Edgar Filing: NETEZZA CORP

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33445

NETEZZA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Delaware		04-3527320
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer Identification No.)
Organization)

26 Forest Street
Marlborough, MA 01752
(Address of Principal Executive Offices) (Zip Code)

(508) 382-8200
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of May 30, 2008, there were 58,427,067 shares of the registrant’s $0.001 par value per share common stock outstanding.

TABLE OF CONTENTS


	Page
Part I — Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 30, 2008 and January 31, 2008		1
Condensed Consolidated Statements of Operations for the three month periods ended April 30, 2008 and 2007		2
Condensed Consolidated Statements of Cash Flows for the three month periods ended April 30, 2008 and 2007		3
Notes to Condensed Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures about Market Risk		26
Item 4. Controls and Procedures		27

Part II — Other Information
Item 1. Legal Proceedings		27
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3. Defaults Upon Senior Securities		42
Item 4. Submission of Matters to a Vote of Security Holders		42
Item 5. Other Information		42
Item 6. Exhibits		42
Signatures		43
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO & CFO

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NETEZZA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	April 30,			January 31,
	2008			2008
Assets
Current assets
Cash and cash equivalents	$	75,710		$	46,184
Short term marketable securities		3,589			37,149
Accounts receivable		52,502			19,999
Inventory		30,013			31,611
Restricted cash		379			379
Other current assets		4,892			4,038

Total current assets		167,085			139,360
Property and equipment, net		6,009			5,467
Long term marketable securities		51,066			53,775
Restricted cash		639			—
Other long-term assets		481			150

Total assets	$	225,280		$	198,752


Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	7,037		$	5,533
Accrued expenses		5,347			5,494
Accrued compensation and benefits		3,979			5,244
Deferred revenue		56,113			30,588

Total current liabilities		72,476			46,859

Long-term deferred revenue		17,011			15,418


Total long-term liabilities		17,011			15,418

Total liabilities		89,487			62,277


Commitments and contingencies (Note 13)

Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized at April 30, 2008 and January 31, 2008; none outstanding		—			—
Common stock, $0.001 par value; 500,000,000 shares authorized at April 30, 2008 and January 31, 2008; 58,185,690 and 57,729,903 shares issued at April 30, 2008 and January 31, 2008, respectively		58			58
Treasury stock, at cost; 139,062 shares at April 30, 2008 and January 31, 2008, respectively		(14	)		(14	)
Accumulated other comprehensive income		(5,718	)		(682	)
Additional paid-in-capital		218,475			216,253
Accumulated deficit		(77,008	)		(79,140	)

Total stockholders’ equity		135,793			136,475

Total liabilities and stockholders’ equity	$	225,280		$	198,752

See accompanying Notes to Consolidated Financial Statements

NETEZZA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended April 30,
	2008			2007
Revenue
Product	$	31,326		$	20,577
Services		8,250			4,765

Total revenue		39,576			25,342
Cost of revenue
Product		12,594			8,395
Services		2,104			1,648

Total cost of revenue		14,698			10,043

Gross margin		24,878			15,299

Operating expenses
Sales and marketing		13,330			9,669
Research and development		7,248			5,484
General and administrative		3,113			1,755

Total operating expenses		23,691			16,908

Operating income (loss)		1,187			(1,609	)
Interest income		1,743			22
Interest expense		—			213
Other income (expense), net		(133	)		169

Income (loss) before income taxes and accretion to preferred stock		2,797			(1,631	)
Income tax provision		665			274

Net income (loss)		2,132			(1,905	)
Accretion to preferred stock		—			(1,483	)

Net income (loss) attributable to common stockholders	$	2,132		$	(3,388	)


Net income (loss) per share attributable to common stockholders:
Basic:
Net income (loss) per share before accretion to preferred stock	$	0.04		$	(0.25	)
Accretion to preferred stock		—			(0.19	)

Net income (loss) per share attributable to common stockholders:	$	0.04		$	(0.44	)


Diluted:
Net income (loss) per share before accretion to preferred stock	$	0.03		$	(0.25	)
Accretion to preferred stock		—			(0.19	)

Net income (loss) per share attributable to common stockholders:	$	0.03		$	(0.44	)


Weighted average common shares outstanding — basic		57,944,352			7,786,366

Weighted average common shares outstanding — diluted		64,078,735			7,786,366

See accompanying Notes to Consolidated Financial Statements

NETEZZA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	For the three months ended April 30,
	2008			2007
Cash flows from operating activities
Net income (loss)	$	2,132		$	(1,905	)
Adjustments to reconcile net income (loss) to net cash used in operating activites
Depreciation		1,043			654
Stock based compensation expense		1,668			897
Change in carrying value of preferred stock warrant liability		—			257
Changes in assets and liabilities
Accounts receivable		(32,509	)		9,678
Inventory		706			(8,755	)
Other assets		(1,174	)		(784	)
Accounts payable		1,579			(1,965	)
Accrued compensation and benefits		(1,439	)		(1,011	)
Accrued expenses		(47	)		(67	)
Deferred revenue		27,117			911

Net cash used in operating activities		(924	)		(2,090	)


Cash flows from investing activities
Purchase of investments		(7,377	)		—
Sales and maturities of investments		38,577			—
Purchases of property and equipment		(693	)		(149	)
Increase in restricted cash		(639	)		—

Net cash provided by (used in) investing activities		29,868			(149	)


Cash flows from financing activities
Proceeds from note payable		—			4,000
Repayment of note payable		—			(612	)
Proceeds from issuance of common stock upon exercise of stock options		555			279

Net cash provided by financing activities		555			3,667

Net increase in cash and cash equivalents		29,499			1,428
Effect of exchange rate changes on cash and cash equivalents		27			(366	)
Cash and cash equivalents, beginning of period		46,184			5,018


Cash and cash equivalents, end of period	$	75,710		$	6,080


Supplemental disclosure of cash flow information
Cash paid for interest	$	—		$	188
Cash paid for taxes	$	507		$	—

See accompanying Notes to Consolidated Financial Statements

NETEZZA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business

Netezza Corporation (the “Company”) is a leading provider of data warehouse appliances. The Company’s product, the Netezza Performance Server, or NPS, integrates database, server and storage platforms in a purpose-built unit to enable detailed queries and analyses on large volumes of stored data. The results of these queries and analyses, often referred to as business intelligence, provide organizations with actionable information to improve their business operations. The NPS data warehouse appliance was designed specifically for analysis of terabytes of data at higher performance levels and at a lower total cost of ownership with greater ease of use than can be achieved via traditional data warehouse systems. The NPS appliance performs faster, deeper and more iterative analyses on larger amounts of detailed data, giving customers greater insight into trends and anomalies in their businesses, thereby enabling them to make better strategic decisions.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include those of the Company and its wholly-owned subsidiaries, after elimination of all intercompany accounts and transactions. The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed balance sheet at January 31, 2008 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited financial statements as of April 30, 2008 and for the three months ended April 30, 2008 and 2007 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended January 31, 2008, filed with the SEC on April 18, 2008.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present a fair statement of the Company’s financial position as of April 30, 2008 and results of operations and cash flows for the three months ended April 30, 2008 and 2007 have been made. The results of operations and cash flows for the three months ended April 30, 2008 are not necessarily indicative of the results of operations and cash flows that may be expected for the year ending January 31, 2009 or any future periods.

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates and judgments, including those related to revenue recognition, warranty claims, the write down of inventory to net realizable value, stock-based compensation and income taxes. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from the Company’s estimates.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents and restricted cash consist primarily of investments in money market funds of major financial institutions. Accordingly, its investments are subject to minimal credit and market risk. At April 30, 2008 and January 31, 2008, cash equivalents were comprised of money market funds totaling $59.8 million and $31.7 million, respectively. These cash equivalents are carried at cost which approximates fair value. Restricted cash represents the amount of cash equivalents required to be maintained by the Company under letters of credit to comply with the requirements of office space lease agreements. The letters of credit totaled $1.0 million and $0.4 million at April 30, 2008 and January 31, 2008, respectively.

Investments

The Company accounts for and classifies its investments as either “held-to-maturity,” “available-for-sale,” or “trading,” in accordance with the guidance outlined in Statement of Financial Accounting Standards (“SFAS”) No. 115 “Accounting for Certain Investments in Debt and Equity Securities,” (“SFAS 115”). The determination of the appropriate classification by the Company is based on a variety of factors, including management’s intent at the time of purchase.

Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity and are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. At April 30, 2008, the Company had no investments which were classified as held-to-maturity.

Available-for-sale securities are those securities which the Company views as available for use in current operations. Accordingly, the Company has classified all of its investments as available-for-sale securities. Some securities have been classified as short-term investments, even though the stated maturity date may be one year or more beyond the current balance sheet date due to the Company’s ability and intent to liquidate these investments within twelve months. During the quarter ended April 30, 2008, the Company has classified $51.1 million of auction rate securities as long-term marketable securities due to management’s estimate of its inability to liquidate these investments within the next twelve months. Available-for-sale investments are stated at fair value with their unrealized gains and losses included as a separate component of stockholders’ equity entitled “Accumulated other comprehensive loss,” until such gains and losses are realized.

Trading securities are those securities which are bought and held principally for the purpose of selling them in the near term. Accordingly, these securities are classified as short-term investments, even though the stated maturity date may be one year or more beyond the current balance sheet date. Trading securities are stated at fair value with their unrealized gains and losses included in current earnings. At April 30, 2008, the Company had no investments which were classified as trading.

The fair value of the Company’s investments is determined from quoted market prices. The Company has investments in auction rate securities that consist entirely of municipal debt securities, which are recorded in its financial statements at cost, which approximates fair market value (unless the auction fails) due to their variable interest rates, which reset through an auction process typically every 28 days. This auction mechanism generally allows existing investors to continue to own their securities with a revised interest rate based on the auction or liquidate their holdings by selling these auction rate securities at par value. Because of the short intervals between interest reset dates, the Company monitors the auctions to ensure they are successful, which provides evidence that the recorded values of these investments approximate their fair values. To the extent an auction were to fail such that the securities were deemed to be not liquid, the Company would need to seek other alternatives to determine the fair value of these securities, which may not be based on quoted market transactions (Note 3). Due to the Company’s inability to quickly liquidate these investments, the Company has reclassified those investments with failed auctions and which have not been subsequently liquidated, as long-term assets in its consolidated balance sheet based on management’s estimate of its inability to liquidate these investments within the next twelve months.

Investments are considered to be impaired when a decline in fair value below cost basis is determined to be other than temporary. The Company periodically employs a methodology in evaluating whether a decline in fair value below cost basis is other than temporary that considers available evidence regarding the Company’s marketable securities. In the event that the cost basis of a security exceeds its fair value, the Company evaluates, among other factors, the duration of the period that, and extent to which, the fair value is less than cost basis; the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors; overall market conditions and trends; and the Company’s intent and ability to hold the investment. Once a decline in fair value is determined to be other than temporary, the Company will record a write-down in its Statement of Operations and a new cost basis in the security is established. There were no unrealized losses in the Company’s investments which were deemed to be other than temporary in the three months ended April 30, 2008. Realized gains and losses are determined on the specific identification method and are included in interest income in the Statements of Operations. Interest income is accrued as earned.

Derivatives

The Company applies SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) which established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in a hedging relationship or not, are required to be recorded on the balance sheet at fair value. SFAS 133 also requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met, and that the Company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The effectiveness of the derivative as a hedging instrument is based on changes in its market value being highly correlated with changes in the market value of the underlying hedged item.

Derivatives are financial instruments whose values are derived from one or more underlying financial instruments, such as foreign currency. The Company enters into derivative transactions, specifically foreign currency forward contracts, to manage the Company’s exposure to fluctuations in foreign exchange rates that arise, primarily from the Company’s foreign currency-denominated receivables and payables. The contracts are primarily in British Pounds, Australian Dollars and Japanese Yen, typically have maturities of one month and require an exchange of foreign currencies for U.S. dollars at maturity of the contracts at rates agreed to at inception of the contracts. The Company does not enter into or hold derivatives for trading or speculative purposes. Generally, the Company does not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in current earnings. Because the Company enters into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other income (expense), net. Net realized and unrealized (if any outstanding) gains and losses associated with exchange rate fluctuations on forward contracts and the underlying foreign currency exposure being hedged were immaterial for all periods presented. There were no outstanding forward contracts at April 30, 2008.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated in accordance with SFAS No. 52, “Foreign Currency Translation,”. The functional currency for the Company’s foreign subsidiaries is the applicable local currency. For financial reporting purposes, assets and liabilities of subsidiaries outside the United States of America are translated into U.S. dollars using period-end exchange rates. Revenue and expense accounts are translated at the average rates in effect during the period. The effects of foreign currency translation adjustments are included in accumulated other comprehensive income as a component of stockholders’ equity. Transaction gains (losses) for the three months ended April 30, 2008 and 2007 were $(0.1) million and $0.4 million, respectively and recorded as other income (expense), net in the consolidated statements of operations.

Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts and its investments in brokerage accounts at high quality financial institutions. The individual balances, at times, may exceed federally insured limits. However, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts receivable. At April 30, 2008, one customer accounted for 39% of total accounts receivable. At January 31, 2008, two customers accounted for 28% and 11% of total accounts receivable. No one customer accounted for more than 10% of revenue for the three months ended April 30, 2008, while one customer accounted for 20% of revenue for the three months ended April 30, 2007.

Stock-Based Compensation

The Company accounts for employee stock-based compensation under SFAS No. 123(R), “Share-Based Payment,”(“SFAS 123(R)”) a revision of SFAS No. 123, which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. In accordance with SFAS 123(R), the Company will recognize the compensation cost of employee stock-based awards in the statement of operations using the straight line method over the vesting period of the award..

The Company accounts for stock-based compensation expense for non-employees using the fair value method prescribed by EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and the Black-Scholes option pricing model, and records the fair value of non-employee stock options as an expense over the vesting term of the option.

Net Income (Loss) Per Share

The Company computes basic net income (loss) per share attributable to common stockholders by dividing its net income (loss) attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings of the entity. Net income (loss) attributable to common stockholders is calculated using the two-class method; however, preferred stock dividends were not included in the Company’s diluted net loss per share calculations for the three months ended April 30, 2007 because to do so would be anti-dilutive.

The components of the net income (loss) per share attributable to common stockholders were as follows (in thousands except share and per share amounts):


	Three Months Ended April 30,
	2008		2007
Net income (loss) attributable to common stockholders	$	2,132	$	(3,388	)
Weighted average shares used to compute net income (loss) per share:
Basic		57,944		7,786
Dilutive options to purchase common stock		6,135		—

Diluted		64,079		7,786

Net income (loss) per share attributable to common stockholders:
Basic	$	0.04	$	(0.44	)

Diluted	$	0.03	$	(0.44	)

The following convertible preferred stock, warrants to purchase convertible preferred stock, and options and warrants to purchase common stock have been excluded from the computation of diluted net income (loss) per share, because including the preferred stock, options and warrants would be anti-dilutive. The Company has

excluded the convertible preferred stock from the basic earnings per share calculation as the preferred stockholders did not have a contractual obligation to share in the losses of the Company.


	Three Months Ended
	April 30,
	2008		2007
Convertible preferred stock upon conversion to common stock		—		38,774,847
Warrants to purchase convertible preferred stock		—		241,490
Warrants to purchase common stock		—		192,036
Options to purchase common stock		5,308,248		8,695,973

Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes” (SFAS 109”) FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company adopted FIN 48 on February 1, 2007 and the adoption did not have an effect on its consolidated results of operations or financial condition.

Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss), adjustments to stockholders’ equity for foreign currency translation adjustments and net unrealized gains or losses from investments. For the purposes of comprehensive income (loss) disclosures, the Company does not record tax provisions or benefits for the net changes in the foreign currency translation adjustment, as the Company intends to permanently reinvest undistributed earnings in its foreign subsidiaries. Accumulated other comprehensive income consists of foreign exchange gains and losses and net unrealized gains or losses from investments.

The components of comprehensive income (loss) are as follows (in thousands):


	Three Months Ended April 30,
	2008			2007
Net income (loss)	$	2,132		$	(1,905	)
Other comprehensive income (loss):
Foreign currency adjustment		33			(327	)
Net unrealized loss from investments		(5,069	)		—

Total comprehensive loss	$	(2,904	)	$	(2,232	)

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 allows companies to measure certain financial assets and liabilities at fair value. The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, SFAS 159 specifies that unrealized gains and losses for that instrument shall be reported in earnings at each subsequent reporting date. The Company adopted SFAS 159 on February 1, 2008 and elected not to measure eligible financial assets and liabilities at fair value. Accordingly, the adoption of SFAS 159 did not have a material impact on the Company’s financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired company, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact of SFAS 141(R) on its financial position and results of operations.

From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

3. Fair Value Measurements

In September 2006, the FASB, issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands the requirements for disclosure about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. In February 2008, the FASB issued Staff Position FAS No. 157-2, “Partial Deferral of the Effective Date of Statement No. 157,” or FSP 157-2. FSP 157-2 delays the effective date of SFAS 157 for non-financial assets and liabilities that are not measured or disclosed on a recurring basis to fiscal years beginning after November 15, 2008. The adoption of this accounting pronouncement effective February 1, 2008 did not have a material effect on the Company’s consolidated financial statements for financial assets and liabilities and any other assets and liabilities carried at fair value. The Company is currently in the process of evaluating the impact of adopting this pronouncement effective as of February 1, 2009 for other non-financial assets or liabilities.

SFAS 157 requires disclosure about how fair value is determined for assets and liabilities and establishes a three-tiered value hierarchy into which these assets and liabilities must be grouped, based upon significant levels of inputs as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table summarizes the composition of the Company’s investments at April 30, 2008 and January 31, 2008 (in thousands):


										Classification on Balance Sheet
			Gross		Gross					Short Term		Long Term
			Unrealized		Unrealized			Aggregate		Marketable		Marketable
April 30, 2008	Cost		Gains		Losses			Fair Value		Securities		Securities
U.S. treasury and government agency securities	$	1,977	$	12	$	—		$	1,989	$	1,989	$	—
Auction Rate Securities		57,475		—		(4,809	)		52,666		1,600		51,066

	$	59,452	$	12	$	(4,809	)	$	54,655	$	3,589	$	51,066


									Classification on Balance Sheet
			Gross		Gross				Short Term		Long Term
			Unrealized		Unrealized		Aggregate		Marketable		Marketable
January 31, 2008	Cost		Gains		Losses		Fair Value		Securities		Securities
Corporate debt securities	$	9,867	$	103	$	—	$	9,970	$	9,970	$	—
U.S. treasury and government agency securities		2,001		3		—		2,004		2,004		—
Commerical Paper		16,709		166		—		16,875		16,875		—
Auction Rate Securities		62,075		—		—		62,075		8,300		53,775

	$	90,652	$	272	$	—	$	90,924	$	37,149	$	53,775

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets, including investments, restricted cash and cash equivalents, at April 30, 2008 (in thousands):


			Fair Value Measurements at
	Total Fair Value at		Reporting Date Using
	April 31, 2008		Level 1		Level 2		Level 3
Money market funds	$	59,839		59,839		—		—
Certificates of deposit		1,018		1,018		—		—
U.S. government agency obligations		1,989		1,989		—		—
Auction rate securities		52,666		—		1,600		51,066

	$	115,512	$	62,846	$	1,600	$	51,066

The following table reflects the activity for the Company’s major classes of assets measured at fair value using level 3 inputs (in thousands):


	Auction Rate
	Securities
Balance as of January 31, 2008	$	—
Transfers in from level 1		55,875
Unrealized losses included in accumulated other comprehensive loss		(4,809	)

Balance as of April 30, 2008	$	51,066

At April 30, 2008 these assets represented 44% of total assets measured at fair value.

At April 30, 2008, the Company grouped money market funds, certificates of deposit and U.S. government obligations using a level 1 valuation because market prices are readily available. At April 30, 2008, the fair value of the Company’s assets grouped using levels 2 and 3 valuation consisted of auction rate securities (“ARSs”) that are AAA-rated bonds, most of which are collateralized by federally guaranteed student loans. ARSs are long-term variable rate bonds tied to short-term interest rates that are reset through a “Dutch auction” process that typically occurs every 7 to 35 days.

Historically, the carrying value (par value) of the ARSs approximated fair market value due to the resetting of variable interest rates.

Beginning in late February 2008, however, the auctions for ARSs then held by the Company were unsuccessful. As a result, the interest rates on ARSs reset to the maximum rate per the applicable investment offering statements. The Company will not be able to liquidate affected ARSs until a future auction on these investments is successful, a buyer is found outside the auction process, the securities are called or refinanced by the issuer, or the securities mature. Due to these liquidity issues, the Company performed a discounted cash flow analysis to determine the estimated fair value of these investments. The discounted cash flow analysis performed by the Company considered the timing of expected future successful auctions, the impact of extended periods of maximum interest rates, collateralization of underlying security investments and the creditworthiness of the issuer. The discounted cash flow analysis included the following assumptions:


Expected Term	5 Years
Illiquidity Discount		1.5-1.8	%
Discount Rate		5.14	%

The discount rate was determined using a proxy based upon the current market rates for successful auctions within the AAA-rated ARS market. The expected term was based on management’s estimate of future liquidity. The illiquidity discount was based on the levels federal insurance or FFELP backing for each security.

As a result, as of April 30, 2008, the Company recorded an unrealized loss of $4.8 million related to the temporary impairment of the ARSs, which was included in accumulated other comprehensive loss within stockholders’ equity.

In addition, as of April 30, 2008, $1.0 million of the Company’s marketable securities were classified as restricted. These securities represent collateral for irrevocable letters of credit in favor of third-party beneficiaries, related to facility leases; $0.6 million of these securities are classified as long-term and $0.4 million are classified as short-term on the unaudited consolidated balance sheet as of April 30, 2008. The restrictions on these marketable securities lapse as the Company fulfills its obligations or as such obligations expire as provided by the letters of credit. These restrictions are expected to lapse at various times through May 2015.

4. Change in Accounting Principle

On June 29, 2005, the FASB issued Staff Position 150-5, “Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable” (“FSP 150-5”). FSP 150-5 affirms that warrants of this type are subject to the requirements in SFAS No. 150, regardless of the redemption price or the timing of the redemption feature. Therefore, under SFAS No. 150, the freestanding warrants to purchase the Company’s convertible preferred stock were liabilities that were required to be recorded at fair value.

The Company adopted FSP 150-5 as of August 1, 2005 and recorded an expense of $0.2 million for the cumulative effect of the change in accounting principle to reflect the estimated fair value of these warrants as of that date. In the three months ended April 30, 2007, the Company recorded $0.3 million of additional expense to reflect the increase in fair value between February 1, 2007 and the closing of the Company’s initial public offering.

These warrants were subject to revaluation at each balance sheet date, and any change in fair value were recorded as a component of other income (expense). Prior to the Company’s initial public offering, the warrants to purchase convertible redeemable preferred stock were either exercised or, for those that remained outstanding at the closing of the initial public offering, were converted to warrants to purchase common stock. Accordingly, effective as of the closing of the Company’s initial public offering, the liability related to the convertible redeemable preferred stock warrants was transferred to additional paid-in-capital and is no longer required to be adjusted at each reporting period.

5. Inventory

Inventory consists of the following (in thousands):


	April 30,		January 31,
	2008		2008
Raw materials	$	1,540	$	2,203
Finished goods		28,473		29,408

	$	30,013	$	31,611

6. Property and Equipment

Property and equipment consists of the following (in thousands):


	April 30,		January 31,
	2008		2008
Engineering test equipment	$	11,939	$	11,047
Computer equipment and software		5,024		4,329
Furniture and fixtures		215		215
Leasehold improvements		266		266

		17,444		15,857
Less: accumulated depreciation		11,435		10,390

	$	6,009	$	5,467

Depreciation expense for the three months ended April 30, 2008 and 2007 was $1.0 million and $0.7 million, respectively. During the three months ended April 30, 2008, $0.9 million of inventory was reclassified to fixed assets, representing a non-cash increase in property and equipment.

7. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	April 30,		January 31,
	2008		2008
Inventory Items	$	1,559	$	1,771
Corporate taxes		950		660
Legal/audit/compliance		799		751
Partner fees		469		168
Sales meetings and events		353		930
Other		1,217		1,214

	$	5,347	$	5,494

8. Lines of Credit

In June 2005, the Company entered into a credit line agreement with an outside party. Under this agreement, the Company was able to borrow up to $8.0 million. The Company was required to make interest only payments on

any amounts borrowed through June 2006 and was then required to make 36 equal consecutive monthly installments of principal and interest through June 2009. The Company had borrowed the full $8.0 million as of June 30, 2006. Interest rates were fixed for the term of the loan at the time of each advance and were 10%, 10.75%, 11.75% and 12%. The loan was secured by all assets of the Company, excluding intellectual property. All borrowings under this credit line were repaid in full in July 2007. In addition, in conjunction with the line of credit, the Company issued warrants to purchase 125,490 shares of Series D preferred stock at a price of $2.55 per share. These warrants were exercised in July 2007. As the credit line was no longer outstanding, the remaining debt discount and premium were recorded as interest expense during the three months ended July 31, 2007.

In January 2007, the Company entered into a revolving credit line agreement with an outside party. Under this agreement, the Company could borrow up to $15.0 million. Borrowings under the line were due and payable on the maturity date of January 31, 2008. The interest on this revolving credit line was a floating rate of 1% below the prime rate, payable monthly. This revolving line of credit agreement contained a financial covenant that provided that the Company must achieve certain minimum revenue targets for each of the six consecutive fiscal quarters ending on April 30, 2008. The Company was in compliance with this covenant as of January 31, 2007. The loan was secured by all assets of the Company, excluding intellectual property. This agreement contained both a subjective acceleration clause and a requirement to maintain a lock-box arrangement. These conditions result in a short-term classification of the line of credit in accordance with EITF Issue No. 95-22, “Balance Sheet Classification of Borrowings Outstanding under revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement.” The Company borrowed $4.0 million in April 2007 and $4.0 million in May 2007 under the revolving line of credit. The Company repaid the outstanding balance under the revolving line of credit of $8.0 million in July 2007. This agreement expired on January 31, 2008.

9. Warrants for Preferred Stock

In conjunction with obtaining and drawing down on lines of credit, the Company issued warrants to purchase 80,000 shares of Series A convertible preferred stock and 36,000 shares of Series B convertible redeemable preferred stock. Upon the closing of the initial public offering, these warrants converted into warrants to purchase 58,000 shares of common stock. As discussed in Note 4, in August 2005, in accordance with FSP 150-5, the Company reclassified all of its freestanding preferred stock warrants as a liability and began adjusting the warrants to their respective fair values at each reporting period. Upon the closing of the initial public offering in July 2007, the preferred stock warrant liability was reclassified to additional paid-in capital and is no longer required to be adjusted at each reporting period.

In conjunction with obtaining and drawing down on a line of credit, the Company issued warrants to purchase 125,490 shares of Series D convertible preferred stock. These warrants were exercised in July 2007 prior to the closing date of the initial public offering.

As discussed in Note 4, the Company reclassified all of its freestanding preferred stock warrants as a liability and began adjusting the warrants to their respective fair values at each reporting period. Upon exercise of the warrants, the liability was adjusted to the intrinsic value plus cash consideration and reclassified as preferred stock in the mezzanine section of the balance sheet. The line of credit was closed, therefore, the remaining debt premium and debt discounts which were recorded at the issuance of the warrants were recorded as interest expense during the second quarter of fiscal 2008.

10. Stockholders’ Equity

During the fiscal year ended January 31, 2001, the Company issued a warrant to purchase 5,893 shares of common stock to a consultant in consideration for services rendered. The warrant is fully vested, has an exercise price of $0.002 per share and expires ten years from the date of grant. The fully vested warrant remains unexercised at April 30, 2008.

During the fiscal year ended January 31, 2002, the Company issued an option to purchase 5,000 shares of common stock to a consultant. The option is fully vested, has an exercise price of $0.10 per share and expires ten years from the date of grant. The fully vested option remains unexercised at April 30, 2008.

During the fiscal year ended January 31, 2002, the Company issued an option to purchase 12,000 shares of common stock to a consultant. The option is fully vested, has an exercise price of $0.20 per share and expires ten years from the date of grant. The fully vested option remains unexercised at April 30, 2008.

During the fiscal year ended January 31, 2003, the Company issued an option to purchase 5,000 shares of common stock to a consultant. The option is fully vested, has an exercise price of $0.20 per share and expires ten years from the date of grant. The fully vested option remains unexercised at April 30, 2008.

During the fiscal year ended January 31, 2003, the Company issued an option to purchase 12,000 shares of common stock to a consultant. The option is fully vested, has an exercise price of $0.20 per share and expires ten years from the date of grant. The fully vested option remains unexercised at April 30, 2008.

During the fiscal year ended January 31, 2004, the Company issued an option to purchase 5,000 shares of common stock to a consultant. The option is fully vested, has an exercise price of $0.20 per share and expires ten years from the date of grant. The fully vested option remains unexercised at April 30, 2008.

During the fiscal year ended January 31, 2006, the Company issued an option to purchase 5,000 shares of common stock to a consultant. The option is fully vested, has an exercise price of $1.00 per share and expires ten years from the date of grant. The option is fully vested and 2,500 shares remain unexercised at April 30, 2008.

During the fiscal year ended January 31, 2008, the Company issued an option to purchase 5,000 shares of common stock to a consultant. The option vests over two years, has an exercise price of $12.92 per share and expires seven years from the date of grant. At April 30, 2008, options for 625 shares were fully vested and unexercised, and options for 4,375 shares were outstanding and unvested.

At April 30, 2008, nonstatutory options and warrants to purchase 52,393 shares of common stock remain outstanding, of which 48,018 are fully vested and exercisable.

11. Stock Option Plans

The Company has two stock plans. The Company’s 2007 Stock Incentive Plan (“2007 Plan”), was adopted by the board of directors on March 21, 2007 and approved by stockholders on April 27, 2007. The 2007 Plan permits the Company to make grants of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. These awards may be granted to the Company’s employees, officers, directors, consultants, and advisors. The Company reserved 2,000,000 shares of its common stock for the issuance under the 2007 Plan. On February 1, 2008, 2,015,679 shares were added to the shares issuable under the 2007 plan.

The Company’s 2000 Stock Incentive Plan, as amended (“2000 Plan”) provided for the grant of incentive stock options and nonqualified stock options, restricted stock, warrants and stock grants for the purchase of up to 15,721,458 shares of common stock, to employees, officers, directors and consultants of the Company. The 2000 Plan is administered by the Company’s board of directors. In connection with the adoption of the 2007 Plan, the board of directors determined not to grant any further awards under the 2000 Plan subsequent to the closing of the Company’s initial public offering.

Under SFAS 123(R), the Company calculates the fair value of stock option grants using the Black-Scholes option-pricing model. Determining the appropriate fair value model and calculating the fair value of stock-based awards require the use of highly subjective assumptions, including the expected life of the stock-based awards and stock price volatility. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment.

The amounts included in the consolidated statements of operations for the three months ended April 30, 2008 and 2007 relating to share-based expense under SFAS 123(R) are as follows (in thousands):


	Three Months Ended April 30,
	2008		2007
Cost of Products	$	43	$	22
Cost of Services		45		26
Sales and Marketing		571		249
Research and Development		441		148
General and Administrative		560		434

	$	1,660	$	879

Stock based compensation for non-employees for the three months ended April 30, 2008 and 2007 was approximately $8,000 and $18,000, respectively.

The following table summarizes the Company’s stock option activity for the three months ended April 30, 2008:


									Weighted
	Shares			Number of					Average	Aggregate
	Available for			Options			Weighted Average		Remaining Life	Intrinsic
	Grant			Outstanding			Exercise Price		in Years	Value
Outstanding at January 31, 2008		1,394,500			9,414,667		$	4.12
Additional Shares Authorized		2,015,679			—
Granted		(2,342,000	)		2,342,000		$	9.94
Exercised		—			(455,787	)	$	1.22
Forfeited, cancelled or expired (1)		—			(112,145	)	$	5.67

Outstanding at April 30, 2008		1,068,179			11,188,735		$	5.44	7.43 years	$60.1 million

Exercisable at April 30, 2008		—			3,842,231		$	1.87	6.91 years	$33.6 million


(1)		Options cancelled under the 2000 plan after July 24, 2007 are not considered available for grant, as the Company is no longer granting options under this plan. For the three months ended April 30, 2008, options for 112,145 shares granted under the 2000 plan have been cancelled.

The fair value of each option granted during the three months April 30, 2008 and 2007 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	Three Months Ended
	April 30,
Stock Options	2008			2007
Dividend yield	None			None
Expected volatility		46.1	%		75.1	%
Risk-free interest rate		2.53	%		4.50	%
Expected life (in years)		5.0			6.5
Fair value at grant date	$	4.29		$	2.38

At April 30 2008, unrecognized compensation expense related to non-vested stock options was $28.7 million, which is expected to be recognized over a weighted-average period of 4.0 years.

Acquiring, or in Conjunction with Selling, Goods or Services” and the Black-Scholes option pricing model, and records the fair value of non-employee stock options as an expense over the vesting term of the option.

12. Income Taxes

The Company recorded a provision for income taxes of $0.7 million and $0.3 million for the three months ended April 30, 2008 and 2007, respectively. The Company’s effective income tax rate was 23.8% and (17.0%) for the three months ended April 30, 2008 and 2007, respectively. Although the Company recorded a net loss for the three months ended April 30, 2007, due to the federal alternative minimum tax, state income taxes and tax on the earnings of certain foreign subsidiaries, the Company recorded a provision for this period. The effective income tax rate is based upon the estimated annual effective tax rate in compliance with SFAS 109 and other related guidance. The Company updates the estimate of its annual effective tax rate at the end of each quarterly period. The Company’s estimate takes into account estimations of annual pre-tax income, the geographic mix of pre-tax income and its interpretations of tax laws and the possible outcomes of current and future audits.

As required by SFAS 109, management has evaluated the positive and negative evidence bearing upon the realizability of the Company’s deferred tax assets. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal deferred tax assets, and as a result, a full valuation allowance has been established.

The Company has an unrecognized tax benefit of approximately $324,000, as of January 31, 2008 and $1,512,000 as of April 30, 2008. The increase from January 31, 2008 was based on new information causing the reassessment of the measurement and recognition of the Company’s tax attributes. The change in the unrecognized tax benefit does not have an impact on the effective tax rate.

In general, the rules of Section 382 of the Internal Revenue Code (the “Code”) limit a corporation’s ability to utilize existing net operating loss carryovers (“NOLs”) if the corporation experiences an ownership change within the meaning of that Code section (an “Ownership Change”). An Ownership Change results from transactions increasing the ownership of certain existing stockholders and/or new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period.

The Company has determined that as a result of several Ownership Changes, the utilization of its NOLs is subject to annual limitations. In addition, approximately $320,000 of the federal NOLs will expire unused and cannot be used by the Company.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s balance sheets at April 30, 2008 and 2007, and has not recognized interest or penalties in the statement of operations for the three months ended April 30, 2008 or 2007.

The major domestic tax jurisdictions that remain subject to examination are: U.S. Federal —fiscal years 2004-2007 and U.S. states — fiscal years 2004-2007. The Company is no longer subject to examination by the U.S. Internal Revenue Service (“IRS”) for fiscal years prior to 2004, although carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. There are currently no state audits in progress. Within limited exceptions, the Company is no longer subject to state or local examinations for years prior to 2004; however, carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period. The major international tax jurisdictions that remain subject to examination are: UK — fiscal years 2004-2007, Japan — fiscal years 2006-2007 and Australia — fiscal years 2005-2007.

13. Commitments and Contingencies

Guarantees and Indemnification Obligations

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses incurred by the indemnified party, generally the Company’s customers, in connection with any patent, copyright, trade secret or other proprietary right infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual. Based on historical information and information known as of April 30, 2008, the Company does not expect it will incur any significant liabilities under these indemnification agreements.

Warranty

The Company provides warranties on most products and has established a reserve for warranty based on identified warranty costs. The reserve is included as part of accrued expenses (Note 7) in the accompanying balance sheets.

Activity related to the warranty accrual was as follows (in thousands):


	Three Months Ended April 30,
	2008			2007
Balance at beginning of period	$	1,141		$	1,093
Provision		442			433
Warranty usage *		(515	)		(511	)

Balance at end of period	$	1,068		$	1,015


*		Warranty usage includes expiration of product warranty

14. Industry Segment and Geographic Information

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company is organized as, and operates in, one reportable segment: the development and sale of data warehouse appliances. The Company’s chief operating decision-maker is its Chief Executive Officer. The Company’s Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of evaluating financial performance and allocating resources. The Company and its Chief Executive Officer evaluate performance based primarily on revenue in the geographic locations in which the Company operates. Revenue is attributed by geographic location based on the location of the end customer.

Revenue, classified by the major geographic areas in which the Company’s customers are located, was as follows (in thousands):


	Fiscal Year Ended April 30,
	2008		2007
North America	$	28,401	$	20,764
International		11,175		4,578

Total	$	39,576	$	25,342

The following table summarizes the Company’s total assets, by geographic location (in thousands):


	April 30,		January 31,
	2008		2008
North America	$	213,854	$	189,403
International		11,426		9,349

Total	$	225,280	$	198,752

15. Subsequent Event

On May 9, 2008, the Company completed the acquisition of all outstanding capital stock of NuTech Solutions, Inc., for $6.4 million in cash.

On June 6, 2008, at the Company’s Annual Meeting of Stockholders, the Company’s 2007 Stock Incentive Plan (“2007 Plan”) was amended to provide that, notwithstanding the automatic increases provided for under the current terms of the plan, the number of shares that may be issued under the 2007 Plan may not exceed 15,000,000. This amendment was required to ensure that the board of directors can grant valid incentive stock option awards under the 2007 Plan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2008, which was filed with the Securities and Exchange Commission (“SEC”) on April 18, 2008. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Report on Form 10-Q.

Overview

We were founded in August 2000 to develop data warehouse appliances that enable real-time business intelligence. Our NPS appliance integrates database, server and storage platforms in a purpose-built unit to enable detailed queries and analyses on large volumes of stored data. The results of these queries and analyses provide organizations with actionable information to improve their business operations. The amount of data that is being generated and stored by organizations is exploding. As the volume of data continues to grow, enterprises have recognized the value of analyzing such data to significantly improve their operations and competitive position. This increasing amount of data and the importance of data analysis have led to a heightened demand for data warehouses that provide the critical framework for data-driven enterprise decision-making and business intelligence. Many traditional data warehouse systems were initially designed to aggregate and analyze smaller quantities of data, using general-purpose database, server and storage platforms patched together as a data warehouse system. Such patchwork architectures are often used by default to store and analyze data, despite the fact that they are not optimized to handle terabytes of constantly growing and changing data and as a result, are not as effective in handling the in-depth analyses that large businesses are now requiring of their data warehouse systems. The increasing number of users accessing the data warehouse and the sophistication of the queries employed by these users is making the strain of using these legacy systems even more challenging for many organizations.

Business intelligence solutions are still in their early stages of growth and their continued adoption and growth in the marketplace remain uncertain. Additionally, our appliance approach requires our customers to run their data warehouses in new and innovative ways and often requires our customers to replace their existing equipment and supplier relationships, which they may be unwilling to do, especially in light of the often critical nature of the components and systems involved and the significant capital and other resources they may have previously invested. Furthermore, purchases of our products involve material changes to established purchasing patterns and policies. Even if prospective customers recognize the need for our products, they may not select our NPS solution because they choose to wait for the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our NPS solutions. Therefore, our future success also depends on our ability to maintain our leadership position in the data warehouse market and to proactively address the needs of the market and our customers to further drive the adoption of business intelligence and to sustain our competitive advantage versus competing approaches to business intelligence and alternate product offerings.

We are currently headquartered in Marlborough, Massachusetts. In May 2008, we moved our headquarters from Framingham, Massachusetts to our current location in Marlborough. Our personnel and operations are also located throughout the United States, as well as in Canada, the United Kingdom, Australia, Germany, Japan and Korea. We expect to continue to add personnel in the United States and internationally to provide additional geographic sales and technical support coverage. Our fiscal year ends on January 31. When we refer to a particular fiscal year, we are referring to the fiscal year ended January 31 of that year. For example, fiscal 2009, refers to the fiscal year ended January 31, 2009.

Revenue

We derive our revenue from sales of products and related services. We sell our data warehouse appliances worldwide to large global enterprises, mid-market companies and government agencies through our direct salesforce as well as indirectly via distribution partners. To date, we have derived the substantial majority of our revenue from customers located in the United States. For the three months ended April 30, 2008 and 2007, U.S. customers accounted for approximately 68% and 75% of our revenue, respectively. For fiscal 2008, 2007 and 2006, U.S. customers accounted for approximately 80%, 76% and 88% of our revenue, respectively.

Product Revenue. The significant majority of our revenue is generated through the sale of our NPS appliances, primarily to companies in the following vertical industries: telecommunications, e-business, retail, financial services, analytic service providers, government and healthcare. As we have grown we have reduced our dependency on our largest customers, with no customer accounting for more than 10% of our total revenue during the three months ended April 30, 2008, one customer accounting for more than 10% of our total revenue in fiscal 2008 and no customer accounting for more than 10% of our total revenue in fiscal 2007. Our future revenue growth will depend in significant part upon further sales of our NPS appliances to our existing customer base. In addition, increasing our sales to new customers in existing vertical industries we currently serve and in other vertical industries that depend upon high-performance data analysis is an important element of our strategy. We consider the further development of our direct and indirect sales channels in domestic and international markets to be a key to our future revenue growth and the global acceptance of our products. Our future revenue growth will also depend on our ability to sustain the high levels of customer satisfaction generated by providing “high-touch”, high-quality support. In addition, the market for our products is characterized by rapid technological change, frequent new product introductions and evolving industry standards. Our future revenue growth is dependent on the successful development and introduction of new products and enhancements. Such new introductions and enhancements could reduce demand for our existing products and cause customers to delay purchasing decisions until such new products and enhancements are introduced. To address these risks we will seek to expand our sales and marketing efforts, continue to pursue research and development as well as acquisition opportunities to expand and enhance our product offering.

Services Revenue. We sell product maintenance services to our customers. In addition, we offer installation, training and professional services to our customers. The percentage of our total revenue derived from support services was 21% for the three months ended April 30, 2008, 19% in each of fiscal 2008 and 2007 and 15% in fiscal

2006. We anticipate that maintenance services will continue to be purchased by new and existing customers and that services revenue will continue to be between 18% and 20% of our total revenue.

Cost of Revenue and Gross Profit

Cost of product revenue consists primarily of amounts paid to Sanmina, our contract manufacturer, in connection with the procurement of hardware components and assembly of those components into our NPS appliance systems. Neither we nor Sanmina enter into long-term supply contracts for our hardware components, which can cause our cost of product revenue to fluctuate. These product costs are recorded when the related product revenue is recognized. Cost of revenue also includes shipping, warehousing and logistics expenses, warranty reserves and inventory write-downs to write down the carrying value of inventory to the lower of cost or market. Shipping, warehousing and logistics costs are recognized as incurred. Estimated warranty costs are recorded when the related product revenue is recognized.

Cost of services revenue consists primarily of salaries and employee benefits for our support staff and worldwide installation and technical account management teams and amounts paid to third parties to provide on-site hardware service.

Our gross profit has been and will continue to be affected by a variety of factors, including the relative mix of product versus services revenue; our mix of direct versus indirect sales (as sales through our indirect channels have lower average selling prices and gross profit); and changes in the average selling prices of our products and services, which can be adversely affected by competitive pressures. Additional factors affecting gross profit include the timing of new product introductions, which may reduce demand for our existing product as customers await the arrival of new products and could also result in additional reserves against older product inventory, cost reductions through redesign of existing products and the cost of our systems hardware. The data warehouse market is highly competitive and we expect this competition to intensify in the future, especially as we move into additional vertical industries. If our market share in such industries increases, we expect pricing pressure to increase, which will reduce product gross margins.

If our customer base continues to grow, it will be necessary for us to continue to make significant upfront investments in our customer service and support infrastructure to support this growth. The rate at which we add new customers will affect the level of these upfront investments. The timing of these additional expenditures could materially affect our cost of revenue, both in absolute dollars and as a percentage of total revenue, in any particular period. This could cause downward pressure on gross margins.

Operating Expenses

Operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories. We grew to 294 employees at April 30, 2008 from 225 employees at January 31, 2007. We expect to continue to hire significant numbers of new employees to support our anticipated growth.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries and employee benefits, sales commissions, marketing program expenses and allocated facilities expenses. We plan to continue to invest in sales and marketing by increasing the number of our sales personnel worldwide, expanding our domestic and international sales and marketing activities, and further building brand awareness. Accordingly, we expect sales and marketing expenses to continue to increase in total dollars although we expect these expenses to decrease as a percentage of total revenue. Generally, sales personnel are not immediately productive and thus sales and marketing expenses related to new sales hires are not immediately accompanied by higher revenue. Hiring additional sales personnel may reduce short-term operating margins until the sales personnel become productive and generate revenue. Accordingly, the timing of hiring sales personnel and the rate at which they become productive will affect our future performance.

Research and Development Expenses

Research and development expenses consist primarily of salaries and employee benefits, product prototype expenses, allocated facilities expenses and depreciation of equipment used in research and development activities. In addition to our U.S. development teams, we use an offshore development team employed by a contract engineering firm in Pune, India. Research and development expenses are recorded as incurred. We devote substantial resources to the development of additional functionality for existing products and the development of new products. We intend to continue to invest significantly in our research and development efforts because we believe they are essential to maintaining and increasing our competitive position. We expect research and development expenses to increase in total dollars, although we expect such expense to decrease as a percentage of total revenue.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee benefits, allocated facilities expenses, fees for professional services such as legal, accounting and compliance, investor relation expenses and insurance premiums, including premiums related to director and officer insurance. We expect general and administrative expenses to continue to increase in total dollars and to increase slightly as a percentage of revenue in fiscal 2009 as we continue to invest in infrastructure to support continued growth and incur additional expenses related to being a publicly traded company.

Other

Interest Income (Expense), Net

Interest income (expense), net primarily consists of interest income on investments and cash balances and interest expense on our outstanding debt.

Other Income (Expense), Net

Other income (expense), net primarily consists of losses or gains on translation of non-U.S. dollar transactions into U.S. dollars and mark-to-market adjustments on preferred stock warrants. As these warrants for our preferred stock are no longer outstanding, there will be no mark-to-market adjustment expense going forward.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that can affect the reported amounts of assets and liabilities as of the dates of the consolidated financial statements, the disclosure of contingencies as of the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the periods presented. We evaluate these estimates, judgments and assumptions on an ongoing basis. Although we believe that our estimates, judgments and assumptions are reasonable under the circumstances, actual results may differ from those estimates.

We believe that of our significant accounting policies, the following accounting policies involve the most judgment and complexity:

	•		revenue recognition;

	•		stock-based compensation;

	•		inventory valuation;

	•		warranty reserves;

	•		accounting for income taxes; and

	•		valuation of investments.

Accordingly, we believe the policies set forth above are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. Additional information about these critical accounting policies may be found in the “Managements Discussion and Analysis of Financial Condition and Results of Operations” section included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2008. There have been no material changes in our critical accounting policies since January 31, 2008.

Results of Operations

The following table sets forth our consolidated results of operations for the periods shown.


							Percentage Change
	Three Months Ended April 30,						2008 vs
	2008			2007			2007
	(In thousands)
Revenue
Product	$	31,326		$	20,577			52.2	%
Services		8,250			4,765			73.1	%

Total revenue		39,576			25,342			56.2	%
Cost of revenue
Product		12,594			8,395			50.0	%
Services		2,104			1,648			27.7	%

Total cost of revenue		14,698			10,043			46.4	%

Gross margin		24,878			15,299			62.6	%

Operating expenses
Sales and marketing		13,330			9,669			37.9	%
Research and development		7,248			5,484			32.2	%
General and administrative		3,113			1,755			77.4	%

Total operating expenses		23,691			16,908			40.1	%

Operating income (loss)		1,187			(1,609	)
Interest income		1,743			22			7822.7	%
Interest expense		—			213			-100.0	%
Other income (expense), net		(133	)		169

Income (loss) before income taxes and accretion to preferred stock		2,797			(1,631	)
Income tax provision		665			274

Net income (loss)	$	2,132		$	(1,905	)

Revenue

Total revenue was $39.6 million and $25.3 million in the three months ended April 30, 2008 and 2007, respectively, representing an increase of 56%.

Product revenue was $31.3 million and $20.6 million in the three months ended April 30, 2008 and 2007, respectively, representing an increase of 52%. This increase was primarily driven by a growing acceptance and need for data warehouse systems and is indicative of customers valuing the capabilities and return on investment that they provide. This increase was based on increased sales volume, due primarily to sales to new customers rather than price increases. Product revenue related to new customer sales increased $7.2 million, as the number of new customers increased to 31 in the three months ended April 30, 2008, from 14 new customers in the three months ended April 30, 2007, bringing our total installed base to 173 customers. Product revenue related to repeat business from the installed base increased $3.5 million in the three months ended April 30, 2008 as existing customers purchased additional systems and/or additional capacity on their existing systems.

Geographically, 71% of our product revenue was in North America and 29% was international for the three months ended April 30, 2008, as compared to 82% of our product revenue in North America and 18% international for the three months ended April 30, 2007. The increases in international product sales were facilitated by an increase in the size of our dedicated sales force outside of the United States. The number of sales and marketing employees increased to 117 at April 30, 2008, from 94 at April 30, 2007. Our enhanced visibility and reputation in our industry, as our base of referenceable customers has grown, was also an important factor in generating additional sales.

Services revenue was $8.3 million and $4.8 million in the three months ended April 30, 2008 and 2007, respectively, representing an increase of 73%. This increase was the result of increased product sales, and accompanying sales of new maintenance and support contracts combined with the renewal of maintenance and support contracts by existing customers. All of our customers to date have purchased first-year annual maintenance and support services and substantially all of our customers renewed their maintenance and support agreements.

Gross Margin

Total gross margin was 63% and 60% for the three months ended April 30, 2008 and 2007, respectively.

Product gross margin was 60% and 59% for the three months ended April 30, 2008 and 2007, respectively. This increase in the three months ended April 30, 2008 was due primarily to a reduction in the cost of our hardware components which had been occurring since fiscal 2007.

Services gross margin was 75% and 65% for the three months ended April 30, 2008 and 2007, respectively. The increase in the three months ended April 30, 2008 was a result of our services revenue growth of 73% while cost of service revenue increased only 28%. Services headcount increased 29% to 36 at April 30, 2008 from 28 at April 30, 2007.

Sales and Marketing Expenses

Sales and marketing expenses increased $3.7 million, or 38%, in the three months ended April 30, 2008. As a percentage of revenue, sales and marketing expenses were 34% and 38% for the three months ended April 30, 2008 and 2007, respectively.

The increase in sales and marketing expenses of $3.7 million was due primarily to increases of $1.4 million in sales commissions, $0.6 million in salaries and employee benefits, $0.6 million in Partner referral fees, $0.3 million in stock-based compensation expense, $0.3 million in sales office rent and office costs to support the continued geographic expansion of the sales force, $0.2 million in sales travel and $0.2 million in recruiting fees.

The number of sales and marketing employees increased to 117 at April 30, 2008 from 94 at April 30, 2007, in order to expand our sales force to provide better geographic distribution and market penetration.

Research and Development Expenses

Research and development expenses increased $1.8 million, or 32%, in the three months ended April 30, 2008. As a percentage of revenue, research and development expenses were 18% and 22% for the three months ended April 30, 2008 and 2007, respectively.

The increase in research and development expenses of $1.8 million was due primarily to increases of $0.9 million in salaries, benefits and offshore consulting costs, $0.4 million in depreciation expense, $0.3 million in stock-based compensation expense and $0.2 million in prototype expense and inventory expensed.

The number of research and development employees increased to 103 at April 30, 2008 from 83 at April 30, 2007, to help us broaden and improve the development of new technology and product enhancements. The offshore development team from our contract engineering firm increased to 61 people at April 30, 2008 from 55 people at April 30, 2007, in order to take advantage of the cost efficiencies associated with offshore research and development resources.

General and Administrative Expenses

General and administrative expenses increased $1.4 million, or 77%, in the three months ended April 30, 2008. As a percentage of revenue, general and administrative expenses were 8% and 7% for the three months ended April 30, 2008 and 2007, respectively.

The increase in general and administrative expenses of $1.4 million was due primarily to increases of $0.8 million in audit, tax, legal, insurance and consulting costs, all of which increased as a result of being a public company, $0.3 million in salaries and benefits and $0.1 million in stock-based compensation expense.

The number of general and administrative employees increased to 27 at April 30, 2008 from 18 at April 30, 2007 to ensure we have appropriate infrastructure to support the growth of our organization and to support the additional demands of public company compliance.

Interest Income (Expense), Net

We recorded $1.7 million of interest income, net in the three months ended April 30, 2008 as compared to $0.2 million of interest expense, net in the three months ended April 30, 2007. This change was primarily due to an increase of $1.7 million in interest income resulting from the investment of proceeds from our initial public offering in July 2007. The components of interest income, net for the three months ended April 30, 2008 were interest income of $1.7 million and interest expense of $0. The components of interest expense, net for the three months ended April 30, 2007 were interest expense of $0.2 million and interest income of $0.

Other Income (Expense), Net

We incurred other expense, net of $0.1 million in the three months ended April 30, 2008 as compared to other income, net of $0.2 million in the three months ended April 30, 2007. The components of other expense, net, for the three months ended April 30, 2008 were $0.1 million of losses on the translation of non-U.S. dollar transactions into U.S. dollars for activities in our foreign subsidiaries. The components of other income, net of $0.2 million in the three months ended April 30, 2007 were $0.4 million of gains on the translation of non-U.S. dollar transactions into U.S. dollars for activities in our foreign subsidiaries, partially offset by $0.3 million from the mark-to-market adjustments on preferred stock warrants.

Provision for Income Taxes

We recorded a provision for income taxes of $0.7 million for the three months ended April 30, 2008, as compared to $0.3 million for the three months ended April 30, 2007. The provision for both periods was primarily

attributable to federal alternative minimum tax, state income taxes and taxes on the earnings of certain foreign subsidiaries.

Liquidity and Capital Resources

As of April 30, 2008, our principal sources of liquidity were cash and cash equivalents of $75.7 million, short-term investments of $3.6 million and accounts receivable of $52.5 million.

Since our inception, we have funded our operations using a combination of issuances of convertible preferred stock, which provided us with aggregate net proceeds of $73.3 million, cash collections from customers and a term loan credit facility and a revolving credit facility with Silicon Valley Bank. In July 2007, we raised $113.0 million of proceeds, net of underwriting discounts and expenses, in our initial public offering. In the future, we anticipate that our primary sources of liquidity will be cash generated from our operating activities, as our credit facility with Silicon Valley Bank expired as of January 31, 2008 and was not renewed.

Our principal uses of cash historically have consisted of payroll and other operating expenses, repayments of borrowings, purchases of property and equipment primarily to support the development of new products and purchases of inventory to support our sales and our increasing volume of evaluation units located at customer locations that enable our customers and prospective customers to test our equipment prior to purchasing. The number of evaluation units has consistently increased due to our overall growth and an increase in our pipeline of potential customers.

The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods:


	Three Months Ended April 30,
	2008			2007
	(in thousands)
Net cash used in operating activities	$	(924	)	$	(2,090	)
Net cash provided by (used in) investing activities		29,868			(149	)
Net cash provided by financing activities		555			3,667

At April 30, 2008, held ARSs totaling $51.1 million. These ARSs that are AAA-rated bonds, most of which are collateralized by federally guaranteed student loans. ARSs are long-term variable rate bonds tied to short-term interest rates that are reset through a “Dutch auction” process that typically occurs every 7 to 35 days. Historically, the carrying value (par value) of the ARSs approximated fair market value due to the resetting of variable interest rates. Beginning in late February 2008, however, the auctions for ARSs then held by us were unsuccessful. As a result, the interest rates on the investments reset to the maximum rate per the applicable investment offering statements. We will not be able to liquidate the affected ARSs until a future auction on these investments is successful, a buyer is found outside the auction process, the securities are called or refinanced by the issuer, or the securities mature. Due to these liquidity issues, we performed a discounted cash flow analysis to determine the estimated fair value of these investments. The discounted cash flow analysis performed by us considered the timing of expected future successful auctions, the impact of extended periods of maximum interest rates, collateralization of underlying security investments and the credit worthiness of the issuer. The discounted cash flow analysis assumes a discount rate of 5.14%, expected term of five years and an illiquidity discount of 1.5-1.8%. The discount rate was determined using a proxy based upon the current market rates for successful auctions within the AAA-rated ARS market. The expected term was based on management’s estimate of future liquidity. The illiquidity premium was based on the levels federal insurance or FFELP backing for each security. As a result, as of April 30, 2008, we recorded an unrealized loss of $4.8 million related to the temporary impairment of the ARSs, which was included in accumulated other comprehensive loss on our consolidated balance

sheet. Our valuation of the ARSs is sensitive to market conditions and management’s judgment and could change significantly based on the assumptions used. If we had used a term of three years or seven years and discount rate of 4.51% and 5.69% respectively, the gross unrealized loss would have been $2.3 million or $7.7 million, respectively. If we had used a term of five years and discount rate of 4.64% or 5.64%, the gross unrealized loss would have been $3.7 million or $5.9 million, respectively. If we had used a term of 5 years and illiquidity discounts of 1.3-1.6% or 1.7-2.0%, the gross unrealized loss would have been $4.4 million or $5.3 million, respectively. Based on our ability to access our cash and short-term investments and our expected cash flows, we do not anticipate the current lack of liquidity on these ARSs to have a material impact on our financial conditions or results of operations during fiscal 2009.

Cash Used In Operating Activities

Net cash used in operating activities was $0.9 million for the three months ended April 30, 2008 and primarily consisted of an increase in accounts receivable of $32.5 million (approximately $30 million was due and expected in late April 2008 but was collected in early May 2008). These uses of cash were partially offset by an increase in deferred revenues of $27.1 million.

Net cash used in operating activities was $2.1 million for the three months ended April 30, 2007 and primarily consisted of a net loss of $1.9 million, an increase in inventory of $8.8 million and a decrease in accounts payable and accrued expenses of $3.0 million. These uses of cash were partially offset by a decrease in accounts receivable of $9.7 million, depreciation expense of $0.7 million and stock-based compensation expense of $0.9 million.

Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $29.9 million for the three months ended April 30, 2008, which primarily consisted of $38.9 million of sales and maturities of our short-term investments. These proceeds were partially offset by $7.4 million used to purchase our short-term investments.

Net cash used in investing activities was $0.1 million for the three months ended April 30, 2007 and consisted of the purchase of computer equipment and software.

Cash Provided by Financing Activities

Net cash provided by financing activities was $0.6 million for the three months ended April 30, 2008, which primarily consisted of $0.6 million received from the issuance of common stock upon the exercise of stock options.

Net cash provided by financing activities was $3.7 million for the three months ended April 30, 2007, which primarily consisted of $3.4 million of net borrowings under our debt facility and $0.3 million received from the issuance of common stock upon the exercise of stock options.

Contractual Obligations

The following is a summary of our contractual obligations as of April 30, 2008:


			Less than							More than
Contractual obligations	Total		1 year			1 - 3 Years		3 - 5 Years		5 Years
					(in thousands)
Operating lease obligations		10,240		1,128			2,696		2,728		3,688
Purchase obligations (1)		10,530		10,530			—		—		—


(1)		Purchase obligations primarily represent the value of purchase orders issued to our contract manufacturer, Sanmina, for the procurement of assembled NPS appliance systems for the next three months.

We believe that our cash and cash equivalents of $75.7 million, short term investments of $3.6 million and accounts receivable of $52.5 million at April 30, 2008, together with any cash flows from operations, will be

sufficient to fund our projected operating requirements for the foreseeable future. Our future working capital requirements will depend on many factors, including the rate of revenue growth, our introduction of new products or enhancements, our expansion of sales and marketing and product development activities. However, to the extent that our cash and cash equivalents, our short term marketable securities and our cash flow from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or a secondary public offering.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that do not have to be reflected on our balance sheet.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No. 157, “Fair Value Measurements,” or SFAS 157, which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands the requirements for disclosure about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. In February 2008, the FASB issued Staff Position FAS No. 157-2, “Partial Deferral of the Effective Date of Statement No. 157,” or FSP 157-2. FSP 157-2 delays the effective date of SFAS 157 for non-financial assets and liabilities that are not measured or disclosed on a recurring basis to fiscal years beginning after November 15, 2008. The adoption of this accounting pronouncement did not have a material effect on our consolidated financial statements for financial assets and liabilities and any other assets and liabilities carried at fair value. We are currently in the process of evaluating the impact of adopting this pronouncement for other non-financial assets or liabilities.

SFAS 157 also requires disclosure about how fair value is determined for assets and liabilities and establishes a three-tiered value hierarchy into which these assets and liabilities must be grouped, based upon significant levels of inputs as follows:

	Level 1		—Quoted prices in active markets for identical assets or liabilities.

	Level 2		— Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

	Level 3		— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115,” or SFAS 159. SFAS 159 allows companies to measure certain financial assets and liabilities at fair value. The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, SFAS 159 specifies that unrealized gains and losses for that instrument shall be reported in earnings at each subsequent reporting date. We adopted SFAS 159 on February 1, 2008 and elected not to measure eligible financial assets and liabilities at fair value. Accordingly, the adoption of SFAS 159 did not have a material impact on our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS 141(R). This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and

any non-controlling interest in the acquired company, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact of SFAS 141(R) on its financial position and results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

Our international sales and marketing operations incur expenses that are denominated in foreign currencies. These expenses could be materially affected by currency fluctuations. Our exposures are to fluctuations in exchange rates for the U.S. dollar versus the British pound, Australian dollar, the Euro, the Canadian dollar and the Japanese yen. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. Additionally, our international sales and marketing operations maintain cash balances denominated in foreign currencies. In order to decrease the inherent risk associated with translation of foreign cash balances into our reporting currency, we have not maintained excess cash balances in foreign currencies. As of April 30, 2008, we had $5.4 million of cash in foreign accounts. We enter into derivative transactions, specifically foreign currency forward contracts, to manage our exposure to fluctuations in foreign exchange rates that arise primarily from our foreign currency-denominated receivables and payables. The contracts are primarily in British Pounds, Australian Dollars and Japanese Yen, typically have maturities of one month and require an exchange of foreign currencies for U.S. dollars at maturity of the contracts at rates agreed to at inception of the contracts. We do not enter into or hold derivatives for trading or speculative purposes. Generally, we do not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other income (expense), net. Net realized and unrealized (if any outstanding) gains and losses associated with exchange rate fluctuations on forward contracts and the underlying foreign currency exposure being hedged were immaterial for all periods presented. There were no outstanding contracts at April 30, 2008 or 2007.

Interest Rate Risk

We had a cash, cash equivalents and investments balance of $130.4 million at April 30, 2008, which was held for working capital purposes. We do not enter into investments for trading or speculative purposes. We do not believe that we have any material exposure to changes in the fair value of these investments as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income, and increases in interest rates may increase future interest expense.

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not hold derivative financial instruments in our investment portfolio. We place our investments with high quality issuers and, by policy, limit the amount of risk by investing primarily in money market funds, United States Treasury obligations, high-quality corporate obligations and certificates of deposit.

At April 30, 2008, we held $51.1 million in ARSs that have experienced failed auctions, which has prevented us from liquidating those investments. As a result, we have classified these investments as long-term assets in our consolidated balance sheet as of April 30, 2008 and recorded an unrealized loss of $4.8 million related to the temporary impairment of the ARSs. This impairment has been included in accumulated other comprehensive loss on our consolidated balance sheet. See Note 3 to the accompanying financial statements for a description of how we value these ARSs. Our valuation of the ARSs is sensitive to market conditions and management’s judgment and could change significantly based on the assumptions used. If we had used a term of 3 years or 7 years and discount rate of 5.14%, the gross unrealized loss would have been $2.3 million or $7.7 million, respectively. If we had used a term of 5 years and discount rate of 4.64% or 5.64%, the gross unrealized loss would have been $3.7 million or $5.9 million, respectively. If we had used a term of 5 years and illiquidity discounts of 1.3-1.6% or 1.7-2.0%, the gross

unrealized loss would have been $4.4 million or $5.3 million, respectively. Based on our ability to access our cash and short-term investments and our expected cash flows, we do not anticipate the current lack of liquidity on these ARSs to have a material impact on our financial condition or results of operations during fiscal 2009.

Item 4. Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of April 30, 2008, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended April 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings.

Item 1A. Risk Factors

Risks Related to Our Business and Industry

An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, before deciding whether to purchase shares of our common stock. Each of these risks could materially adversely affect our business, operating results and financial condition. As a result, the trading price of our common stock could decline and you might lose all or part of your investment in our common stock. We have not made any material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended January 31, 2008.

We have a history of losses, and we may not maintain profitability in the future.

We were profitable in each of the three-month periods ended October 31, 2007 January 31, 2008 and April 30, 2008. We had net income of $2.0 million in fiscal 2008, but we had not been profitable in any prior fiscal period. We experienced a net loss of $14.0 million in fiscal 2006 and $8.0 million in fiscal 2007. We expect to make significant additional expenditures to facilitate the expansion of our business, including expenditures in the areas of

sales, research and development, and customer service and support. Additionally, as a public company, we expect to incur legal, accounting and other expenses that are substantially higher than the expenses we incurred as a private company. Furthermore, we may encounter unforeseen issues that require us to incur additional costs. As a result of these increased expenditures, we will have to generate and sustain increased revenue to maintain profitability. Accordingly, we may not be able to maintain profitability and we may incur significant losses in the future.

Our operating results may fluctuate significantly from quarter to quarter and may fall below expectations in any particular fiscal quarter, which could adversely affect the market price of our common stock.

Our operating results are difficult to predict and may fluctuate from quarter to quarter due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. If our revenue or operating results fall below the expectations of investors or any securities analysts that follow our company in any period, the price of our common stock would likely decline. Factors that may cause our operating results to fluctuate include:

	•		the typical recording of a significant portion of our quarterly sales in the final month of the quarter, whereby small delays in completion of sales transactions could have a significant impact on our operating results for that quarter;

	•		the relatively high average selling price of our products and our dependence on a limited number of customers for a substantial portion of our revenue in any quarterly period, whereby the loss of or delay in a customer order could significantly reduce our revenue for that quarter; for instance, four customers each accounted for greater than 5% of our total revenues during fiscal 2008 and our ten largest customers accounted for approximately 48% of our revenues in fiscal 2008;

	•		the possibility of seasonality in demand for our products;

	•		the addition of new customers or the loss of existing customers;

	•		the rates at which customers purchase additional products or additional capacity for existing products from us;

	•		changes in the mix of products and services sold;

	•		the rates at which customers renew their maintenance and support contracts with us;

	•		our ability to enhance our products with new and better functionality that meet customer requirements;

	•		the timing of recognizing revenue as a result of revenue recognition rules, including due to the timing of delivery and receipt of our products;

	•		the length of our product sales cycle;

	•		the productivity and growth of our salesforce;

	•		service interruptions with any of our single source suppliers or manufacturing partners;

	•		changes in pricing by us or our competitors, or the need to provide discounts to win business;

	•		the timing of our product releases or upgrades or similar announcements by us or our competitors;

	•		the timing of investments in research and development related to new product releases or upgrades;

	•		our ability to control costs, including operating expenses and the costs of the components used in our products;

	•		volatility in our stock price, which may lead to higher stock compensation expenses pursuant to Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, or SFAS No. 123(R), which first became effective for us in fiscal 2007 and requires that employee stock-based compensation be measured based on fair value on grant date and treated as an expense that is reflected in our financial statements over the recipient’s service period;

	•		future accounting pronouncements and changes in accounting policies;

	•		costs related to the acquisition and integration of companies, assets or technologies;

	•		technology and intellectual property issues associated with our products; and

	•		general economic trends, including changes in information technology spending or geopolitical events such as war or incidents of terrorism.

Most of our operating expenses do not vary directly with revenue and are difficult to adjust in the short term. As a result, if revenue for a particular quarter is below our expectations, we could not proportionately reduce operating expenses for that quarter, and therefore this revenue shortfall would have a disproportionate effect on our expected operating results for that quarter.

Our limited operating history and the emerging nature of the data warehouse market make it difficult to evaluate our current business and future prospects, and may increase the risk of your investment.

Our company has only been in existence since August 2000. We first began shipping products in February 2003 and much of our growth has occurred in the past two fiscal years. Our limited operating history and the nascent state of the data warehouse market in which we operate makes it difficult to evaluate our current business and our future prospects. As a result, we cannot be certain that we will sustain our growth or maintain profitability. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly-evolving industries. These risks include the need to:

	•		attract new customers and maintain current customer relationships;

	•		continue to develop and upgrade our data warehouse solutions;

	•		respond quickly and effectively to competitive pressures;

	•		offer competitive pricing or provide discounts to customers in order to win business;

	•		manage our expanding operations;

	•		maintain adequate control over our expenses;

	•		maintain adequate internal controls and procedures;

	•		maintain our reputation, build trust with our customers and further establish our brand; and

	•		identify, attract, retain and motivate qualified personnel.

If we fail to successfully address these needs, our business, operating results and financial condition may be adversely affected.

We depend on a single product family, the Netezza Performance Server family, for all of our revenue, so we are particularly vulnerable to any factors adversely affecting the sale of that product family.

Our revenue is derived exclusively from sales and service of the NPS product family, and we expect that this product family will account for substantially all of our revenue for the foreseeable future. If the data warehouse market declines or the Netezza Performance Server fails to maintain or achieve greater market acceptance, we will not be able to grow our revenues sufficiently to maintain profitability.

If we lose key personnel, or if we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it will be more difficult for us to manage our business and to identify and pursue growth opportunities.

Our success depends substantially on the performance of our key senior management, technical, and sales and marketing personnel. Each of our employees may terminate his or her relationship with us at any time and the loss of the services of such persons could have an adverse effect on our business. We rely on our senior management to manage our existing business operations and to identify and pursue new growth opportunities, and our ability to develop and enhance our products requires talented hardware and software engineers with specialized skills. In addition, our success depends in significant part on maintaining and growing an effective salesforce. We experience intense competition for such personnel and we cannot ensure that we will successfully attract, assimilate, or retain highly qualified managerial, technical or sales and marketing personnel in the future.

If we are unable to develop and introduce new products and enhancements to existing products, if our new products and enhancements to existing products do not achieve market acceptance, or if we fail to manage product transitions, we may fail to increase, or may lose, market share.

The market for our products is characterized by rapid technological change, frequent new product introductions and evolving industry standards. Our future growth depends on the successful development and introduction of new products and enhancements to existing products that achieve acceptance in the market. Due to the complexity of our products, which include integrated hardware and software components, any new products and product enhancements would be subject to significant technical risks that could impact our ability to introduce those products and enhancements in a timely manner. In addition, such new products or product enhancements may not achieve market acceptance despite our expending significant resources to develop them. If we are unable, for technological or other reasons, to develop, introduce and enhance our products in a timely manner in response to changing market conditions or evolving customer requirements, or if these new products and product enhancements do not achieve market acceptance due to competitive or other factors, our operating results and financial condition could be adversely affected.

Product introductions and certain enhancements of existing products by us in future periods may also reduce demand for our existing products or could delay purchases by customers awaiting arrival of our new products. As new or enhanced products are introduced, we must successfully manage the transition from older products in order to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and ensure that sufficient supplies of new products can be delivered in a timely manner to meet customer demand.

We face intense and growing competition from leading technology companies as well as from emerging companies. Our inability to compete effectively with any or all of these competitors could impact our ability to achieve our anticipated market penetration and achieve or sustain profitability.

The data warehouse market is highly competitive and we expect competition to intensify in the future. This competition may make it more difficult for us to sell our products, and may result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses and failure to increase, or the loss of, market share, any of which would likely seriously harm our business, operating results and financial condition.

Currently, our most significant competition includes companies which typically sell several if not all elements of a data warehouse environment as individual products, including database software, servers, storage and

professional services. These competitors are often leaders in many of these segments including EMC, Hewlett-Packard, IBM, Oracle, Sun Microsystems, Sybase and Teradata. In addition, a large number of fast growing companies have recently entered the market, many of them selling integrated appliance offerings similar to our products. Additionally, as the benefits of an appliance solution have become evident in the marketplace, many of our larger competitors have also begun to bundle their products into appliance-like offerings that more directly compete with our products. We also expect additional competition in the future from new and existing companies with whom we do not currently compete directly. As our industry evolves, our current and potential competitors may establish cooperative relationships among themselves or with third parties, including software and hardware companies with whom we have partnerships and whose products interoperate with our own, that could acquire significant market share, which could adversely affect our business. We also face competition from internally-developed systems. Any of these competitive threats, alone or in combination with others, could seriously harm our business, operating results and financial condition.

Many of our competitors have greater market presence, longer operating histories, stronger name recognition, larger customer bases and significantly greater financial, technical, sales and marketing, manufacturing, distribution and other resources than we have. In addition, many of our competitors have broader product and service offerings than we do. These companies may attempt to use their greater resources to better position themselves in the data warehouse market including by pricing their products at a discount or bundling them with other products and services in an attempt to rapidly gain market share. Moreover, many of our competitors have more extensive customer and partner relationships than we do, and may therefore be in a better position to identify and respond to market developments or changes in customer demands. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. We cannot assure you that we will be able to compete successfully against existing or new competitors.

Our success depends on the continued recognition of the need for business intelligence in the marketplace and on the adoption by our customers of data warehouse appliances, often as replacements for existing systems, to enable business intelligence. If we fail to improve our products to further drive this market migration as well as to successfully compete with alternative approaches and products, our business would suffer.

Due to the innovative nature of our products and the new approaches to business intelligence that our products enable, purchases of our products often involve the adoption of new methods of database access and utilization on the part of our customers. This may entail the acknowledgement of the benefits conferred by business intelligence and the customer-wide adoption of business intelligence analysis that makes the benefits of our system particularly relevant. Business intelligence solutions are still in their early stages of growth and their continued adoption and growth in the marketplace remain uncertain. Additionally, our appliance approach requires our customers to run their data warehouses in new and innovative ways and often requires our customers to replace their existing equipment and supplier relationships, which they may be unwilling to do, especially in light of the often critical nature of the components and systems involved and the significant capital and other resources they may have previously invested. Furthermore, purchases of our products involve material changes to established purchasing patterns and policies. Even if prospective customers recognize the need for our products, they may not select our NPS solution because they choose to wait for the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our NPS solutions. Therefore, our future success also depends on our ability to maintain our leadership position in the data warehouse market and to proactively address the needs of the market and our customers to further drive the adoption of business intelligence and to sustain our competitive advantage versus competing approaches to business intelligence and alternate product offerings.

Claims that we infringe or otherwise misuse the intellectual property of others could subject us to significant liability and disrupt our business, which could have a material adverse effect on our business and operating results.

Our competitors protect their intellectual property rights by means such as trade secrets, patents, copyrights and trademarks. We have not conducted an independent review of patents issued to third parties. Although we have not been involved in any litigation related to intellectual property rights of others, from time to time we receive

letters from other parties alleging, or inquiring about, breaches of their intellectual property rights. We may in the future be sued for violations of other parties’ intellectual property rights, and the risk of such a lawsuit will likely increase as our size and the number and scope of our products increase, as our geographic presence and market share expand and as the number of competitors in our market increases. Any such claims or litigation could:

	•		be time-consuming and expensive to defend, whether meritorious or not;

	•		cause shipment delays;

	•		divert the attention of our technical and managerial resources;

	•		require us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable, if at all;

	•		prevent us from operating all or a portion of our business or force us to redesign our products, which could be difficult and expensive and may degrade the performance of our products;

	•		subject us to significant liability for damages or result in significant settlement payments; and/or

	•		require us to indemnify our customers, distribution partners or suppliers.

Any of the foregoing could disrupt our business and have a material adverse effect on our operating results and financial condition.

Our products must interoperate with our customers’ information technology infrastructure, including customers’ software applications, networks, servers and data-access protocols, and if our products do not do so successfully, we may experience a weakening demand for our products.

To be competitive in the market, our products must interoperate with our customers’ information technology infrastructure, including software applications, network infrastructure and servers supplied by a variety of other vendors, many of whom are competitors of ours. Our products currently interoperate with a number of business intelligence and data-integration applications provided by vendors including IBM and Oracle, among others. When new or updated versions of these software applications are introduced, we must sometimes develop updated versions of our software that may require assistance from these vendors to ensure that our products effectively interoperate with these applications. If these vendors do not provide us with assistance on a timely basis, or decide not to work with us for competitive or other reasons, including due to consolidation with our competitors, we may be unable to ensure such interoperability. Additionally, our products interoperate with servers, network infrastructure and software applications predominantly through the use of data-access protocols. While many of these protocols are created and maintained by independent standards organizations, some of these protocols that exist today or that may be created in the future are, or could be, proprietary technology and therefore require licensing the proprietary protocol’s specifications from a third party or implementing the protocol without specifications. Our development efforts to provide interoperability with our customers’ information technology infrastructures require substantial capital investment and the devotion of substantial employee resources. We may not accomplish these development efforts quickly, cost-effectively or at all. If we fail for any reason to maintain interoperability, we may experience a weakening in demand for our products, which would adversely affect our business, operating results and financial condition.

If we fail to enhance our brand, our ability to expand our customer base will be impaired and our operating results may suffer.

We believe that developing and maintaining awareness of the Netezza brand is critical to achieving widespread acceptance of our products and is an important element in attracting new customers and shortening our sales cycle. We expect the importance of brand recognition to increase as competition further develops in our market. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and our

ability to provide customers with reliable and technically sophisticated products at competitive prices. If customers do not perceive our products and services to be of high value, our brand and reputation could be harmed, which could adversely impact our financial results. Despite our best efforts, our brand promotion efforts may not yield increased revenue sufficient to offset the additional expenses incurred in our brand-building efforts.

We may not receive significant revenues from our current research and development efforts for several years, if at all.

Investment in product development often involves a long payback cycle. We have made and expect to continue making significant investments in research and development and related product opportunities. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we do not expect to receive significant revenues from these investments for several years, if at all.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense, which contribute to the unpredictability and variability of our financial performance and may adversely affect our profitability.

The timing of our revenue is difficult to predict as we experience extended sales cycles, due in part to our need to educate our customers about our products and participate in extended product evaluations and the high purchase price of our products. In addition, product purchases are often subject to a variety of customer considerations that may extend the length of our sales cycle, including customers’ acceptance of our approach to data warehouse management and their willingness to replace their existing solutions and supplier relationships, timing of their budget cycles and approval processes, budget constraints, extended negotiations, and administrative, processing and other delays, including those due to general economic factors. As a result, our sales cycle extends to more than nine months in most cases, and it is difficult to predict when or if a sale to a potential customer will occur. All of these factors can contribute to fluctuations in our quarterly financial performance and increase the likelihood that our operating results in a particular quarter will fall below investor expectations. In addition, the provision of evaluation units to customers may require significant investment in inventory in advance of sales of these units, which sales may not ultimately transpire. If we are unsuccessful in closing sales after expending significant resources, or if we experience delays for any of the reasons discussed above, our future revenues and operating expenses may be materially adversely affected.

Our company is growing rapidly and we may be unable to manage our growth effectively.

Between January 31, 2005 and April 30, 2008, the number of our employees increased from 140 to 294 and our installed base of customers grew from 15 to 173. In addition, during that time period our number of office locations has increased from 3 to 14. We anticipate that further expansion of our organization and operations will be required to achieve our growth targets. Our rapid growth has placed, and is expected to continue to place, a significant strain on our management and operational infrastructure. Our failure to continue to enhance our management personnel and policies and our operational and financial systems and controls in response to our growth could result in operating inefficiencies that could impair our competitive position and would increase our costs more than we had planned. If we are unable to manage our growth effectively, our business, our reputation and our operating results and financial condition will be adversely affected.

Our ability to sell to U.S. federal government agencies is subject to evolving laws and policies that could have a material adverse effect on our growth prospects and operating results, and our contracts with the U.S. federal government may impose requirements that are unfavorable to us.

In fiscal 2008 and fiscal 2007, we derived approximately 3% and 5%, respectively, of our revenue from U.S. federal government agencies. The demand for data warehouse products and services by federal government agencies may be affected by laws and policies that might restrict agencies’ collection, processing, and sharing of

certain categories of information. Our ability to profitably sell products to government agencies is also subject to changes in agency funding priorities and contracting procedures and our ability to comply with applicable government regulations and other requirements.

The restrictions on federal government data management include, for example, the Privacy Act, which requires agencies to publicize their collection and use of personal data and implement procedures to provide individuals with access to that information; the Federal Information Security Management Act, which requires agencies to develop comprehensive data privacy and security measures that may increase the cost of maintaining certain data; and the E-government Act, which requires agencies to conduct privacy assessments before acquiring certain information technology products or services and before initiating the collection of personal information or the aggregation of existing databases of personal information. These restrictions, any future restrictions, and public or political pressure to constrain the government’s collection and processing of personal information may adversely affect the government’s demand for our products and services and could have a material adverse effect on our growth prospects and operating results.

Federal agency funding for information technology programs is subject to annual appropriations established by Congress and spending plans adopted by individual agencies. Accordingly, government purchasing commitments normally last no longer than one year. The amounts of available funding in any year may be reduced to reflect budgetary constraints, economic conditions, or competing priorities for federal funding. Constraints on federal funding for information technology could harm our ability to sell products to government agencies, causing fluctuations in our revenues from this segment from period to period and resulting in a weakening of our growth prospects, operating results and financial condition.

Our contracts with government agencies may subject us to certain risks and give the government rights and remedies not typically found in commercial contracts, including rights that allow the government to, for example:

	•		terminate contracts for convenience at any time without cause;

	•		obtain detailed cost or pricing information;

	•		receive “most favored customer” pricing;

	•		perform routine audits;

	•		impose equal employment and hiring standards;

	•		require products to be manufactured in specified countries;

	•		restrict non-U.S. ownership or investment in our company; and

	•		pursue administrative, civil or criminal remedies for contractual violations.

Moreover, some of our contracts allow the government to use, or permit others to use, patented inventions that we developed under those contracts, and to place conditions on our right to retain title to such inventions. Likewise, some of our government contracts allow the government to use or disclose software or technical data that we develop or deliver under the contract without constraining subsequent uses of those data. Third parties authorized by the government to use our patents, software and technical data may emerge as alternative sources for the products and services we offer to the government and may enable the government to negotiate lower prices for our products and services. If we fail to assert available protections for our patents, software, and technical data, our ability to control the use of our intellectual property may be compromised, which may benefit our competitors, reduce the prices we can obtain for our products and services, and harm our financial condition.

Our international operations are subject to additional risks that we do not face in the United States, which could have an adverse effect on our operating results.

In fiscal 2008 and fiscal 2007, we derived approximately 20% and 24%, respectively, of our revenue from customers based outside the United States, and we currently have sales personnel in six different foreign countries. We expect our revenue and operations outside the United States will expand in the future. Our international operations are subject to a variety of risks that we do not face in the United States, including:

	•		difficulties in staffing and managing our foreign offices and the increased travel, infrastructure and legal and compliance costs associated with multiple international locations;

	•		general economic conditions in the countries in which we operate, including seasonal reductions in business activity in the summer months in Europe, during Lunar New Year in parts of Asia and in other periods in various individual countries;

	•		longer payment cycles for sales in foreign countries and difficulties in enforcing contracts and collecting accounts receivable;

	•		additional withholding taxes or other taxes on our foreign income, and tariffs or other restrictions on foreign trade or investment;

	•		imposition of, or unexpected adverse changes in, foreign laws or regulatory requirements, many of which differ from those in the United States;

	•		increased length of time for shipping and acceptance of our products;

	•		difficulties in repatriating overseas earnings;

	•		increased exposure to foreign currency exchange rate risk;

	•		reduced protection for intellectual property rights in some countries;

	•		costs and delays associated with developing products in multiple languages; and

	•		political unrest, war, incidents of terrorism, or responses to such events.

Our overall success in international markets depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be successful in developing and implementing policies and strategies that will be effective in managing these risks in each country where we do business. Our failure to manage these risks successfully could harm our international operations, reduce our international sales and increase our costs, thus adversely affecting our business, operating results and financial condition.

Our future revenue growth will depend in part on our ability to further develop our indirect sales channel, and our inability to effectively do so will impair our ability to grow our revenues as we anticipate.

Our future revenue growth will depend in part on the continued development of our indirect sales channel to complement our direct salesforce. Our indirect sales channel includes resellers, systems integration firms and analytic service providers. In fiscal 2008 and fiscal 2007, we derived approximately 14% and 17%, respectively, of our revenue from our indirect sales channel. We plan to continue to invest in our indirect sales channel by expanding upon and developing new relationships with resellers, systems integration firms and analytic service providers. While the development of our indirect sales channel is a priority for us, we cannot predict the extent to which we will be able to attract and retain financially stable, motivated indirect channel partners. Additionally, due in part to the complexity and innovative nature of our products, our channel partners may not be successful in marketing and

selling our products. Our indirect sales channel may be adversely affected by disruptions in relationships between our channel partners and their customers, as well as by competition between our channel partners or between our channel partners and our direct salesforce. In addition our reputation could suffer as a result of the conduct and manner of marketing and sales by our channel partners. Our agreements with our channel partners are generally not exclusive and may be terminated without cause. If we fail to effectively develop and manage our indirect channel for any of these reasons, we may have difficulty attaining our growth targets.

Our ability to sell our products and retain customers is highly dependent on the quality of our maintenance and support services offerings, and our failure to offer high-quality maintenance and support could have a material adverse effect on our operating results.

Most of our customers purchase maintenance and support services from us, which represents a significant portion of our revenue (approximately 19% of our revenue in both fiscal 2008 and fiscal 2007). Customer satisfaction with our maintenance and support services is critical for the successful marketing and sale of our products and the success of our business. In addition to our support staff and installation and technical account management teams, we have developed service relationships with third parties to provide on-site hardware service to our customers. Although we believe these third parties and any other third-party service provider we utilize in the future will offer a high level of service consistent with our internal customer support services, we cannot assure you that they will continue to devote the resources necessary to provide our customers with effective technical support. In addition, if we are unable to renew our service agreements with these third parties we utilize in the future or such agreements are terminated, we may be unable to establish alternative relationships on a timely basis or on terms acceptable to us, if at all. If we or our service partners are unable to provide effective maintenance and support services, it could adversely affect our ability to sell our products and harm our reputation with current and potential customers.

Our products are highly technical and may contain undetected software or hardware defects, which could cause data unavailability, loss or corruption that might result in liability to our customers and harm to our reputation and business.

Our products are highly technical and complex and are often used to store and manage data critical to our customers’ business operations. Our products may contain undetected errors, defects or security vulnerabilities that could result in data unavailability, loss or corruption or other harm to our customers. Some errors in our products may only be discovered after the products have been installed and used by customers. Any errors, defects or security vulnerabilities discovered in our products after commercial release or that are caused by another vendor’s products with which we interoperate but are nevertheless attributed to us by our customers, as well as any computer virus or human error on the part of our customer support or other personnel, that result in a customer’s data being misappropriated, unavailable, lost or corrupted could have significant adverse consequences, including:

	•		loss of customers;

	•		negative publicity and damage to our reputation;

	•		diversion of our engineering, customer service and other resources;

	•		increased service and warranty costs; and

	•		loss or delay in revenue or market acceptance of our products.

Any of these events could adversely affect our business, operating results and financial condition. In addition, there is a possibility that we could face claims for product liability, tort or breach of warranty, including claims from both our customers and our distribution partners. The cost of defending such a lawsuit, regardless of its merit, could be substantial and could divert management’s attention from ongoing operations of the company. In addition, if our business liability insurance coverage proves inadequate with respect to a claim or future coverage is unavailable on

acceptable terms or at all we may be liable for payment of substantial damages. Any or all of these potential consequences could have an adverse impact on our operating results and financial condition.

It is difficult to predict our future capital needs and we may be unable to obtain additional financing that we may need, which could have a material adverse effect on our business, operating results and financial condition.

We believe that our current balance of cash, cash equivalents and investments, together with cash expected to be generated from operations, will be sufficient to fund our projected operating requirements, including anticipated capital expenditures, for the foreseeable future. However, we may need to raise additional funds if we are presented with unforeseen circumstances or opportunities in order to, among other things:

	•		develop or enhance our products;

	•		support additional capital expenditures;

	•		respond to competitive pressures;

	•		fund operating losses in future periods; or

	•		take advantage of acquisition or expansion opportunities.

Any required additional financing may not be available on terms acceptable to us, or at all. If we raise additional funds by issuing equity securities, you may experience significant dilution of your ownership interest, and the newly issued securities may have rights senior to those of the holders of our common stock. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility and would also require us to fund additional interest expense, which would harm our profitability. Holders of debt would also have rights, preferences or privileges senior to those of holders of our common stock.

A substantial portion of our long-term marketable securities is invested in highly rated auction rate securities. Failures in these auctions may affect our liquidity.

A substantial percentage of our marketable securities portfolio is invested in highly rated securities collateralized by student loans with approximately 95% of such collateral in the aggregate being guaranteed by the United States government. Auction rate securities are securities that are structured to allow for short-term interest rate resets but with contractual maturities that can be well in excess of ten years. At the end of each reset period, which typically occurs every 7 to 35 days, investors can sell or continue to hold the securities at par. Since February 2008, due to current market conditions, the auction process for certain of our auction rate securities have failed. Such failures resulted in the interest rates on these investments resetting to predetermined rates in accordance with their underlying loan agreements. These interest rates were in some instances, lower than the current market rate of interest. In the event we need to liquidate our investments in these types of securities, we will not be able to do so until a future auction on these investments is successful, the issuer redeems the outstanding securities, a buyer is found outside the auction process, the securities mature, or there is a default requiring immediate repayment from the issuer. In the future, should the auction rate securities we hold be subject to additional auction failures and/or we determine that the decline in value of auction rate securities are other than temporary, we would recognize a loss in our consolidated statement of operations, which could be material. In addition, any future failed auctions may adversely impact the liquidity of our investments. Furthermore, if one or more issuers of the auction rate securities held in our portfolio are unable to successfully close future auctions and their credit ratings deteriorate, we may be required to adjust the carrying value of these investments through an impairment charge, which could be material. At April 30, 2008, we have taken a temporary impairment of $4.8 million on our consolidated balance sheet. In the future, should the auction rate securities we hold be subject to additional auction failures and/or we determine that the decline in value of ARSs is other than temporary, we would recognize a loss in our consolidated statement of operations, which could be material. Subsequent to April 30, 2008, we have liquidated $1.6 million of our auction rate securities.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

Our success is dependent in part on obtaining, maintaining and enforcing our intellectual property and other proprietary rights. We rely on a combination of trade secret, patent, copyright and trademark laws and contractual provisions with employees and third parties, all of which offer only limited protection. Despite our efforts to protect our intellectual property and proprietary information, we may not be successful in doing so, for several reasons. We cannot be certain that our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if patents are issued to us, they may be contested, or our competitors may be able to develop similar or superior technologies without infringing our patents.

Although we enter into confidentiality, assignments of proprietary rights and license agreements, as appropriate, with our employees and third parties, including our contract engineering firm, and generally control access to and distribution of our technologies, documentation and other proprietary information, we cannot be certain that the steps we take to prevent unauthorized use of our intellectual property rights are sufficient to prevent their misappropriation, particularly in foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States.

Even in those instances where we have determined that another party is breaching our intellectual property and other proprietary rights, enforcing our legal rights with respect to such breach may be expensive and difficult. We may need to engage in litigation to enforce or defend our intellectual property and other proprietary rights, which could result in substantial costs and diversion of management resources. Further, many of our current and potential competitors are substantially larger than we are and have the ability to dedicate substantially greater resources to defending any claims by us that they have breached our intellectual property rights.

Our products may be subject to open source licenses, which may restrict how we use or distribute our solutions or require that we release the source code of certain technologies subject to those licenses.

Some of our proprietary technologies incorporate open source software. For example, the open source database drivers that we use may be subject to an open source license. The GNU General Public License and other open source licenses typically require that source code subject to the license be released or made available to the public. Such open source licenses typically mandate that proprietary software, when combined in specific ways with open source software, become subject to the open source license. We take steps to ensure that our proprietary software is not combined with, or does not incorporate, open source software in ways that would require our proprietary software to be subject to an open source license. However, few courts have interpreted the open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to uncertainty. If these licenses were to be interpreted in a manner different than we interpret them, we may find ourselves in violation of such licenses. While our customer contracts prohibit the use of our technology in any way that would cause it to violate an open source license, our customers could, in violation of our agreement, use our technology in a manner prohibited by an open source license.

In addition, we rely on multiple software engineers to design our proprietary products and technologies. Although we take steps to ensure that our engineers do not include open source software in the products and technologies they design, we may not exercise complete control over the development efforts of our engineers and we cannot be certain that they have not incorporated open source software into our proprietary technologies. In the event that portions of our proprietary technology are determined to be subject to an open source license, we might be required to publicly release the affected portions of our source code, which could reduce or eliminate our ability to commercialize our products.

As part of our business strategy, we engage in acquisitions, which could disrupt our business, cause dilution to our stockholders, reduce our financial resources and result in increased expenses.

We acquired a company, NuTech Solutions, in May 2008. In the future, we may acquire additional companies, assets or technologies in an effort to complement our existing offerings or enhance our market position. Any future acquisitions we make could subject us to a number of risks, including:

	•		the purchase price we pay could significantly deplete our cash reserves, impair our future operating flexibility or result in dilution to our existing stockholders;

	•		we may find that the acquired company, assets or technology do not further improve our financial and strategic position as planned;

	•		we may find that we overpaid for the company, asset or technology, or that the economic conditions underlying our acquisition have changed;

	•		we may have difficulty integrating the operations and personnel of the acquired company;

	•		we may have difficulty retaining the employees with the technical skills needed to enhance and provide services with respect to the acquired assets or technologies;

	•		the acquisition may be viewed negatively by customers, financial markets or investors;

	•		we may have difficulty incorporating the acquired technologies or products with our existing product lines;

	•		we may encounter difficulty entering and competing in new product or geographic markets;

	•		we may encounter a competitive response, including price competition or intellectual property litigation;

	•		we may have product liability, customer liability or intellectual property liability associated with the sale of the acquired company’s products;

	•		we may be subject to litigation by terminated employees or third parties;

	•		we may incur debt, one-time write-offs, such as acquired in-process research and development costs, and restructuring charges;

	•		we may acquire goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges;

	•		our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; and

	•		our due diligence process may fail to identify significant existing issues with the target company’s product quality, product architecture, financial disclosures, accounting practices, internal controls, legal contingencies, intellectual property and other matters.

These factors could have a material adverse effect on our business, operating results and financial condition.

From time to time, we may enter into negotiations for acquisitions or investments that are not ultimately consummated. Such negotiations could result in significant diversion of management time, as well as substantial out-of-pocket costs, any of which could have a material adverse effect on our business, operating results and financial condition.

We currently rely on a single contract manufacturer to assemble our products, and our failure to manage our relationship with our contract manufacturer successfully could negatively impact our ability to sell our products.

We currently rely on a single contract manufacturer, Sanmina-SCI Corporation or Sanmina, to assemble our products, manage our supply chain and participate in negotiations regarding component costs. While we believe that our use of Sanmina provides benefits to our business, our reliance on Sanmina reduces our control over the assembly process, exposing us to risks, including reduced control over quality assurance, production costs and product supply. These risks could become more acute if we are successful in our efforts to increase revenue. If we fail to manage our relationship with Sanmina effectively, or if Sanmina experiences delays, disruptions, capacity constraints or quality control problems in its operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be harmed. In addition, we are required to provide forecasts to Sanmina regarding product demand and production levels. If we inaccurately forecast demand for our products, we may have excess or inadequate inventory or incur cancellation charges or penalties, which could adversely impact our operating results and financial condition.

Additionally, Sanmina can terminate our agreement for any reason upon 90 days’ notice or for cause upon 30 days’ notice. If we are required to change contract manufacturers or assume internal manufacturing operations due to any termination of the agreement with Sanmina, we may lose revenue, experience manufacturing delays, incur increased costs or otherwise damage our customer relationships. We cannot assure you that we will be able to establish an alternative manufacturing relationship on acceptable terms or at all.

We depend on a continued supply of components for our products from third-party suppliers, and if shortages of these components arise, we may not be able to secure enough components to build new products to meet customer demand or we may be forced to pay higher prices for these components.

We rely on a limited number of suppliers for several key components utilized in the assembly of our products, including disk drives and microprocessors. Although in many cases we use standard components for our products, some of these components may only be purchased or may only be available from a single supplier. In addition, we maintain relatively low inventory and acquire components only as needed, and neither we nor our contract manufacturer enter into long-term supply contracts for these components and none of our third-party suppliers is obligated to supply products to us for any specific period or in any specific quantities, except as may be provided in a particular purchase order. Our industry has experienced component shortages and delivery delays in the past, and we may experience shortages or delays of critical components in the future as a result of strong demand in the industry or other factors. If shortages or delays arise, we may be unable to ship our products to our customers on time, or at all, and increased costs for these components that we could not pass on to our customers would negatively impact our operating margins. For example, new generations of disk drives are often in short supply, which may limit our ability to procure these disk drives. In addition, disk drives represent a significant portion of our cost of revenue, and the price of various kinds of disk drives is subject to substantial volatility in the market. Many of the other components required to build our systems are also occasionally in short supply. Therefore, we may not be able to secure enough components at reasonable prices or of acceptable quality to build new products, resulting in an inability to meet customer demand or our own operating goals, which could adversely affect our customer relationships, business, operating results and financial condition.

We currently rely on a contract engineering firm for quality assurance and product integration engineering.

In addition to our internal research and development staff, we have contracted with Persistent Systems Pvt. Ltd. located in Pune, India, to employ a dedicated team of over 60 engineers focused on quality assurance and product integration engineering. Persistent Systems can terminate our agreement for any reason upon 15 days’ notice. If we were required to change our contract engineering firm, including due to a termination of the agreement with Persistent Systems, we may experience delays, incur increased costs or otherwise damage our customer relationships. We cannot assure you that we will be able to establish an alternative contract engineering firm relationship on acceptable terms or at all.

Future interpretations of existing accounting standards could adversely affect our operating results.

Generally Accepted Accounting Principles in the United States, or GAAP, are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, or AICPA, the SEC and various other bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported operating results, and they could affect the reporting of transactions completed before the announcement of a change. For example, we recognize our product revenue in accordance with AICPA Statement of Position, or SOP 97-2, Software Revenue Recognition, and related amendments and interpretations contained in SOP 98-9, Software Revenue Recognition with Respect to Certain Transactions. The AICPA and its Software Revenue Recognition Task Force continue to issue interpretations and guidance for applying the relevant accounting standards to a wide range of sales contract terms and business arrangements that are prevalent in software licensing arrangements and arrangements for the sale of hardware products that contain more than an insignificant amount of software. Future interpretations of existing accounting standards, including SOP 97-2 and SOP 98-9, or changes in our business practices could result in delays in our recognition of revenue that may have a material adverse effect on our operating results. For example, we may in the future have to defer recognition of revenue for a transaction that involves:

	•		undelivered elements for which we do not have vendor-specific objective evidence of fair value;

	•		requirements that we deliver services for significant enhancements and modifications to customize our software for a particular customer; or

	•		material acceptance criteria.

Because of these factors and other specific requirements under GAAP for recognition of software revenue, we must include specific terms in customer contracts in order to recognize revenue when we initially deliver products or perform services. Negotiation of such terms could extend our sales cycle, and, under some circumstances, we may accept terms and conditions that do not permit revenue recognition at the time of delivery.

If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which could negatively impact the price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal control over financial reporting and have our independent registered public accounting firm audit our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending January 31, 2009. We are in the process of preparing and implementing an internal plan of action for compliance with Section 404 and strengthening and testing our system of internal controls to provide the basis for our report. The process of implementing our internal controls and complying with Section 404 will be expensive and time consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we conclude, and our independent registered public accounting firm concurs, that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness in our internal control, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including ineligibility for short form registration, action by the SEC, the suspension or delisting of our common stock from NYSE Arca and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.

We are subject to governmental export controls that could impair our ability to compete in international markets.

Our products are subject to U.S. export controls and may be exported outside the United States only with the required level of export license or through an export license exception. Changes in our products or changes in export regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export of our products to certain countries altogether. Any change in export regulations or related legislation, shift in approach to the enforcement or scope of existing regulations or change in the countries, persons or technologies targeted by these regulations could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations.

Adverse changes in economic conditions and reduced information technology spending may negatively impact our business.

Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers and the geographic regions in which we operate. In addition, the purchase of our products is often discretionary and may involve a significant commitment of capital and other resources. As a result, weak economic conditions or a reduction in information technology spending could adversely impact demand for our products and therefore our business, operating results and financial condition.

Risks Related to our Common Stock

The trading price of our common stock is likely to be volatile.

The trading price of our common stock will be susceptible to fluctuations in the market due to numerous factors, many of which may be beyond our control, including:

	•		changes in operating performance and stock market valuations of other technology companies generally or those that sell data warehouse solutions in particular;

	•		actual or anticipated fluctuations in our operating results;

	•		the financial guidance that we may provide to the public, any changes in such guidance, or our failure to meet such guidance;

	•		changes in financial estimates by securities analysts, our failure to meet such estimates, or failure of analysts to initiate or maintain coverage of our stock;

	•		the public’s response to our press releases or other public announcements by us, including our filings with the SEC;

	•		announcements by us or our competitors of significant technical innovations, customer wins or losses, acquisitions, strategic partnerships, joint ventures or capital commitments;

	•		introduction of technologies or product enhancements that reduce the need for our products;

	•		the loss of key personnel;

	•		the development and sustainability of an active trading market for our common stock;

	•		lawsuits threatened or filed against us;

	•		future sales of our common stock by our officers or directors; and

•

other events or factors affecting the economy generally, including those resulting from political unrest, war, incidents of terrorism or responses to such events.

The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

Some companies that have had volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or outcome, it would likely result in substantial costs and divert management’s attention and resources. This could have a material adverse effect on our business, operating results and financial condition.

Future sales of shares by existing stockholders could cause our stock price to decline.

Since the expiration of contractual lock-up agreements with most of our stockholders in January 2008, most of our stockholders have an opportunity to sell their common stock for the first time. Sales by our existing stockholders of a substantial number of shares of common stock in the public market, or the threat that substantial sales might occur, could cause the market price of the common stock to decrease significantly. These factors could also make it difficult for us to raise additional capital by selling our common stock.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on any research reports that securities or industry analysts publish about us or our business. In the event securities or industry analysts cover our company and one or more of these analysts downgrade our stock or publish unfavorable reports about our business, our stock price would likely decline. In addition, if any securities or industry analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Provisions in our certificate of incorporation and by-laws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, may negatively impact the trading price of our common stock.

Provisions of our certificate of incorporation and our by-laws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions:

	•		establish a classified board of directors so that not all members of our board are elected at one time;

	•		provide that directors may only be removed “for cause;”

	•		authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;

	•		eliminate the ability of our stockholders to call special meetings of stockholders;

	•		prohibit stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of stockholders;

	•		provide that the board of directors is expressly authorized to make, alter or repeal our by-laws; and

	•		establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company by prohibiting stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us during a specified period unless certain approvals are obtained.

Insiders own a significant portion of our outstanding common stock and will therefore have substantial control over us and will be able to influence corporate matters.

Our executive officers, directors and their affiliates beneficially own, in the aggregate, approximately 20% of our outstanding common stock. As a result, our executive officers, directors and their affiliates are able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing another party from acquiring control over us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

In July 2007, we completed an initial public offering of common stock pursuant to a Registration Statement on Form S-1 (Registration No. 333-141522), which was declared effective by the SEC on July 18, 2007, selling 10,350,000 shares of common stock at an offering price of $12.00 per share, raising proceeds of approximately $113.0 million, net of underwriting discounts and expenses. We used $14.6 million of the net proceeds to repay all of our outstanding debt and interest. During the quarter ended April 30, 2008, we used an additional $38.4 million of the net proceeds to fund our cost of goods sold and operating expenses. We have invested the remaining $22.4 million of net proceeds in cash and cash equivalents, primarily money-market mutual funds, and corporate debt securities, U.S. treasury and government agency securities, commercial paper, and auction rate securities which we have classified as available-for-sale investments.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits


Exhibit No.		Description
2.1*		Agreement and Plan of Merger, dated as of April 24, 2008, by and among Netezza Corporation, Netezza Holding Corp. and NuTech Solutions, Inc., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 15, 2008 and incorporated herein by reference.


Exhibit No.		Description
10.1		Fiscal 2009 Executive Officer Incentive Bonus Plan, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 3, 2008 and incorporated herein by reference.

31.1		Certification of Chief Executive Officer, pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer, pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(b) and 15d-14(b), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		The exhibits and schedules to this agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish copies of any of the exhibits and schedules to the U.S. Securities and Exchange Commission upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Netezza Corporation (Registrant)

Date: June 9, 2008



	By:	/s/ Patrick J. Scannell, Jr.
		Patrick J. Scannell, Jr.
		Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)