developers to create intuitive and web-based graphical displays of multi-value data via dashboard and widget creation utilizing Pick/BASIC programming language.

Rapid Application Development (RAD) Software Tools

Our RAD products support the full life cycle of software application development and are designed for rapid prototyping, development and deployment of graphical user interface ("GUI") client/server and web applications. The RAD products - Omnis Studio and Omnis Classic - are object-oriented and component-based, providing the ability to deploy cross-platform applications on operating system platforms and database environments.

In March 2012, we released version 5.2 of Omnis Studio featuring a new JavaScript based Client technology that enables developers to create leading-edge mobile applications. The Omnis JavaScript Client uses scripting compatible with HTML5 and CSS3 to enable support for all popular browsers and devices, including tablets, smartphones, desktops, and web-enabled TVs. Omnis-based applications are developed once and deployed to any device, on any platform, including Android, iOS, Mac OS, Linux and Windows, with no plug-in installation required.

Technical Support

Many of our products are used by our customers to build and deploy applications that may become a critical component of their business operations. As a result, continuing to provide customers with technical support services is an important element of our business strategy. Customers who participate in our support programs receive periodic maintenance releases on a when-and-if available basis and direct technical support when required.

Research and Development

We have devoted significant resources to the research and development of our products and technology. We believe that our future success will depend largely on strong development efforts with respect to both our existing and new products, as well as the efforts to integrate and further develop Storycode technology. These development efforts have resulted in updates and upgrades to existing MDMS and RAD products and the launch of new products including the yolink search technology and Postano social media visualization product lines. We expect to continue our research and development efforts in all product lines for the foreseeable future. We intend for these efforts to improve our future operating results and increase cash flow. However, such efforts may not result in additional new products or revenue, and we can make no assurances that the recently announced products or future products will be successful. Similarly, we can make no assurances that we will be able to successfully integrate Storycode products and technology or that any such products will receive market acceptance or result in revenue growth. We spent approximately $1.3 million and $3.8 million on research and development during the three and nine months ended December 31, 2012, respectively.

Competition

The application development tools software market is rapidly changing and intensely competitive. Our MDMS products compete with products developed by companies such as Oracle, Microsoft, and Rocket Software. Our RAD products currently encounter competition from several direct competitors, including Microsoft, and competing development environments, including JAVA. Direct competitors of our yolink search technology include Google, Yahoo, Microsoft, AOL, and Ask, as well as a number of smaller companies with products that directly and indirectly compete with our yolink search technology. Our Postano social media visualization product competes with products developed by companies such as Facebook and Twitter, as well as a number of smaller companies in the emerging social media marketplace. Direct competitors of our Storycode technology include companies such as salesforce and Oracle. Most of our competitors have significantly more financial, technical, marketing, and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies, evolving markets and changes in customer requirements, and may devote greater resources to the development, promotion, and sale of their products. We believe that our ability to compete in the various product markets depends on factors both within and outside our control, including the timing of release, performance and price of new products developed by both us and our competitors. Although we believe that we currently compete favorably with respect to most of these factors, we may not be able to maintain our competitive position against current and potential competitors, especially those with greater resources.

We continue to focus on growth in new market opportunities, such as the mobile application for our Postano product line, while also continuing to meet the needs of our loyal customer base by investing in the development of new upgrades and updates for our existing MDMS and RAD product lines. While we have experienced lower license revenue for our MDMS and RAD product lines, we believe that our relatively stable services revenue and prudent management of expenditures will continue to provide sufficient working capital balances to fund new product initiatives aimed at increasing stockholder value.

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 and income taxes. 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 related to the areas below as the policies critical to our business operations and the understanding of our results of operations and how the related judgments and estimates affect the preparation of our consolidated financial statements:

†          Revenue Recognition

†          Goodwill

†          Employee Stock-Based Compensation

†          Income Taxes

These critical accounting policies are described in our Form 10-K for the fiscal year ended March 31, 2012 and there have been no changes in our application of these policies during the nine months ended December 31, 2012. We anticipate adding accounting policies relating to business combinations and intangible assets for the fiscal year ending March 31, 2013.

Results of Operations

The following table sets forth certain unaudited Condensed Consolidated Statement of Operations data in total dollars, as a percentage of total net revenues and as a percentage change from the same periods 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 unaudited Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.

                                      Three Months Ended                Three Months Ended               Nine Months Ended                Nine Months Ended
                                       December 31, 2012                December 31, 2011                December 31, 2012                December 31, 2011
                                             % of Net    Percent                    % of Net                    % of Net    Percent                   % of Net
                                Results      Revenues     Change       Results      Revenues       Results      Revenues     Change      Results       Revenues
                                  (In                                    (In                         (In                                   (In
                               thousands)                             thousands)                  thousands)                            thousands)
Net revenues
Licenses                      $        962          30 %       -6 %  $      1,027          31 %  $      2,867          30 %      -5 %  $      3,003          30 %
Services                             2,246          70 %       -4 %         2,331          69 %         6,781          70 %      -4 %         7,058          70 %
Total net revenues                   3,208         100 %       -4 %         3,358         100 %         9,648         100 %      -4 %        10,061         100 %
Operating expenses
Cost of revenues:
Cost of license revenues
(as a % of license
revenues)                                2           0 %      -33 %             3           0 %             6           0 %     -33 %             9           0 %
Cost of service revenues
(as a % of service
revenues)                              405          18 %       -7 %           435          19 %         1,229          18 %     -12 %         1,394          20 %
Selling and marketing                1,062          33 %      -18 %         1,290          38 %         3,175          33 %     -18 %         3,850          38 %
Research and development             1,284          40 %      -14 %         1,485          44 %         3,783          39 %     -13 %         4,353          43 %
General and administrative           1,130          35 %       27 %           890          27 %         3,082          32 %       8 %         2,863          28 %
Total operating expenses             3,883         121 %       -5 %         4,103         122 %        11,275         117 %     -10 %        12,469         124 %
Operating loss                        (675 )       -21 %       -9 %          (745 )       -22 %        (1,627 )       -17 %     -32 %        (2,408 )       -24 %
Other income (expense)-net              18           1 %      143 %           (42 )        -1 %           (13 )         0 %     -81 %           (69 )        -1 %
Loss before income taxes              (657 )       -20 %      -17 %          (787 )       -23 %        (1,640 )       -17 %     -34 %        (2,477 )       -25 %
Income tax provision
(benefit)                               25           1 %     -176 %           (33 )        -1 %            47           0 %     -67 %           144           1 %
Net loss                      $       (682 )       -21 %      -10 %  $       (754 )       -22 %  $     (1,687 )       -17 %     -36 %  $     (2,621 )       -26 %

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 $0.2 million or 4%, and $0.4 million or 4% for the three and nine month periods ended December 31, 2012, respectively, when compared to the same periods in the prior year. License revenue for the three and nine month periods ended December 31, 2012 decreased $0.1 million or 6% and $0.1 million or 5%, respectively, when compared to the same periods in the prior year due to lower sales of Omnis licenses in the current year in our European market. Service revenue for the three and nine month periods ended December 31, 2012 decreased $0.1 million or 4% and $0.3 million or 4%, respectively, when compared to the same periods in the prior year mainly due to lower professional service revenue and lower support revenue as some of our customers reduced users in the current year.

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 three and nine months ended December 31, 2012 and 2011. 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. As we integrate Storycode technology and evaluate revenue recognition for Storycode's historical products, we are also evaluating and modifying our product offerings and assessing future revenue impact. 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. The slight change in cost of license revenue for three and nine months ended December 31, 2012 when compared to the same periods in the prior year was due to lower physical media packaging cost as most of our customers now receive new licenses via electronic downloads.

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 three and nine month periods ended December 31, 2012 decreased $0.1 million or 7% and $0.2 million or 12%, respectively, when compared to the same periods in the prior year mainly due to lower personnel cost as a result of consolidating our offices in the United Kingdom in the prior year, and lower stock compensation expense due to certain options being fully amortized.

SELLING AND MARKETING. Selling and marketing expense consists primarily of salaries, benefits, advertising, tradeshows, travel and overhead costs for our sales and marketing personnel. Selling and marketing expense for the three and nine month periods ended December 31, 2012 decreased $0.2 million or 18% and $0.7 million or 18%, respectively, when compared to the same periods in the prior year mainly due to lower consulting and product marketing expenses, lower personnel expense in our Germany and United Kingdom offices, and lower stock compensation expenses. In the prior year, we incurred higher consulting and marketing expenses due to the launch of our Postano product. The full amortization of certain stock options and the consolidation of our offices in the United Kingdom also helped to reduce the selling and marketing expense this year. We anticipate that selling and marketing costs related to the yolink and Postano product lines, especially following our acquisition of Storycode, will 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 three . . .