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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q







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

For the Quarterly Period ended March 31, 2008

OR



| ̈ | 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 000-20992





INSIGHTFUL CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 04-2842217                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)

1700 Westlake Avenue North, Suite 500, Seattle, Washington 98109-3044

(Address of principal executive offices) (Zip code)

(206) 283-8802

Issuer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.    YES  x    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.

Large accelerated filer   ̈             non-accelerated filer   ̈            Accelerated filer   ̈             smaller
reporting company   x

(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).    YES   ̈    NO  x

APPLICABLE ONLY TO ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING

FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.

YES   ̈    NO   ̈

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of the issuers Common Stock, $0.01 par value, was 12,979,925 as of April 30, 2008.









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TABLE OF CONTENTS



|                              |  |                                                                                           |  |     
|----------------------------- |  | ----------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                           |  | Page
|PART I. FINANCIAL INFORMATION |  | 3                                                                                        
|                              |  |                                                                                          
|ITEM 1.                       |  | Consolidated Financial Statements (Unaudited)                                             |  | 3   
|                              |  |                                                                                          
|                              |  | Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007          |  | 3   
|                              |  |                                                                                          
|                              |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 |  | 4   
|                              |  |                                                                                          
|                              |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 |  | 5   
|                              |  |                                                                                          
|                              |  | Notes to Condensed Consolidated Financial Statements                                      |  | 6   
|                              |  |                                                                                          
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations     |  | 16  
|                              |  |                                                                                          
|ITEM 4.                       |  | Controls and Procedures                                                                   |  | 27  
|                              | 
|PART II. OTHER INFORMATION    |  | 28                                                                                       
|                              |  |                                                                                          
|ITEM 1A.                      |  | Risk Factors                                                                              |  | 28  
|                              |  |                                                                                          
|ITEM 6.                       |  | Exhibits                                                                                  |  | 35  
|                              | 
|SIGNATURES                    |  | 36                                                                                       
|                              | 
|EXHIBIT INDEX                 |  | 37                                                                                       



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PART I. FINANCIAL INFORMATION



|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------

INSIGHTFUL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)



|                                                                                 |  |               |         |   |                  |   |         |  
|-------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                 |  | March 31,2008 |         |   | December 31,2007 |  
|                                                                                 |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                           |  |               |         |   |                  |   |         |  
|Current Assets:                                                                  |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                        |  | $             | 5,722   |   |                  | $ | 6,663   |  
|Trade accounts receivable, net                                                   |  |               | 3,100   |   |                  |   | 4,181   |  
|Short-term investments                                                           |  |               | 4,008   |   |                  |   | 1,899   |  
|Other receivables                                                                |  |               | 444     |   |                  |   | 303     |  
|Prepaid expenses and other current assets                                        |  |               | 572     |   |                  |   | 558     |  
|                                                                                 |  |               |         |   |                  |   |         |  
|Total current assets                                                             |  |               | 13,846  |   |                  |   | 13,604  |  
|Long-term investments                                                            |  |               | 1,512   |   |                  |   | 2,405   |  
|Property and equipment, net                                                      |  |               | 2,276   |   |                  |   | 2,457   |  
|Goodwill                                                                         |  |               | 800     |   |                  |   | 800     |  
|Other assets                                                                     |  |               | 112     |   |                  |   | 109     |  
|                                                                                 |  |               |         |   |                  |   |         |  
|Total assets                                                                     |  | $             | 18,546  |   |                  | $ | 19,375  |  
|                                                                                 |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                             |  |               |         |   |                  |   |         |  
|Current Liabilities:                                                             |  |               |         |   |                  |   |         |  
|Accounts payable                                                                 |  |               | 320     |   |                  |   | 630     |  
|Accrued payroll-related liabilities                                              |  |               | 1,126   |   |                  |   | 1,508   |  
|Accrued expenses and other current liabilities                                   |  |               | 678     |   |                  |   | 392     |  
|Deferred revenue - short term                                                    |  |               | 5,704   |   |                  |   | 5,861   |  
|                                                                                 |  |               |         |   |                  |   |         |  
|Total current liabilities                                                        |  |               | 7,828   |   |                  |   | 8,391   |  
|Deferred revenue - long term                                                     |  |               | 121     |   |                  |   | 152     |  
|Commitments and contingencies                                                    |  |               |         |   |                  |   |         |  
|Stockholders Equity:                                                            |  |               |         |   |                  |   |         |  
|Preferred stock, $0.01 par value:                                                |  |               |         |   |                  |   |         |  
|Authorized - 1,000,000 shares                                                    |  |               |         |   |                  |   |         |  
|Issued and outstanding-none                                                      |  |               |        |   |                  |   |        |  
|Common stock, $0.01 par value:                                                   |  |               |         |   |                  |   |         |  
|Authorized - 30,000,000 shares                                                   |  |               |         |   |                  |   |         |  
|Issued and outstanding-12,979,925 shares at March 31, 2008 and December 31, 2007 |  |               | 130     |   |                  |   | 130     |  
|Additional paid-in capital                                                       |  |               | 38,977  |   |                  |   | 38,873  |  
|Accumulated deficit                                                              |  |               | (28,289 | ) |                  |   | (27,916 | )
|Other accumulated comprehensive loss                                             |  |               | (221    | ) |                  |   | (255    | )
|                                                                                 |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                       |  |               | 10,597  |   |                  |   | 10,832  |  
|                                                                                 |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                       |  | $             | 18,546  |   |                  | $ | 19,375  |  
|                                                                                 |  |               |         |   |                  |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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INSIGHTFUL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)



|                                                             |  |                             |        |   |      |   |        |  
|------------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                             |  | Three months endedMarch 31, |       
|                                                             |  | 2008                        |        |   | 2007 |  
|Revenues:                                                    |  |                             |        |   |      |   |        |  
|Software licenses                                            |  | $                           | 1,674  |   |      | $ | 2,042  |  
|Software maintenance                                         |  |                             | 2,103  |   |      |   | 2,013  |  
|Professional services and other                              |  |                             | 1,107  |   |      |   | 2,128  |  
|                                                             |  |                             |        |   |      |   |        |  
|Total revenues                                               |  |                             | 4,884  |   |      |   | 6,183  |  
|                                                             |  |                             |        |   |      |   |        |  
|Cost of revenues:                                            |  |                             |        |   |      |   |        |  
|Software related                                             |  |                             | 255    |   |      |   | 362    |  
|Professional services and other                              |  |                             | 840    |   |      |   | 1,467  |  
|                                                             |  |                             |        |   |      |   |        |  
|Total cost of revenues                                       |  |                             | 1,095  |   |      |   | 1,829  |  
|                                                             |  |                             |        |   |      |   |        |  
|Gross profit                                                 |  |                             | 3,789  |   |      |   | 4,354  |  
|                                                             |  |                             |        |   |      |   |        |  
|Operating expenses:                                          |  |                             |        |   |      |   |        |  
|Sales and marketing                                          |  |                             | 2,012  |   |      |   | 2,645  |  
|Research and development                                     |  |                             | 1,294  |   |      |   | 2,000  |  
|LessFunded research                                         |  |                             | (361   | ) |      |   | (506   | )
|                                                             |  |                             |        |   |      |   |        |  
|Research and development, net                                |  |                             | 933    |   |      |   | 1,494  |  
|General and administrative                                   |  |                             | 1,327  |   |      |   | 1,427  |  
|                                                             |  |                             |        |   |      |   |        |  
|Total operating expenses                                     |  |                             | 4,272  |   |      |   | 5,556  |  
|                                                             |  |                             |        |   |      |   |        |  
|Loss from operations                                         |  |                             | (483   | ) |      |   | (1,212 | )
|Other income, net                                            |  |                             | 128    |   |      |   | 132    |  
|                                                             |  |                             |        |   |      |   |        |  
|Loss before income taxes                                     |  |                             | (355   | ) |      |   | (1,080 | )
|Income tax expense                                           |  |                             | (18    | ) |      |   | (12    | )
|                                                             |  |                             |        |   |      |   |        |  
|Net Loss                                                     |  | $                           | (373   | ) |      | $ | (1,092 | )
|                                                             |  |                             |        |   |      |   |        |  
|Basic and diluted net loss per share                         |  | $                           | (0.03  | ) |      | $ | (0.09  | )
|                                                             |  |                             |        |   |      |   |        |  
|Basic and diluted weighted average common shares outstanding |  |                             | 12,980 |   |      |   | 12,830 |  

The accompanying notes are an integral part of these consolidated financial statements.



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INSIGHTFUL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)



|                                                                                |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                |  | Three months endedMarch 31, |       
|                                                                                |  | 2008                        |        |   | 2007 |  
|Operating activities:                                                           |  |                             |        |   |      |   |        |  
|Net loss                                                                        |  | $                           | (373   | ) |      | $ | (1,092 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                                   |  |                             | 207    |   |      |   | 291    |  
|Stock-based compensation expense                                                |  |                             | 104    |   |      |   | 218    |  
|Changes in current assets and liabilities:                                      |  |                             |        |   |      |   |        |  
|Trade and other accounts receivable                                             |  |                             | 1,094  |   |      |   | 2,557  |  
|Prepaid expenses and other assets                                               |  |                             | (12    | ) |      |   | (4     | )
|Accounts payable                                                                |  |                             | (330   | ) |      |   | 18     |  
|Accrued payroll-related liabilities and other accrued expenses                  |  |                             | (132   | ) |      |   | (579   | )
|Deferred revenue                                                                |  |                             | (318   | ) |      |   | 82     |  
|                                                                                |  |                             |        |   |      |   |        |  
|Net cash provided by operating activities                                       |  |                             | 240    |   |      |   | 1,491  |  
|                                                                                |  |                             |        |   |      |   |        |  
|Investing activities:                                                           |  |                             |        |   |      |   |        |  
|Purchases of short- and long-term investments                                   |  |                             | (3,509 | ) |      |   | (494   | )
|Proceeds from sales and maturities of short- and long-term investments          |  |                             | 2,300  |   |      |   |       |  
|Purchases of property and equipment                                             |  |                             | (16    | ) |      |   | (165   | )
|                                                                                |  |                             |        |   |      |   |        |  
|Net cash used in investing activities                                           |  |                             | (1,225 | ) |      |   | (659   | )
|                                                                                |  |                             |        |   |      |   |        |  
|Financing activities:                                                           |  |                             |        |   |      |   |        |  
|Proceeds from exercise of stock options and employee stock purchase plan        |  |                             |       |   |      |   | 138    |  
|                                                                                |  |                             |        |   |      |   |        |  
|Net cash provided by financing activities                                       |  |                             |       |   |      |   | 138    |  
|                                                                                |  |                             |        |   |      |   |        |  
|Effect of exchange rate changes on cash and cash equivalents                    |  |                             | 44     |   |      |   | 7      |  
|                                                                                |  |                             |        |   |      |   |        |  
|Net increase (decrease) in cash and cash equivalents                            |  |                             | (941   | ) |      |   | 977    |  
|                                                                                |  |                             |        |   |      |   |        |  
|Cash and cash equivalents, beginning of period                                  |  |                             | 6,663  |   |      |   | 7,320  |  
|                                                                                |  |                             |        |   |      |   |        |  
|Cash and cash equivalents, end of period                                        |  | $                           | 5,722  |   |      | $ | 8,297  |  
|Supplemental disclosure of cash flow information:                               |  |                             |        |   |      |   |        |  
|Cash paid for:                                                                  |  |                             |        |   |      |   |        |  
|Income taxes                                                                    |  | $                           | 22     |   |      | $ | 54     |  

The accompanying notes are an integral part of these consolidated financial statements.



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INSIGHTFUL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

March 31, 2008

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

(a) Description of Business

Insightful
Corporation and its subsidiaries (collectively, the Company) provide enterprises with predictive analytics products and services designed to drive better decisions faster by revealing patterns, trends and relationships in historical data
in order to identify risks and opportunities. The Company is a developer and supplier of software and services that utilize statistics and data mining techniques to enable customers to gain intelligence from numerical data. The Companys
solutions include its S-PLUS® product family for predictive analytics, as well as customized software and consulting services and training for the design, development and deployment of
customized analytical solutions. The Company sells predictive analytics solutions to a variety of industries, including financial services, life sciences, telecommunications, manufacturing, government and research, with primary focus on financial
services and life sciences. Headquartered in Seattle, Washington, the Company also has offices in New York, North Carolina, the United Kingdom, Switzerland, France, and Hong Kong, with distributors around the world.

(b) Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange
Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at
December 31, 2007 has been derived from audited financial statements at that date, but does not include all disclosures required by generally accepted accounting principles for complete financial statements. These condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2007 included in the Companys Annual Report on Form 10-KSB. The accompanying condensed
consolidated financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of
operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the entire fiscal year or future periods.

(2) SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

(b) Revenue Recognition

The Company offers a variety of software solutions, maintenance contracts, training and consulting services to its customers. The Company records revenue
in accordance with Statement of Position No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Software Revenue Recognition with Respect to Certain Transactions(SOP 98-9), as well as related
interpretations including Technical Practice Aids.

Software license revenues consist principally of fees generated from granting rights to
use the Companys software products under perpetual and fixed-term license agreements. The Company also refers to fixed-term license agreements as subscription-based license agreements.

Perpetual software license fees are generally recognized upon delivery of the software after receipt of a purchase order, if collection of the resulting
receivable is probable, the fee is fixed or determinable, and vendor-specific objective evidence (VSOE) of fair value exists for all undelivered elements if sold in a bundled arrangement. VSOE is based on the price charged when an
element is sold separately or, in case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not materially change before separate introduction into the
marketplace.

Revenues under arrangements that include several different software products and services sold together are allocated based
on the residual method in accordance with SOP 98-9. Under the residual method, the fair value, as determined by VSOE, of the undelivered non-essential elements is deferred and subsequently recognized when earned.



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The Company has established VSOE of fair value for professional services and training services. In
addition, the Company has established VSOE for maintenance related to most of its software products. For software products sold with maintenance where VSOE for the maintenance element has not been established, such as the InFact text analysis
product formerly sold by the Company, all revenue under the arrangement is recognized over the initial maintenance term, provided all other revenue recognition criteria have been met.

Maintenance revenues are recognized ratably over the term of the related maintenance contracts, which generally span one year or less. The initial
one-year maintenance contract is bundled into the license fees for most of the Companys products. Maintenance services, which include unspecified product updates on a when-and-if available basis, are generally priced based on a percentage of
the current list price, or net license fees paid, of the licensed software products. Maintenance renewals are optional.

Professional
services and other revenues typically include providing customers assistance in developing complex software models and/or data analysis techniques, and developing consultant-configured, vertical-specific products that are designed to enable the
Company to sell the same, or similar, solutions to multiple customers with reduced incremental consulting efforts incurred by the Company. In addition, professional services revenues include deployment assistance, project management, integration
with existing customer applications, training services, and related services generally performed on a time-and-materials basis under separate service arrangements. Training consists of fee-based courses offered on a per-attendee or a per-group rate.
Revenues from professional services and training services are generally recognized as services are performed.

Fees from licenses sold
together with professional services are generally recognized upon shipment of the software, provided that the above residual method criteria are met, payment of the license fees are not dependent upon the performance of the services, and the
consulting services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or payment of the license fees is dependent upon the performance of the services, both the
software license and consulting fees are recognized under the percentage of completion method of contract accounting.

If the fee is not
fixed or determinable, revenue is recognized as payments become due from the customer. If an acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period. An evaluation of
the probability of collection is generally based upon the assessment of the customers financial condition. For existing customers, this evaluation generally relies on a customers prior payment history.

The Company has an unconditional 30-day return policy on standard software license purchases, and therefore provides for estimated returns at the time of
sale based on historical experience.

Cash payments received or accounts receivable due in advance of revenue recognition are recorded as
deferred revenue on the accompanying consolidated balance sheets.

(c) Stock-Based Compensation and Stockholders Equity

Stock-Based Compensation Expense

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R requires the
measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options granted under the Companys stock plans and employee stock purchases made under the
Companys 2003 Employee Stock Purchase Plan (the ESPP), based on estimated fair values. SFAS 123R supersedes the Companys previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, for periods beginning in fiscal 2006. In its adoption of SFAS 123R, the Company has applied the provisions of the SECs Staff Accounting Bulletin No. 107, Share-Based Payment.

The Company adopted SFAS 123R as of January 1, 2006, using the modified prospective transition method. The Companys consolidated financial
statements as of and for the three months ended March 31, 2008 and 2007 reflect the impact of SFAS 123R.

SFAS 123R requires the
Company to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service
periods in the Companys statement of operations. The Company uses the straight-line single-option method to recognize the value of stock-based compensation expense for all share-based payment awards. Stock-based compensation expense recognized
in the statement of operations for the three months ended March 31, 2008 and 2007 has been reduced for estimated forfeitures, as it is based on awards ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.



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The following table summarizes stock-based compensation expense under SFAS 123R related to employee stock
options and ESPP purchases for the three months ended March 31, 2008 and 2007, which was allocated as follows (in thousands):



|                                                                |  |                                  |     |   |                                  |   |    
|--------------------------------------------------------------- |  | -------------------------------- | --- | - | -------------------------------- | - | ---
|                                                                |  | Three months endedMarch 31, 2008 |     |   | Three months endedMarch 31, 2007
|Cost of revenues                                                |  | $                                | 1   |   |                                  | $ | 15 
|Sales and marketing                                             |  |                                  | (1  | ) |                                  |   | 58 
|Research and development, net                                   |  |                                  | 14  |   |                                  |   | 22 
|General and administrative                                      |  |                                  | 90  |   |                                  |   | 123
|                                                                |  |                                  |     |   |                                  |   |    
|Stock-based compensation expense included in operating expenses |  | $                                | 104 |   |                                  | $ | 218
|                                                                |  |                                  |     |   |                                  |   |    

The weighted average fair value of employee stock options granted in the three months ended
March 31, 2008 and 2007 was $0.47 and $1.27, respectively. As of March 31, 2008, the total remaining unrecognized compensation cost related to unvested stock options was $1.1 million, which will be amortized over the weighted-average
remaining requisite service period of 2.8 years.

The weighted-average estimated fair value of employee stock options granted during the
periods presented below was estimated at the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:



|                        |  |                             |   |  |            |  
|----------------------- |  | --------------------------- | - |  | ---------- | -
|                        |  | Three months endedMarch 31, |  
|                        |  | 2008                        |   |  | 2007       |  
|Risk-free interest rate |  | 1.79                        | % |  | 4.54       | %
|Expected dividend yield |  | None                        |   |  | None       |  
|Expected life           |  | 3.73 years                  |   |  | 3.71 years |  
|Expected volatility     |  | 57.0                        | % |  | 63.3       | %

The risk-free interest rate used in the Black-Scholes valuation method is based on the implied
yield currently available in U.S. Treasury securities at maturity with an equivalent term. The Company has not declared or paid any dividends and does not currently expect to do so in the future. The expected term of options represents the period
that the Companys stock-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised shares. Consideration was given to the
contractual terms of the Companys stock-based awards, vesting schedules and expectations of future employee behavior. Expected volatility is based on the annualized daily historical volatility plus implied volatility of the Companys
stock price, including consideration of the implied volatility and market prices of traded options for comparable entities within the Companys industry.

The variables used in the determination of stock price volatility and option lives require the application of managements best estimates. Both of these variables impact the fair value of the option calculated
under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. SFAS 123R also requires that the Company recognize compensation expense for only the portion of options expected to vest.
Therefore, the Company applied an estimated forfeiture rate that the Company derived from historical employee termination behavior. If the actual number of forfeitures differs from the Companys estimates, adjustments to compensation expense
may be required in future periods.

Stockholders Equity and Stock Option Plans

Under the Companys 2001 Stock Option and Incentive Plan (the 2001 Plan), the Board of Directors may grant incentive stock options,
nonqualified stock options, awards of common stock and stock appreciation rights to eligible employees and others defined in the 2001 Plan.

The 2001 Plan provides for the automatic increase in the number of shares reserved for issuance of stock options under the 2001 Plan on the first day of each fiscal year, in an amount equal to the lesser of (a) 1,000,000 shares,
(b) 7% of the outstanding shares in the last day of the prior fiscal year, or (c) an amount determined by the board of directors. On January 1, 2007, 905,405 additional option shares were made available for future grant. On
January 1, 2008, no additional option shares were added to the plan, in accordance with the determination of the board of directors. As of March 31, 2008, 2,034,227 option shares were available for future grant under the 2001 Plan. Option
grants under the 2001 Plan are typically made at fair market value at the time of grant and vest over a four-year period. Each option expires 10 years from the date of grant, subject to earlier termination if the optionee ceases to provide services
to the Company, and is not transferable.



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Under the Companys 2001 Non-Employee Director Stock Option Plan (the 2001 Directors
Plan), non-employee directors are eligible to receive annual grants of options to purchase shares of Company common stock. As of March 31, 2008, 518,083 option shares were available for future grant under the 2001 Directors Plan.
All grants under the 2001 Directors Plan are made at fair market value at the time of grant and, for grants prior to March 16, 2007, were fully vested upon grant. On March 16, 2007, the 2001 Directors Plan was amended to
provide for a one-year vesting period for all future grants made under the plan. Each option expires 10 years from the date of grant, subject to earlier termination if the optionee ceases to provide services to the Company, and is not transferable.

Under the Companys Non-Qualified, Non-Officer Stock Option Plan (the 1996 Non-Officer Plan), Company employees and
consultants were eligible to receive nonqualified options to purchase shares of Company common stock. Option grants under the 1996 Non-Officer Plan were typically made at fair market value at the time of grant, with vesting schedules determined at
the date of grant. Each option expires 10 years from the date of grant, subject to earlier termination if the optionee ceases to serve the Company other than by reason of death or disability, and is not transferable. This plan expired in November
2006, and as a result no option shares are available for future grant under the 1996 Non-Officer Plan.

(d) Cash and Cash
Equivalents

Cash equivalents consist of highly liquid investments with original maturities of less than three months at the time of
purchase. As of December 31, 2007, cash and cash equivalents amounted to $6.7 million, and marketable securities classified as cash equivalents amounted to $4.1 million. As of March 31, 2008, cash and cash equivalents amounted to $5.7
million, and marketable securities classified as cash equivalents amounted to $2.4 million.

(e) Marketable Securities

The Companys marketable securities are accounted for under the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities(SFAS 115). Under SFAS 115, all of the Companys marketable securities are defined as available-for-sale securities and, accordingly, are accounted for at fair value with any unrealized gains and losses
reported in stockholders equity as other comprehensive income. Realized net gains and losses on sales and maturities of marketable securities are included in the consolidated statement of income as other income. Marketable securities having
maturities of 90 days or less are classified as cash and cash equivalents, those having maturities greater than 90 days and less than or equal to one year are classified as short-term investments, and those with maturities exceeding one year are
classified as long-term investments.

As of December 31, 2007, the Companys total marketable securities were $8.4 million, of
which $4.1 million were classified as cash equivalents, $1.9 million were classified as short-term investments and $2.4 million were classified as long-term investments. Of this $8.4 million in marketable securities, $6.4 million were corporate debt
securities and $1.5 million were government and agency obligations, and $0.5 million were money market funds. As of December 31, 2007, marketable securities had an unrealized gain of $3,400 and realized gains and losses of zero.

As of March 31, 2008, the Companys total marketable securities were $7.9 million, of which $2.4 million were classified as cash
equivalents, $4.0 million were classified as short-term investments, and $1.5 million were classified as long-term investments. Of this $7.9 million in marketable securities, $4.0 million were corporate debt securities and $3.5 million were
government and agency obligations, and $0.4 million were money market funds. As of March 31, 2008, marketable securities had an unrealized gain of $11,160 and realized gains and losses of zero.

(f) Fair Value Measurements

On
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and
liability category measured at fair value on either a recurring or nonrecurring basis. SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would either be received to sell an asset or be paid to transfer a
liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:



| |  |  | Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



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| |  |  | Level 3 . Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

Assets and Liabilities Measured at Fair Value on a Recurring Basis (in thousands)



|                       |  |                     |     |                                                            |   |                                            |  |                                         |   |  |   |  
|---------------------- |  | ------------------- | --- | ---------------------------------------------------------- | - | ------------------------------------------ |  | --------------------------------------- | - |  | - | -
|                       |  | As of March 31,2008 |     | QuotedPrices InActive Marketsfor
IdenticalAssets (Level 1) |   | SignificantOtherObservableInputs (Level 2) |  | SignificantUnobservableInputs (Level 3)
|Cash equivalents       |  | $                   | 2.4 |                                                            | $ | 2.4                                        |  | $                                       |  |  | $ | 
|Short-term investments |  |                     | 4.0 |                                                            |   | 4.0                                        |  |                                         |  |  |   | 
|Long-term investments  |  |                     | 1.5 |                                                            |   | 1.5                                        |  |                                         |  |  |   | 

(g) Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and amortization. Equipment and furniture is depreciated using the straight-line
method over estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life.

(h) Research and Development

The Company accounts for its software research and development costs in
accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed (SFAS 86). Under SFAS 86, all such costs incurred up to the point of technological feasibility
(defined as a working model) are expensed as incurred, and costs incurred up to the point when the software is available for general release to customers are capitalized. During the three months ended March 31, 2008 and 2007, the Company
expensed all research and development costs, as the costs incurred from the date of technological feasibility to the general release date were not significant.

(i) Funded Research

The Company has
a funded research group that receives funding from U.S. federal agencies for research work performed under government grants. Research projects are and have been focused primarily on extending the frontiers of data analysis and statistics. In most
cases, research projects are performed under cost reimbursement arrangements, which provide funding on a time-and-materials basis based on agency-approved labor, overhead and profit rates, subject to a cap on total fees allowable under the
applicable grant. In some cases, grant contracts are paid on a fixed fee (payment) basis, regardless of the number of hours and costs incurred. Grant contracts generally require the submission of periodic progress and final finding reports. Funding
is generally received through cash requests or installment payments. Grant fees are generally recognized as the work is performed and/or the fees become billable. Because the grants received are generally aligned with the Companys existing
research activities, commercial initiatives, and product lines, the amounts earned from grants are recorded as an offset against total research and development costs. Receivables resulting from this activity are included in other receivables on the
balance sheets. Funding received under these grants is subject to audits for several years after the funding is received and, depending on the results of those audits, the Company could be obligated to repay a portion of the funding. A liability for
such potential repayment has not been recorded.

(j) Foreign Currency Accounting

The functional currency of the Companys foreign subsidiaries is the local currency in the country in which the subsidiary is located. Assets and
liabilities of foreign locations are translated to U.S. dollars using the exchange rate at each balance sheet date. Income and expense accounts are translated using an average rate of exchange during the period. Foreign currency translation
adjustments are accumulated as a separate component of stockholders equity. The Company is subject to transaction gains and losses from period to period due to exchange rate fluctuations. The effect of aggregate foreign currency transaction
gains and losses is included in other income. For the three-month periods ended March 31, 2008 and 2007, the aggregate foreign currency transaction gains were $31,000 and $2,600, respectively.

(k) Goodwill and Other Long-Lived Assets

Goodwill represents the excess of the purchase price over the fair value of net assets obtained in business acquisitions accounted for under the purchase method of accounting. The Company currently distinguishes three reporting units that
have goodwill, as follows: U.S. Data Analysis, Insightful United Kingdom, and Insightful Switzerland.

In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS 142), goodwill and other indefinite-lived intangibles are tested for impairment at least annually and written down and charged to results of operations only in periods in
which the recorded value of those assets exceeds their fair value. SFAS 142 prescribes the use of the two-phase approach for testing goodwill for impairment. The first phase screens for potential impairment, while the second phase (if necessary)
measures the amount of impairment, if any. Current technology and other separable intangible assets that do not have indefinite lives are continued to be amortized over their useful lives.



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The Company performs a goodwill impairment test annually, using a measurement basis date of
October 1. Additional tests are performed when events occur or circumstances change that would give reason to suspect or indicate that such events will more likely than not reduce the fair value of a reporting unit below its carrying amount. No
impairment was determined in the annual impairment test for 2007, nor did any such events occur or circumstances exist during the three months ended March 31, 2008 that would indicate that impairment existed as of March 31, 2008.

(l) Long-Lived Assets

Other intangibles with definite lives are stated at cost less accumulated amortization and are amortized on a straight-line basis over a time frame that approximates the pattern in which the economic benefits of the intangible asset are
consumed. The Companys purchased technology was ratably amortized to expense over three years ending January 31, 2007. See Note 3.

In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, the Company considers the existence of facts or circumstances, both internal and external, that may suggest that the carrying amount of
long-lived assets may not be recoverable. If such facts and circumstances were to exist, recoverability of assets held and used would be measured by comparing the carrying amount of an asset to estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount were higher, the impairment loss would be measured by the amount, if any, by which the carrying amount of the assets exceeds their fair value based on the present value of estimated expected future cash
flows.

(m) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates used in preparing the financial statements relate to areas that include, but are not limited to, (i) revenue recognition,
(ii) allowance for doubtful accounts, (iii) useful lives for property and equipment and intangibles, (iv) fair values and impairment analysis of goodwill and intangible assets with definite lives, (v) tax assets and liabilities
and other tax exposure items, and (vi) valuation of stock options using the Black-Scholes option pricing model.

(n) Financial
Instruments

At March 31, 2008, the Company had the following financial instruments: cash and cash equivalents, short and long-term
investments, accounts receivable, other receivables, accounts payable, and accrued liabilities. The carrying value of cash and cash equivalents, short-term investments, receivables, payables and accrued liabilities approximates fair value based on
the liquidity of these financial instruments or based on their short-term nature.

(o) Taxes

Income Taxes

The Company
follows the asset and liability method of accounting for income taxes as set forth by SFAS No. 109,Accounting for Income Taxes (SFAS 109), and the provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting and disclosure for uncertainty in income taxes by prescribing
the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for interim
periods, disclosure and transition, and clearly scopes income taxes out of FASB Statement No. 5,Accounting for Contingencies.

Under SFAS 109 and FIN 48, certain assumptions are made that represent significant estimates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax basis, net of operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. FIN 48 requires a company to recognize the impact of a tax position in its financial statements if that position is more likely than not to be sustained upon
audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to
opening retained earnings. The adoption of FIN 48 did not have a material effect on the Companys results of operations or financial condition.



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The Company has adopted a policy of classifying interest and penalties associated with income tax matters
as general and administrative expense (rather than to income tax expense) when incurred.

The Company has incurred net operating losses.
The Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance associated with its net operating losses because sufficient uncertainty exists regarding its ability to realize such tax assets in the
future. There were no unrecognized tax benefits as of March 31, 2008 or March 31, 2007.

The Companys tax returns for U.S.
tax years 2004, 2005, 2006 and 2007 are subject to potential examination by the Internal Revenue Service. In addition, the Companys tax returns for U.S. tax years 1993 to 2000 and tax year 2002 may be subject to examination by the Internal
Revenue Service to the extent that the Company utilizes the net operating loss carryforward from those years in its current or future year tax returns. In the United Kingdom and France, the Companys tax returns for tax years 2006 and 2007 are
subject to potential examination, while in Switzerland, the Companys tax returns for tax years from 1998 to 2007 are subject to potential examination. The Company is not currently under income tax examination by any tax jurisdiction.

Sales Taxes

During the ordinary course of business, there are many transactions for which the ultimate sales tax determination is uncertain. If necessary, the Company establishes accruals for sales tax-related uncertainties based on estimates of
whether, and to the extent which, additional sales taxes, interest, and penalties will be due. These accruals are adjusted in light of changing facts and circumstances, such as the closing of a sales tax audit, a change in the determination of
whether the Company has a sufficient presence in a particular state such that it is required to register and collect and pay sales taxes in that jurisdiction, or the expiration of a relevant statute of limitations.

The Company sells to customers in almost every state in the United States. There is a great variation in the tax rules from state to state, including the
rules that determine whether a company has a sufficient presence in a particular jurisdiction such that it is required to register, collect, and pay taxes in that jurisdiction. The Company is registered in multiple states and local jurisdictions and
the Company remits required state and local taxes on related business operations in those states.

In addition to the Companys
judgments and use of estimates, there are inherent uncertainties surrounding taxes that could result in actual amounts that differ materially from the Companys estimates. Accordingly, the Companys actual sales tax obligation may exceed
the estimate established at any point in time. Any changes in circumstances related to these contingencies could have a material effect on the Companys financial condition, results of operations and cash flows.

(p) Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard expands required disclosures about
the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for financial assets and liabilities in financial
statements issued for fiscal years beginning after November 15, 2007, and effective for non-financial assets and liabilities in financial statements issued for fiscal years beginning after November 15, 2008. Accordingly, the adoption of
SFAS 157 on January 1, 2008 was limited to financial assets and liabilities. The initial adoption did not have a material impact on the Companys financial position or results of operations. The Company is evaluating this standard with
respect to its effect on non-financial assets and liabilities and has not determined the impact that it will have, if any, on the Companys financial position or results of operations upon full adoption.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159).
SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for
fiscal years beginning after November 15, 2007. Accordingly, the Company adopted this standard on January 1, 2008. The implementation of this standard did not have a material impact on the Companys financial position or results of
operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS
141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired.
SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15,
2008. The Company is currently evaluating the potential impact of adoption of SFAS 141R on the Companys financial position or results of operations. However, the Company does not expect the adoption of SFAS 141R to have a material effect on
its financial position or results of operations.



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In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements-an Amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net
income attributable to the parent and to the noncontrolling interest, changes in a parents ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. This statement also
establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The
Company is currently evaluating the potential impact of adoption of SFAS 160 on its consolidated financial statements. However, the Company does not expect the adoption of SFAS 160 to have a material effect on its financial position or results of
operations.

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109, which clarifies the accounting for uncertainty in tax positions. FIN 48 requires a company to recognize the impact of a tax position in its financial statements if that position is not more likely than not to be sustained upon
audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to
opening retained earnings. The Companys adoption of FIN 48 did not have a material impact on its financial position or results of operations.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 requires a company to recognize a servicing asset or
servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in specific situations. The servicing asset or servicing liability must be initially measured at fair value, but an entity
may elect the amortization method or fair value method for subsequent balance sheet reporting periods. SFAS 156 is effective for fiscal years beginning after September 15, 2006. The Companys adoption of SFAS 156
did not have a material impact on its financial position or results of operations.

(3) PURCHASED TECHNOLOGY

In January 2004, the Company acquired title to the software code underlying the S programming language from Lucent Technologies Inc. The $2.0 million
purchase price included settlement in full for all royalties owed by the Company to Lucent at the date of the acquisition, in the amount of $235,000. Under the agreement, $1.5 million of the purchase price was paid in the first quarter of 2004 and
the remaining $0.5 million was paid in the first quarter of 2005.

As a result of this transaction, the Company capitalized $1,765,000 as
purchased technology. This amount was ratably amortized to software-related cost of revenues over a three-year estimated life. Accordingly, the Company recorded the remaining $49,000 in amortization expense related to this technology as of
January 31, 2007.

(4) FINANCING ARRANGEMENTS

In May 2007, the Company renewed a working capital revolving line of credit and security agreement with Silicon Valley Bank. The terms provide for up to $3.0 million in borrowing availability through May 30,
2008. This facility is secured by the Companys accounts receivable and allows us to borrow up to the lesser of 75% of the Companys eligible accounts receivable or $3.0 million. Borrowings under the facility bear interest at the prime
rate. The prime rate at March 31, 2008 was 5.25%. No amounts under this line of credit facility or the Companys previous line of credit facility with Silicon Valley Bank were outstanding at December 31, 2007 or March 31, 2008.

In May 2007, the Company entered into a new equipment loan facility with Silicon Valley Bank, secured by the underlying assets. This
facility allowed for a maximum of $750,000 to be borrowed through December 31, 2007, allowing the Company to take up to six advances through December 31, 2007 for qualifying equipment purchased in the 90 days preceding the advance request
(or 180 days for the initial advance), with each advance having a minimum borrowing amount of $75,000. No amounts were ever borrowed against this loan facility, and no amounts were outstanding under this equipment loan facility or any previous
equipment loan facility with Silicon Valley Bank at December 31, 2007 or March 31, 2008.

These credit facilities contain
covenants that limit the Companys net losses and require certain minimum liquidity. In addition, the terms of these facilities prohibit the Company from paying dividends. As of December 31, 2007 and March 31, 2008, the Company was in
compliance with all covenants and terms of these credit and loan facilities.



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(5) NET INCOME (LOSS) PER SHARE

The dilutive effect of the Companys stock options is calculated using the treasury stock method, based on the average share price of the Companys common stock. Under the treasury stock method, the proceeds
that would be hypothetically received from the exercise of all stock options with exercise prices below the average share price of the Companys common stock are assumed to be used to repurchase shares of the Companys common stock. The
following is a reconciliation of the number of shares used in the basic and diluted net loss per share computations for the periods presented:

Shares used in basic and diluted net income (loss) per share computations(in thousands):



|                                                      |  |                             |  |       
|----------------------------------------------------- |  | --------------------------- |  | ------
|                                                      |  | Three Months EndedMarch 31,
|                                                      |  | 2008                        |  | 2007  
|Shares used in basic net loss per share calculation   |  | 12,980                      |  | 12,830
|Effect of dilutive common stock equivalents (1)       |  |                            |  |      
|                                                      |  |                             |  |       
|Shares used in diluted net loss per share calculation |  | 12,980                      |  | 12,830
|                                                      |  |                             |  |       



|(1) | The Company excludes all potentially dilutive securities from its diluted net loss per share computation when their effect would be anti-dilutive. For the three months ended
March 31, 2008 and 2007, approximately 27,182 and 494,000 common stock equivalents calculated using the treasury stock method have been excluded from the computation of diluted net loss per share on the basis that their inclusion would have
been anti-dilutive because the Company incurred a net loss in the period. These dilutive common stock equivalents have been included in the table below.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Dilutive common stock equivalents excluded from the computation of basic and diluted net loss per share
(in thousands):



|                                                                                                                                                                                                                                             |  |                             |  |      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- |  | -----
|                                                                                                                                                                                                                                             |  | Three Months EndedMarch 31,
|                                                                                                                                                                                                                                             |  | 2008                        |  | 2007 
|Stock options, calculated using the treasury stock method, excluded from the computation of diluted net loss per share on the basis that their
inclusion would have been anti-dilutive because the Company incurred a net loss in the period |  | 27                          |  | 494  
|Stock options excluded from the computation of diluted net loss per share on the basis that their exercise prices were greater than or equal
to the average price of the common shares                                                       |  | 2,578                       |  | 1,014
|                                                                                                                                                                                                                                             |  |                             |  |      
|Total common stock equivalents excluded from the computation of diluted loss per share                                                                                                                                                       |  | 2,605                       |  | 1,508
|                                                                                                                                                                                                                                             |  |                             |  |      

(6) OTHER COMPREHENSIVE INCOME (LOSS)

SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income and its components in
the financial statements. As of March 31, 2008 and 2007, comprehensive loss consisted of net loss, foreign currency translation adjustments, and unrealized gains on short-term investments in marketable securities. Total comprehensive loss for
the three months ended March 31, 2008 and 2007 is as follows (in thousands):



|                                            |  |                             |      |   |      |   |        |  
|------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ------ | -
|                                            |  | Three Months EndedMarch 31, |     
|                                            |  | 2008                        |      |   | 2007 |  
|Net loss                                    |  | $                           | (373 | ) |      | $ | (1,092 | )
|Unrealized gain (loss) on investments       |  |                             | 8    |   |      |   | (1     | )
|Change in cumulative translation adjustment |  |                             | 26   |   |      |   | (2     | )
|                                            |  |                             |      |   |      |   |        |  
|Comprehensive loss                          |  | $                           | (339 | ) |      | $ | (1,095 | )
|                                            |  |                             |      |   |      |   |        |  

At March 31, 2008, total cumulative translation loss was $232,000 and total cumulative
unrealized gain on investments was $11,000. As March 31, 2007, total cumulative translation loss was $322,000, and total cumulative unrealized gain on investments was $3,000.

(7) SEGMENT REPORTING

SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for reporting information about operating segments in annual financial statements. It also establishes standards for related disclosures about products, services, geographical areas and major customers. The
Company has two business segments: Domestic and International. The Company measures segment performance based on revenues and contribution margin, which is a measure of profitability that allocates only direct and controllable costs to a segment.
Assets are not allocated to segments for internal reporting presentations. Intercompany transactions have been eliminated from the segment information. Non-operating income and expenses are not tracked by segment. Segment information is provided
below (in thousands):



|                                  |  |              |       |               |   |       |  |   |        |  
|--------------------------------- |  | ------------ | ----- | ------------- | - | ----- |  | - | ------ | -
|                                  |  | Domestic (1) |       | International |   | Total | 
|Three months ended March 31, 2008 |  |              |       |               |   |       |  |   |        |  
|Revenues                          |  | $            | 2,248 |               | $ | 2,636 |  | $ | 4,884  |  
|Contribution margin               |  |              | 721   |               |   | 1,078 |  |   | 1,799  |  
|Unallocated costs and expenses    |  |              |       |               |   |       |  |   | (2,282 | )
|                                  |  |              |       |               |   |       |  |   |        |  
|Loss from operations              |  |              |       |               |   |       |  | $ | (483   | )
|                                  |  |              |       |               |   |       |  |   |        |  
|                                  |  |              |      
|                                  |  | Domestic (1) |       | International |   | Total | 
|Three months ended March 31, 2007 |  |              |       |               |   |       |  |   |        |  
|Revenues                          |  | $            | 3,093 |               | $ | 3,090 |  | $ | 6,183  |  
|Contribution margin               |  |              | 788   |               |   | 1,055 |  |   | 1,843  |  
|Unallocated costs and expenses    |  |              |       |               |   |       |  |   | (3,055 | )
|                                  |  |              |       |               |   |       |  |   |        |  
|Loss from operations              |  |              |       |               |   |       |  | $ | (1,212 | )
|                                  |  |              |       |               |   |       |  |   |        |  



|(1) | The Domestic operations segment includes all U.S. and Canadian transactions.
|--- | ----------------------------------------------------------------------------



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(8) REVENUE CONCENTRATION

One customer accounted for more than 10% of the Companys total consolidated revenues for the three months ended March 31, 2008 and 2007. This customer accounted for 16% ($0.8 million) and 17% ($1.1 million)
of total consolidated revenues for the three months ended March 31, 2008 and 2007, respectively.

This same customer accounted for 24%
of the Companys total consolidated accounts receivable balance as of March 31, 2008, and 19.6% as of March 31, 2007.

(9) COMMITMENTS
AND CONTINGENCIES

In certain of its licensing agreements, the Company provides intellectual property infringement indemnifications.
These indemnifications are excluded from the initial recognition and measurement requirements of FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others.The Companys policy is to record any obligation under such indemnification when a required payment under such indemnification is probable and the amount of the future loss is estimable. At March 31, 2008, there
were no such indemnifications for which a required payment was deemed to be probable or estimable; therefore, no accrual has been made for potential losses associated with these indemnifications.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements included in Part 1, Item 1 of this report and the information provided in the section
entitled Risk Factors in Part II, Item 1A of this report.

Our disclosure and analysis in this report contain
forward-looking statements, which provide our current expectations or forecasts of future events. Forward-looking statements in this report include, without limitation:



| |  |  | information concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings or
loss, revenue and expenses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements about the level of our costs and operating expenses relative to our revenues, and about the expected composition of our revenues;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | information about the anticipated release dates of new products;
| | - |  | ----------------------------------------------------------------



| |  |  | statements about expected future trends for development and sales of our products and services, including the long-term potential of the data analysis market;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements about our future capital requirements and the sufficiency of our cash, cash equivalents, investments and available credit to meet these requirements;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements about our anticipated use of cash and cash equivalents;
| | - |  | ------------------------------------------------------------------



| |  |  | other statements about our plans, objectives, expectations and intentions; and
| | - |  | ------------------------------------------------------------------------------



| |  |  | other statements that are not historical facts.
| | - |  | -----------------------------------------------

Words such as will, plan, believe, anticipate, expect and intend and similar expressions are intended to identify forward-looking statements, but
the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are based on the judgment and opinions of management at the time the statements are made. Forward-looking statements are subject
to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could affect their accuracy. Our actual results could differ materially from those expressed or implied in the forward-looking statements for many
reasons, including the factors described in the section entitled Risk Factorsin Part II, Item 1A of this report. Other factors besides those described in this report could also affect actual results.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly
revise any forward-looking statement to reflect circumstances or events after the date of this report, or to reflect the occurrence of unanticipated events.



16



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##### Table of Contents

Description of Our Business

Formerly Mathsoft, Inc., we reincorporated as Insightful Corporation in Delaware in 2001.

We provide
enterprises with predictive analytic solutions designed to drive better decisions faster by revealing patterns, trends and relationships. We are a developer and supplier of software and services that utilize a variety of statistics and data mining
techniques to analyze historical data, enabling our customers to understand relationships among and otherwise gain intelligence from that data, make predictions about future events and identify risks and opportunities associated with particular
conditions.

Our predictive analytic software and services solve a broad range of problems across multiple industries. For example:



| |  |  | Customers in the financial services sector use our solutions to adjust for risk and perform portfolio optimization in stock portfolios, and to manage their risk by
estimating risk and risk-adjusted returns for a wide variety of investment vehicles as well as their overall businesses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pharmaceutical companies utilize our analytic reports and graphics to discern safety and efficacy signals earlier in the drug development/clinical trials process,
which helps to decrease their product development costs and time to market; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Retailers use our customer analytics solutions to help determine marketing promotions and pricing, reduce customer churn and increase customer retention and
lifetime customer value.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Headquartered in Seattle, Washington, we also have offices in North Carolina, New York, the
United Kingdom, Switzerland, France and Hong Kong, with distributors around the world. As of March 31, 2008, we employed 113 employees worldwide, of which 105 were full-time employees.

Our products include S-PLUS® and
S-PLUS® Enterprise Server, Insightful Miner and various S-PLUS® solutions and toolkits for vertical market categories, such
as Insightful Clinical Graphics and S+ArrayAnalyzer® for the life sciences sector and S+FinMetrics® for the financial services
sector. Our consulting services and training provide specialized expertise and processes for the design, development and deployment of customized analytical solutions. We have customers in a broad range of industries, with a concentration in life
sciences and financial services.

We report results in two business segments: Domestic and International. The Domestic segment includes the
operations of the United States and Canada, and the International segment includes the operations of all other countries and regions.

Critical
Accounting Policies and Estimates

We have based our discussion and analysis on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, bad debts, intangible assets, restructuring,
and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We derive our revenues primarily from three sources:



| |  |  | License revenues, which consist of perpetual and fixed term software license fees;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Maintenance revenues, which consist of fees for maintenance and support; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | Professional services revenues, which consist of fees for consulting and training.
| | - |  | ----------------------------------------------------------------------------------

We follow very specific and detailed guidelines, discussed in Note 2 of our consolidated financial statements, in recognizing and measuring revenues. The
revenue recognition rules for software companies are complex and require our management to exercise judgment and make a number of estimates. For example, many of our contracts contain multiple element arrangements, which require us to make
assumptions and judgments in order to allocate the total price among the various elements we must deliver, to determine whether vendor specific objective evidence of fair value exists for each



17



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##### Table of Contents

element, to determine if undelivered elements are deemed essential, and to determine whether and when each element has been delivered. We also evaluate
whether there is any material risk of customer non-payment or product returns. Deferred revenues are recognized over time as the applicable revenue recognition criteria are satisfied.

A change in any of these assumptions or judgments, which are made based upon all of the information available to us at the time, could cause a material
increase or decrease in the amount of revenue that we report in a particular period.

Stock-Based Compensation Expense

On January 1, 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004), Share-Based Payment, or SFAS
123R. SFAS 123R requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases under our employee stock purchase
plan, based on estimated fair values. SFAS 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, for periods beginning in fiscal 2006. We have applied the
provisions of the Securities and Exchange Commissions Staff Accounting Bulletin No. 107, Share-Based Payment, in our adoption of SFAS 123R.

We adopted SFAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our fiscal year 2006. Accordingly, our
consolidated financial statements reflect the impact of SFAS 123R as of and beginning on January 1, 2006.

Under the provisions of
SFAS 123R, stock-based compensation cost is estimated at the grant date based on the fair-value of the award and is recognized as expense ratably over the requisite service period of the award. Determining the appropriate fair-value model and
calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop our estimates based on historical data and market
information, which can change significantly over time. A small change in the estimates used can have a relatively large change in the estimated valuation, and consequently, a material effect of the results of operations.

We calculate the fair value of our stock options granted to employees using the Black-Scholes valuation method, which requires us to make assumptions
about risk-free interest rate, expected dividend, expected term (in years), expected volatility and weighted-average fair value. The risk-free interest rate used is based on the implied yield currently available in U.S. Treasury securities at
maturity with an equivalent term. We have not declared or paid any dividends and do not currently expect to do so in the future. The expected term of options represents the period that our stock-based awards are expected to be outstanding and is
determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised shares. In determining the expected term of options, we consider the vesting schedules and other contractual terms of the
awards and expectations of future employee behavior. Expected volatility is based on the annualized daily historical volatility plus implied volatility of our stock price, including consideration of the implied volatility and market prices of traded
options for comparable entities within our industry.

Our determination of stock price volatility and option lives, both of which impact
the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option, involve managements best estimates. SFAS 123R also requires that we recognize
compensation expense for only the portion of options expected to vest. Therefore, we applied an estimated forfeiture rate that we derived from historical employee termination behavior. If the actual number of forfeitures differs from our estimates,
adjustments to compensation expense may be required in future periods.

The weighted-average estimated fair value of employee stock options
granted during the periods presented below was estimated at the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:



|                        |  |                             |   |  |            |  
|----------------------- |  | --------------------------- | - |  | ---------- | -
|                        |  | Three months endedMarch 31, |  
|                        |  | 2008                        |   |  | 2007       |  
|Risk-free interest rate |  | 1.79                        | % |  | 4.54       | %
|Expected dividend yield |  | None                        |   |  | None       |  
|Expected life           |  | 3.73 years                  |   |  | 3.71 years |  
|Expected volatility     |  | 57.0                        | % |  | 63.3       | %



18



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##### Table of Contents

Income Taxes

We follow the asset and liability method of accounting for income taxes as set forth by SFAS No. 109,Accounting for Income Taxes, or SFAS 109, and the provisions of Financial Accounting Standards Board,
or FASB, Interpretation No. 48,Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, or FIN 48. FIN 48 clarifies the accounting and disclosure for uncertainty in income taxes by
prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for
interim periods, disclosure and transition, and clearly excludes income taxes from the scope of FASB Statement No. 5,Accounting for Contingencies.

Under SFAS 109 and FIN 48, certain assumptions are made that represent significant estimates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and their respective tax basis, net of operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. FIN 48 requires a company to recognize the impact of a tax position in its financial statements if that position is more likely than not to be
sustained upon audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006, with the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The adoption of FIN 48 did not have a material effect on our results of operations or financial condition.

We have adopted a policy of classifying interest and penalties associated with income tax matters as general and administrative expense (rather than to income tax expense) when incurred.

We have incurred net operating losses. We continue to maintain a valuation allowance for the full amount of the net deferred tax asset balance associated
with our net operating losses because sufficient uncertainty exists regarding our ability to realize such tax assets in the future. There were no unrecognized tax benefits as March 31, 2008 or December 31, 2007.

Our tax returns for U.S. tax years 2004, 2005, 2006 and 2007 are subject to potential examination by the Internal Revenue Service. In addition, our tax
returns for U.S. tax years 1993 to 2000 and tax year 2002 may be subject to examination by the Internal Revenue Service to the extent that we utilize the net operating loss carryforward from those years in our current or future year tax returns. In
the United Kingdom and France, our tax returns for tax years 2006 and 2007 are subject to potential examination, while in Switzerland our returns for tax years from 1998 through 2007 are subject to potential examination. We are not currently under
income tax examination by any tax jurisdiction.

Sales Taxes

During the ordinary course of business, there are many transactions for which the ultimate sales tax determination is uncertain. If necessary, we establish accruals for sales tax-related uncertainties based on
estimates of whether, and to the extent which, additional sales taxes, interest, and penalties will be due. These accruals are adjusted in light of changing facts and circumstances, such as the closing of a sales tax audit, a change in the
determination of whether we have a sufficient presence in a particular state such that we are required to register and collect and pay sales taxes in that jurisdiction, or the expiration of a relevant statute of limitations.

We sell to customers in almost every state in the United States. There is a great variation in the tax rules from state to state, including the rules
that determine whether a company has a sufficient presence in a particular jurisdiction such that it is required to register and collect and pay taxes in that jurisdiction. We are registered in multiple states and local jurisdictions and we remit
required state and local taxes on related business operations in those states.

In addition to our judgments and use of estimates, there
are inherent uncertainties surrounding taxes that could result in actual amounts that differ materially from our estimates. Accordingly, our actual sales tax obligation may exceed the estimate established at any point in time. Any changes in
circumstances related to these contingencies could have a material effect on our financial condition, results of operations and cash flows.

Sales
Returns

We provide an estimated reserve for return rights at the time of sale. We offer our customers a 30-day return policy on all
of our products. Generally, refunds are provided to customers upon return to us of the complete product package, including all original materials and the CD-ROM or other media. Our provision for sales returns is estimated based on historical returns
experience and our judgment of the likelihood of future returns.



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##### Table of Contents

Bad Debts

A considerable amount of judgment is required when we assess the ultimate realization of receivables, including assessing the aging of the amounts and reviewing the current creditworthiness of our customers. Customer
creditworthiness is subject to many business and finance risks facing each customer and is subject to sudden changes.

Impairment of Goodwill and
Other Long-Lived Assets

We evaluate goodwill arising from acquired businesses for potential impairment on an annual basis, using an
October 1 measurement date. This evaluation requires significant judgment and estimation. In addition, throughout the year we consider whether there are impairment indicators that would require an immediate evaluation of impairment. Our
judgments regarding the existence of impairment indicators are based on market conditions, operational performance of our acquired businesses, and various other factors. Future events could cause us to conclude that impairment indicators exist and
that goodwill associated with our acquired business is impaired. Impairment losses, if any, will be charged to earnings in the period in which they are identified.

Contingencies

We are periodically engaged in various claims, legal proceedings or other circumstances arising in the
ordinary course of business for which the outcome is not currently known. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of possible losses. A determination of the amount of
reserves required, if any, for these contingencies are made after analysis of each individual matter. The required reserves, if any, may change in the future due to new developments in each matter or changes in approach.

Results of Operations

Revenues by Type

We have three classifications of revenue on our statement of income: software licenses, maintenance, and professional services and other. Revenues by type
are as follows:



|                                           |  |                             |       |   |                           |   |       |   |  |     |   
|------------------------------------------ |  | --------------------------- | ----- | - | ------------------------- | - | ----- | - |  | --- | --
|                                           |  | Three months endedMarch 31, |       |   | PercentIncrease(Decrease) |  
|                                           |  | 2008                        |       |   | 2007                      |   |      
|Revenues (in thousands):                   |  |                             |       |   |                           |   |       |   |  |     |   
|Software licenses                          |  | $                           | 1,674 |   |                           | $ | 2,042 |   |  | (18 | )%
|Software maintenance                       |  |                             | 2,103 |   |                           |   | 2,013 |   |  | 4   | % 
|Professional services and other            |  |                             | 1,107 |   |                           |   | 2,128 |   |  | (48 | )%
|                                           |  |                             |       |   |                           |   |       |   |  |     |   
|Total                                      |  | $                           | 4,884 |   |                           | $ | 6,183 |   |  | (21 | )%
|                                           |  |                             |       |   |                           |   |       |   |  |     |   
|Revenues by type (as % of total revenues): |  |                             |       |   |                           |   |       |   |  |     |   
|Software licenses                          |  |                             | 34    | % |                           |   | 33    | % |  |     |   
|Software maintenance                       |  |                             | 43    | % |                           |   | 33    | % |  |     |   
|Professional services and other            |  |                             | 23    | % |                           |   | 34    | % |  |     |   
|                                           |  |                             |       |   |                           |   |       |   |  |     |   
|Total                                      |  |                             | 100   | % |                           |   | 100   | % |  |     |   
|                                           |  |                             |       |   |                           |   |       |   |  |     |   

Total Revenues

Total revenues for the three months ended March 31, 2008 were $4.9 million, representing a decrease of 21% ($1.3 million) compared to the
corresponding period of 2007. We believe this decrease resulted from the following factors:



| |  |  | We experienced significant turnover in our sales force in the third and fourth quarters of 2007, continuing into the first quarter of 2008. Two sales vice
presidents, one for North America and one for Europe, resigned in the fourth quarter of 2007 and were replaced by one worldwide vice president of field operations in the first quarter of 2008. This transition and significant turnover at the sales
representative level over the past three quarters harmed, and continues to harm, our ability to generate sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our business in the financial services market has declined, especially in the United States. In addition to being affected by the sales turnover described above, we
believe our ability to sell to financial services customers continued to be affected by the sub-prime mortgage crisis in the financial services market, especially in the United States. We continued to do strong business with our large European
financial services customer, but we did not generate the revenue from new financial services customers that we had anticipated. We believe that the decrease may also be attributable in part to an increase in the number of financial services
organizations considering R (the free, open-source version of the S language) as an alternative to S-PLUS.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | The sales cycles for transactions that involve large scale deployments have been taking 6 to 12 months, and shifting our focus to larger, more complex enterprise
sales is lengthening our sales cycles even further. We did not close on any large solutions deals in the first quarter of 2008, and compared to the first quarter of 2007 (during which we generated the highest quarterly professional services revenues
in our history), we generated $1 million less in professional services revenue.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our business of selling desktop S-PLUS software for use by individual statisticians declined, impacted by the soft economy and increased competition from R. We
believe that R has made, and will continue to make, inroads in many organizations, especially at the desktop level.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Software License Revenues

Software license revenues consist principally of fees generated from granting rights to
use our software products under both perpetual and fixed-term license agreements.

Total software license revenues decreased by 18%
($368,000) during the three months ended March 31, 2008, as compared to the corresponding period in 2007. This decrease was driven by a 31% ($343,000) decrease in Domestic license revenues and a 3% ($25,000) decrease in International license
revenues. These decreases were a result of the factors described in Total Revenues above.

Maintenance Revenue

We provide product updates and customer support services under maintenance agreements. Maintenance and support is included as part
of our annual subscription-based licenses. For products under perpetual licenses, software maintenance is generally included in the initial purchase and the related revenue is typically recognized as maintenance revenue ratably over the initial
contractual maintenance period, which is generally one year following the initial product sale. Maintenance renewals are optional, and are also recognized ratably over the contractual maintenance renewal period, which is generally one year following
the renewal sale. Maintenance services are generally priced based on a percentage of the current list price, or net license fees paid, of the related licensed software products.

Software maintenance revenues increased by 4% ($90,000) during the three months ended March 31, 2008, as compared to the corresponding period in
2007. This increase was driven by a 20% ($136,000) increase in International maintenance revenues, offset by a 3% ($46,000) decrease in Domestic maintenance revenues. International maintenance revenue levels benefited from increases in our
maintenance pricing, and successful efforts to bring back customers who had previously allowed their maintenance to lapse. Domestic maintenance revenue levels also benefited from these factors, but the benefit was offset by declining license revenue
in recent quarters and our delaying two large first quarter 2008 maintenance renewals to the second quarter of 2008 to allow time to renegotiate more favorable terms. In order to maintain our maintenance revenues, we must sell sufficient new
software licenses, or increase our renewal rates, or both.

Professional Services and Other Revenues

Professional services and other revenues are generated from performing consulting and training activities.

Professional services and other revenues decreased by 48% ($1.0 million) during the three months ended March 31, 2008, as compared to the
corresponding period in 2007. The decrease reflects a decrease of 69% ($456,000) in our Domestic segment and a decrease of 38% ($564,000) in our International segment. The decreases in our Domestic segment were a result of the factors described in
Total Revenuesabove. The decrease in our International segment resulted from a decrease in the amount of consulting work performed for our largest customer, an international financial services firm, as well as the factors described in
Total Revenuesabove.

Professional services revenues from this international financial services customer were $0.8 million during
the three months ended March 31, 2008, compared to $1.0 million during the corresponding period in 2007. This customer accounted for 70% of our total professional services revenues during the three months ended March 31, 2008, compared to
48% during the corresponding period in 2007. We expect this customer to continue to account for a substantial proportion of our professional services and other revenues for the remainder of 2008.



21



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##### Table of Contents

Revenues by Segment and Geography

We report results in two segments: Domestic and International. Our Domestic segment includes the United States and Canada. We have international business
operations primarily in Europe and sales activities in other parts of the world. Revenues by segment and geography are as follows:



|                                   |  |                             |       |   |                   |   |       |   |  |     |   
|---------------------------------- |  | --------------------------- | ----- | - | ----------------- | - | ----- | - |  | --- | --
|                                   |  | Three months endedMarch 31, |       |   | Percent(Decrease) |  
|                                   |  | 2008                        |       |   | 2007              |   |      
|Revenues (in thousands):           |  |                             |       |   |                   |   |       |   |  |     |   
|Domestic                           |  | $                           | 2,248 |   |                   | $ | 3,093 |   |  | (27 | )%
|International                      |  |                             | 2,636 |   |                   |   | 3,090 |   |  | (15 | )%
|                                   |  |                             |       |   |                   |   |       |   |  |     |   
|Total                              |  | $                           | 4,884 |   |                   | $ | 6,183 |   |  | (21 | )%
|                                   |  |                             |       |   |                   |   |       |   |  |     |   
|Revenues (as % of total revenues): |  |                             |       |   |                   |   |       |   |  |     |   
|Domestic                           |  |                             | 46    | % |                   |   | 50    | % |  |     |   
|International                      |  |                             | 54    | % |                   |   | 50    | % |  |     |   
|                                   |  |                             |       |   |                   |   |       |   |  |     |   
|Total                              |  |                             | 100   | % |                   |   | 100   | % |  |     |   
|                                   |  |                             |       |   |                   |   |       |   |  |     |   

Domestic Revenues

Domestic revenues decreased by 27% ($845,000) during the three months ended March 31, 2008, as compared to the corresponding period in 2007. The
decrease reflects a 31% ($343,000) decrease in Domestic software license revenues, a 69% ($456,000) decrease in Domestic professional services revenues, and a 3% ($46,000) decrease in Domestic maintenance revenues. These decreases were a result of
the factors described in Total Revenuesabove.

International Revenues

International revenues decreased by 15% ($454,000) during the three months ended March 31, 2008, as compared to the corresponding period in 2007. The
decrease reflects a decrease of 3% ($25,000) in International software license revenues and a decrease of 38% ($565,000) in International professional services revenues, offset by an increase of 20% ($136,000) in International maintenance revenues.

The decrease in our International software license revenues were a result of the factors described in Total Revenues above. The
decrease in our International professional services revenues resulted from the factors described in Total Revenuesabove as well as performing less consulting work for the international financial services customer mentioned in Total
Professional Services and Other Revenues above. This customer accounted for 16% ($0.8 million) of our total revenues during the three months ended March 31, 2008 and 17% ($1.1 million) during the corresponding period in 2007. We expect this
customer to continue to account for a substantial portion of our revenues during the remainder of 2008.

The increase in our International
maintenance revenues were a result of the factors described in Total Maintenance Revenues above.

Cost of Revenues



|                                                                                                    |  |                             |       |   |                   |   |       |   |  |     |   
|--------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ----------------- | - | ----- | - |  | --- | --
|                                                                                                    |  | Three months endedMarch 31, |       |   | Percent(Decrease) |  
|                                                                                                    |  | 2008                        |       |   | 2007              |   |      
|Cost of revenues (in thousands):                                                                    |  |                             |       |   |                   |   |       |   |  |     |   
|Software-related                                                                                    |  | $                           | 255   |   |                   | $ | 362   |   |  | (30 | )%
|Professional services and other                                                                     |  |                             | 840   |   |                   |   | 1,467 |   |  | (43 | )%
|                                                                                                    |  |                             |       |   |                   |   |       |   |  |     |   
|Total                                                                                               |  | $                           | 1,095 |   |                   | $ | 1,829 |   |  | (40 | )%
|                                                                                                    |  |                             |       |   |                   |   |       |   |  |     |   
|Cost of software-related revenues as a % of software-related revenues                               |  |                             | 7     | % |                   |   | 9     | % |  |     |   
|Cost of professional services and other revenues as a % of professional services and other revenues |  |                             | 76    | % |                   |   | 69    | % |  |     |   
|                                                                                                    |  |                             |       |   |                   |   |       |   |  |     |   
|Total                                                                                               |  |                             | 22    | % |                   |   | 30    | % |  |     |   



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##### Table of Contents

Cost of Software-Related Revenues

Cost of software-related revenues consists of royalties for third-party software, product media, product duplication, manuals, amortization of certain
acquired technology costs, and maintenance and technical support costs. Technical support costs consist primarily of the following:



| |  |  | Direct headcount-related costs, such as salaries, stock-based compensation expense and direct employee benefits;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Indirect headcount-related costs, such as recruiting fees, employee travel costs, office supplies, and headcount-based allocation of facilities, information
technology, and human resource costs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporary labor and consulting costs.
| | - |  | -------------------------------------

During the three months ended March 31, 2008, as compared to the corresponding period in 2007, the cost of software-related revenues decreased in absolute dollars by 30% ($107,000) and decreased as a percentage of software-related
revenues by two percentage points. These decreases were due to a decrease in direct materials costs resulting from a corresponding decrease in sales and an equal decrease in amortization expense related to the final amortization in January 2007 of
the S programming language purchased from Lucent Technologies Inc. in January 2004.

Cost of software-related revenues fluctuates from
period to period depending on the mix and level of revenues, and depending on whether a particular quarter includes the costs, such as materials and distribution costs, of a license upgrade to existing maintenance customers. Significant components
of software-related costs of revenues are fixed, such as the costs associated with providing technical support.

Cost of Professional
Services and Other Revenues

Cost of professional services and other revenues consist primarily of the following:



| |  |  | Direct headcount-related costs, such as salaries and variable pay, stock-based compensation expense and direct employee benefits;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Indirect headcount-related costs, such as recruiting fees, employee travel costs, office supplies, and headcount-based allocation of facilities, information
technology, and human resource costs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporary labor and consulting costs, including costs related to training.
| | - |  | --------------------------------------------------------------------------

During the three months ended March 31, 2008, as compared to the corresponding period in 2007, the cost of professional services and other revenues
decreased in absolute dollars by 43% ($0.6 million) and increased as a percentage of professional services and other revenues by seven percentage points. The decrease in absolute dollars reflects a reduction in the headcount in our European
consulting organization during the third quarter of 2007 and reduction in the headcount in our Domestic consulting organization during the fourth quarter of 2007. These headcount reductions were made in order to bring our consulting capacity in line
with our revenue levels.

The increase in the cost of professional services and other revenues as a percentage of professional services and
other revenues resulted from the fact that a portion of our costs of professional services and other revenues are relatively fixed in the short term. As a result, the decrease in those costs was not as great or as rapid as the decrease in revenues.
In addition, because of our reduced professional services revenues, utilization of our consulting staff was lower in the first quarter of 2008 than in the first quarter of 2007.

The costs of professional services and other revenues as a percent of revenues, and gross margins, can fluctuate from quarter-to-quarter and
year-to-year, based primarily on the utilization levels of our consultants, the profitability of our consulting contracts, and our consulting revenue levels.

Operating Expenses

Throughout 2006 and continuing through the first half of 2007, we continued hiring personnel in
all areas of our business, as well as domestically and internationally. This hiring was predicated on the belief that, as we invested in our business, we would generate enough revenues to maintain an appropriate level of operating income or loss.
The expected revenue levels did not materialize and our loss levels became too great. Consequently, during the fourth quarter of 2007, we enacted a plan to decrease our ongoing cost structure. The plan included an immediate workforce reduction, with
the largest reductions in research and development. Headcount reductions as part of this initiative, together with other voluntary and involuntary employee terminations throughout the company, resulted in a decrease in total worldwide employee
headcount from 152 employees at September 30, 2007 to 119 employees at December 31, 2007. Since then, we have experienced more, mostly voluntary, attrition bringing our total employee headcount at March 31, 2008 to 113. In addition to
lower personnel-related costs going forward, we expect the reduced headcount to enable us to consolidate leased space and decrease our ongoing rent expense. However, we may be unable to realize these savings to the extent expected, or at all, if we
cannot sublease or otherwise dispose of our excess space on favorable terms. As of March 31, 2008 we have been unable to sublease our excess space.



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Sales and Marketing



|                                                               |  |                             |       |   |                   |   |       |   |  |     |   
|-------------------------------------------------------------- |  | --------------------------- | ----- | - | ----------------- | - | ----- | - |  | --- | --
|                                                               |  | Three months endedMarch 31, |       |   | Percent(Decrease) |  
|                                                               |  | 2008                        |       |   | 2007              |   |      
|Sales and marketing expenses (in thousands)                    |  | $                           | 2,012 |   |                   | $ | 2,645 |   |  | (24 | )%
|Sales and marketing expenses (as percentage of total revenues) |  |                             | 41    | % |                   |   | 43    | % |  |     |   

Sales and marketing expenses consist primarily of the following:



| |  |  | Direct headcount-related costs, such as salaries and variable pay, stock-based compensation expense, and direct employee benefits;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Indirect headcount-related costs, such as recruiting fees, employee travel costs, office supplies, and headcount-based allocation of facilities, information
technology, and human resource costs;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporary labor and consulting costs; and
| | - |  | -----------------------------------------



| |  |  | Promotional activities, such as the costs of advertising and trade shows.
| | - |  | -------------------------------------------------------------------------

During the three months ended March 31, 2008, as compared to the corresponding period in 2007, sales and marketing expenses decreased in absolute
dollars by 24% ($0.6 million) and decreased as a percentage of total revenues by two percentage points. These decreases were primarily due to decreases in direct and indirect headcount-related costs resulting from the headcount reductions discussed
in Operating Expenses above, and to a smaller degree, to a reduction in costs associated with promotional activities, such as the costs of advertising and trade shows.

Research and Development, Net



|                                                            |  |                             |       |    |                   |   |       |    |  |     |   
|----------------------------------------------------------- |  | --------------------------- | ----- | -- | ----------------- | - | ----- | -- |  | --- | --
|                                                            |  | Three months endedMarch 31, |       |    | Percent(Decrease) |  
|                                                            |  | 2008                        |       |    | 2007              |   |      
|Research and development (in thousands):                    |  |                             |       |    |                   |   |       |    |  |     |   
|Research and development                                    |  | $                           | 1,294 |    |                   | $ | 2,000 |    |  | (35 | )%
|Less - funded research                                      |  |                             | (361  | )  |                   |   | (506  | )  |  | (29 | )%
|                                                            |  |                             |       |    |                   |   |       |    |  |     |   
|Research and development, net                               |  | $                           | 933   |    |                   | $ | 1,494 |    |  | (38 | )%
|                                                            |  |                             |       |    |                   |   |       |    |  |     |   
|Research and development (as percentage of total revenues): |  |                             |       |    |                   |   |       |    |  |     |   
|Research and development                                    |  |                             | 27    | %  |                   |   | 32    | %  |  |     |   
|Less - funded research                                      |  |                             | (7    | )% |                   |   | (8    | )% |  |     |   
|                                                            |  |                             |       |    |                   |   |       |    |  |     |   
|Research and development, net                               |  |                             | 19    | %  |                   |   | 24    | %  |  |     |   
|                                                            |  |                             |       |    |                   |   |       |    |  |     |   

Research and development expenses consist primarily of the following:



| |  |  | Direct headcount-related costs, such as salaries and variable pay, stock-based compensation expense and direct employee benefits;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Indirect headcount-related costs, such as recruiting fees, employee travel costs, office supplies, and headcount-based allocation of facilities, information
technology, and human resource costs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporary labor and consulting costs.
| | - |  | -------------------------------------

Our research and development is split into two teams: Research and Development. The Research team is generally focused on performing work relating to government research grants and contracts, which in the longer term may result in
intellectual property that could have commercial application and be deployed into future commercial software products. The Development team is generally focused on developing software that is intended to be deployed in the near future. Funded
research amounts result from fees generated from research work performed under government grants and contracts, which fees are netted against total research and development costs.



24



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##### Table of Contents

Gross research and development expenses.

During the three months ended March 31, 2008, as compared to the corresponding period in 2007, gross research and development expenses decreased in
absolute dollars by 35% ($0.7 million) and decreased as a percentage of total revenues by five percentage points. These decreases were primarily due to decreases in direct and indirect headcount-related costs resulting from the headcount reductions
discussed in Operating Expenses above, as well as a reduction of R&D headcount and related costs resulting from the sale of our InFact technology in the third quarter of 2007. We also had a reduction in the use of outsourced development
contractors.

Funded research.

Funded research is recorded as an offset to research and development expense in our income statement. During the three months ended March 31, 2008, as compared to the corresponding period in 2007, funded research decreased in absolute
dollars by 29% ($145,000) and decreased as a percentage of total revenues by one percentage point. These decreases were a result of a fewer personnel available to perform funded research activities due mostly to the shifting to the Data Analysis
development group, and departure, of billable InFact related personnel.

Research and development, net.

During the three months ended March 31, 2008, as compared to the corresponding period in 2007, total net research and development costs decreased in
absolute dollars by 38% ($561,000) and decreased as a percentage of total revenues by five percentage points for the reasons described above.

General and Administrative



|                                                       |  |                             |       |   |                 |   |       |   |  |    |   
|------------------------------------------------------ |  | --------------------------- | ----- | - | --------------- | - | ----- | - |  | -- | --
|                                                       |  | Three months endedMarch 31, |       |   | PercentDecrease |  
|                                                       |  | 2008                        |       |   | 2007            |   |      
|General and administrative (in thousands)              |  | $                           | 1,327 |   |                 | $ | 1,427 |   |  | (7 | )%
|General and administrative (as percentage of revenues) |  |                             | 27    | % |                 |   | 23    | % |  |    |   

General and administrative expenses consist primarily of the following costs associated with
finance, accounting, legal, corporate governance, investor relations and administration, including the office of the chief executive officer and the board of directors:



| |  |  | Direct headcount-related costs, such as salaries and variable pay, stock-based compensation expense and direct employee benefits;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | General corporate costs, such as audit fees, legal fees, operating taxes and licenses, and fees associated with compliance with various government regulations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Indirect headcount-related costs, such as recruiting fees, employee travel costs, office supplies, and headcount-based allocation of facilities, information
technology, and human resource costs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporary labor and consulting costs.
| | - |  | -------------------------------------

During the three months ended March 31, 2008, as compared to the corresponding period in 2007, general and administrative expenses decreased in absolute dollars by 7% ($100,000) and increased as a percentage of total revenues by four
percentage points. The decrease in absolute dollars were due to decreases in direct and indirect headcount-related costs resulting from headcount reductions, as discussed in Operating Expenses above, as well as lower stock compensation
expense, and we had lower external legal fees and Sarbanes Oxley related costs offset by increases in various other cost categories. The increase in general and administrative expenses as a percentage of total revenues was due to the fact that our
revenues decreased to a greater extent than our general and administrative expenses.

Other Income (Expense)

Other income (expense) consists of the following:



|                                            |  |                             |     |      |   |    
|------------------------------------------- |  | --------------------------- | --- | ---- | - | ---
|                                            |  | Three months endedMarch 31,
|                                            |  | 2008                        |     | 2007
|Interest income                             |  | $                           | 97  |      | $ | 129
|Foreign exchange transaction gains (losses) |  |                             | 31  |      |   | 3  
|                                            |  |                             |     |      |   |    
|                                            |  | $                           | 128 |      | $ | 132
|                                            |  |                             |     |      |   |    



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##### Table of Contents

Interest income.The decrease in interest income during the three months ended March 31,
2008, as compared to the corresponding period in 2007, resulted from a general decline in market returns for short- to medium-term investments and from investing a smaller portion of our cash reserves into higher-yielding instruments.

Foreign exchange transaction gains (losses).Foreign exchange transaction gains and losses result from changes in exchange rates on transactions
denominated and/or settled in currencies other than that of an entitys functional currency. This includes the effect that foreign exchange rate fluctuations have on intercompany amounts due from one of our international subsidiaries to our
U.S. parent company, or to our other international subsidiaries, that are expected to be settled within the foreseeable future. Foreign currency gains or losses resulting from intercompany amounts due from one of our international subsidiaries to
the U.S. parent company, or to our other international subsidiaries, that are not expected to be settled within the foreseeable future are included in stockholders equity in Other Comprehensive Income (Loss) during the period in which the
exchange rates fluctuate.

We incurred foreign exchange transaction gains of $31,000 and $3,000 during the three months ended
March 31, 2008 and 2007, respectively. These gains were due to changes in foreign currency exchange rates and changes in the relative strength of the U.S. dollar and the effect these changes have on the carrying amounts of U.S.
dollar-denominated intercompany operating loans due from our international subsidiaries to the U.S. parent company that are expected to be settled within the foreseeable future, the U.S. dollar-denominated cash equivalents held by an international
subsidiary, and the relative balance between the U.S. dollar-denominated intercompany loans and cash equivalents.

Because we are subject
to foreign currency exchange rate fluctuations, and because such fluctuations are part of the global economic environment, we expect foreign currency gains and losses to continue to fluctuate in future quarters and years.

Income Tax Benefit (Expense)

Income tax
expense for the three months ended March 31, 2008 was minor and changed only slightly as compared to the corresponding period of 2007. Changes in income tax expense and benefit from period to period are attributed primarily to relative changes
in the mix of operating income and loss generated in the various tax jurisdictions in which we operate.

Liquidity and Capital Resources

Cash, cash equivalents, and short and long-term investments increased from $11.0 million at December 31, 2007 to $11.2 million at March 31,
2008. This increase was due to collections made on our accounts receivables balances, which were $1.0 million greater at December 31, 2007 than they were at March 31, 2008. This increase in collections and the related decrease in our
accounts receivables balance reflect the fact that our software maintenance renewals are typically greatest in the fourth quarter, and the bulk of the subsequent collections (receivables) on these fourth quarter renewals occur from January through
March.

Our working capital increased from $5.2 million at December 31, 2007 to $6.0 million at March 31, 2008. This increase was
primarily due to $0.9 million in maturities on our long-term investments being invested into short-term investments.

Cash Flows

We generated $0.2 million in cash from operating activities during the three months ended March 31, 2008, compared to generating $1.5 million
during the corresponding period in 2007. The decrease of $1.3 million in operating cash inflows is primarily due to collecting $1.5 million dollars less in accounts receivable during the three months ended March 31, 2008, as compared to the
corresponding period in 2007. This decrease in collections resulted from having a lower beginning accounts receivable balance in the first quarter of 2008 than in the first quarter of 2007, which in turn was due to lower revenues booked in the
fourth quarter of 2007 than in the fourth quarter of 2006.

The difference between our net loss and our operating cash inflow or outflow is
attributable to non-cash expenses included in net loss and changes in operating assets and liabilities, as presented below (in thousands):



|                                                        |  |                             |      |   |      |   |        |  
|------------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ------ | -
|                                                        |  | Three months endedMarch 31, |     
|                                                        |  | 2008                        |      |   | 2007 |  
|Net loss                                                |  | $                           | (373 | ) |      | $ | (1,092 | )
|Add: non-cash expenses                                  |  |                             | 311  |   |      |   | 509    |  
|Adjust for: changes in operating assets and liabilities |  |                             | 302  |   |      |   | 2,074  |  
|                                                        |  |                             |      |   |      |   |        |  
|Net cash provided by operating activities               |  | $                           | 240  |   |      | $ | 1,491  |  
|                                                        |  |                             |      |   |      |   |        |  



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Non-cash expenses consist of the amortization of intangible assets, depreciation and amortization of
property and equipment, and stock-based compensation charges.

Investing activities resulted in a net cash outflow of $1.2 million for the
three months ended March 31, 2008, compared to an outflow of $0.7 million for the corresponding period in 2007. This increase of $0.5 million in cash used by investing activities was due primarily to an increase in the portion of our cash
reserves that were invested in short- and long-term investments during the three months ended March 31, 2008, as compared to the corresponding period in 2007.

Cash generated from financing activities decreased from $138,000 during the three months ended March 31, 2007 to zero during the corresponding period in 2008. This decrease resulted from a decrease in proceeds
received from the exercise of employee stock options during the three months ended March 31, 2008, as compared to the corresponding period in 2007, because no employee stock options were exercised during the three months ended March 31,
2008.

Sources of Liquidity

In
May 2007, we renewed a working capital revolving line of credit and security agreement with Silicon Valley Bank. The terms provide for up to $3.0 million in borrowing availability through May 30, 2008. This facility is secured by our accounts
receivable and allows us to borrow up to the lesser of 75% of our eligible accounts receivable or $3.0 million. Borrowings under the facility bear interest at the prime rate. The prime rate was 5.25% at March 31, 2008. No amounts were
outstanding at March 31, 2008 or December 31, 2007 under this line of credit facility or our previous line of credit facility with Silicon Valley Bank.

In May 2007, we entered into a new equipment loan facility with Silicon Valley Bank. This facility allows a maximum of $750,000 to be borrowed through December 31, 2007, with the loan secured by the underlying
assets. We are entitled to take up to six advances through December 31, 2007 for qualifying equipment purchased in the 90 days preceding the advance request (or 180 days for the initial advance), with each advance having a minimum borrowing
amount of $75,000. Each borrowing under the equipment loan will bear interest at the prime rate plus 0.25% and will be repaid over a 36-month payment period beginning on 30 days after the applicable advance. The final maturity date will be no later
than December 31, 2010. No amounts were outstanding at March 31, 2008 or December 31, 2007 under this equipment loan facility or our previous equipment loan facility with Silicon Valley Bank.

These credit facilities contain covenants that limit our net losses and require certain minimum liquidity. In addition, we are prohibited under these
facilities from paying dividends.

At March 31, 2008, our principal sources of liquidity consisted of cash, cash equivalents, and
short and long-term investments totaling $11.2 million in the aggregate, as well as available credit. Our principal liquidity needs are financing of accounts receivable, capital assets, strategic investments, and operations, as well as flexibility
in a dynamic and competitive operating environment.

We believe that our existing cash and cash equivalents and available credit will be
sufficient to meet our financial obligations for the foreseeable future. However, if for whatever reason we were to need to raise additional funds through public or private equity financing or from other sources in order to fund our operations, we
may be unable to obtain it on favorable terms, if at all.

Commitments

As of March 31, 2008, our contractual commitments associated with operating leases, primarily for our office space in Seattle, Washington and other
domestic and international locations, as well as equipment leases and financing, are as follows (in thousands):



|                            |  |      |     |      |   |       |  |      |     |       |   |   |  |   |      
|--------------------------- |  | ---- | --- | ---- | - | ----- |  | ---- | --- | ----- | - | - |  | - | -----
|                            |  | 2008 |     | 2009 |   | 2010  |  | 2011 |     | Total
|Operating lease obligations |  | $    | 821 |      | $ | 1,013 |  | $    | 637 |       | $ | 4 |  | $ | 2,475

Rent expense under our operating leases was $282,000 and $236,000 for the three months ended
March 31, 2008 and 2007, respectively.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Disclosure Controls and Procedures

The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, or the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange



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Act is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure. Our chief executive officer and our chief financial officer have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and they have
concluded that, as of that date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. There were no changes in our internal control over financial reporting during the first quarter ended March 31, 2008 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



|ITEM 1A. | RISK FACTORS
|-------- | ------------

In addition to the other information
contained in this report, you should carefully read and consider the following risk factors. If any of these risks is actually realized, our business, financial condition or operating results could be adversely affected and the trading price of our
common stock could decline.

We have incurred losses in past periods and have incurred losses in recent periods, and may not achieve or sustain
profitability.

We posted net losses for each fiscal quarter from the fourth quarter of 2001 through the third quarter of 2003, for
the first and second quarters of 2006, for the first, second and fourth quarters of 2007, and for the first quarter of 2008. We achieved only small profits for the third and fourth quarters of 2006, and we achieved a profit for the third quarter of
2007 only because we recorded a $3.5 million gain on the sale of our InFact technology and related intellectual property. As of March 31, 2008, we had an accumulated deficit of $28.3 million. We may experience additional losses and negative
cash flows in the near term, even if revenues from our products and services grow. Our revenues declined significantly during the three months ended March 31, 2008, as compared to the corresponding period in the prior year, and they may not
stabilize or grow in the future. Regardless of our revenues, we may not achieve or sustain profitability in future periods.

Our operating results
fluctuate and could fall below our expectations and those of securities analysts and investors, resulting in a decrease in our stock price.

Our operating results have varied widely in the past, and we expect that they could continue to fluctuate in the future. Our stock price could decrease if our operating results for a particular quarter or year fall below our expectations or
those of securities analysts and investors. Because we cannot predict our revenues and expenses with certainty, our expectations of future profits or losses may differ from actual results. It is particularly difficult to predict the timing or amount
of our license revenues because:



| |  |  | our sales cycles are variable and growing longer, typically ranging between one and twelve months (or even longer for large transactions) from our initial contact
with a current or potential customer;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a substantial portion of our sales are completed at the end of the quarter and, as a result, a substantial portion of our license revenues are recognized in the
last days of a quarter;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount of unfulfilled orders for our products is typically small; and
| | - |  | -------------------------------------------------------------------------



| |  |  | delay of new product releases can result in a customers decision to delay execution of a contract or, for contracts that include the new release as an element
of the contract, will result in deferral of revenue recognition until such release.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Even though our revenues are
difficult to predict with certainty, we base our decisions regarding many of our operating expenses on anticipated revenue trends. Many of our expenses are relatively fixed, and we cannot quickly reduce spending if our revenues are lower than
expected. As a result, revenue shortfalls could result in significantly lower income or greater loss than anticipated for any given period, which could result in a decrease in our stock price.



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The revenue recognition rules for software companies are complex and require us to exercise judgment and
make a number of estimates. If we were to change any of these assumptions or judgments, which are made based on the information available to us at the time, the amount of revenue that we report in a particular period could materially increase or
decrease.

One large customer accounts for a significant proportion of our revenues. The unexpected loss of this customer or one or more significant
projects for this customer would affect our operating results and could cause a decline in our stock price.

We perform consulting
projects primarily on a time-and-materials basis, under which a customer may order us to cease work at any time. When the magnitude of any such project or a number of projects for a particular customer requires us to allocate a significant portion
of our consulting time to the customer during a reporting period, the unplanned or untimely cessation of the project(s), or the failure of the customer to engage us for additional anticipated projects, would create a shortfall in revenues that would
result in a negative impact on operating results. We are currently engaged with one international financial services customer that accounted for 11% of total revenues during 2006, 15% during 2007, and 16% during the three months ended March 31,
2008, and we expect this customer to continue to account for a substantial proportion of our revenues during the reminder of 2008. We have allocated resources to this customer that have limited, and may continue to limit, our ability to pursue other
opportunities. If we cease work on this customer (or other significant customers) earlier than planned, or if they engage us for fewer consulting projects than we anticipate, we would suffer significant reductions in our expected level of revenue
and profit margins, and we would continue to bear the generally fixed costs associated with our professional services staff. This would have a negative impact on our operating results.

Market acceptance of R, the open source alternative to our proprietary S-PLUS software, poses a threat to our future operating results.

Our business model has been based upon customers agreeing to pay a fee to license software that we develop and distribute. In recent years, the
open-source, non-commercial software model has presented a growing challenge to the commercial software model. Under this non-commercial software model, open source software is produced by loosely associated groups of unpaid programmers and made
available for license to end users without charge. Some open source software is distributed at nominal cost by companies that earn revenue on complementary services and products, without having to bear the full costs of research and development for
the open-source software. The most notable example of open source software is the Linux operating system, which has presented a competitive challenge to leading vendors of proprietary operating systems such as Windows. In the predictive analytics
market, we face similar challenges because of the availability of R, an open source implementation of the S language that forms the core of our S-PLUS product. The information technology departments of some of our potential customers are developing
data analysis solutions using R, and some companies are distributing R and offering complementary products and services for R. While we believe our products provide customers with significant advantages, the popularization of R continues to pose a
significant challenge to our business model. To the extent that products utilizing the R language gain increasing market acceptance, sales of our S-PLUS products may decline, we may have to reduce the prices we charge for our products, and revenues
and operating margins may consequently decline.

We rely primarily on a single product family, and if customers do not purchase the S-PLUS product
family and continue to renew maintenance or license subscriptions, our revenues and operating results will be adversely affected.

Our S-PLUS product and add-on modules account for the substantial majority of our license revenues. Other products have not contributed consistently to our revenues. We expect license and maintenance revenues from the S-PLUS product family
to continue to account for the substantial majority of our revenues in the near future. As a result, factors adversely affecting the pricing of or demand for the S-PLUS product family, such as competition or technological change, could dramatically
affect our operating results. If we are unable to successfully deploy current versions of the S-PLUS product family and to develop, introduce and establish customer acceptance of new and enhanced versions of S-PLUS products, our revenues and
operating results will be adversely affected. For example, if our recently released S-PLUS 8.0 Enterprise Developer, S-PLUS 8.0 Enterprise Server or Insightful Clinical Graphics products fail to meet customer expectations, our revenues would be
lower than expected and our operating results would be harmed. In addition, if we are unable to maintain the expected level of renewals for maintenance or license subscriptions on our S-PLUS products or if we are unable to generate new license
revenue bookings to make up for the maintenance customers that do not renew their maintenance contracts with us each quarter, then we may be unable to maintain or increase our future maintenance revenue streams generated by our products.

If we do not attract and retain key employees and management, our ability to execute our business strategy will be limited.

Our future performance will depend largely on the efforts and abilities of our key personnel, including but not limited to technical and sales personnel.
Our ability to execute our business strategy will depend on our ability to recruit personnel and retain our existing personnel, including executive management. Because our key employees are not obligated to continue their employment with us, they
could leave at any time. Departures of, or failure to recruit and retain replacements of, key



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executives and other employees could harm our reputation and our ability to execute our business strategy and generate revenues. We have recently experienced
the loss of key employees and management. For example, in the second half of 2007 and into the first quarter of 2008 we experienced significant turnover and disruption in our sales organization, including the loss of our vice president of Europe and
our vice president of North American sales. The loss of these employees harmed our ability to generate revenues in the third and fourth quarters of 2007 and the first quarter of 2008. We expect these losses to continue to harm our operating results
throughout 2008, as we hire, train and integrate our new management and new personnel. In addition, failure to attract and retain research and development personnel when needed, or reductions in our existing personnel (such as the reduction in
research and development and other personnel that we implemented in the fourth quarter of 2007), could harm our ability to develop and introduce new products and enhancements successfully or in a timely manner. Due to competition for qualified
employees, we may have difficulty recruiting personnel with appropriate skills, and we may be required to increase the level of compensation paid to existing and new employees, which could materially increase our operating expenses.

In addition, our ability to attract and retain employees may be adversely affected by the market price of our common stock, which has fluctuated widely
in the past and has trended generally downwards over the last two years. Consequently, potential employees may perceive our equity incentives, such as stock options, as less attractive, and current employees whose options are no longer priced below
market value may choose not to remain employed by us.

Our reduction in force may harm our business.

In order to decrease our ongoing cost structure, we have decreased our headcount through voluntary and involuntary employee terminations throughout the
company. Our employee headcount has decreased from 152 employees at September 30, 2007 to 119 employees at December 31, 2007. Since then, we have experienced more, mostly voluntary, attrition bringing our total employee headcount at
March 31, 2008 to 113. These headcount reductions have occurred in all areas and regions of our business. This reduction in work force may impact our ability to generate revenues. For example, if the anticipated negative effects of headcount
reductions on our research and development programs are greater than or different than we anticipated, our ability to timely and successfully develop new products or product enhancements could be harmed. In addition, our reduction in force may yield
unanticipated consequences, such as attrition beyond our planned reductions, and we may encounter difficulty in managing our business as a result.

If we are unable to introduce new products and services successfully and in a timely and cost-effective manner, our operating results will be harmed.

The business software market is characterized by rapid change due to changing customer needs, rapid technological developments and advances introduced by
competitors. Changing business needs of current and potential customers create opportunities for new product and service offerings from us and our competitors. Existing products can become obsolete and unmarketable when products using new
technologies are introduced and new industry standards emerge. New technologies, including the rapid growth of the Internet and commercial acceptance of open source software such as R, could result in changes in the way software is sold or
delivered. In addition, we may need to modify our products when third parties change software that we integrate into our products. As a result, the life cycles of our products are difficult to estimate.

To be successful, we must continue to enhance our current product line for both desktop and enterprise products and timely develop new products that
successfully respond to changing customer needs, technological developments and competitive product offerings. Over the last several years we have been transitioning from focusing primarily on desktop products to developing and selling more complex
product and service offerings oriented towards enterprises and particular industries. As a result, among other investments, we are currently focusing research and development efforts on developing industry-oriented solutions and enhancing the
scalability and deployability of our current product offerings. These investments may strain our financial resources and diffuse managements time and attention. We ultimately may be unable to successfully and efficiently enhance key features
of our products and develop new industry-oriented solutions to the extent necessary to achieve market acceptance. To the extent any enhancements or solutions require us to license third party technology, we may be unable to do so on acceptable terms
or to integrate such technology with our existing products. We have significantly reduced our headcount in our research and development organization and other parts of our business and the anticipated negative effects of this reduction on our
research and development programs may be greater than or different than what we anticipated. If we are unable to develop new products or product enhancements cost-effectively, we may be unable to realize all or a portion of our research and
development investments and sales of our products could decline.

We may be unable to introduce new products or enhancements successfully
or in a timely manner in the future. If we delay release of our desktop, server and vertical-oriented products, product enhancements and solutions, or if they fail to achieve market acceptance when released, it could harm our reputation and our
ability to attract and retain customers, and our revenues may decline. In addition, customers may defer or forego purchases of our products if we, our competitors or our major hardware, systems or software vendors introduce or announce new products
or product enhancements. Finally, delays in any new research or development efforts could cause delays in our general product development schedule, including causing delays in the release of new product versions, which could materially harm our
maintenance revenues.



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If we are unable to compete successfully in the predictive analytics market, our business will fail.

Our S-PLUS product suite targets the predictive analytics market. This market is highly competitive, fragmented and mature. We
face competition in the predictive analytics market primarily from large enterprise software vendors and from our potential customers information technology departments, which may seek to develop their own solutions. The dominant competitor in
our industry is SAS. Other companies with which we compete include, but are not limited to, SPSS, Inc., StatSoft Inc., The Mathworks and Minitab, Inc. In addition to competition from other statistical software companies, we compete with providers of
software for specific statistical applications, such as applications for graphics and reporting. We also face competition from R, the open source alternative to S-PLUS. Many of our competitors have longer operating histories, greater name
recognition, greater market share, larger customer bases and significantly greater financial, technical, marketing and other resources than we do.

In addition, as we develop other new products, or attempt to expand our sales into new vertical and end-user markets, we may begin competing with companies with whom we have not previously competed. It is also possible that new competitors
will enter our markets. For example, we could also experience competition from companies in other sectors of the broader market for business intelligence software, such as providers of on-line analytical processing, business intelligence and
analytical application software, as well as from companies in other sectors. If we are unable to maintain our current level of pricing or renewals for our products, future revenue streams generated by our software products may decrease.

Our sales cycle is variable and has been lengthening as we sell larger and more complex solutions, and our limited ability to predict revenues could cause our
operating results to fluctuate, which could cause a decline in our stock price.

An enterprises decision to purchase our
software and services is discretionary, involves a significant commitment of its resources and is influenced by its budget cycles. Our sales cycles are variable, typically ranging between one and twelve months from our initial contact with a
potential data analysis customer to the issuance of a purchase order or signing of a license or services agreement. The amount of time varies substantially from customer to customer, making our revenues difficult to predict in the short term.
Occasionally sales require substantially more time, and sales cycles have shown to be substantially longer for larger and more complex (and therefore higher-priced) orders. On the other hand, if our sales personnel focus their efforts on selling
not-yet-released products in anticipation of a long sales cycle for those products, our sales of already-released products may suffer. In addition, sales delays could cause our operating results for any given period to fall below the expectations of
securities analysts or investors, which could result in a decrease in our stock price.

We will be required to expend significant effort and expense
in relation to our size in maintaining SOX 404 compliance, which will divert resources and management attention and may put us at a disadvantage with respect to other companies.

We were required to comply with the provisions of SOX 404 for the fiscal year ending December 31, 2007. In order to furnish the required report on
managements assessment of the design and effectiveness of our internal controls, we have expended significant effort in documenting the design of our internal controls and testing the processes that support managements evaluation and
conclusion. We will continue to incur costs for SOX 404 compliance throughout 2008 and beyond, and these costs may be significant in relation to our revenues. For example, this process has required us to engage outside contractors, which has
resulted and will continue to result in additional accounting and information technology expenses. Additionally, as our business evolves, so too do our processes and the related controls. Consequently, as part of our continued and required
assessment of our internal controls, certain deficiencies may be discovered that would require remediation. This remediation may require implementing additional controls, the costs of which could have a material adverse effect on our results of
operations.

Continued compliance with SOX 404 may also require a significant amount of management and executive management effort and
attention that could otherwise be focused on issues directly impacting our operations and business strategy that are unrelated to compliance. The requirements of SOX 404 and the effort and expense necessary to maintain compliance may put us at a
disadvantage with respect to companies that are not subject to the provisions of SOX 404, such as private companies and public companies that are registered in other countries, and companies with greater resources and revenue bases for which
compliance costs comprise a smaller proportion of their revenue.

We may have difficulty maintaining adequate internal controls, and our testing may
not reveal all material weaknesses or significant deficiencies with our internal controls.

Notwithstanding our SOX 404 compliance
efforts, our internal controls might not prove sufficient in the future, given our limited resources, or as we adjust our processes and related controls to accommodate changes in our business. In addition, we may encounter problems and delays in
continuing our ongoing monitoring and evaluation, making improvements, or both. If we are unable to maintain compliance with the requirements of SOX 404, and to do so in a timely manner, we might be subject to sanctions or investigation by
regulatory authorities. Any such action could adversely affect our business and financial results.



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Further, our testing may not reveal all material weaknesses or significant deficiencies in our internal
controls. Material weaknesses or significant deficiencies in our internal controls could have a material adverse effect on our results of operations. If a failure to maintain effective internal control over financial reporting results in material
misstatements in our financial statements that require us to restate our financial statements, investors could lose confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of stock, result
in stockholder litigation, or otherwise harm our reputation.

If we do not successfully overcome the risks inherent in international business
activities, our business will suffer.

In the first quarter of 2008, more than half of our revenues came from international
business activities. Our international sales are subject to the risks inherent in international business activities, including:



| |  |  | costs of customizing products for foreign countries;
| | - |  | ----------------------------------------------------



| |  |  | export and import restrictions, tariffs and other trade barriers;
| | - |  | -----------------------------------------------------------------



| |  |  | the need to comply with multiple, conflicting and changing laws and regulations;
| | - |  | --------------------------------------------------------------------------------



| |  |  | separate management information systems and control procedures;
| | - |  | ---------------------------------------------------------------



| |  |  | reduced protection of intellectual property rights and increased liability exposure; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | regional economic, cultural and political conditions.
| | - |  | -----------------------------------------------------

Our foreign subsidiaries operate primarily in local currencies, and their operating results are translated into U.S. dollars. Because the U.S. dollar is currently weak compared to the local currencies in which our
foreign subsidiaries operate, our reported revenues will be negatively affected in the future if the U.S. dollar strengthens compared to these currencies. We do not currently engage in foreign currency contracts designed to hedge foreign currency
risk. Future currency exchange rate fluctuations may have an adverse effect on our results of operations in future periods. Our operating results could be materially affected if we enter into license or service agreements with extended payment terms
or extended implementation timeframes where the agreements are denominated in currencies other than that of the functional currency of the Insightful subsidiary engaged in such agreements or a currency other than that of the reporting currency of
the parent company, if the values of the currencies fall in relation to each other over the payment period of the applicable agreement.

We may be
unable to adequately protect our proprietary rights, which may limit our ability to compete effectively.

Our success depends in
part on our ability to protect our proprietary rights, including our patents and our rights in the S-PLUS programming language. To protect our proprietary rights, we rely primarily on a combination of patent, copyright, trade secret and trademark
laws, confidentiality agreements with employees and third parties and protective contractual provisions such as those contained in license agreements with consultants, vendors and customers, although we have not signed these agreements in every
case. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our products and obtain and use information that we regard as proprietary. Historically, our products have not been physically copy-protected. In
order to retain exclusive ownership rights to all software developed by us, we license that software and provide it in executable code only, with contractual restrictions on modifications, copying, disclosure and transferability. The source code for
most of our products is protected as a trade secret and as unpublished copyrighted work. As is customary in the industry, we generally license our products to end-users by use of a click-through license. For custom software and
higher-priced license sales, we may execute a signed license agreement with the customer. Other parties may breach confidentiality agreements and other protective contracts into which we have entered, and we may not become aware of, or have adequate
remedies in the event of, a breach. We face additional risk when conducting business in countries that have poorly developed or inadequately enforced intellectual property laws. While we are unable to determine the extent to which piracy of our
software products exists, we expect piracy to be a continuing concern, particularly in international markets and as a result of the growing use of the Internet. In any event, competitors may independently develop similar or superior technologies or
duplicate the technologies we have developed, which could substantially limit the value of our intellectual property.

Intellectual property claims
and litigation could be costly, divert management attention, subject us to significant liability for damages and result in invalidation of our proprietary rights.

In the future, we may have to resort to litigation to protect our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Any litigation,
regardless of its success, would probably be costly and require significant time and attention of our key management and technical personnel. Although we have not been sued for intellectual property infringement, we may face infringement claims from
third parties in the future. The software industry has seen frequent litigation over intellectual property rights, and we expect that participants in the industry will be increasingly subject to infringement claims as the number of products,
services and competitors increases and the functionality of products and services overlap. Infringement litigation could also force us to:



| |  |  | stop or delay selling, incorporating or using products that incorporate the challenged intellectual property;
| | - |  | -------------------------------------------------------------------------------------------------------------



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| |  |  | pay damages;
| | - |  | ------------



| |  |  | enter into licensing or royalty agreements, which may be unavailable on acceptable terms; or
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | redesign products or services that incorporate infringing technology, which we might not be able to do at an acceptable price, in a timely fashion or at all.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Our products may suffer from defects or errors, which could result in loss of revenues, delayed or limited market acceptance of
our products, increased costs and damage to our reputation.

Software products as complex as ours frequently contain errors or
defects, especially when first introduced or when new versions are released. Our customers are particularly sensitive to such defects and errors because of the importance of accuracy in software used in analyzing data. We have had to delay
commercial release of past versions of our products until software problems were corrected, and in some cases have provided product updates to correct errors in released products. Our new products or releases may not be free from errors after
commercial shipments have begun. Any errors that are discovered after commercial release could result in loss of revenues or delay in market acceptance, diversion of development resources, damage to our reputation, increased service and warranty
costs or claims against us.

In addition, the operation of our products could be compromised as a result of errors in the third-party
software we incorporate into our software. It may be difficult for us to correct errors in third-party software because that software is not in our control.

If we are unable to maintain and expand our direct sales organization and develop and maintain successful long-term relationships with channel partners, our ability to maintain our business could be limited.

We believe our future ability to generate revenues will depend in large part on recruiting, training and retaining direct sales personnel. Competition
for such personnel in the software industry is intense. Our ability to generate revenues will also depend on expanding our indirect distribution channels, which are important to international sales and marketing of our products. These indirect
channels include distributors, VARs, original equipment manufacturer, or OEM, partners, system integrators and consultants, many of whom have similar, and often more established, relationships with our competitors. These existing and potential
channel partners may in the future market software products that compete with our solution or reduce or discontinue their relationships with us or their support of our products. If we experience difficulty in recruiting and retaining qualified
direct sales personnel and in establishing and maintaining third-party relationships with VARs, distributors, OEM partners, systems integrators and consultants, our sales could be reduced or our longer-term sales growth limited. Even if we
successfully expand our sales force and other distribution channels in the future, the expansion may not result in revenue growth.

Delivery of our
products may be delayed if we cannot continue to license third-party technology that is important to the functionality of our solution.

We incorporate into our products software that is licensed to us by third-party software developers. The third-party software currently offered in conjunction with our products may become obsolete or incompatible with future versions of our
products. Further, numerous individual and institutional licensors have contributed software code to S-PLUS in exchange for little or no consideration, and some of these third parties may choose to revise or revoke their licensing terms with us. A
significant interruption in the supply of this technology could delay our sales until we can find, license and integrate equivalent technology. This could take a significant amount of time, perhaps several months, which would cause our operating
results to fall below the expectations of securities analysts or investors and result in a decrease in our stock price.

Economic conditions could
adversely affect our revenues.

We focus primarily on the financial services and life sciences markets and are thus sensitive to
changes in the specific economic conditions that affect those markets. The financial services market in particular is currently facing great industry turmoil, with many leading financial services firms facing illiquidity crises. This turmoil and
uncertainty could adversely affect the demand for our solutions by key financial services customers. Substantial changes in the economic condition of the life sciences market also would affect our ability to sell our products and services.

In addition, our revenues and potential for profitability depend on the overall demand for statistics and data analysis software and
services. Because our sales are primarily to corporate customers, our business also depends on general economic and business conditions. Changes in demand for computer software caused by a weakened economy, whether domestic, international or both,
may affect our sales and may result in decreased revenues. As a result of inconsistent and weakened economic conditions, we may also experience difficulties in collecting outstanding receivables from our customers.



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We face potential liability with respect to sales taxes.

We sell to customers in almost every state in the United States. There is a great variation in the tax rules from state to state, including the rules
that determine whether a company has established a sufficient presence (also known as nexus) in a particular jurisdiction such that it is required to register and collect and pay taxes in that jurisdiction. We have registered for sales tax purposes
in a number of states and local jurisdictions, and we remit state and local taxes as may be required with respect to our business operations in those jurisdictions. Additional jurisdictions besides the ones with which we have registered may attempt
to claim that we had a sufficient presence in certain time periods such that we should have registered and then levied, collected, and remitted required sales taxes on applicable sales transactions over those periods. Should we be unsuccessful in
defending our current positions with respect to nexus-generating activities, we would be obligated to pay the related sales taxes, and in many states this would also include paying interest and penalties.

Our business is sensitive to the risks associated with government funding.

We regularly apply for and are granted research contracts from a variety of government agencies and funding programs. These contracts generated $2.3 million in 2006, $1.9 million in 2007, and $0.4 million during the
three months ended March 31, 2008. These amounts are recorded as offsets to our research and development expenses. Reductions in these offsets would negatively affect our operating results. We may not receive new funded research contracts or
any renewals of government-funded projects currently in process. The personnel and other costs associated with these programs are relatively fixed in the short term, and a sudden cancellation or non-renewal of a major funding program or multiple
smaller programs, without a concomitant reduction in personnel and other costs, would be harmful to our operating results. A substantial portion of the research grant money we receive is granted to us based on our status as a small business, the
definition of which varies depending on the individual contract terms. If the number of our employees or the amount of our revenues ever grows beyond the limits prescribed in any of these contracts, we will no longer be eligible for those research
contracts and we will have to incur certain research and development expenses without the benefit of offsets. Funding received under government grants is subject to audits for several years after the funding is received and, depending on the audit
results, we could be obligated to repay a portion of the funding.

Furthermore, a portion of our license revenues comes from U.S.
government entities, as well as research institutions, healthcare organizations and private businesses that contract with or are funded by government entities. Government appropriations processes are often slow and unpredictable and may be affected
by factors outside of our control. Reductions in government expenditures and termination or renegotiation of government-funded programs or contracts could adversely affect our revenues and operating results.

We may be required to raise additional funding if we continue to suffer operating losses, and this funding may be unavailable on acceptable terms, if at all.

Our future revenues may be insufficient to support the expenses of our operations and any future expansion of our business. We may
therefore need additional equity or debt capital to finance our operations. If we are unable to generate sufficient cash flow from operations or to obtain funds through additional financing, we may have to reduce some or all of our development and
sales and marketing efforts, forego the future expansion of our business or cease operations. If we were to need to raise additional funds through public or private equity financing or from other sources in order to fund our operations, we may be
unable to obtain it on favorable terms, if at all. Any additional financing we obtain may contain covenants that restrict our freedom to operate our business or may require us to issue securities that have rights, preferences or privileges senior to
our common stock and may dilute our stockholders ownership interest in us.

Our credit lines contain covenants that require us to
keep our operating losses below a certain level. As a result, we may be unable to access these credit lines if our operating losses increase in future periods.

Our stock price may be volatile.

The price of our common stock has been volatile. In 2007, the price reached a high
of $3.18 and a low of $1.02. During the three months ended March 31, 2008, the price reached a high of $1.69 and a low of $0.72. The trading price of our common stock could be subject to fluctuations for a number of reasons, including the
reasons that may cause our operating results to fluctuate. In addition, stock prices for many technology companies fluctuate widely for reasons that may be unrelated to operating results of these companies. These fluctuations, as well as general
economic, market and political conditions, such as national or international currency and stock market volatility, recessions or military conflicts, may materially and adversely affect the market price of our common stock, regardless of our
operating performance. As a result of fluctuations in the price of our common stock, investors may be unable to sell their shares at or above the price paid for them.



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Volatility in our stock price may also expose us to class action securities litigation that, even if
unsuccessful, would be costly to defend and distracting to management. In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been instituted against these
companies. Litigation brought against us could result in substantial costs and a diversion of managements attention and resources, which could have a material adverse effect on our business, financial condition and operating results.

If we are unable to comply with the minimum requirements for quotation on the NASDAQ Capital Market, we could be delisted from the NASDAQ Capital
Market. If that occurred, the liquidity and market price of our common stock would decline.

Our stock is listed on the NASDAQ
Capital Market. In order to continue to be listed on the NASDAQ Capital Market, we must meet specific quantitative standards, including maintaining a minimum bid price of $1.00 for our common stock. During the first quarter of 2008, our stock price
temporarily dipped below $1.00 per share. If we were delisted from the NASDAQ Capital Market, trading, if any, in our shares could continue to be conducted on the OTC Bulletin Board or in a non-NASDAQ over-the-counter market, such as the
pink sheets. If our stock were to trade on an over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed and security
analysts coverage of us could be reduced. Also, a delisting could have a material adverse effect on the price for our shares and our ability to issue additional securities or to secure additional financing. In addition, delisting from the
NASDAQ Capital Market may subject our common stock to penny stock rules under the Securities Exchange Act of 1934, as amended, or the Exchange Act. These rules impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in securities deemed penny stocks under the rules of the Exchange Act. Such requirements could severely limit the liquidity of our securities.



|ITEM 6. | EXHIBITS
|------- | --------

(a) See Index to Exhibits.



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SIGNATURES

In accordance with the requirements of the Exchange Act the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

May 15, 2008



INSIGHTFUL CORPORATIONBy:

/s/ Jeffrey E. CoombsJeffrey E. CoombsPresident and Chief Executive Officer (Principal
Executive Officer)By:

/s/ Richard P. BarberRichard P. BarberChief Financial Officer(Principal Financial and Accounting Officer)




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EXHIBIT INDEX



|              |  |                                                                                                                                              
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                  
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation of the registrant (Exhibit 3.1) (A)                                                        
|              | 
|3.2           |  | Certificate of Amendment to Certificate of Incorporation of the registrant (Exhibit 3.3) (B)                                                 
|              | 
|3.3           |  | Amended and Restated Bylaws of the registrant (Exhibit 3.1) (C)                                                                              
|              | 
|31.1*         |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                           
|              | 
|31.2*         |  | Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002                                               
|              | 
|32.1*         |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
|              | 
|32.2*         |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002



|* | Filed herewith
|- | --------------



|(A) | Incorporated by reference to the designated exhibit included in the registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (SEC File No.
0-20992), filed on November 14, 2001.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(B) | Incorporated by reference to the designated exhibit included in the registrants Annual Report on Form 10-KSB for the year ended December 31, 2005 (SEC File No. 0-20992),
filed on March 31, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(C) | Incorporated by reference to the designated exhibit included in the registrants Current Report on Form 8-K (SEC File No. 0-20992), filed January 2, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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