(3) Net income and earnings per share for periods prior to fiscal year 2006 represent pro forma information based on SFAS 123.

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(unaudited)

3.  Earnings Per Share (EPS)

The following table represents the reconciliation of the basic and diluted earnings per share amounts for the three and six months ended March 31, 2006 and 2005.

Net income for the three and six months ended March 31, 2006 included stock-based compensation expense under SFAS 123(R) of $607 thousand, net of income taxes and $1.3 million, net of income taxes, respectively. There was no stock-based compensation expense recorded under SFAS 123 in the three and six months ended March 31, 2005 because the Company did not adopt the recognition provisions of SFAS 123. (See Note 2 to Financial Statements for proforma information).

Stock options are considered anti-dilutive if the number of shares the company can repurchase with all forms of exercise proceeds exceed the weighted shares outstanding in the option. In addition, the impact of options with an exercise price equal to or greater than the average market price of the Company's common stock is also anti-dilutive. Anti-dilutive stock options are excluded from the calculation of earnings per share. Anti-dilutive stock options for the three months ended March 31, 2006 and 2005, were 1.3 million shares and 767 thousand shares, respectively. Anti-dilutive stock options for the six months ended March 31, 2006 and 2005, were 1.2 million shares and 902 thousand shares, respectively.

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(unaudited)

4.  Derivative Instruments and Hedging Activities

In order to reduce exposure to movements in interest rates, in January 2003 the Company entered into an interest rate swap agreement to convert its variable rate mortgage loan to a fixed rate. The agreement involves the exchange of fixed and floating interest rate payments over the ten-year life of the loan. The variable interest rate on the mortgage loan is the sum of the 30-day LIBOR rate plus 1.35%. The interest rate swap has fixed the effective interest rate that the Company will pay at 5.92%. The impact of the fluctuations in interest rates on the interest rate swap agreement will be naturally offset by the opposite impact on the related mortgage debt. The Company accounts for this interest rate swap in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This has been classified and accounted for as a cash flow hedge.

At March 31, 2006 and September 30, 2005, the fair value of the swap agreement, which represents the cash the Company would receive to settle the agreement, was $472 thousand and $8 thousand, respectively. The current portion of $70 thousand and $1 thousand is included on the balance sheet under the caption "Other current assets" and the long-term portion of $402 thousand and $7 thousand is included under the caption "Investments and other assets" as of March 31, 2006 and September 30, 2005, respectively. The Company records the payments or receipts on the agreement as adjustments to interest expense. The Company recognized interest expense related to the swap of $1 thousand and $70 thousand for the three months ended March 31, 2006 and 2005, respectively. The Company recognized interest expense related to the swap of $19 thousand and $167 thousand for the six months ended March 31, 2006 and March 31, 2005, respectively.

5.  Segment Information

The Company's operations involve the design, development, marketing, licensing and support of software and data products, application development tools, and industry-specific solutions, together with a range of consulting, analytical, training and technical support services.

The Company conducts business globally and is managed geographically. The Company's management relies on an internal management accounting system. This system includes revenue and cost information by geographic location. Revenues are attributed to a geographic location based on the origination of the order from the customer. The Company's management makes financial decisions and allocates resources based on the information it receives from this internal system. Based on the criteria set forth in SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company has reportable segments by geography: the Americas, EMEA (Europe, the Middle East, and Africa) and Asia-Pacific.

The Company's geographic segments are discussed below.

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

5.  Segment Information (continued)

Geographic Segments

Summarized financial information by geographic segment for the three and six months ended March 31, 2006 and 2005, as taken from the internal management accounting system discussed above, is as follows:

The operating income by segment above differs from the amounts presented under accounting principles generally accepted in the United States of America because the Company does not allocate certain costs for research and development, marketing, and general and administrative activities to the geographic locations. Also included in the corporate adjustments above is the effect of SFAS 123(R), which the Company adopted on October 1, 2005 and does not allocate to the geographic locations. See Note 2 to the Notes to Financial Statements for further details. The table above reconciles the operating income by geographic segment to operating income as reported on the Income Statements by including adjustments for certain unallocated costs.

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

6.  Commitments and Contingencies

Mortgage Payable. On December 21, 2001, the Company entered into a mortgage loan and other related agreements with a commercial bank to finance construction of a 150,000 square foot office building in Troy, New York and the related land lease. The total construction financing borrowed under this financing arrangement was $15.1 million. In December 2002, the Company converted the entire construction loan to a ten-year mortgage loan. Principal together with interest, at a rate of LIBOR plus 1.35% is payable monthly. As described in Note 4 above, the Company has entered into an interest rate swap agreement to convert this variable rate mortgage loan to a fixed rate. At March 31, 2006 and September 30, 2005, the outstanding balance due on this mortgage loan was $14.1 million and $14.2 million, respectively.

Credit Facilities. In January 2003, the Company borrowed $3.0 million under a one-year revolving credit facility with a commercial bank. In March 2003, the Company converted this obligation into a forty-two month term loan. Principal outstanding under this term loan is payable monthly in forty-one equal installments of $72 thousand and a final payment of $69 thousand, along with interest at a rate of LIBOR plus 1.75%. The balance outstanding under this term loan agreement as of March 31, 2006 and September 30, 2005, was $569 thousand and $1.0 million, respectively.

In addition, the Company has a $15.0 million credit facility with a commercial bank that expires on March 31, 2010. This credit facility requires the Company to pay a quarterly facility fee ranging from 0.25% to 0.375% based on the unused portion of the credit facility. As of March 31, 2006 and September 30, 2005, there were no outstanding borrowings under this credit facility. In addition, the Company has an agreement with another bank to provide a credit facility for up to $15.0 million that expires on March 31, 2010. On March 31, 2006 and September 30, 2005, there were no outstanding borrowings under this credit facility. Both credit facilities contain certain financial covenants with which the Company is in compliance.

Indemnification. Subject to certain limitations, the Company agrees to indemnify its customers against any damages, liabilities, costs and expenses arising out of any claim that a MapInfo product infringes the intellectual property right of a third party. The Company believes the liability for these agreements as of March 31, 2006 is not material. Accordingly, the Company has not recorded a charge to earnings for any liability for these agreements in accordance with FASB Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others".

Legal Proceedings. On August 5, 2002, the Company filed an action against Spatial Re-Engineering Consultants ("SRC"), a former MapInfo reseller, in the United States District Court for the Northern District of New York to collect approximately $100 thousand in receivables owed by SRC to the Company under contractual obligations. SRC answered and asserted fifteen

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

6.  Commitments and Contingencies (continued)

counterclaims against the Company. The counterclaims include allegations of breach of contract, libel, unfair trade practices, and copyright infringement. The District Court dismissed one counterclaim and SRC voluntarily withdrew a second counterclaim; thirteen counterclaims remain. SRC is seeking money damages for lost profits in the amount of $15.5 million and statutory damages for the copyright infringement claims in an amount not to exceed $300 thousand. SRC is also seeking recovery of costs and attorneys' fees and treble damages for alleged violations of the Lanham Act. The Company believes the counterclaims are without merit and is vigorously defending against all remaining counterclaims. In addition, the Company has amended its complaint against SRC to add five claims relating to unauthorized distribution of the Company's products and copyright infringement. The Company cannot predict the outcome of the litigation nor reasonably estimate a range of possible loss given the current status of the litigation. Accordingly, no amounts have been accrued for this matter.

The Company is also party to other legal proceedings, none of which it believes is material to its results of operations, financial condition, or cash flows.

7.  Goodwill and Purchased Intangible Assets

In applying SFAS No. 142, "Goodwill and Other Intangible Assets," during the second quarter of fiscal year 2006, the Company performed the annual reassessment and impairment of goodwill tests required as of December 31, 2005. As a result of these annual tests, there was no indication of impairment.

The balance of goodwill as of September 30, 2005 was $49.7 million. During the six months ended March 31, 2006, goodwill increased by $161 thousand. The increase in goodwill was due to additional goodwill of $80 thousand related to the September 2004 acquisition of Southbank Systems Limited, $93 thousand related to the August 2005 acquisition of Dimasi Strategic Research, and $284 thousand related to the June 2005 acquisition of MarkeTech Systems, offset by the strengthening in the U.S. dollar versus most foreign currencies which decreased goodwill by $296 thousand. As a result, the goodwill balance as of March 31, 2006 was $49.8 million.

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

7.  Goodwill and Purchased Intangible Assets (continued)

The components of purchased intangible assets are as follows (in thousands):

Amortization of purchased intangible assets for the three and six months ended March 31, 2006 was $662 thousand and $1.3 million, respectively. Amortization of purchased intangible assets for the three and six months ended March 31, 2005 was $444 thousand and $1.1 million, respectively. The Company reassesses the useful lives of the purchased intangible assets and makes changes to such lives when necessary.

The estimated annual amortization expense of purchased intangible assets for fiscal year 2006 and beyond is as follows (in thousands):

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

8.     Investment in Alps Mapping Co. Ltd.

During fiscal year 2005, the Company wrote-off the remaining balance of its equity investment in Alps Mapping Co., Ltd. ("Alps") based primarily on the Company's proportionate share of Alps' quarterly operating loss. The impact, net of effect of foreign currency and other adjustments, was approximately $1.4 million and has been included in the Company's Consolidated Income Statement under the caption "Other income (expense) - net." As a result of the write-down of the investment, the Company also recorded an impairment of the deferred tax asset related to this investment of approximately $600 thousand, which has been included in the Company's Consolidated Income Statement under the caption "Provision for income taxes."

In November 2005, the FASB issued FSP Financial Accounting Standard (FAS) 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." This FSP provides guidance on determining if an investment is considered to be impaired, if the impairment is other-than-temporary, and the measurement of impairment losses. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The FSP is effective for reporting periods beginning after December 15, 2005. The Company is currently accounting for investments in accordance with this guidance, and therefore, the adoption of this FSP will not have a material impact on the Company's results of operations, financial condition, or cash flow.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155 (SFAS 155), "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140." SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, eliminating the need to separate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. This new accounting standard is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS 155 is not expected to have an impact on the Company's results of operations, financial condition, or cash flow.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156 (SFAS 156), "Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140." SFAS 156 requires that all separately recognized servicing rights be initially measured at fair value, if practicable. In addition, this Statement permits an entity to choose between two measurement methods (amortization method or fair value measurement method) for each class of separately recognized servicing assets and liabilities. This new accounting standard is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS 156 is not expected to have an impact on the Company's results of operations, financial condition, or cash flow.

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MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

10.  Revision in the Classification of Securities

During fiscal year 2005, management concluded that it was appropriate to classify its various auction-rate investments as Short-term investments, at cost. Previously, such investments had been classified as cash and cash equivalents. The Company has revised the classification to report these securities as short-term investments at cost on its balance sheet as of March 31, 2005. The Company has made the corresponding adjustments to its Consolidated Statement of Cash Flows for the six-month period ending March 31, 2005, to reflect the purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. This change in classification does not affect previously reported cash flows from operations or from financing activities in our previously reported Consolidated Statements of Cash Flows, or our previously reported Consolidated Statements of Income for any period. The amount of securities that were reclassified totaled $6.8 million in the March 31, 2005 Balance Sheet and $5.0 million in the Consolidated Statement of Cash Flow for the six-month period ended March 31, 2005.

Our investments in these securities are recorded at cost, which approximates fair market value due to their variable interest rates, which typically reset every 7 to 35 days, and, despite the long-term nature of their stated contractual maturities, we have the ability to quickly liquidate these securities. Therefore, we have classified these securities as available for sale. As a result, we have no cumulative gross unrealized or realized holding gains or losses from our Short-term investments. All income generated from these Short-term investments is recorded as interest income.

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We are a leading provider of location intelligence solutions that help organizations make more insightful decisions. Our integrated offering of products, including software and data, and services helps organizations in vertical markets - including telecommunications, the public sector, retail and financial services, which includes insurance and retail banking - solve complex business problems in which location is a critical consideration. In the private sector, businesses use our products and services for marketing, customer service, risk analysis, network optimization and planning, asset management, and site selection. In the public sector, government agencies use our products and services to improve public safety and for crime analysis, asset management and network optimization and planning, and emergency preparedness and response. By using our products and services, organizations can uncover valuable location intelligence that is not typically recognized in traditional analytical methods, which can provide them with a competitive advantage in today's challenging business environment.

Our standards-based Envinsa^™ enterprise location intelligence platform allows organizations to build rapidly location-based applications, which they can provide to their customers as well as use internally in their own organizations. Envinsa was designed to be a single platform combining different components of location intelligence functionality. Envinsa is modular in nature, meaning that enterprises and organizations can deploy and use pieces of the platform, depending on their needs. Envinsa scales to support large enterprises with thousands of users and is designed to integrate with existing information technology, or IT systems. In addition to this platform, our set of core capabilities consisting of mapping tools, geocoding tools and routing tools can be licensed in the form of discrete products. We also offer data sets to our customers. Our value-added data sets integrate with our customers' existing data sets for use in our solutions in order to generate more valuable intelligence. We also offer consulting and analytical services to customers in order to help them build predictive models and custom applications for, and generate answers to, location-oriented problems.

We develop solutions directly for our customers and also work with technology vendors. We market our solutions through a worldwide network comprised of a direct sales organization, value-added-resellers (VARs), systems integrators, distributors, and original equipment manufacturers (OEMs). More than 7,000 customers in numerous industry sectors around the world utilize our products and services. Our focus on vertical markets, where we believe we can

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build on our domain expertise and knowledge of location, is critical to helping customers achieve their strategic objectives. For the three months ended March 31, 2006, telecommunications represented 15 percent, retail 25 percent, the public sector 30 percent, and financial services, which includes insurance and retail banking, 11 percent of total revenues.

On August 1, 2005, through our wholly owned subsidiary, MapInfo Australia Pty. Ltd, we acquired certain assets and assumed certain liabilities of Dimasi Strategic Research Pty. Ltd., or Dimasi, a privately held company headquartered in Melbourne, Australia. Dimasi, an Australian market research company specializing in the retail and property sectors, provides various location analytics services including strategic reviews for shopping centers and stores, market/economic research, reviews of current retail performance, economic impact reports, retail store networks optimization and sales forecasting. The initial purchase price, including acquisition-related expense, was $2.6 million Australian dollars, or approximately $2.0 million US dollars, subject to a working capital adjustment based upon the closing balance sheet. In addition, we may pay up to $1.2 million Australian dollars, or approximately $912 thousand US dollars, in contingent consideration to Dimasi based on the profitability of the acquired business in the first year following the closing. The purchase was completed with $2.6 million Australian dollars, or approximately $2.0 million US dollars, in cash on hand, of which $600 thousand Australian dollars, or $456 thousand US dollars, was included in our September 30, 2005 Consolidated Balance Sheets as "Restricted Cash." This represents the amount withheld pursuant to the acquisition agreement, which includes the working capital adjustment and the indemnification obligations of the seller. As of March 31, 2006, the amount remaining on the Balance Sheet as "Restricted Cash" for this withholding was $300 thousand Australian dollars, or $214 thousand U.S. dollars.

As of March 31, 2006, goodwill recorded as a result of the acquisition was approximately $1.0 million. Intangibles assets acquired, other than goodwill, totaled $745 thousand with a 3-year estimated weighted average useful life. Of the $745 thousand of acquired intangible assets, $525 thousand has been identified as technology intangibles (3-year estimated weighted average useful life), $91 thousand as customer intangibles (4-year estimated weighted average useful life), $53 thousand in trademarks (2-year estimated weighted average useful life), and miscellaneous intangibles of $76 thousand (5-year estimated weighted average useful life).

The acquisition is being accounted for as a purchase and, accordingly, we have included the results of operations in the financial statements effective August 1, 2005. The pro forma effects of the Dimasi acquisition on our income statement and balance sheet were not material. Twenty-four employees of Dimasi became employees of ours upon completion of the acquisition.

MarkeTech Acquisition

On June 2, 2005, we acquired substantially all of the assets and assumed certain liabilities of MarkeTech Systems, Inc., or MarkeTech, a privately held company headquartered in Raleigh, North Carolina. MarkeTech is a provider of software, data, and services for use by retail banks

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to enhance branch network sales and profitability. The initial purchase price, including acquisition-related expense, was $5.8 million, subject to a working capital adjustment based upon the closing balance sheet. In addition, we may pay up to $2.0 million in contingent consideration to MarkeTech based on the profitability of the acquired business over the first year following the closing. The purchase was completed with $5.8 million in cash on hand, of which $570 thousand is included in our March 31, 2006 and $855 thousand in our September 30, 2005 Consolidated Balance Sheet as "Restricted Cash," respectively. The Restricted Cash of $570 thousand secures the indemnification obligations of the seller for 18 months after closing.

As of March 31, 2006, goodwill recorded as a result of the acquisition was $4.2 million. Intangibles assets acquired, other than goodwill, totaled $1.7 million with a 4-year estimated weighted average useful life. Of the $1.7 million of acquired intangible assets, approximately $1.1 million has been identified as technology intangibles (4-year estimated weighted average useful life), $470 thousand as customer intangibles (4-year estimated weighted average useful life), $80 thousand in trademarks (2-year estimated weighted average useful life), and miscellaneous intangibles of $45 thousand (2-year estimated weighted average useful life).

The acquisition is being accounted for as a purchase and, accordingly, we have included the results of operations in the financial statements effective June 2, 2005. The pro forma effects of the MarkeTech acquisition on our income statement and balance sheet were not material. Twenty-three employees of MarkeTech became employees of ours upon the acquisition.

GeoBusiness Acquisition

On February 17, 2005, through our wholly owned subsidiary, MapInfo UK Limited, we completed the acquisition of all of the outstanding shares of GeoBusiness Solutions Limited, or GeoBusiness, a privately held company based in Wendover, United Kingdom. GeoBusiness provides an established offering of specialized products and consultancy services in site location and customer analytics in the United Kingdom, particularly for the retail and leisure property markets. The initial purchase price, including acquisition related expenses, was ₤1.1million, or approximately $2.0 million, and was financed with cash on hand. In addition, we may pay up to ₤1.0 million, or approximately $1.9 million, in contingent consideration based on GeoBusiness' profitability over the two-year period following the acquisition. The total of GeoBusiness' net assets acquired was ₤265 thousand or approximately $500 thousand.

As of March 31, 2006, goodwill recorded as a result of the acquisition was approximately $867 thousand. Intangibles assets acquired, other than goodwill, totaled approximately $691 thousand with a 4-year estimated weighted average useful life. Of the approximately $691 thousand of acquired intangible assets, $403 thousand has been identified as customer-related intangibles (4-year estimated weighted average useful life), $240 thousand has been identified as technology-related intangibles (3-year estimated weighted average useful life), and $48 thousand as trademarks (2-year estimated weighted average useful life).

The acquisition is being accounted for as a purchase and, accordingly, we have included the results of operations in the financial statements effective February 17, 2005. The pro forma

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effects of the GeoBusiness acquisition on our income statement and balance sheet were not material. Twenty-one employees of GeoBusiness became employees of ours upon completion of the acquisition.

Investment in Alps Mapping Co. Ltd.

During fiscal year 2005, we wrote-off the remaining balance of our equity investment in Alps Mapping Co. Ltd. ("Alps") based primarily on our proportionate share of Alps' quarterly operating loss. The impact, net of the effect of foreign currency and other adjustments, was approximately $1.4 million and was included in our Consolidated Income Statement under the caption "Other income (expense) - net." As a result of the write-down of the investment, we also recorded an impairment of the deferred tax asset related to this investment of approximately $600 thousand, which was included in our Consolidated Income Statement under the caption "Provision for income taxes."

Sources of Revenue

We derive our revenue from product licenses (software and data) and services fees. We also derive revenue from annual maintenance fees on both our software and data products. We market our solutions through a worldwide network comprised of a direct sales organization, VARs, systems integrators, distributors and OEMs.

Revenues generated in the United States represented approximately 42% of our total revenues for the quarter ended March 31, 2006. As of March 31, 2006, we had sales offices located internationally in Canada, the United Kingdom, Germany, Australia, Spain, Italy, Sweden, and The Netherlands.

Product Revenue

We earn product revenues from licensing our software and data products. We license our software and data products primarily under perpetual licenses, and we offer maintenance on our software and data products under agreements that typically cover one year. We recognize revenue from licensing of products to an end-user when persuasive evidence of an arrangement exists and the product has been delivered to the customer, provided there are no uncertainties surrounding product acceptance, the fees are fixed or determinable and collectibility is probable. The revenue related to maintenance for software and data products is deferred and recognized ratably over the term of the agreement, which, in both cases, is typically one year. We consider all arrangements with payment terms that extend beyond twelve months not to be fixed or determinable, and revenue is recognized for these arrangements when the fee becomes due within twelve months. If collectibility is not considered probable for reasons other than extended payment terms, revenue is recognized when the fee is collected.

We derive services revenue primarily from business consulting services, analytical services, systems integration and custom application development, technical support arrangements and training. Revenue from business consulting services, analytical services, and systems integration

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and custom application development is recognized as the services are performed and upon customer acceptance when required. We recognize technical support revenue using the straight-line method over the period that the support is provided, which is typically one year. Revenue from training arrangements is recognized as the services are performed. 

Deferred Revenue 

At March 31, 2006, we had deferred revenues of approximately $21.2 million, primarily consisting of revenues related to post-contract customer support, including maintenance for software and data products and technical support, which is deferred and recognized ratably over the term of the agreement.

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been 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 amounts reported for assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Management evaluates these estimates, including those related to reserves for product returns, bad debts, and inventories, investments valuation, intangible assets and goodwill useful lives and impairment, provision for income taxes and related valuation allowances, reserves for restructuring, contingencies and litigation, on an on-going basis. The estimates are based on historical experience and on various assumptions that management believes are reasonable. When the basis for carrying values of assets and liabilities are not apparent from other sources, they are determined from these estimates. Our actual results may differ from these estimates under different conditions or assumptions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

• Allowance for Doubtful Accounts and Sales Returns. We record reductions to revenue for estimated product returns. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, an additional allowance may be recognized. Our estimate for the allowance for doubtful accounts and sales returns is based on historical collections and sales returns experience. We review the status of the current trade receivables, reserving amounts deemed to pose a material collection or sales return risk.
• Revenue Recognition. We recognize revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9, "Software Revenue Recognition with Respect to Certain Transactions". We recognize revenue when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant obligations remain, the fee is fixed or determinable and collectibility is probable. Revenue earned on product and services arrangements involving multiple elements is allocated to each

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• Impairment of Intangible Assets. Intangible assets other than goodwill are amortized on a straight-line basis over their estimated useful lives of two to ten years. We review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Management's determination of impairment is based on estimates of future cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.
• Goodwill Impairment. Effective October 1, 2001, we adopted Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). In accordance with SFAS 142, we do not amortize goodwill. We test goodwill for impairment on an annual basis or when a triggering event occurs and write down goodwill if it is determined that the asset has been impaired. Management's determination of impairment is based on estimates of future cash flows.
• Deferred Tax Assets. At March 31, 2006, we had net deferred tax assets of $12.6 million, reflecting tax credit carryforwards, net operating losses and other deductible temporary differences, which reduce taxable income in future years. We are required to assess the realization of our deferred tax assets. Significant changes in circumstances may require adjustments in future periods. Our future tax benefits related to capital losses are fully reserved as it is more likely than not that they will not be realized due to their relatively short carryforward periods. Although realization is not assured, we have concluded that it is more likely than not that the remaining net deferred tax assets will be realized principally based upon forecasted taxable income generally within the ten-year foreign tax credit, the twenty-year research and development credit and net operating loss carryforward periods, giving consideration to the substantial benefits realized to date through our restructuring program

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• Contingencies and Litigation. Certain conditions may exist as of the date of the financial statements, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company's management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

• Stock-based Compensation Expense. On October 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)") which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including employee stock options and employee stock purchases related to our Employee Stock Purchase Plan ("ESPP") based on estimated fair values. Stock-based compensation expense, net of income taxes recognized under SFAS 123(R) for the three months and six months ended March 31, 2006 was $607 thousand and $1.3 million, which consisted of stock-based compensation expense related to employee stock options and our ESPP. There was no stock-based compensation expense related to employee stock options and our ESPP during the three and six months ended March 31, 2005. See Note 2 to the Consolidated Financial Statements for additional information.

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Net Revenues, Cost of Revenues and Gross Profit
(Dollars in thousands)

Net Revenues

Revenues for the three months ended March 31, 2006 increased 14%, or $4.9 million, to $40.4 million from $35.5 million in the prior year second quarter. The February 2005 acquisition of GeoBusiness, the June 2005 acquisition of MarkeTech, and the August 2005 acquisition of Dimasi, which we collectively refer to as the acquisitions, accounted for $2.3 million of the revenue increase in the second quarter. Product revenues, which include software, data, and solutions, increased by $1.8 million, or 6%, and services revenues increased $3.1 million, or 40%, compared to the second quarter of the prior year. Acquisitions impacted product revenue by $518 thousand and services revenue by $1.8 million. In addition to the acquisitions, the increase in services revenues was primarily attributable to a 17% increase in our core services business. The increase in the core services business related to an increase in volume, primarily as a result of our predictive analytics team's improved capacity to respond to increased customer demand.

On a geographic basis, second quarter revenues in the Americas increased $3.1 million, or 19%. Acquisitions accounted for $926 thousand of the increase, and the remainder of the Americas business increased $2.2 million, or 14% versus prior year's second quarter, due to the increased volume resulting from improved execution from the Americas' predictive analytics team and improved efficiencies in sales and marketing efforts. Europe, the Middle East, and Africa, or EMEA, revenues increased $404 thousand, or 3%, which was mainly attributable to acquisitions, which increased EMEA's second quarter revenue by $605 thousand. Offsetting the increase was approximately a $1.0 million decrease due to the weakening of the foreign currencies against the U.S. dollar. Revenues in the Asia-Pacific region increased $1.4 million, or 32%, when compared to the same period a year ago, due to $770 thousand of acquisition-related revenues, as well as,

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strong revenue growth of 13% in Australia, due to increased volume, primarily the result of strong execution across all product lines, particularly in the public sector market. The weakening of foreign currencies against the U.S. dollar reduced second quarter 2006 Asia-Pacific revenue by approximately $230 thousand compared to the prevailing exchange rates in the comparable period from the prior year. The strengthening of the U.S. dollar against certain foreign currencies negatively impacted revenue in the second quarter of fiscal year 2006 by $1.1 million compared to the prevailing exchange rates in the second quarter of the prior year.

Revenues for the first half of fiscal year 2006 increased 13%, or $9.1 million, to $79.3 million from $70.2 million in the prior year. The acquisitions accounted for $4.8 million of the revenue increase in the first half. Product revenues, which include software, data, and solutions, increased by $3.1 million, or 6%, and services revenues increased $6.0 million, or 39%, compared to the first half of the prior year. Acquisitions impacted product revenue by $1.1 million and services revenue by $3.7 million. In addition to the acquisitions, the increase in services revenues was primarily attributable to acquisitions and a 15% increase in our core services business. The increase in the worldwide core services business relates to an increase in volume, primarily as a result of our predictive analytics team's improved capacity to respond to increased customer demand.

On a geographic basis, revenues in the Americas for the first half of fiscal year 2006 increased $5.8 million, or 18%. Acquisitions accounted for $2.1 million of the increase, and the remainder of the Americas business increased $3.7 million, or 11%, versus prior year's first half, primarily due to the increased volume resulting from improved execution from the Americas' predictive analytics team and improved efficiencies in sales and marketing efforts. Europe, the Middle East, and Africa, or EMEA, revenues increased $159 thousand, or 1%, which was mainly attributable to acquisitions, which increased EMEA's revenue in the first half of fiscal year 2006 by $1.1 million. Offsetting the increase was approximately a $1.7 million decrease due to the weakening of the foreign currencies against the U.S. dollar. Revenues in the Asia-Pacific region increased $3.2 million, or 37%, when compared to last year's first half, primarily due to $1.5 million of acquisition-related revenues, as well as, strong revenue growth of 22% in Australia due to increased volume, primarily the result of strong execution across all product lines, particularly in the public sector market. The weakening of foreign currencies in the Asia Pacific region against the U.S. dollar reduced first half fiscal year 2006 revenue by approximately $317 thousand compared to the prevailing exchange rates in the comparable period from the prior year. The strengthening of the U.S. dollar against certain foreign currencies negatively impacted revenue in the first half of fiscal year 2006 by $1.8 million compared to the prevailing exchange rates in the first half of the prior year.

Cost of revenue consists primarily of salaries and related costs for engineers associated with consulting and analytical services, technical support and training personnel, and product royalties. Cost of revenue as a percentage of revenues increased to 30.3% from 29.4% in the prior year second quarter. As a result, the gross margin decreased to 69.7% from 70.6% in the

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prior year's second quarter. The decrease in gross margin is primarily related to increased services costs due to acquisitions and $217 thousand of related intangible amortization.

Gross profit margin as a percentage of revenue that related to product revenue was 81.6% and 80.3%, for the three months ended March 31, 2006 and 2005, respectively. Gross profit margin as a percentage of revenue that related to services revenue was 37.9% and 36.7%, for the three months ended March 31, 2006 and 2005, respectively. Cost of revenues for the three months ended March 31, 2006 included stock-based compensation expense related to the Company's adoption of SFAS 123 (R) of $10 thousand, cost of revenue-products, and $93 thousand, cost of revenue-services. Cost of revenues for the prior year first quarter did not include expense related to stock-based compensation. Cost of revenue as a percentage of revenues increased to 30.7% from 29.7% in the prior year first half. As a result, the gross margin decreased to 69.3% from 70.3% in the prior year. The decrease in gross margin is primarily related to increased services costs due to acquisitions and $434 thousand of related intangible amortization.

Gross profit margin as a percentage of revenue that related to product revenue was 82.0% and 79.6%, for the first half of fiscal years 2006 and 2005, respectively. Gross profit margin as a percentage of revenue that related to services revenue was 34.8% and 37.1%, for the first half of fiscal years 2006 and 2005, respectively. Cost of revenues for the first half of fiscal year 2006 included stock-based compensation expense related to the Company's adoption of SFAS 123 (R) of $22 thousand, cost of revenue-products, and $175 thousand, cost of revenue-services. Cost of revenues for the first half of fiscal year 2005 did not include expense related to stock-based compensation.


Operating Expenses
(Dollars in thousands)

Research and development

Research and development (R&D) expense increased $533 thousand, or 9%, to $6.3 million in the second quarter from $5.8 million in the prior year. R&D expense attributable to acquisitions was $32 thousand in the second quarter and the effect of SFAS 123 (R) on R&D expense was an incremental $149 thousand. The remaining increase was primarily due to increased R&D headcount. The impact of the strengthening of the U.S dollar versus foreign currencies reduced

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R&D expense by approximately $22 thousand in the second quarter in comparison to prior year. R&D headcount was 221 (inclusive of four resulting from recent acquisitions) compared to 216 at the end of prior year's second quarter. As a percentage of net revenues, R&D expenses were 15.6% compared with 16.2% in last year's comparable period.

Research and development (R&D) expense increased $1.1 million, or 9%, to $12.6 million in the first half of fiscal year 2006 from $11.5 million in the comparable period in the prior year. R&D expense attributable to acquisitions was $171 thousand in the first half of fiscal year 2006 and the effect of SFAS 123 (R) on R&D expense was an incremental $287 thousand. The remaining increase was primarily due to increased R&D headcount. The impact of the strengthening of the U.S dollar versus foreign currencies reduced R&D expense by approximately $44 thousand in the first half of fiscal year 2006 in comparison to the prior year. As a percentage of net revenues, R&D expenses for the first half of fiscal year 2006 were 15.8% compared with 16.4% in last year's comparable period.

Selling and marketing expense increased $1.8 million, or 16%, in the second quarter to $13.4 million from $11.6 million in the prior year second quarter. Additional selling and marketing expense attributable to acquisitions was $181 thousand in the second quarter and the effect of SFAS 123 (R) on selling and marketing costs was approximately $220 thousand. The remaining increase in selling and marketing expense primarily relates to increased expense related to marketing programs of approximately $516 thousand and increased headcount. The effect of foreign currencies reduced selling and marketing expense in the second quarter by approximately $439 thousand in comparison to prior year. Selling and marketing headcount was 299 (inclusive of one resulting from recent acquisitions) compared to 275 at the end of the prior year's second quarter. As a percentage of net revenues, selling and marketing expenses were 33.1% compared to 32.6% in the prior year second quarter.

Selling and marketing expense increased $3.0 million, or 13%, in the first half of fiscal year 2006 to $26.1 million from $23.1 million in the prior year comparable period. Additional selling and marketing expense attributable to acquisitions was $453 thousand in the first half and the effect of SFAS 123 (R) on selling and marketing costs was approximately $412 thousand. The remaining increase in selling and marketing expense primarily relates to increased expense related to marketing programs of approximately $1.2 million and increased headcount. The effect of foreign currencies reduced selling and marketing expense in the first half of fiscal year 2006 by approximately $767 thousand in comparison to prior year. As a percentage of net revenues, selling and marketing expense of 32.9% for the first half of fiscal year 2006 was consistent with the prior year.

General and administrative

General and administrative (G&A) expense increased $1.5 million, or 39%, to $5.4 million from $3.9 million in prior year's second quarter. The effect of SFAS 123 (R) on second quarter 2006 G&A was an incremental $491 thousand. The remaining increase in G&A was primarily the

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result of increased professional fees of approximately $147 thousand associated with Sarbanes-Oxley compliance, increased legal fees of $65 thousand, a severance accrual of $110 thousand, and increased headcount. The strengthening of the U.S. dollar versus certain foreign currencies decreased second quarter G&A expense by approximately $102 thousand. G&A headcount was 145 (inclusive of one resulting from recent acquisitions) compared to 131 at the end of the second quarter in fiscal year 2005 when compared to the prior year's second quarter. As a percentage of net revenues, G&A expense was 13.4% compared to 11.0% in the prior year second quarter.

General and administrative (G&A) expense for the first half of fiscal year 2006 increased $3.0 million, or 39%, to $10.8 million from $7.8 million in the prior year's first half. The effect of SFAS 123 (R) on G&A for the first half of fiscal year 2006 was an incremental $930 thousand. The remaining increase in G&A was primarily the result of increased professional fees of approximately $472 thousand associated with Sarbanes-Oxley compliance, increased legal fees of $177 thousand, a severance accrual of $110 thousand, and increased headcount. The strengthening of the U.S. dollar versus certain foreign currencies decreased G&A expense for the first half of fiscal year 2006 by approximately $171 thousand when compared to the prior year's first half. As a percentage of net revenues, G&A expense for the first half of fiscal year 2006 was 13.6% compared to 11.1% in the prior year.

Interest and Other Income (Expense), Net
(Dollars in thousands)

Interest and other income (expense), net in the second quarter of fiscal year 2006 of $405 thousand was a $529 thousand improvement over the second quarter of the prior year. This increase was primarily due to increased interest income of $295 thousand due to higher returns on our investment portfolio, and an increase in foreign exchange related income (expense), net of $227 thousand.

Interest and other income (expense), net in the first half of fiscal year 2006 of $636 thousand was a $2.0 million improvement over the first half of the prior year. This increase was primarily due to the $1.4 million write-off of the remaining value of our investment in Alps Mapping Co. Ltd. in the prior year, increased interest income of $614 thousand due to higher returns on our investment portfolio, and an increase in foreign exchange related income (expense), net of $122 thousand.

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Provision for Income Taxes
(Dollars in thousands)