##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the Quarterly Period Ended September 30, 2010

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 000-24435





MICROSTRATEGY INCORPORATED

(Exact name of registrant as specified in its charter)





Delaware

(State or other jurisdiction of incorporation or organization)

51-0323571

(I.R.S. Employer

Identification Number)

1850 Towers Crescent Plaza, Vienna, VA

(Address of Principal Executive Offices)

22182

(Zip Code)

(703) 848-8600

(Registrants telephone number, including area code)

1861
International Drive, McLean, VA 22102

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)





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 has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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





|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | 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

The number of shares of the registrants class A common stock and class B common stock outstanding on October 27, 2010 was
8,218,640 and 2,694,362, respectively.









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##### Table of Contents



MICROSTRATEGY INCORPORATED

FORM 10-Q

TABLE OF CONTENTS



|         |  |                                                                                                    |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                    |  | Page |   
|PART I.  |  | FINANCIAL INFORMATION                                                                              |  |      |    | 
|         |  |                                                                                                   
|Item 1.  |  | Financial Statements (unaudited except for the Consolidated Balance Sheet as of December 31, 2009) |  |      |    | 
|         |  |                                                                                                   
|         |  | Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009                         |  |      | 1  | 
|         |  |                                                                                                   
|         |  | Consolidated Statements of Operations for the Three Months Ended September 30, 2010 and 2009       |  |      | 2  | 
|         |  |                                                                                                   
|         |  | Consolidated Statements of Operations for the Nine Months Ended September 30, 2010 and 2009        |  |      | 3  | 
|         |  |                                                                                                   
|         |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009        |  |      | 4  | 
|         |  |                                                                                                   
|         |  | Notes to the Consolidated Financial Statements                                                     |  |      | 5  | 
|         |  |                                                                                                   
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  |      | 13 | 
|         |  |                                                                                                   
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  |      | 30 | 
|         |  |                                                                                                   
|Item 4.  |  | Controls and Procedures                                                                            |  |      | 31 | 
|         |  |                                                                                                   
|PART II. |  | OTHER INFORMATION                                                                                  |  |      |    | 
|         |  |                                                                                                   
|Item 1.  |  | Legal Proceedings                                                                                  |  |      | 32 | 
|         |  |                                                                                                   
|Item 1A. |  | Risk Factors                                                                                       |  |      | 33 | 
|         |  |                                                                                                   
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                        |  |      | 46 | 
|         |  |                                                                                                   
|Item 6.  |  | Exhibits                                                                                           |  |      | 46 | 



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##### Table of Contents



PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

MICROSTRATEGY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                                          |  | September 30,2010 |          |   | December 31,2009 |  
|                                                                                                                                                                                          |  | (unaudited)       |          |   | (audited)        |  
|Assets                                                                                                                                                                                    |  |                   |          |   |                  |   |          |  
|Current assets:                                                                                                                                                                           |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                                 |  | $                 | 184,302  |   |                  | $ | 224,769  |  
|Restricted cash and investments                                                                                                                                                           |  |                   | 1,061    |   |                  |   | 549      |  
|Accounts receivable, net                                                                                                                                                                  |  |                   | 57,729   |   |                  |   | 56,399   |  
|Prepaid expenses and other current assets                                                                                                                                                 |  |                   | 14,562   |   |                  |   | 10,861   |  
|Deferred tax assets, net                                                                                                                                                                  |  |                   | 18,113   |   |                  |   | 12,642   |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Total current assets                                                                                                                                                                      |  |                   | 275,767  |   |                  |   | 305,220  |  
|                                                                                                                                                                                          |  |                  
|Property and equipment, net                                                                                                                                                               |  |                   | 63,732   |   |                  |   | 54,906   |  
|Capitalized software development costs, net                                                                                                                                               |  |                   | 10,723   |   |                  |   | 13,431   |  
|Deposits and other assets                                                                                                                                                                 |  |                   | 3,979    |   |                  |   | 3,283    |  
|Deferred tax assets, net                                                                                                                                                                  |  |                   | 1,765    |   |                  |   | 6,490    |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Total assets                                                                                                                                                                              |  | $                 | 355,966  |   |                  | $ | 383,330  |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|                                                                                                                                                                                          |  |                  
|Liabilities and Stockholders Equity                                                                                                                                                      |  |                   |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                                      |  |                   |          |   |                  |   |          |  
|Accounts payable and accrued expenses                                                                                                                                                     |  | $                 | 33,307   |   |                  | $ | 28,460   |  
|Accrued compensation and employee benefits                                                                                                                                                |  |                   | 47,507   |   |                  |   | 46,277   |  
|Deferred revenue and advance payments                                                                                                                                                     |  |                   | 85,802   |   |                  |   | 77,783   |  
|Deferred tax liabilities                                                                                                                                                                  |  |                   | 254      |   |                  |   | 115      |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                                 |  |                   | 166,870  |   |                  |   | 152,635  |  
|                                                                                                                                                                                          |  |                  
|Deferred revenue and advance payments                                                                                                                                                     |  |                   | 8,429    |   |                  |   | 3,845    |  
|Other long-term liabilities                                                                                                                                                               |  |                   | 23,427   |   |                  |   | 12,622   |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Total liabilities                                                                                                                                                                         |  |                   | 198,726  |   |                  |   | 169,102  |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|                                                                                                                                                                                          |  |                  
|Commitments and Contingencies                                                                                                                                                             |  |                   |          |   |                  |   |          |  
|                                                                                                                                                                                          |  |                  
|Stockholders Equity                                                                                                                                                                      |  |                   |          |   |                  |   |          |  
|Preferred stock undesignated, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding                                                                                  |  |                   |         |   |                  |   |         |  
|Class A common stock, $0.001 par value; 330,000 shares authorized; 14,314 shares issued and 8,219 shares outstanding, and
14,302 shares issued and 9,255 shares outstanding, respectively |  |                   | 14       |   |                  |   | 14       |  
|Class B common stock, $0.001 par value; 165,000 shares authorized; 2,694 shares issued and outstanding                                                                                    |  |                   | 3        |   |                  |   | 3        |  
|Additional paid-in capital                                                                                                                                                                |  |                   | 453,548  |   |                  |   | 453,170  |  
|Treasury stock, at cost; 6,095 and 5,047 shares, respectively                                                                                                                             |  |                   | (447,809 | ) |                  |   | (366,191 | )
|Accumulated other comprehensive (loss) income                                                                                                                                             |  |                   | (1,014   | ) |                  |   | 604      |  
|Retained earnings                                                                                                                                                                         |  |                   | 152,498  |   |                  |   | 126,628  |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Total Stockholders Equity                                                                                                                                                                |  |                   | 157,240  |   |                  |   | 214,228  |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  
|Total Liabilities and Stockholders Equity                                                                                                                                                |  | $                 | 355,966  |   |                  | $ | 383,330  |  
|                                                                                                                                                                                          |  |                   |          |   |                  |   |          |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



1



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MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share
data)



|                                                                                     |  |                                 |         |   |             |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ----------- | - | ------- | -
|                                                                                     |  | Three Months
EndedSeptember 30, |        
|                                                                                     |  | 2010                            |         |   | 2009        |  
|                                                                                     |  | (unaudited)                     |         |   | (unaudited) |  
|Revenues:                                                                            |  |                                 |         |   |             |   |         |  
|Product licenses                                                                     |  | $                               | 32,180  |   |             | $ | 34,443  |  
|Product support and other services                                                   |  |                                 | 82,350  |   |             |   | 69,574  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Total revenues                                                                       |  |                                 | 114,530 |   |             |   | 104,017 |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Cost of revenues:                                                                    |  |                                 |         |   |             |   |         |  
|Product licenses                                                                     |  |                                 | 1,966   |   |             |   | 1,947   |  
|Product support and other services                                                   |  |                                 | 25,274  |   |             |   | 14,592  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Total cost of revenues                                                               |  |                                 | 27,240  |   |             |   | 16,539  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Gross profit                                                                         |  |                                 | 87,290  |   |             |   | 87,478  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Operating expenses:                                                                  |  |                                 |         |   |             |   |         |  
|Sales and marketing                                                                  |  |                                 | 42,002  |   |             |   | 31,489  |  
|Research and development                                                             |  |                                 | 13,675  |   |             |   | 11,400  |  
|General and administrative                                                           |  |                                 | 21,816  |   |             |   | 14,204  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Total operating expenses                                                             |  |                                 | 77,493  |   |             |   | 57,093  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Income from continuing operations before financing and other income and income taxes |  |                                 | 9,797   |   |             |   | 30,385  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Financing and other expense:                                                         |  |                                 |         |   |             |   |         |  
|Interest income, net                                                                 |  |                                 | 192     |   |             |   | 121     |  
|Other expense, net                                                                   |  |                                 | (1,817  | ) |             |   | (422    | )
|                                                                                     |  |                                 |         |   |             |   |         |  
|Total financing and other expense                                                    |  |                                 | (1,625  | ) |             |   | (301    | )
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Income from continuing operations before income taxes                                |  |                                 | 8,172   |   |             |   | 30,084  |  
|Provision for income taxes                                                           |  |                                 | 821     |   |             |   | 8,730   |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Income from continuing operations                                                    |  |                                 | 7,351   |   |             |   | 21,354  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Discontinued operations:                                                             |  |                                 |         |   |             |   |         |  
|Gain from sale of discontinued operations, net of tax provision                      |  |                                 |        |   |             |   |        |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Discontinued operations, net of tax                                                  |  |                                 |        |   |             |   |        |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Net Income                                                                           |  | $                               | 7,351   |   |             | $ | 21,354  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Basic earnings per share (1):                                                        |  |                                 |         |   |             |   |         |  
|From continuing operations                                                           |  | $                               | 0.66    |   |             | $ | 1.79    |  
|From discontinued operations                                                         |  | $                               |        |   |             | $ |        |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Basic earnings per share                                                             |  | $                               | 0.66    |   |             | $ | 1.79    |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Weighted average shares outstanding used in computing basic earnings per share       |  |                                 | 11,206  |   |             |   | 11,909  |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|                                                                                     |  |                                
|Diluted earnings per share (1):                                                      |  |                                 |         |   |             |   |         |  
|From continuing operations                                                           |  | $                               | 0.63    |   |             | $ | 1.73    |  
|From discontinued operations                                                         |  | $                               |        |   |             | $ |        |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Diluted earnings per share                                                           |  | $                               | 0.63    |   |             | $ | 1.73    |  
|                                                                                     |  |                                 |         |   |             |   |         |  
|Weighted average shares outstanding used in computing diluted earnings per share     |  |                                 | 11,603  |   |             |   | 12,311  |  
|                                                                                     |  |                                 |         |   |             |   |         |  



|(1) | Basic and fully diluted earnings per share for class A and class B common stock are the same.
|--- | ---------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these Consolidated Financial Statements.



2



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MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share
data)



|                                                                                     |  |                                |         |  |             |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ------- |  | ----------- | - | ------- | -
|                                                                                     |  | Nine Months
EndedSeptember 30, |        
|                                                                                     |  | 2010                           |         |  | 2009        |  
|                                                                                     |  | (unaudited)                    |         |  | (unaudited) |  
|Revenues:                                                                            |  |                                |         |  |             |   |         |  
|Product licenses                                                                     |  | $                              | 79,064  |  |             | $ | 71,897  |  
|Product support and other services                                                   |  |                                | 236,393 |  |             |   | 200,120 |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Total revenues                                                                       |  |                                | 315,457 |  |             |   | 272,017 |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Cost of revenues:                                                                    |  |                                |         |  |             |   |         |  
|Product licenses                                                                     |  |                                | 5,741   |  |             |   | 4,523   |  
|Product support and other services                                                   |  |                                | 67,472  |  |             |   | 42,614  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Total cost of revenues                                                               |  |                                | 73,213  |  |             |   | 47,137  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Gross profit                                                                         |  |                                | 242,244 |  |             |   | 224,880 |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Operating expenses:                                                                  |  |                                |         |  |             |   |         |  
|Sales and marketing                                                                  |  |                                | 114,750 |  |             |   | 93,376  |  
|Research and development                                                             |  |                                | 36,818  |  |             |   | 30,407  |  
|General and administrative                                                           |  |                                | 58,950  |  |             |   | 41,348  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Total operating expenses                                                             |  |                                | 210,518 |  |             |   | 165,131 |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Income from continuing operations before financing and other income and income taxes |  |                                | 31,726  |  |             |   | 59,749  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Financing and other income (expense):                                                |  |                                |         |  |             |   |         |  
|Interest income, net                                                                 |  |                                | 309     |  |             |   | 516     |  
|Other income (expense), net                                                          |  |                                | 3,176   |  |             |   | (1,626  | )
|                                                                                     |  |                                |         |  |             |   |         |  
|Total financing and other income (expense)                                           |  |                                | 3,485   |  |             |   | (1,110  | )
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Income from continuing operations before income taxes                                |  |                                | 35,211  |  |             |   | 58,639  |  
|Provision for income taxes                                                           |  |                                | 9,341   |  |             |   | 18,673  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Income from continuing operations                                                    |  |                                | 25,870  |  |             |   | 39,966  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Discontinued operations:                                                             |  |                                |         |  |             |   |         |  
|Gain from sale of discontinued operations, net of tax provision of $11,190           |  |                                |        |  |             |   | 14,437  |  
|Loss from discontinued operations, net of tax benefit of $54                         |  |                                |        |  |             |   | (107    | )
|                                                                                     |  |                                |         |  |             |   |         |  
|Discontinued operations, net of tax                                                  |  |                                |        |  |             |   | 14,330  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Net Income                                                                           |  | $                              | 25,870  |  |             | $ | 54,296  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Basic earnings per share (1):                                                        |  |                                |         |  |             |   |         |  
|From continuing operations                                                           |  | $                              | 2.24    |  |             | $ | 3.36    |  
|From discontinued operations                                                         |  | $                              |        |  |             | $ | 1.20    |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Basic earnings per share                                                             |  | $                              | 2.24    |  |             | $ | 4.56    |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Weighted average shares outstanding used in computing basic earnings per share       |  |                                | 11,572  |  |             |   | 11,898  |  
|                                                                                     |  |                                |         |  |             |   |         |  
|                                                                                     |  |                               
|Diluted earnings per share (1):                                                      |  |                                |         |  |             |   |         |  
|From continuing operations                                                           |  | $                              | 2.16    |  |             | $ | 3.26    |  
|From discontinued operations                                                         |  | $                              |        |  |             | $ | 1.17    |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Diluted earnings per share                                                           |  | $                              | 2.16    |  |             | $ | 4.43    |  
|                                                                                     |  |                                |         |  |             |   |         |  
|Weighted average shares outstanding used in computing diluted earnings per share     |  |                                | 11,976  |  |             |   | 12,262  |  
|                                                                                     |  |                                |         |  |             |   |         |  



|(1) | Basic and fully diluted earnings per share for class A and class B common stock are the same.
|--- | ---------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these Consolidated Financial Statements.



3



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MICROSTRATEGY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                                      |  |                                |         |   |      |   |         |  
|------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                      |  | Nine Months
EndedSeptember 30, |        
|                                                                                      |  | 2010                           |         |   | 2009 |  
|Operating activities:                                                                 |  |                                |         |   |      |   |         |  
|Net income                                                                            |  | $                              | 25,870  |   |      | $ | 54,296  |  
|Less: Income from discontinued operations, net                                        |  |                                |        |   |      |   | (14,330 | )
|                                                                                      |  |                                |         |   |      |   |         |  
|Income from continuing operations                                                     |  |                                | 25,870  |   |      |   | 39,966  |  
|Adjustments to reconcile net income to net cash provided by operating activities:     |  |                                |         |   |      |   |         |  
|Depreciation and amortization                                                         |  |                                | 9,313   |   |      |   | 7,681   |  
|Bad debt expense                                                                      |  |                                | 2,429   |   |      |   | 1,153   |  
|Deferred taxes                                                                        |  |                                | (509    | ) |      |   | 14,294  |  
|Excess tax benefits from stock-based payment arrangements                             |  |                                | (115    | ) |      |   | (200    | )
|Other, net                                                                            |  |                                | 26      |   |      |   | (10     | )
|Changes in operating assets and liabilities:                                          |  |                                |         |   |      |   |         |  
|Accounts receivable                                                                   |  |                                | (4,180  | ) |      |   | (7,900  | )
|Prepaid expenses and other current assets                                             |  |                                | (2,615  | ) |      |   | (445    | )
|Deposits and other assets                                                             |  |                                | (707    | ) |      |   | 254     |  
|Accounts payable and accrued expenses                                                 |  |                                | 1,462   |   |      |   | (1,948  | )
|Accrued compensation and employee benefits                                            |  |                                | 1,243   |   |      |   | (4,224  | )
|Deferred revenue and advance payments                                                 |  |                                | 12,922  |   |      |   | 7,085   |  
|Other long-term liabilities                                                           |  |                                | 10,799  |   |      |   | 1,572   |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities from continuing operations                  |  |                                | 55,938  |   |      |   | 57,278  |  
|Net cash used in operating activities from discontinued operations                    |  |                                |        |   |      |   | (472    | )
|                                                                                      |  |                                |         |   |      |   |         |  
|Net cash provided by operating activities                                             |  |                                | 55,938  |   |      |   | 56,806  |  
|                                                                                      |  |                                |         |   |      |   |         |  
|                                                                                      |  |                               
|Investing activities:                                                                 |  |                                |         |   |      |   |         |  
|Purchases of property and equipment                                                   |  |                                | (11,817 | ) |      |   | (1,860  | )
|Capitalized software development costs                                                |  |                                | (2,185  | ) |      |   | (4,218  | )
|Decrease in restricted cash and investments                                           |  |                                | 248     |   |      |   | 504     |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Net cash used in investing activities from continuing operations                      |  |                                | (13,754 | ) |      |   | (5,574  | )
|Net cash provided by investing activities from discontinued operations                |  |                                |        |   |      |   | 24,546  |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Net cash (used in) provided by investing activities                                   |  |                                | (13,754 | ) |      |   | 18,972  |  
|                                                                                      |  |                                |         |   |      |   |         |  
|                                                                                      |  |                               
|Financing activities:                                                                 |  |                                |         |   |      |   |         |  
|Proceeds from sale of class A common stock under exercise of employee stock options   |  |                                | 240     |   |      |   | 565     |  
|Excess tax benefits from stock-based payment arrangements                             |  |                                | 115     |   |      |   | 200     |  
|Purchases of treasury stock                                                           |  |                                | (81,618 | ) |      |   |        |  
|Distribution to Alarm.com minority shareholders                                       |  |                                |        |   |      |   | (60     | )
|                                                                                      |  |                                |         |   |      |   |         |  
|Net cash (used in) provided by financing activities from continuing operations        |  |                                | (81,263 | ) |      |   | 705     |  
|Net cash provided by financing activities from discontinued operations                |  |                                |        |   |      |   |        |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Net cash (used in) provided by financing activities                                   |  |                                | (81,263 | ) |      |   | 705     |  
|Effect of foreign exchange rate changes on cash and cash equivalents                  |  |                                | (1,388  | ) |      |   | 1,272   |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                                  |  |                                | (40,467 | ) |      |   | 77,755  |  
|Cash and cash equivalents, beginning of period                                        |  |                                | 224,769 |   |      |   | 122,915 |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                              |  | $                              | 184,302 |   |      | $ | 200,670 |  
|                                                                                      |  |                                |         |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                     |  |                                |         |   |      |   |         |  
|Purchases of property and equipment included in accounts payable and accrued expenses |  | $                              | 3,318   |   |      | $ |        |  
|                                                                                      |  |                                |         |   |      |   |         |  

The accompanying notes are an integral part of these Consolidated Financial Statements.



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##### Table of Contents



MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation

Except for
the consolidated balance sheet of MicroStrategy Incorporated (MicroStrategy or the Company) as of December 31, 2009, which was audited, the accompanying consolidated financial statements are unaudited. In the opinion of
management, all adjustments necessary for a fair statement of such financial position and results of operations have been included. All such adjustments are of a normal recurring nature unless otherwise disclosed. Interim results are not necessarily
indicative of results for a full year.

The consolidated financial statements and notes are presented as required by Form 10-Q and do not
contain certain information included in the Companys annual financial statements and notes. These financial statements should be read in conjunction with the Companys audited financial statements and the notes thereto filed with the
Securities and Exchange Commission (SEC) in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.

Pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic No. 820, Fair Value Measurements and Disclosures, the Company
is required to estimate the fair value of all financial instruments included on its balance sheet as of September 30, 2010. The Companys financial instruments consist of cash and cash equivalents, accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued expenses, and accrued compensation and employee benefits. The Company considers the carrying value of such amounts in the financial statements to approximate their fair value.

(2) Restricted Cash and Investments

Restricted cash and investments consists of cash and investment balances restricted in use by contractual obligations with third parties.

On March 15, 2005, the Company entered into a security agreement with a bank under which the Company posted cash to secure existing letters of
credit. These letters of credit are used as security deposits for office leases and collateral for performance bonds. The Company may invest the cash collateral under the security agreement in certain permitted investments. As of September 30,
2010 and December 31, 2009, the Company had $0.8 million and $1.0 million, respectively, in cash collateral posted under the security agreement, all of which was invested in money market funds that are included in restricted cash and
investments or deposits and other assets in the accompanying balance sheets, depending on whether the contractual obligation for which the collateral is posted is short term or long term, respectively.

(3) Accounts Receivable

Accounts
receivable, net of allowances, (in thousands) consisted of the following, as of:



|                                      |  |                   |         |   |                  |   |         |  
|------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                      |  | September 30,2010 |         |   | December 31,2009 |  
|Billed and billable                   |  | $                 | 121,064 |   |                  | $ | 130,714 |  
|Less: unpaid deferred revenue         |  |                   | (59,241 | ) |                  |   | (70,761 | )
|                                      |  |                   |         |   |                  |   |         |  
|                                      |  |                   | 61,823  |   |                  |   | 59,953  |  
|Less: allowance for doubtful accounts |  |                   | (4,094  | ) |                  |   | (3,554  | )
|                                      |  |                   |         |   |                  |   |         |  
|                                      |  | $                 | 57,729  |   |                  | $ | 56,399  |  
|                                      |  |                   |         |   |                  |   |         |  

The Company offsets its accounts receivable and deferred revenue for any unpaid items included in deferred revenue and
advance payments.



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##### Table of Contents

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





(4) Deferred Revenue and
Advance Payments

Deferred revenue and advance payments (in thousands) from customers consisted of the following, as of:



|                                   |  |                   |         |   |                  |   |         |  
|---------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                   |  | September 30,2010 |         |   | December 31,2009 |  
|Current:                           |  |                   |         |   |                  |   |         |  
|Deferred product licenses revenue  |  | $                 | 11,613  |   |                  | $ | 11,726  |  
|Deferred product support revenue   |  |                   | 114,114 |   |                  |   | 120,389 |  
|Deferred other services revenue    |  |                   | 13,052  |   |                  |   | 14,363  |  
|                                   |  |                   |         |   |                  |   |         |  
|Gross current deferred revenue     |  |                   | 138,779 |   |                  |   | 146,478 |  
|Less: unpaid deferred revenue      |  |                   | (52,977 | ) |                  |   | (68,695 | )
|                                   |  |                   |         |   |                  |   |         |  
|Net current deferred revenue       |  | $                 | 85,802  |   |                  | $ | 77,783  |  
|                                   |  |                   |         |   |                  |   |         |  
|                                   |  |                  
|Non-current:                       |  |                   |         |   |                  |   |         |  
|Deferred product licenses revenue  |  | $                 | 4,455   |   |                  | $ | 542     |  
|Deferred product support revenue   |  |                   | 8,394   |   |                  |   | 5,090   |  
|Deferred other services revenue    |  |                   | 1,844   |   |                  |   | 279     |  
|                                   |  |                   |         |   |                  |   |         |  
|Gross non-current deferred revenue |  |                   | 14,693  |   |                  |   | 5,911   |  
|Less: unpaid deferred revenue      |  |                   | (6,264  | ) |                  |   | (2,066  | )
|                                   |  |                   |         |   |                  |   |         |  
|Net non-current deferred revenue   |  | $                 | 8,429   |   |                  | $ | 3,845   |  
|                                   |  |                   |         |   |                  |   |         |  

The Company offsets accounts receivable and deferred revenue for any unpaid items included in deferred revenue and advance
payments.

(5) Commitments and Contingencies

In January 2010, the Company entered into a lease for approximately 142,000 square feet of office space at a new location in Northern Virginia that began serving as our new corporate headquarters in
October 2010. The lease grants an abatement of base rent until March 2011. In May 2010, the Company entered into an amendment to the lease pursuant to which the Company has leased an additional 24,000 square feet of office space at the same
location. This amendment provides for an abatement of base rent on the additional space until July 2011. The initial term of the lease expires in December 2020.

On November 8, 2007, Diagnostic Systems Corp., a subsidiary of Acacia Research Corporation (Acacia Research), filed a complaint for patent infringement against the Company and a number of
other unrelated defendants in the United States District Court for the Central District of California, Southern Division. On December 14, 2009, the Company and Acacia Research, Acacia Patent Acquisition LLC and Acacia Technology Services LLC
reached a settlement with respect to the consolidated complaint (the Settlement Agreement), and on December 28, 2009, the Court dismissed all parties claims with prejudice. On June 29, 2010, the Company received
correspondence from a law firm representing Database Application Solutions LLC (DAS), an affiliate of Acacia Research, alleging that the Company infringes U.S. Patent Number 5,444,842 (the 842 Patent) and requesting a meeting to
discuss whether the Company would be willing to pay DAS to license the 842 Patent. On August 17, 2010, the Company sued Acacia Research and DAS in the Delaware Court of Chancery to enjoin DAS from proceeding with any attempt to enforce
the 842 Patent against the Company in light of representations, warranties and releases made in connection with the Settlement Agreement. Acacia Research and DAS filed separate motions to dismiss the Companys lawsuit. This matter is in
its earliest stages. The outcome of this matter is not presently determinable. Accordingly, no estimated liability for this matter has been accrued in the accompanying consolidated financial statements.



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##### Table of Contents

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





In February 2010, the
Companys corporate aircraft was damaged when the hangar space that the Company leases at Dulles International Airport to house the aircraft collapsed during snowfall in the Washington, DC area. The Company reported the hangar collapse to
United States Aviation Underwriters, Inc. and United States Aircraft Insurance Group (collectively, the USAU Group), the agents for the insurance carriers and to the carriers themselves, who are Ace American Insurance Company and Liberty
Mutual Insurance Company (collectively, the Insurance Carriers). On April 8, 2010, the Company sent a proof of loss statement to the Insurance Carriers in the amount of $50.0 million (the insured value of the aircraft) for the
physical loss of the aircraft. On April 19, 2010, the Insurance Carriers rejected the Companys proof of loss. On May 14, 2010, the Company sent a second proof of loss statement to the Insurance Carriers in the amount of $50.0
million for the accidental physical damage of the aircraft. On May 26, 2010, 821,393 LLC (the LLC), a subsidiary of MicroStrategy Services Corporation (MSC), filed a complaint against the Insurance Carriers in the Court
of Common Pleas in Philadelphia County, Pennsylvania. The complaint seeks damages from the Insurance Carriers resulting from their alleged: (1) breach of contract for failure to pay the Companys claim resulting from the physical
loss of the aircraft; (2) breach of contract for failure to pay the Companys claim resulting from the damage to the aircraft; and (3) bad faith. On July 1, 2010, the LLC, together with the Company and MSC as new parties (the
Company, MSC and the LLC, collectively, the MicroStrategy Group), filed an amended complaint, which added (1) the USAU Group as defendants and (2) new allegations in support of the MicroStrategy Groups bad faith claim
against all of the defendants. On July 20, 2010, the defendants answered the amended complaint and filed a motion to dismiss. On August 24, 2010, the defendants filed a motion for judgment relating to the bad faith count of the amended
complaint.

The Companys ability to assess the damage to the aircraft was impeded for months due to the state of the collapsed hangar.
The aircraft was extracted from the hangar in July 2010. The aircrafts manufacturer has begun an inspection and assessment of the damage to the aircraft. Significant further inspection and assessment are required to determine the full extent
of the damage, including whether the aircraft is repairable at all. Based on an initial inspection and damage assessment, the Company has estimated that the damage to the aircraft is at least $1.9 million, which estimate reflects only the
approximate cost of the damaged components of the aircraft as identified during a visual inspection, and could be as much as $46.5 million, the carrying value that was reflected on the Companys balance sheet at September 30, 2010 prior to
any impairment. Since the Company does not believe that any amount within the range of $1.9 million to $46.5 million is a better estimate than any other amount within such range, the Company has recorded a $1.9 million impairment charge for a loss
of property and equipment during the three month period ended September 30, 2010. As the inspection and damage assessment process continues, additional information may become available that would enable the Company to make a more accurate
estimate of the damage to the aircraft, and would help to determine whether the aircraft must be deemed a total loss.

The Company carries
insurance that covers both accidental damage to and physical loss of the aircraft. The Companys policy will pay up to $50.0 million in repair costs to the extent the aircraft is repairable or $50.0 million if the aircraft is determined to be a
total loss. Alternatively, the policy will pay $50.0 million in the event that the aircraft is physically lost. At September 30, 2010, the Company recorded a $1.9 million receivable for the insurance recovery for the preliminary minimum
estimated aircraft loss through such date.

The Company is also involved in various other legal proceedings arising in the normal course of
business. Although the outcomes of these other legal proceedings are inherently difficult to predict, management does not expect the resolution of these other legal proceedings to have a material adverse effect on its financial position, results of
operations or cash flows.

From time to time, the Company enters into certain types of contracts that require it to indemnify parties against
third party claims. These contracts primarily relate to agreements under which the Company has agreed to indemnify customers and partners for claims arising from intellectual property infringement. The conditions of these obligations vary and
generally a maximum obligation is explicitly stated. Because the conditions of these obligations vary and the maximum is not always explicitly stated, the overall maximum amount of the Companys indemnification obligations cannot be reasonably
estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and as such has not recorded an indemnification liability on its balance sheets as of September 30, 2010 or December 31, 2009.



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##### Table of Contents

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





(6) Treasury Stock

On July 28, 2005, the Company announced that its Board of Directors had authorized the Companys repurchase of up to an
aggregate of $300.0 million of its class A common stock from time to time on the open market (the 2005 Share Repurchase Program). On April 29, 2008, the Companys Board of Directors amended the 2005 Share Repurchase Program to
increase the amount of class A common stock that the Company is authorized to repurchase from $300.0 million to $800.0 million in the aggregate. The term of the 2005 Share Repurchase Program was also extended to April 29, 2013, although the
program may be suspended or discontinued by the Company at any time. The timing and amount of any shares repurchased will be determined by the Companys management based on its evaluation of market conditions and other factors. The 2005 Share
Repurchase Program may be funded using the Companys working capital, as well as proceeds from any credit facilities and other borrowing arrangements which the Company may enter into in the future. During the three months ended
September 30, 2010, the Company repurchased an aggregate of 510,733 shares of its class A common stock at an average price per share of $78.21 and an aggregate cost of $39.9 million pursuant to the 2005 Share Repurchase Program. During the nine
months ended September 30, 2010, the Company repurchased an aggregate of 1,048,335 shares of its class A common stock at an average price per share of $77.86 and an aggregate cost of $81.6 million pursuant to the 2005 Share Repurchase Program.
As of September 30, 2010, the Company had repurchased an aggregate of 3,517,808 shares of its class A common stock at an average price per share of $90.37 and an aggregate cost of $317.9 million pursuant to the 2005 Share Repurchase Program.

All of the amounts above relating to average price per share and aggregate cost include broker commissions.

(7) Income Taxes

The Company and its
subsidiaries conduct business in the U.S. and various foreign countries and are subject to taxation in numerous domestic and foreign jurisdictions. As a result of its business activities, the Company files tax returns that are subject to
examination by various federal, state, local, and foreign tax authorities. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years before 2000; however,
due to its use of federal and state net operating loss (NOL) and tax credit carryovers in the U.S., U.S. tax authorities may attempt to reduce or fully offset the amount of NOL or tax credit carryovers from tax years ended in 2000 and
forward that were used in later tax years. The Company is currently under tax examination in Germany and the Netherlands.

As of
September 30, 2010, the Company has recorded in other long-term liabilities an amount for uncertain income tax positions in the amount of $14.2 million. If recognized, $13.5 million of these unrecognized tax benefits would impact the effective
tax rate. Over the next 12 months, the amount of the Companys net liability for unrecognized tax benefits could increase between $2.0 and $3.0 million due to the Companys international operations. The Company recognizes estimated
accrued interest related primarily to unrecognized income tax benefits in the provision for income tax accounts. Penalties relating to income taxes, if incurred, would also be recognized as a component of the Companys provision for income
taxes. As of September 30, 2010, the amount of accrued interest expense on unrecognized income tax benefits was not significant.



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##### Table of Contents

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





The following table summarizes the
Companys deferred tax assets, net, and valuation allowance (in thousands), as of:



|                                                |  |                   |        |   |                  |   |        |  
|----------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                                |  | September 30,2010 |        |   | December 31,2009 |  
|Net deferred tax assets                         |  | $                 | 24,356 |   |                  | $ | 23,927 |  
|Valuation allowance                             |  |                   | (4,732 | ) |                  |   | (4,910 | )
|                                                |  |                   |        |   |                  |   |        |  
|Deferred tax assets, net of valuation allowance |  | $                 | 19,624 |   |                  | $ | 19,017 |  
|                                                |  |                   |        |   |                  |   |        |  

The valuation allowance as of September 30, 2010 and December 31, 2009 primarily relates to foreign net operating
loss carryforwards and other foreign deferred tax assets. The Company has determined that there is insufficient positive evidence that it is more likely than not that such deferred tax assets will be realized.

The Company has estimated its annual effective tax rate for the full fiscal year 2010 and applied that rate to its income before income taxes in
determining its provision for income taxes for the nine months ended September 30, 2010. The Company also records discrete items in each respective period as appropriate. For the nine months ended September 30, 2010 and 2009, the
Companys consolidated effective tax rate from continuing operations was 26.5% and 31.8%, respectively. The Companys effective tax rate from continuing operations for the nine months ended September 30, 2010 decreased as compared to
the nine months ended September 30, 2009, due primarily to an increased proportion of foreign income taxed at lower rates, the benefit derived from the release of foreign valuation allowances, and a discrete benefit recorded due to certain tax
return provision adjustments primarily related to the domestic manufacturing deduction and meals and entertainment expenditures disallowance.

Except as discussed below, the Company intends to indefinitely reinvest its undistributed earnings of certain foreign subsidiaries. Therefore, the
annualized effective tax rate applied to the Companys pre-tax income does not include any provision for U.S. federal and state income taxes on the amount of the undistributed foreign earnings. U.S. federal tax laws, however, require the
Company to include in its U.S. taxable income certain investment income earned outside of the U.S. in excess of certain limits (Subpart F deemed dividends). Because Subpart F deemed dividends are already required to be recognized in the
Companys U.S. federal income tax return, the Company regularly repatriates Subpart F deemed dividends to the U.S. and no additional tax is incurred on the distribution.

In determining the Companys provision for income taxes, net deferred tax assets, liabilities and valuation allowances, management is required to make judgments and estimates related to projections
of domestic and foreign profitability, the timing and extent of the utilization of net operating loss carryforwards, applicable tax rates, transfer pricing methods, and prudent and feasible tax planning strategies. As a multinational company, the
Company is required to calculate and provide for estimated income tax liabilities for each of the tax jurisdictions in which it operates. This process involves estimating current tax obligations and exposures in each jurisdiction as well as
making judgments regarding the future recoverability of deferred tax assets. Changes in the estimated level of annual pre-tax income, changes in tax laws particularly related to the utilization of net operating losses in various jurisdictions,
and changes resulting from tax audits can all affect the overall effective income tax rate which, in turn, impacts the overall level of income tax expense and net income.

Judgments and estimates related to the Companys projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections. The timing and manner in
which the Company will use research and development tax credit carryforward tax assets, alternative minimum tax credit carryforward tax assets, and foreign tax credit carryforward tax assets in any year, or in total, may be limited by provisions of
the Internal Revenue Code regarding changes in the Companys ownership. Currently, the Company expects to use the tax assets, subject to Internal Revenue Code limitations, within the carryforward periods. Valuation allowances have been
established where the Company has concluded that it is not more likely than not that such deferred tax assets are realizable.



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MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





(8) Share-Based Compensation

The Company has share-based compensation plans under which directors, officers, employees and other eligible participants have previously
received stock option awards to purchase the Companys class A common stock. All stock options granted under the Companys stock plans have terms of five to ten years and generally vest ratably over five years. The Company had
2.5 million shares of class A common stock authorized for option grants as of September 30, 2010. The Company has not granted any new share-based awards to purchase the Companys class A common stock since the first quarter of 2004.

MicroStrategy Incorporateds subsidiary, Angel.com Incorporated (Angel.com), has a stock incentive plan under which
employees, officers, directors, consultants and advisors of (i) Angel.com, (ii) any present or future parent or subsidiary corporation of Angel.com, (iii) any present or future subsidiary corporation of any present or future parent
corporation of Angel.com, and (iv) any other business venture in which Angel.com or any present or future parent corporation of Angel.com has a controlling interest, may be granted options, restricted stock awards and other awards with respect
to, in the aggregate, up to 1,500,000 shares of the class A common stock of Angel.com. During the three months ended September 30, 2010, Angel.com did not grant any options to purchase shares of class A common stock of Angel.com. During the
three months ended September 30, 2009, Angel.com granted options to purchase 904,500 shares of class A common stock of Angel.com, representing 6.6% of the outstanding equity of Angel.com at issuance on a fully diluted basis. Angel.com had
0.2 million shares of its class A common stock authorized for option grants as of September 30, 2010.

Share-based compensation
expense for each of the three and nine months ended September 30, 2010 and 2009 was not significant.

(9) Comprehensive Income

Comprehensive income includes foreign currency translation adjustments and unrealized gains and losses on short-term investments, net of
related tax effects that have been excluded from net income and reflected in stockholders equity as accumulated other comprehensive income.

The Companys comprehensive income (in thousands) consisted of the following for the periods indicated:



|                                                                          |  |                                  |       |  |                                 |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------- |  | -------------------------------- | ----- |  | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                          |  | Three Months 
EndedSeptember 30, |       |  | Nine Months 
EndedSeptember 30, |  
|                                                                          |  | 2010                             |       |  | 2009                            |   |        | 2010 |  |   | 2009   |  
|Net income                                                                |  | $                                | 7,351 |  |                                 | $ | 21,354 |      |  | $ | 25,870 |   |  | $ | 54,296 |  
|Foreign currency translation adjustment                                   |  |                                  | 297   |  |                                 |   | (181   | )    |  |   | (1,615 | ) |  |   | (639   | )
|Unrealized gain (loss) on short-term investments, net of applicable taxes |  |                                  | 4     |  |                                 |   | (2     | )    |  |   | (3     | ) |  |   | (1     | )
|                                                                          |  |                                  |       |  |                                 |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive income                                                      |  | $                                | 7,652 |  |                                 | $ | 21,171 |      |  | $ | 24,252 |   |  | $ | 53,656 |  
|                                                                          |  |                                  |       |  |                                 |   |        |      |  |   |        |   |  |   |        |  

(10) Common Equity and Earnings per Share

The Company has two classes of common stock: class A common stock and class B common stock. Holders of class A common stock generally have the same rights, including rights to dividends, as holders of
class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share. Each share of class B common stock is convertible at any time, at the option of the holder,
into one share of class A common stock. As such, basic and fully diluted earnings per share for class A common stock are the same as basic and fully diluted earnings per share for class B common stock. The Company has never declared or paid any cash
dividends on either class A or class B common stock.



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##### Table of Contents

MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





Potential common shares are
included in the diluted earnings per share calculation when dilutive. Potential common shares consisting of common stock issuable upon exercise of outstanding employee stock options are computed using the treasury stock method.

(11) Discontinued Operations

In March
2008, in connection with its consideration of strategic alternatives relating to its non-core Alarm.com business, the Company committed to a plan to sell this business. The Company made the decision to sell Alarm.com in order to focus its resources
on its core competency of business intelligence software and services. On February 13, 2009, the Company completed the sale of its equity interest in Alarm.com for consideration to the Company of $24.5 million in cash net of post-closing
purchase price adjustments and transaction costs totaling $3.3 million in the aggregate. The sale resulted in a gain of $14.4 million, net of tax.

The following table summarizes the revenues, pre-tax gain on sale and pre-tax loss (in thousands) generated by the Alarm.com business for the nine months ended September 30, 2009:



|                     |  |                                      |        |  
|-------------------- |  | ------------------------------------ | ------ | -
|                     |  | Nine Months 
EndedSeptember 30, 2009 |       
|Revenues             |  | $                                    | 2,217  |  
|Pre-tax gain on sale |  | $                                    | 25,628 |  
|Pre-tax loss         |  | $                                    | (161   | )

(12) Segment Information

The Company operates in one reportable segment with two business units  business intelligence software and services, and other. The
business unit Other consists of the Companys Angel.com business, which provides interactive voice response services. The following summary discloses total revenues and long-lived assets, excluding long-term investments and
long-term deferred tax assets, (in thousands) according to geographic region:



|                                      |  |                                             |         |  |               |   |        |               |  |   |        |              |  |   |        |  |  |   |         | 
|------------------------------------- |  | ------------------------------------------- | ------- |  | ------------- | - | ------ | ------------- |  | - | ------ | ------------ |  | - | ------ |  |  | - | ------- | 
|                                      |  | Business Intelligence Software and Services |         |  | OtherDomestic |   |        |               | 
|Geographic regions:                   |  | Domestic                                    |         |  | EMEA          |   |        | Other Regions |  |   |        | Consolidated | 
|Three months ended September 30, 2010 |  |                                             |         |  |               |   |        |               |  |   |        |              |  |   |        |  |  |   |         | 
|Total revenues                        |  | $                                           | 63,927  |  |               | $ | 34,399 |               |  | $ | 11,607 |              |  | $ | 4,597  |  |  | $ | 114,530 | 
|Long-lived assets                     |  |                                             | 71,221  |  |               |   | 3,303  |               |  |   | 2,360  |              |  |   | 1,550  |  |  | $ | 78,434  | 
|Three months ended September 30, 2009 |  |                                             |         |  |               |   |        |               |  |   |        |              |  |   |        |  |  |   |         | 
|Total revenues                        |  | $                                           | 60,742  |  |               | $ | 30,706 |               |  | $ | 8,716  |              |  | $ | 3,853  |  |  | $ | 104,017 | 
|Long-lived assets                     |  |                                             | 52,535  |  |               |   | 3,029  |               |  |   | 1,972  |              |  |   | 1,259  |  |  | $ | 58,795  | 
|Nine months ended September 30, 2010  |  |                                             |         |  |               |   |        |               |  |   |        |              |  |   |        |  |  |   |         | 
|Total revenues                        |  | $                                           | 180,407 |  |               | $ | 91,007 |               |  | $ | 31,268 |              |  | $ | 12,775 |  |  | $ | 315,457 | 
|Long-lived assets                     |  |                                             | 71,221  |  |               |   | 3,303  |               |  |   | 2,360  |              |  |   | 1,550  |  |  | $ | 78,434  | 
|Nine months ended September 30, 2009  |  |                                             |         |  |               |   |        |               |  |   |        |              |  |   |        |  |  |   |         | 
|Total revenues                        |  | $                                           | 156,307 |  |               | $ | 82,869 |               |  | $ | 23,172 |              |  | $ | 9,669  |  |  | $ | 272,017 | 
|Long-lived assets                     |  |                                             | 52,535  |  |               |   | 3,029  |               |  |   | 1,972  |              |  |   | 1,259  |  |  | $ | 58,795  | 

The domestic region consists of the
United States and Canada. The EMEA region includes operations in Europe, the Middle East and Africa. The other regions include all other foreign countries, generally



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MICROSTRATEGY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



comprising Latin America and the Asia Pacific region. For the three months ended September 30, 2010, Germany accounted for more than 10% of total consolidated revenues. For the nine months
ended September 30, 2010, no individual foreign country accounted for 10% or more of total consolidated revenues. For the three and nine months ended September 30, 2009, no individual foreign country accounted for 10% or more of total
consolidated revenues.

As of each of September 30, 2010 and 2009, no more than 10% of the Companys consolidated assets were
concentrated in any one country outside of the United States. For each of the three and nine months ended September 30, 2010 and 2009, no individual customer accounted for 10% or more of total consolidated revenues.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). For this
purpose, any statements contained herein that are not statements of historical fact, including without limitation, certain statements regarding industry prospects and our results of operations or financial position, may be deemed to be
forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. The important
factors discussed below under Item 1A. Risk Factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time.
Such forward-looking statements represent managements current expectations and are inherently uncertain. Investors are warned that actual results may differ from managements expectations.

Overview

We are a
worldwide provider of business intelligence software that enables companies to analyze the raw data stored across their enterprise to reveal the trends and insights needed to make better business decisions. MicroStrategys business intelligence
software platform delivers actionable information to business users via e-mail, web, and mobile devices, including the
iPhone®, iPadTMand BlackBerry®.

The MicroStrategy software platform enables users to
query and analyze the most detailed, transaction-level databases, turning data into business intelligence and delivering boardroom quality reports, at-a-glance dashboards and alerts about the users business processes. Businesses can use our
software platform to optimize operations, refine revenue-generating strategies, enhance cost-efficiency and productivity and improve customer relationships. We engineer our software for reliability, scalability, security and ease of administration.
We offer a comprehensive set of consulting, education, technical support and technical advisory services for our customers and strategic partners.

Our core business intelligence (BI) business derives its revenues from product licenses and product support and other services. Product licenses revenues are derived from the sale of software
licenses for our MicroStrategy 9 business intelligence platform and related products. We license our software to end users through our direct sales organization and through indirect sales channels, such as resellers, systems integrators and
original equipment manufacturers, or OEMs. Our arrangements with customers typically include: (a) an end user license fee paid for the use of our products in perpetuity or over a specified term; (b) an annual maintenance agreement that
provides for software updates and upgrades and technical support for an annual fee; and (c) a services work order for implementation, consulting and training, generally for a fee determined on a time-and-materials basis or, in certain
circumstances, a fixed-fee.

For the nine months ended September 30, 2010, we operated one non-core business, Angel.com. For the nine
months ended September 30, 2009, we operated two non-core businesses  Alarm.com, which we operated during a portion of such period, and Angel.com, which we operated during all of such period. Alarm.com was a provider of web-enabled
residential and commercial security and activity monitoring technology, and Angel.com is a provider of interactive voice response services.

On February 13, 2009, we completed the sale of our equity interest in Alarm.com for consideration of $24.5 million in cash net of post-closing
purchase price adjustments and transaction costs totaling $3.3 million in the aggregate. The sale resulted in a gain of $14.4 million, net of tax. Accordingly, in our consolidated statements of operations, we classified the operations of the
Alarm.com business as income from discontinued operations, net of tax, because we did not have significant continuing involvement or cash flows from this business following the divestiture.



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The following table sets forth certain
operating highlights (in thousands) for the three and nine months ended September 30, 2010 and 2009:



|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- |  | -------------------------------- | - | ------- | -------------------------------- |  | - | ------ | - |  | ---- | ----- | - | ---- | - | ------- |  |  | - | ------- | 
|                                                                                            |  | Core BI Business                 |         |  | Angel.com                        |   |         | Consolidated                     | 
|                                                                                            |  | Three Months 
EndedSeptember 30, |         |  | Three Months 
EndedSeptember 30, |   |         | Three Months 
EndedSeptember 30, | 
|                                                                                            |  | 2010                             |         |  | 2009                             |   |         | 2010                             |  |   | 2009   |   |  | 2010 |       |   | 2009 |  
|                                                                                            |  |                                  |         |  |                                  |  
|Revenues                                                                                    |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Product licenses                                                                            |  | $                                | 32,180  |  |                                  | $ | 34,443  |                                  |  | $ |       |   |  | $    |      |   |      | $ | 32,180  |  |  | $ | 34,443  | 
|Product support and other services                                                          |  |                                  | 77,753  |  |                                  |   | 65,721  |                                  |  |   |       |   |  |      |      |   |      |   | 77,753  |  |  |   | 65,721  | 
|Angel.com services                                                                          |  |                                  |        |  |                                  |   |        |                                  |  |   | 4,597  |   |  |      | 3,853 |   |      |   | 4,597   |  |  |   | 3,853   | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Total revenues                                                                              |  |                                  | 109,933 |  |                                  |   | 100,164 |                                  |  |   | 4,597  |   |  |      | 3,853 |   |      |   | 114,530 |  |  |   | 104,017 | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|                                                                                            |  |                                  |         |  |                                  |  
|Cost of revenues                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Product licenses                                                                            |  |                                  | 1,966   |  |                                  |   | 1,947   |                                  |  |   |       |   |  |      |      |   |      |   | 1,966   |  |  |   | 1,947   | 
|Product support and other services                                                          |  |                                  | 23,162  |  |                                  |   | 13,048  |                                  |  |   |       |   |  |      |      |   |      |   | 23,162  |  |  |   | 13,048  | 
|Angel.com services                                                                          |  |                                  |        |  |                                  |   |        |                                  |  |   | 2,112  |   |  |      | 1,544 |   |      |   | 2,112   |  |  |   | 1,544   | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Total cost of revenues                                                                      |  |                                  | 25,128  |  |                                  |   | 14,995  |                                  |  |   | 2,112  |   |  |      | 1,544 |   |      |   | 27,240  |  |  |   | 16,539  | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Gross profit                                                                                |  |                                  | 84,805  |  |                                  |   | 85,169  |                                  |  |   | 2,485  |   |  |      | 2,309 |   |      |   | 87,290  |  |  |   | 87,478  | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|                                                                                            |  |                                  |         |  |                                  |  
|Operating expenses                                                                          |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Sales and marketing                                                                         |  |                                  | 39,979  |  |                                  |   | 30,364  |                                  |  |   | 2,023  |   |  |      | 1,125 |   |      |   | 42,002  |  |  |   | 31,489  | 
|Research and development                                                                    |  |                                  | 12,773  |  |                                  |   | 10,443  |                                  |  |   | 902    |   |  |      | 957   |   |      |   | 13,675  |  |  |   | 11,400  | 
|General and administrative                                                                  |  |                                  | 21,223  |  |                                  |   | 13,817  |                                  |  |   | 593    |   |  |      | 387   |   |      |   | 21,816  |  |  |   | 14,204  | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|Total operating expenses                                                                    |  |                                  | 73,975  |  |                                  |   | 54,624  |                                  |  |   | 3,518  |   |  |      | 2,469 |   |      |   | 77,493  |  |  |   | 57,093  | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 
|                                                                                            |  |                                  |         |  |                                  |  
|Income (loss) from continuing operations before financing and other income and income taxes |  | $                                | 10,830  |  |                                  | $ | 30,545  |                                  |  | $ | (1,033 | ) |  | $    | (160  | ) |      | $ | 9,797   |  |  | $ | 30,385  | 
|                                                                                            |  |                                  |         |  |                                  |   |         |                                  |  |   |        |   |  |      |       |   |      |   |         |  |  |   |         | 



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|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- |  | ------------------------------- | - | ------- | ------------------------------- |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ------- |  |  | - | ------- | 
|                                                                                            |  | Core BI Business                |         |  | Angel.com                       |   |         | Consolidated                    | 
|                                                                                            |  | Nine Months 
EndedSeptember 30, |         |  | Nine Months 
EndedSeptember 30, |   |         | Nine Months 
EndedSeptember 30, | 
|                                                                                            |  | 2010                            |         |  | 2009                            |   |         | 2010                            |  |   | 2009   |   |  | 2010 |        |   | 2009 |  
|                                                                                            |  |                                 |         |  |                                 |  
|Revenues                                                                                    |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Product licenses                                                                            |  | $                               | 79,064  |  |                                 | $ | 71,897  |                                 |  | $ |       |   |  | $    |       |   |      | $ | 79,064  |  |  | $ | 71,897  | 
|Product support and other services                                                          |  |                                 | 223,618 |  |                                 |   | 190,451 |                                 |  |   |       |   |  |      |       |   |      |   | 223,618 |  |  |   | 190,451 | 
|Angel.com services                                                                          |  |                                 |        |  |                                 |   |        |                                 |  |   | 12,775 |   |  |      | 9,669  |   |      |   | 12,775  |  |  |   | 9,669   | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Total revenues                                                                              |  |                                 | 302,682 |  |                                 |   | 262,348 |                                 |  |   | 12,775 |   |  |      | 9,669  |   |      |   | 315,457 |  |  |   | 272,017 | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|                                                                                            |  |                                 |         |  |                                 |  
|Cost of revenues                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Product licenses                                                                            |  |                                 | 5,741   |  |                                 |   | 4,523   |                                 |  |   |       |   |  |      |       |   |      |   | 5,741   |  |  |   | 4,523   | 
|Product support and other services                                                          |  |                                 | 61,716  |  |                                 |   | 38,780  |                                 |  |   |       |   |  |      |       |   |      |   | 61,716  |  |  |   | 38,780  | 
|Angel.com services                                                                          |  |                                 |        |  |                                 |   |        |                                 |  |   | 5,756  |   |  |      | 3,834  |   |      |   | 5,756   |  |  |   | 3,834   | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Total cost of revenues                                                                      |  |                                 | 67,457  |  |                                 |   | 43,303  |                                 |  |   | 5,756  |   |  |      | 3,834  |   |      |   | 73,213  |  |  |   | 47,137  | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Gross profit                                                                                |  |                                 | 235,225 |  |                                 |   | 219,045 |                                 |  |   | 7,019  |   |  |      | 5,835  |   |      |   | 242,244 |  |  |   | 224,880 | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|                                                                                            |  |                                 |         |  |                                 |  
|Operating expenses                                                                          |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Sales and marketing                                                                         |  |                                 | 109,642 |  |                                 |   | 90,012  |                                 |  |   | 5,108  |   |  |      | 3,364  |   |      |   | 114,750 |  |  |   | 93,376  | 
|Research and development                                                                    |  |                                 | 34,416  |  |                                 |   | 27,582  |                                 |  |   | 2,402  |   |  |      | 2,825  |   |      |   | 36,818  |  |  |   | 30,407  | 
|General and administrative                                                                  |  |                                 | 57,415  |  |                                 |   | 40,077  |                                 |  |   | 1,535  |   |  |      | 1,271  |   |      |   | 58,950  |  |  |   | 41,348  | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|Total operating expenses                                                                    |  |                                 | 201,473 |  |                                 |   | 157,671 |                                 |  |   | 9,045  |   |  |      | 7,460  |   |      |   | 210,518 |  |  |   | 165,131 | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 
|                                                                                            |  |                                 |         |  |                                 |  
|Income (loss) from continuing operations before financing and other income and income taxes |  | $                               | 33,752  |  |                                 | $ | 61,374  |                                 |  | $ | (2,026 | ) |  | $    | (1,625 | ) |      | $ | 31,726  |  |  | $ | 59,749  | 
|                                                                                            |  |                                 |         |  |                                 |   |         |                                 |  |   |        |   |  |      |        |   |      |   |         |  |  |   |         | 

The business intelligence market is highly competitive and our results of operations depend on our ability to market and
sell product offerings that provide customers with greater value than those offered by our competitors. Organizations recently have sought, and we expect may continue to seek, to standardize their various business intelligence applications around a
single software platform. This trend presents both opportunities and risks for our business. It offers us the opportunity to increase the size of transactions with new customers and to expand the size of our business intelligence installations with
existing customers. On the other hand, it presents the risk that we may not be able to penetrate accounts where a competitor currently is or may become the incumbent business intelligence application provider. In addition, companies with industry
leading positions in certain software markets, such as Microsoft, Oracle, IBM and SAP, have incorporated business intelligence capabilities into their product suites. As a result, our products need to be sufficiently differentiated from these
bundled software offerings to create customer demand for our platform and products.

To address these opportunities and challenges, we are
implementing a number of initiatives, including:



| |  |  | significantly increasing our sales and marketing activities to create brand awareness in an effort to obtain new customer relationships, as well as to
expand and strengthen our existing customer base;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | offering mobile application platforms for creating and deploying BI applications to the expanding community of users of mobile devices;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | concentrating our research and development efforts on maintaining our position as a technology leader by continuing to innovate and lead in enterprise
business intelligence, improving the capability of our products to efficiently handle the ever increasing volume of data and user scalability needs of our current and future customers, and adding analytical and end user features to support the
increasing levels of sophistication in our customers business intelligence needs and applications, such as the incorporation of dynamic enterprise dashboards to our interfaces; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | forming a High Performance and Scalability Lab, creating a dedicated Performance Engineering team, and focusing specific research and
development efforts on providing our customers with the highest levels of performance for BI applications of all sizes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
part of these initiatives we anticipate significantly increasing our headcount during 2010 to expand our research and development, sales, consulting and product support organizations. As a result, we expect that our cost of revenues and operating
expenses will continue to increase during the balance of 2010.

General worldwide economic conditions have experienced a significant prolonged
downturn and remain uncertain. These conditions have caused some of our customers and potential customers to slow spending on our products and services, which may delay and lengthen sales cycles. In addition, customers may delay or cancel
information technology projects or seek to lower their costs by renegotiating vendor contracts. Customers with excess information technology resources may seek to develop in-house software solutions rather than obtain those solutions from us.
Moreover, competitors may respond to market conditions by lowering prices and attempting to lure away our customers.

In January 2010, we
entered into a lease for approximately 142,000 square feet of office space at a new location in Northern Virginia that began serving as our new corporate headquarters in October 2010. The lease grants an abatement of base rent until March 2011. In
May 2010, we entered into an amendment to the lease pursuant to which we have leased an additional 24,000 square feet of office space at the same location. This amendment provides for an abatement of base rent on the additional space until July
2011. Notwithstanding the rent abatements, we will recognize lease expense ratably over the term of the lease. As we continued to pay rent and recognize lease expense on our former corporate headquarters until October 2010, we expect a one-time
increase in operating expenses of approximately $5.2 million for 2010, with approximately $1.3 million remaining to be recognized in the fourth quarter of 2010.

In February 2010, our corporate aircraft was damaged when the hangar space that we lease at Dulles International Airport to house the aircraft collapsed during snowfall in the Washington, DC area. Our
ability to assess the damage to the aircraft was impeded for months due to the state of the collapsed hangar. The aircraft was extracted from the hangar in July 2010. The aircrafts manufacturer has begun an inspection and assessment of the
damage to the aircraft. Significant further inspection and assessment are required to determine the full extent of the damage, including whether the aircraft is repairable at all. Based on an initial inspection and damage assessment, we have
estimated that the damage to the aircraft is at least $1.9 million, which estimate reflects only the approximate cost of the damaged components of the aircraft as identified during a visual inspection, and could be as much as $46.5 million, the
carrying value that was reflected on our balance sheet at September 30, 2010 prior to any impairment. Since we do not believe that any amount within the range of $1.9 million to $46.5 million is a better estimate than any other amount within
such range, we have recorded a $1.9 million impairment charge for a loss of property and equipment during the three month period ended September 30, 2010. As the inspection and damage assessment process continues, additional information may
become available that would enable us to make a more accurate estimate of the damage to the aircraft, and would help to determine whether the aircraft must be deemed a total loss.

We carry insurance that covers both accidental damage to and physical loss of the aircraft. Our policy will pay up to $50.0 million in repair costs to the extent the aircraft is repairable or $50.0
million if the aircraft is determined to be a total loss. Alternatively, the policy will pay $50.0 million in the event that the aircraft is physically lost. At September 30, 2010, we recorded a $1.9 million receivable for the insurance
recovery for the preliminary minimum estimated aircraft loss through such date.

We base our internal operating expense forecasts on expected
revenue trends and strategic objectives. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed. We may be unable to adjust spending quickly enough in any particular period to offset any unexpected revenue
shortfall in that period. Accordingly, any shortfall in revenue may cause significant variation in our operating results. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future
performance.



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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of our
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and equity and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. These estimates, particularly estimates relating to revenue recognition, allowance for doubtful accounts, valuation of property and equipment, litigation and contingencies and
valuation of net deferred tax assets, have a material impact on our financial statements and are discussed in detail throughout our analysis of the results of operations discussed below. In some cases, changes in the accounting estimates are
reasonably likely to occur from period to period.

In addition to evaluating estimates relating to the items discussed above, we also consider
other estimates and judgments, including, but not limited to, those related to software development costs, provision for income taxes, and other contingent liabilities, including liabilities that we deem not probable of assertion. We base our
estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not
readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions.

MicroStrategy does not
have any material ownership interest in any special purpose or other entities that are not wholly-owned and/or consolidated into our consolidated financial statements. Additionally, MicroStrategy does not have any material related party transactions
as defined under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic No. 850, Related Party Disclosures.

For a more detailed explanation of the judgments made in these areas and a discussion of our accounting estimates and policies in which, in each case, there have been no significant changes since
December 31, 2009, refer to Critical Accounting Estimates included in Item 7 and Summary of Significant Accounting Policies (Note 2) included in Item 15 of our Annual Report on Form 10-K for the year ended
December 31, 2009.

Impact of Foreign Currency Exchange Rate Fluctuations on Results of Operations

We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our consolidated financial
statements. Historically, we have generated a significant portion of our revenues and incurred a significant portion of our expenses in euros and British pounds sterling. As currency rates change from quarter to quarter and year over year,
our results of operations may be impacted. The table below summarizes the impact (in thousands) of fluctuations in foreign currency exchange rates on certain components of our consolidated statements of operations by showing the increase
(decrease) in revenues or expenses, as applicable, from the prior year.



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|                                        |  |                                  |        |   |                                 |   |        |      |  |   |      |   |  |   |        |  
|--------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ---- | - |  | - | ------ | -
|                                        |  | Three Months 
EndedSeptember 30, |        |   | Nine Months 
EndedSeptember 30, |  
|                                        |  | 2010                             |        |   | 2009                            |   |        | 2010 |  |   | 2009 |  
|                                        |  |                                  |        |  
|International product licenses revenues |  | $                                | (802   | ) |                                 | $ | (513   | )    |  | $ | (361 | ) |  | $ | (2,664 | )
|International product support revenues  |  |                                  | (1,178 | ) |                                 |   | (1,693 | )    |  |   | 34   |   |  |   | (8,509 | )
|International other services revenues   |  |                                  | (371   | ) |                                 |   | (489   | )    |  |   | 96   |   |  |   | (2,810 | )
|                                        |  |                                  |        |  
|Cost of product support revenues        |  |                                  | (22    | ) |                                 |   | (97    | )    |  |   | 55   |   |  |   | (480   | )
|Cost of other services revenues         |  |                                  | (430   | ) |                                 |   | (534   | )    |  |   | 180  |   |  |   | (2,518 | )
|Sales and marketing expenses            |  |                                  | (668   | ) |                                 |   | (840   | )    |  |   | 313  |   |  |   | (5,704 | )
|General and administrative expenses     |  |                                  | (72    | ) |                                 |   | (308   | )    |  |   | 202  |   |  |   | (1,519 | )

The term international refers
to operations outside of the United States and Canada. For example, if there had been no change to the foreign currency exchange rates from 2009 to 2010, international product licenses revenues would have been $15.3 million rather than $14.5 million
and $32.7 million rather than $32.3 million for the three and nine months ended September 30, 2010, respectively. If there had been no change to foreign currency exchange rates from 2009 to 2010, sales and marketing expenses for our core BI
business would have been $40.6 million rather than $40.0 million and $109.3 million rather than $109.6 million for the three and nine months ended September 30, 2010, respectively.



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Results of Operations

Comparison of the three and nine months ended September 30, 2010 and 2009

Revenues

Except as otherwise indicated
herein, the term domestic refers to operations in the United States and Canada, and the term international refers to operations outside of the United States and Canada.

Product licenses revenues.The following table sets forth product licenses revenues (in thousands) and percentage changes for the periods
indicated:



|                                |  |                                  |        |  |         |   |        |                                |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  
|------------------------------- |  | -------------------------------- | ------ |  | ------- | - | ------ | ------------------------------ | ---- |  | ------- | ---- |  | - | ------ |  |  | - | ------ |  |  |  | ---- | -
|                                |  | Three Months 
EndedSeptember 30, |        |  | %Change |   |        | Nine Months EndedSeptember 30, |      |  | %Change |     
|                                |  | 2010                             |        |  | 2009    |   |        |                                | 2010 |  |         | 2009 |  |  
|Product Licenses Revenues:      |  |                                  |        |  |         |   |        |                                |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  
|Domestic                        |  | $                                | 17,727 |  |         | $ | 22,819 |                                |      |  | -22.3   | %    |  | $ | 46,771 |  |  | $ | 43,699 |  |  |  | 7.0  | %
|International                   |  |                                  | 14,453 |  |         |   | 11,624 |                                |      |  | 24.3    | %    |  |   | 32,293 |  |  |   | 28,198 |  |  |  | 14.5 | %
|                                |  |                                  |        |  |         |   |        |                                |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  
|Total product licenses revenues |  | $                                | 32,180 |  |         | $ | 34,443 |                                |      |  | -6.6    | %    |  | $ | 79,064 |  |  | $ | 71,897 |  |  |  | 10.0 | %
|                                |  |                                  |        |  |         |   |        |                                |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  

The following table sets forth a summary, grouped by size, of the number of recognized product license
transactions for the periods indicated:



|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|---------------------------------------------------------------------------------------- |  | ------------------------------- | -- |  | ------------------------------- |  | -- | ---- |  |  | ---- |  |  |  | -- | 
|                                                                                         |  | Three Months EndedSeptember 30, |    |  | Nine Months 
EndedSeptember 30, | 
|                                                                                         |  | 2010                            |    |  | 2009                            |  |    | 2010 |  |  | 2009 | 
|Product Licenses Transactions with Recognized Licenses Revenue in the Applicable Period: |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|Above $1.0 million of licenses revenue recognized                                        |  |                                 | 4  |  |                                 |  | 4  |      |  |  | 7    |  |  |  | 6  | 
|From $500,000 to $1.0 million of licenses revenue recognized                             |  |                                 | 8  |  |                                 |  | 11 |      |  |  | 13   |  |  |  | 21 | 
|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|Total                                                                                    |  |                                 | 12 |  |                                 |  | 15 |      |  |  | 20   |  |  |  | 27 | 
|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|                                                                                         |  |                                 |    | 
|Domestic:                                                                                |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|Above $1.0 million of licenses revenue recognized                                        |  |                                 | 1  |  |                                 |  | 3  |      |  |  | 4    |  |  |  | 4  | 
|From $500,000 to $1.0 million of licenses revenue recognized                             |  |                                 | 7  |  |                                 |  | 7  |      |  |  | 10   |  |  |  | 14 | 
|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|Total                                                                                    |  |                                 | 8  |  |                                 |  | 10 |      |  |  | 14   |  |  |  | 18 | 
|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|                                                                                         |  |                                 |    | 
|International:                                                                           |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|Above $1.0 million of licenses revenue recognized                                        |  |                                 | 3  |  |                                 |  | 1  |      |  |  | 3    |  |  |  | 2  | 
|From $500,000 to $1.0 million of licenses revenue recognized                             |  |                                 | 1  |  |                                 |  | 4  |      |  |  | 3    |  |  |  | 7  | 
|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 
|Total                                                                                    |  |                                 | 4  |  |                                 |  | 5  |      |  |  | 6    |  |  |  | 9  | 
|                                                                                         |  |                                 |    |  |                                 |  |    |      |  |  |      |  |  |  |    | 



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The following table sets forth the
recognized revenue (in thousands) attributable to product licenses transactions, grouped by size, for the periods indicated:



|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|---------------------------------------------------------------------------- |  | -------------------------------- | ------ |  | ------- | - | ------ | ------------------------------- | ---- |  | ------- | ---- |  | - | ------ |  |  | - | ------ |  |  |  | ----- | -
|                                                                             |  | Three Months 
EndedSeptember 30, |        |  | %Change |   |        | Nine Months 
EndedSeptember 30, |      |  | %Change |     
|                                                                             |  | 2010                             |        |  | 2009    |   |        |                                 | 2010 |  |         | 2009 |  |  
|Product Licenses Revenue Recognized in the Applicable Period (in thousands): |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|Above $1.0 million of licenses revenue recognized                            |  | $                                | 7,335  |  |         | $ | 8,549  |                                 |      |  | -14.2   | %    |  | $ | 14,207 |  |  | $ | 12,869 |  |  |  | 10.4  | %
|From $500,000 to $1.0 million of licenses revenue recognized                 |  |                                  | 5,390  |  |         |   | 7,642  |                                 |      |  | -29.5   | %    |  |   | 8,978  |  |  |   | 14,231 |  |  |  | -36.9 | %
|Below $500,000 of licenses revenue recognized                                |  |                                  | 19,455 |  |         |   | 18,252 |                                 |      |  | 6.6     | %    |  |   | 55,879 |  |  |   | 44,797 |  |  |  | 24.7  | %
|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|Total                                                                        |  |                                  | 32,180 |  |         |   | 34,443 |                                 |      |  | -6.6    | %    |  |   | 79,064 |  |  |   | 71,897 |  |  |  | 10.0  | %
|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|                                                                             |  |                                  |        |  |         |  
|Domestic:                                                                    |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|Above $1.0 million of licenses revenue recognized                            |  |                                  | 1,240  |  |         |   | 7,472  |                                 |      |  | -83.4   | %    |  |   | 8,112  |  |  |   | 9,615  |  |  |  | -15.6 | %
|From $500,000 to $1.0 million of licenses revenue recognized                 |  |                                  | 4,787  |  |         |   | 4,936  |                                 |      |  | -3.0    | %    |  |   | 6,846  |  |  |   | 9,402  |  |  |  | -27.2 | %
|Below $500,000 of licenses revenue recognized                                |  |                                  | 11,700 |  |         |   | 10,411 |                                 |      |  | 12.4    | %    |  |   | 31,813 |  |  |   | 24,682 |  |  |  | 28.9  | %
|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|Total                                                                        |  |                                  | 17,727 |  |         |   | 22,819 |                                 |      |  | -22.3   | %    |  |   | 46,771 |  |  |   | 43,699 |  |  |  | 7.0   | %
|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|                                                                             |  |                                  |        |  |         |  
|International:                                                               |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|Above $1.0 million of licenses revenue recognized                            |  |                                  | 6,095  |  |         |   | 1,077  |                                 |      |  | 465.9   | %    |  |   | 6,095  |  |  |   | 3,254  |  |  |  | 87.3  | %
|From $500,000 to $1.0 million of licenses revenue recognized                 |  |                                  | 603    |  |         |   | 2,706  |                                 |      |  | -77.7   | %    |  |   | 2,132  |  |  |   | 4,829  |  |  |  | -55.9 | %
|Below $500,000 of licenses revenue recognized                                |  |                                  | 7,755  |  |         |   | 7,841  |                                 |      |  | -1.1    | %    |  |   | 24,066 |  |  |   | 20,115 |  |  |  | 19.6  | %
|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  
|Total                                                                        |  | $                                | 14,453 |  |         | $ | 11,624 |                                 |      |  | 24.3    | %    |  | $ | 32,293 |  |  | $ | 28,198 |  |  |  | 14.5  | %
|                                                                             |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |       |  

For the three months ended September 30, 2010 and 2009, product licenses transactions with at least $500,000
of recognized revenue represented 39.5% and 47.0%, respectively, of our product licenses revenues. For the nine months ended September 30, 2010 and 2009, our top three product licenses transactions totaled $8.3 million of recognized revenue in
each period, or 10.4% and 11.6% of total product licenses revenues, respectively.

Product licenses revenues decreased 6.6% for the three
months ended September 30, 2010, as compared to the same period in the prior year, primarily due to a decrease in the number and the average deal size of domestic transactions and the number of international transactions with less than $1.0
million of recognized revenue, partially offset by an increase in the number and average deal size of international transactions with at least $1.0 million of recognized revenue.

Product licenses revenues increased 10.0% for the nine months ended September 30, 2010, as compared to the same period in the prior year, primarily due to an increase in the number and average deal
size of international product licenses transactions with at least $1.0 million of recognized revenue and an increase in the average deal size of product licenses transactions with less than $500,000 of recognized revenue, partially offset by a
decrease in the number of product licenses transactions with less than $1.0 million of recognized revenue.

Domestic product licenses
revenues.Domestic product licenses revenues decreased 22.3% for the three months ended September 30, 2010, as compared to the same period in the prior year, primarily due to a decrease in the number of domestic transactions with at
least $1.0 million of recognized revenue, partially offset by an increase in the average deal size of domestic transactions with less than $500,000 of recognized revenue.

Domestic product licenses revenues increased 7.0% for the nine months ended September 30, 2010, as compared to the same period in the prior year, primarily due to an increase in the average deal size
of domestic transactions with less than $500,000 of recognized revenue, partially offset by a decrease in the number and average deal size of domestic transactions with at least $500,000 of recognized revenue.

International product licenses revenues.International product licenses revenues increased 24.3% for the three months ended
September 30, 2010, as compared to the same period in the prior year, primarily due to an increase in the number and average deal size of transactions with at least $1.0 million of recognized revenue, partially offset by a decrease in the
number and average deal size of transactions with at least $500,000 but less than $1.0 million of recognized revenue.



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International product licenses
revenues increased 14.5% for the nine months ended September 30, 2010, as compared to the same period in the prior year, primarily due to an increase in the average deal size of transactions with less than $500,000 of recognized revenue as well
as an increase in the number and average deal size of international transactions with at least $1.0 million of recognized revenue.

Product support and other services revenues. The following table sets forth product support and other services revenues (in
thousands) and percentage changes for the periods indicated:



|                                                  |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|------------------------------------------------- |  | -------------------------------- | ------ |  | ------- | - | ------ | ------------------------------- | ---- |  | ------- | ---- |  | - | ------- |  |  | - | ------- |  |  |  | ---- | -
|                                                  |  | Three Months 
EndedSeptember 30, |        |  | %Change |   |        | Nine Months 
EndedSeptember 30, |      |  | %Change |     
|                                                  |  | 2010                             |        |  | 2009    |   |        |                                 | 2010 |  |         | 2009 |  |  
|Product Support and Other Services Revenues:      |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|Product Support                                   |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|Domestic                                          |  | $                                | 30,734 |  |         | $ | 27,963 |                                 |      |  | 9.9     | %    |  | $ | 89,667  |  |  | $ | 82,335  |  |  |  | 8.9  | %
|International                                     |  |                                  | 21,921 |  |         |   | 21,114 |                                 |      |  | 3.8     | %    |  |   | 64,230  |  |  |   | 58,350  |  |  |  | 10.1 | %
|                                                  |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|Total product support revenues                    |  |                                  | 52,655 |  |         |   | 49,077 |                                 |      |  | 7.3     | %    |  |   | 153,897 |  |  |   | 140,685 |  |  |  | 9.4  | %
|                                                  |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|Consulting                                        |  |                                  | 21,068 |  |         |   | 13,164 |                                 |      |  | 60.0    | %    |  |   | 57,860  |  |  |   | 39,168  |  |  |  | 47.7 | %
|Education                                         |  |                                  | 4,030  |  |         |   | 3,480  |                                 |      |  | 15.8    | %    |  |   | 11,861  |  |  |   | 10,598  |  |  |  | 11.9 | %
|                                                  |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|Total product support and other services revenues |  | $                                | 77,753 |  |         | $ | 65,721 |                                 |      |  | 18.3    | %    |  | $ | 223,618 |  |  | $ | 190,451 |  |  |  | 17.4 | %
|                                                  |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  

Product support revenues.Product support revenues are derived from providing technical software
support and software updates and upgrades to customers. Product support revenues are recognized ratably over the term of the contract, which in most cases is one year.

Both domestic and international product support revenues increased for the three months ended September 30, 2010, as compared to the same period in the prior year, primarily due to a 7.4% increase in
the number of technical support contracts.

Both domestic and international product support revenues increased for the nine months ended
September 30, 2010, as compared to the same period in the prior year, primarily due to an 8.2% increase in the number of technical support contracts.

Consulting revenues.Consulting revenues are derived from helping customers plan and execute the deployment of our software. Consulting revenues increased for the three and nine months ended
September 30, 2010, as compared to the same periods in the prior year, primarily due to an increase in billable hours, partially offset by a decrease in the average hourly rate.

Education revenues.Education revenues are derived from the education and training that we provide to our customers to enhance their ability to fully utilize the features and functionality
of our software. Education revenues increased for the three and nine months ended September 30, 2010, as compared to the same periods in the prior year, primarily due to an increase in average training prices, partially offset by a decrease in
the number of students trained.

Angel.com services revenues. The following table sets forth Angel.com services revenues (in
thousands) and percentage changes for the periods indicated:



|                   |  |                                  |       |  |         |  |       |                                 |      |  |         |      |  |  |        |  |  |  |       |  |  |  |      |  
|------------------ |  | -------------------------------- | ----- |  | ------- |  | ----- | ------------------------------- | ---- |  | ------- | ---- |  |  | ------ |  |  |  | ----- |  |  |  | ---- | -
|                   |  | Three Months 
EndedSeptember 30, |       |  | %Change |  |       | Nine Months 
EndedSeptember 30, |      |  | %Change |     
|                   |  | 2010                             |       |  | 2009    |  |       |                                 | 2010 |  |         | 2009 |  | 
|Angel.com services |  |                                  | 4,597 |  |         |  | 3,853 |                                 |      |  | 19.3    | %    |  |  | 12,775 |  |  |  | 9,669 |  |  |  | 32.1 | %



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Angel.com services revenues increased
for the three months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 58.4% of the increase attributable to increased usage of Angel.coms interactive voice response services, 33.0%
of the increase attributable to an increase in professional services rendered and 8.6% of the increase attributable to an increase in support services provided.

Angel.com services revenues increased for the nine months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 69.9% of the increase attributable
to increased usage of Angel.coms interactive voice response services and 26.5% of the increase attributable to an increase in professional services rendered.

Costs and Expenses

Cost of revenues. The following table sets forth cost of
revenues (in thousands) and percentage changes in cost of revenues for the periods indicated:



|                       |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  
|---------------------- |  | -------------------------------- | ------ |  | ------- | - | ------ | ------------------------------- | ---- |  | ------- | ---- |  | - | ------ |  |  | - | ------ |  |  |  | ---- | -
|                       |  | Three Months 
EndedSeptember 30, |        |  | %Change |   |        | Nine Months 
EndedSeptember 30, |      |  | %Change |     
|                       |  | 2010                             |        |  | 2009    |   |        |                                 | 2010 |  |         | 2009 |  |  
|Cost of Revenues:      |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  
|Product licenses       |  | $                                | 1,966  |  |         | $ | 1,947  |                                 |      |  | 1.0     | %    |  | $ | 5,741  |  |  | $ | 4,523  |  |  |  | 26.9 | %
|Product support        |  |                                  | 2,837  |  |         |   | 2,410  |                                 |      |  | 17.7    | %    |  |   | 8,237  |  |  |   | 7,557  |  |  |  | 9.0  | %
|Consulting             |  |                                  | 18,396 |  |         |   | 9,137  |                                 |      |  | 101.3   | %    |  |   | 47,919 |  |  |   | 26,854 |  |  |  | 78.4 | %
|Education              |  |                                  | 1,929  |  |         |   | 1,501  |                                 |      |  | 28.5    | %    |  |   | 5,560  |  |  |   | 4,369  |  |  |  | 27.3 | %
|Angel.com services     |  |                                  | 2,112  |  |         |   | 1,544  |                                 |      |  | 36.8    | %    |  |   | 5,756  |  |  |   | 3,834  |  |  |  | 50.1 | %
|                       |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  
|Total cost of revenues |  | $                                | 27,240 |  |         | $ | 16,539 |                                 |      |  | 64.7    | %    |  | $ | 73,213 |  |  | $ | 47,137 |  |  |  | 55.3 | %
|                       |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |        |  |  |   |        |  |  |  |      |  

Cost of product licenses revenues.Cost of product licenses revenues consists of amortization of
capitalized software development costs and the costs of product manuals, media, and royalties paid to third-party software vendors. Capitalized software development costs are generally amortized over a useful life of three years.

The cost of product licenses revenues for the three months ended September 30, 2010, as compared to the same period in the prior year, remained
relatively flat. The increase in cost of product licenses revenues for the nine months ended September 30, 2010, as compared to the same period in the prior year, was primarily attributable to the increase in amortization of capitalized
software development costs related to the release of MicroStrategy 9 in March 2009. We expect to amortize the remaining balance of $8.7 million of capitalized software development costs related to the development of our MicroStrategy 9 platform
ratably over the remaining amortization period of 18 months.

Cost of product support revenues.Cost of product support revenues
consists of product support personnel and related overhead costs.

The increase in cost of product support revenues for the three and nine
months ended September 30, 2010, as compared to the same periods in the prior year, was primarily due to an increase in staffing levels. Product support headcount increased 26.4% to 134 at September 30, 2010 from 106 at September 30,
2009.

Cost of consulting revenues.Cost of consulting revenues consists of personnel and related overhead costs. Cost of
consulting revenues increased for the three months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 49.9% of the increase attributable to an increase in compensation and related costs due
to an increase in staffing levels, 33.2% of the increase attributable to an increased usage of billable subcontractors, 11.5% of the increase attributable to an increase in travel and entertainment expenditures and 5.2% of the increase attributable
to an increase in facility and other related support costs. Consulting headcount increased 120.8% to 689 at September 30, 2010 from 312 at September 30, 2009.



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Cost of consulting revenues increased
for the nine months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 43.0% of the increase attributable to an increase in compensation and related costs due to an increase in staffing
levels, 40.2% of the increase attributable to an increased usage of billable subcontractors, 11.0% of the increase attributable to an increase in travel and entertainment expenditures and 5.8% of the increase attributable to an increase in facility
and other related support costs.

Cost of education revenues.Cost of education revenues consists of personnel and related
overhead costs. Cost of education revenues increased for the three months ended September 30, 2010, as compared to the same period in the prior year, with 84.4% of the increase attributable to an increase in staffing levels and 15.6% of the
increase attributable to an increased usage of subcontractors. Education headcount increased 33.3% to 52 at September 30, 2010 from 39 at September 30, 2009.

Cost of education revenues increased for the nine months ended September 30, 2010, as compared to the same period in the prior year, with 82.2% of the increase attributable to an increase in staffing
levels, 11.3% of the increase attributable to an increased usage of subcontractors and 6.5% of the increase attributable to an increase in translation services for our education materials.

Cost of Angel.com services revenues. Cost of Angel.com services revenues includes hardware and telephony costs, personnel and related overhead costs. The increase in cost of Angel.com
services revenues for the three and nine months ended September 30, 2010, as compared to the same periods in the prior year, was primarily due to an increase in staffing levels. Angel.com consulting and technical support headcount increased
130.0% to 23 at September 30, 2010 from 10 at September 30, 2009.

Sales and marketing, general and administrative, and other
operating expenses for core BI business. The following table sets forth sales and marketing, general and administrative and other operating expenses (in thousands) for our core BI business and percentage changes for the periods indicated:



|                           |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|-------------------------- |  | -------------------------------- | ------ |  | ------- | - | ------ | ------------------------------- | ---- |  | ------- | ---- |  | - | ------- |  |  | - | ------- |  |  |  | ---- | -
|                           |  | Three Months 
EndedSeptember 30, |        |  | %Change |   |        | Nine Months 
EndedSeptember 30, |      |  | %Change |     
|                           |  | 2010                             |        |  | 2009    |   |        |                                 | 2010 |  |         | 2009 |  |  
|Sales and marketing        |  | $                                | 39,979 |  |         | $ | 30,364 |                                 |      |  | 31.7    | %    |  | $ | 109,642 |  |  | $ | 90,012  |  |  |  | 21.8 | %
|General and administrative |  |                                  | 21,223 |  |         |   | 13,817 |                                 |      |  | 53.6    | %    |  |   | 57,415  |  |  |   | 40,077  |  |  |  | 43.3 | %
|                           |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  
|Total                      |  | $                                | 61,202 |  |         | $ | 44,181 |                                 |      |  | 38.5    | %    |  | $ | 167,057 |  |  | $ | 130,089 |  |  |  | 28.4 | %
|                           |  |                                  |        |  |         |   |        |                                 |      |  |         |      |  |   |         |  |  |   |         |  |  |  |      |  

Sales and marketing expenses for core BI business.Sales and marketing expenses for our core BI
business consists of personnel costs, commissions, office facilities, travel, advertising, public relations programs and promotional events, such as trade shows, seminars and technical conferences.

Sales and marketing expenses increased for the three months ended September 30, 2010, as compared to the same period in the prior year, due to
various factors, with 64.4% of the increase attributable to an increase in compensation and related costs due to an increase in staffing levels, higher compensation levels, and increased variable compensation, 15.3% of the increase attributable to
an increase in marketing costs and computer supplies costs due to increased sponsorships as well as an increased number of marketing events to promote MicroStrategy Mobile for the iPhone and iPad and 15.2% of the increase attributable to an
increase in travel and entertainment expenditures. Sales and marketing headcount increased 18.5% to 660 at September 30, 2010 from 557 at September 30, 2009.

Sales and marketing expenses increased for the nine months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 73.2% of the increase attributable
to an increase



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in compensation and related costs due
to an increase in staffing levels, higher compensation levels, and increased variable compensation, 15.7% of the increase attributable to an increase in travel and entertainment expenditures and 7.5% of the increase attributable to an increase in
marketing costs due to increased sponsorships as well as an increased number of marketing events to promote MicroStrategy Mobile for the iPhone and iPad.

General and administrative expenses for core BI business.General and administrative expenses consists of personnel and other costs of our executive, finance, human resources,
information systems and administrative departments, as well as third-party consulting, legal and other professional fees.

General and
administrative expenses increased for the three months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 24.1% of the increase attributable to an increase in rent expense related to the new
headquarters lease, 14.6% of the increase attributable to an increase in transaction taxes, 13.7% of the increase attributable to an increase in compensation and related costs due to an increase in staffing levels, 13.1% of the increase attributable
to an increase in recruiting costs related to our initiative to increase our staffing levels, 12.2% of the increase attributable to operating costs of our leased fractional interest in a corporate aircraft, 9.8% of the increase attributable to an
increase in facility and other related support costs, 4.8% of the increase attributable to an increase in depreciation expense related to our owned corporate aircraft, 3.4% of the increase attributable to an increase in consulting and advisory costs
and 2.2% of the increase attributable to an increase in travel and entertainment expenditures. General and administrative headcount increased 18.5% to 384 at September 30, 2010 from 324 at September 30, 2009.

General and administrative expenses increased for the nine months ended September 30, 2010, as compared to the same period in the prior year, due to
various factors, with 25.4% of the increase attributable to an increase in rent expense related to the new headquarters lease, 24.2% of the increase attributable to an increase in compensation and related costs due to an increase in staffing levels,
16.6% of the increase attributable to an increase in recruiting costs related to our initiative to increase our staffing levels, 10.4% of the increase attributable to facility and other related support costs, 7.4% of the increase attributable to an
increase in transaction taxes, 6.2% of the increase attributable to an increase in depreciation expense related to our owned corporate aircraft and 5.2% of the increase attributable to operating costs of our leased fractional interest in a corporate
aircraft.

Angel.com sales and marketing and general and administrative expenses. The following table sets forth sales and
marketing and general and administrative expenses (in thousands) for our Angel.com business and percentage changes for the periods indicated:



|                           |  |                                  |       |  |         |   |       |                                 |      |  |         |      |  |   |       |  |  |   |       |  |  |  |      |  
|-------------------------- |  | -------------------------------- | ----- |  | ------- | - | ----- | ------------------------------- | ---- |  | ------- | ---- |  | - | ----- |  |  | - | ----- |  |  |  | ---- | -
|                           |  | Three Months 
EndedSeptember 30, |       |  | %Change |   |       | Nine Months 
EndedSeptember 30, |      |  | %Change |     
|                           |  | 2010                             |       |  | 2009    |   |       |                                 | 2010 |  |         | 2009 |  |  
|Sales and marketing        |  | $                                | 2,023 |  |         | $ | 1,125 |                                 |      |  | 79.8    | %    |  | $ | 5,108 |  |  | $ | 3,364 |  |  |  | 51.8 | %
|General and administrative |  |                                  | 593   |  |         |   | 387   |                                 |      |  | 53.2    | %    |  |   | 1,535 |  |  |   | 1,271 |  |  |  | 20.8 | %
|                           |  |                                  |       |  |         |   |       |                                 |      |  |         |      |  |   |       |  |  |   |       |  |  |  |      |  
|Total                      |  | $                                | 2,616 |  |         | $ | 1,512 |                                 |      |  | 73.0    | %    |  | $ | 6,643 |  |  | $ | 4,635 |  |  |  | 43.3 | %
|                           |  |                                  |       |  |         |   |       |                                 |      |  |         |      |  |   |       |  |  |   |       |  |  |  |      |  

Angel.com sales and marketing expenses increased for the three months ended September 30, 2010, as compared
to the same period in the prior year, due to various factors, with 76.3% of the increase attributable to an increase in compensation costs due to increased staffing levels, 13.4% of the increase attributable to an increase in travel and
entertainment expenditures and 8.3% of the increase attributable to an increase in marketing costs related to Angel.coms rebranding efforts and strategic marketplace studies. Sales and marketing headcount at Angel.com increased to 48 at
September 30, 2010 from 20 at September 30, 2009.

Angel.com sales and marketing expenses increased for the nine months ended
September 30, 2010, as compared to the same period in the prior year due to various factors, with 61.1% of the increase attributable



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to an increase in compensation costs due to increased staffing levels, 15.0% of the increase attributable to an increase in marketing costs related to increased sponsorships and agency fees,
13.5% of the increase attributable to an increase in travel and entertainment expenditures and 5.4% of the increase attributable to increased consulting and advisory costs.

Angel.com general and administrative expenses increased for the three months ended September 30, 2010, as compared to the same period in the prior year, due to various factors, with 32.0% of the
increase attributable to an increase in facility and other support related costs, 27.2% of the increase attributable to an accrual related to a litigation matter, 24.6% of the increase attributable to an increase in recruiting costs, and 11.0% of
the increase related to an increase in compensation and related costs due to increased staffing levels. The increase in Angel.com general and administrative expenses for the nine months ended September 30, 2010, as compared to the same period
in the prior year, was primarily attributable to an increase in compensation and related costs due to an increase in staffing levels, partially offset by a decrease in facility and other support related costs. General and administrative headcount
increased to 5 at September 30, 2010 from 4 at September 30, 2009.

Research and development expenses.Research
and development expenses consists of the personnel costs for our software engineering personnel, depreciation of equipment and other related costs.

The following table summarizes research and development expenses and amortization of capitalized software development costs (in thousands) and percentage changes for the periods indicated:



|                                                                                                     |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ |  | ---- | - | ------ | ------------------------------ |  |  | ---- | - |  | ---- | ------ | - | ------ | - | ------ | - |  |  | ----- | -
|                                                                                                     |  | Three Months EndedSeptember 30, |        |  | %    |   |        | Nine Months EndedSeptember 30, |  |  | %    |  
|                                                                                                     |  | 2010                            |        |  | 2009 |   |        | Change                         |  |  | 2010 |   |  | 2009 |        |   | Change |  
|                                                                                                     |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  
|                                                                                                     |  |                                 |        |  |      |  
|Gross research and development expenses:                                                             |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  
|Core research and development activities                                                             |  | $                               | 12,773 |  |      | $ | 10,443 |                                |  |  | 22.3 | % |  | $    | 36,601 |   |        | $ | 31,800 |   |  |  | 15.1  | %
|Angel.com research and development activities                                                        |  |                                 | 902    |  |      |   | 957    |                                |  |  | -5.7 | % |  |      | 2,402  |   |        |   | 2,825  |   |  |  | -15.0 | %
|                                                                                                     |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  
|Total research and development expenses before capitalized software development costs                |  |                                 | 13,675 |  |      |   | 11,400 |                                |  |  | 20.0 | % |  |      | 39,003 |   |        |   | 34,625 |   |  |  | 12.6  | %
|Capitalized software development costs                                                               |  |                                 |       |  |      |   |       |                                |  |  | n/a  |   |  |      | (2,185 | ) |        |   | (4,218 | ) |  |  | -48.2 | %
|                                                                                                     |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  
|Total research and development expenses                                                              |  | $                               | 13,675 |  |      | $ | 11,400 |                                |  |  | 20.0 | % |  | $    | 36,818 |   |        | $ | 30,407 |   |  |  | 21.1  | %
|                                                                                                     |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  
|                                                                                                     |  |                                 |        |  |      |  
|Amortization of capitalized software development costs included in cost of product licenses revenues |  | $                               | 1,683  |  |      | $ | 1,729  |                                |  |  | -2.7 | % |  | $    | 4,892  |   |        | $ | 3,881  |   |  |  | 26.0  | %
|                                                                                                     |  |                                 |        |  |      |   |        |                                |  |  |      |   |  |      |        |   |        |   |        |   |  |  |       |  

Research and development expenses increased for the three months ended September 30, 2010, as compared to the
same period in the prior year, primarily due to increased staffing levels. Research and development headcount increased 26.4% to 483 at September 30, 2010 from 382 at September 30, 2009.

Research and development expenses increased for the nine months ended September 30, 2010, as compared to the same period in the prior year,
primarily due to increased staffing levels as well as only $2.2 million in software development costs being capitalized during the nine months ended September 30, 2010 as compared to $4.2 million in software development costs that were
capitalized in the same period in the prior year. Excluding capitalized software development costs, core research and development expenses increased by 15.1% for the nine months ended September 30, 2010, as compared to the same period in the
prior year, primarily due to increased staffing levels.

As of September 30, 2010, our research and development resources were allocated
to the following projects: 74.2% to MicroStrategy 9, including MicroStrategy Mobile for the iPhone and iPad, 21.0% to new product initiatives, and 4.8% to other research and development, including our Angel.com business and internal
information technology initiatives.



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Provision for Income
Taxes.For the nine months ended September 30, 2010 and 2009, we recorded a provision for income taxes from continuing operations of $9.3 million and $18.7 million, respectively, resulting in an effective tax rate for such
periods of 26.5% and 31.8%, respectively. Our effective tax rate from continuing operations decreased for the nine months ended September 30, 2010, as compared to the same period in the prior year, primarily due to an increased proportion of
foreign income taxed at lower rates, the benefit derived from the release of foreign valuation allowances, and a discrete benefit recorded due to certain tax return provision adjustments mainly related to the domestic manufacturing deduction and
meals and entertainment expense disallowance.

As of September 30, 2010, we had fully utilized our U.S. federal net operating loss
carryforwards and had foreign net operating loss carryforwards of $10.5 million and other temporary differences, carryforwards, and credits, which resulted in net deferred tax assets of $19.6 million. Also, as of September 30, 2010, we had
a valuation allowance of $4.7 million (after-tax) primarily related to certain foreign net operating loss carryforwards and other deferred tax assets that we have concluded are not more likely than not of being realized.

Except as discussed below, we intend to indefinitely reinvest the undistributed 2010 earnings of certain foreign subsidiaries. Therefore, the annualized
effective tax rate applied to our pre-tax income for the period ended September 30, 2010 did not include any provision for U.S. federal and state taxes on the amount of the undistributed 2010 foreign earnings. U.S. federal tax laws, however,
require us to include in our U.S. taxable income certain investment income earned outside of the U.S. in excess of certain limits (Subpart F deemed dividends). Because Subpart F deemed dividends are already required to be recognized in
our U.S. federal income tax return, we regularly repatriate to the U.S. Subpart F deemed dividends and no additional tax is incurred on the distribution.

Other income (expense).Other expense increased $1.4 million to $1.8 million for the three months ended September 30, 2010, as compared to the same period in the prior year. For the
three months ended September 30, 2010 and 2009, other expense was primarily comprised of foreign exchange transaction losses. The loss during the three months ended September 30, 2010 was the result of the weakening of the U.S. dollar
during the three months ended September 30, 2010.

Other income increased $4.8 million to $3.2 million for the nine months ended
September 30, 2010 from other expense of $1.6 million for the nine months ended September 30, 2009. For the nine months ended September 30, 2010, other income was primarily comprised of foreign exchange transaction gains and a receipt
of $1.4 million, net of expenses, from a litigation settlement. For the nine months ended September 30, 2009, other expense was primarily comprised of foreign exchange transaction losses. The foreign exchange transaction gains during the nine
months ended September 30, 2010 were the result of the strengthening of the U.S. dollar during the first nine months of the year.

Discontinued Operations.On February 13, 2009, we completed the sale of our equity interest in Alarm.com for consideration of
$24.5 million in cash net of post-closing purchase price adjustments and transaction costs totaling $3.3 million in the aggregate. The sale resulted in a gain of $14.4 million, net of tax. Accordingly, we report this business as
discontinued on our consolidated statements of operations, because we have not had continuing involvement in, or cash flows from, this operation following its divestiture.

The following table summarizes the gain from the sale of discontinued operations, net of tax, and loss from discontinued operations, net of tax, (in thousands) for the nine months ended September 30,
2009:



|                                                    |  |                                      |        |  
|--------------------------------------------------- |  | ------------------------------------ | ------ | -
|                                                    |  | Nine Months 
EndedSeptember 30, 2009 |       
|                                                    | 
|Gain on sale of discontinued operations, net of tax |  | $                                    | 14,437 |  
|                                                    | 
|Loss from discontinued operations, net of tax       |  |                                      | (107   | )



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Deferred Revenue and Advance
Payments.Deferred revenue and advance payments represent product support and other services fees that are collected in advance and recognized over the contract service period and product licenses revenues relating to multiple element
software arrangements that include future deliverables.

The following table summarizes deferred revenue and advance payments (in thousands),
as of the dates indicated:



|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  
|---------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | ----------------- |  | - | ------- | -
|                                   |  | September 30,2010 |         |   | December 31,2009 |   |         | September 30,2009 | 
|Current:                           |  |                   |         |   |                  |   |         |                   |  |   |         |  
|Deferred product licenses revenue  |  | $                 | 11,613  |   |                  | $ | 11,726  |                   |  | $ | 9,414   |  
|Deferred product support revenue   |  |                   | 114,114 |   |                  |   | 120,389 |                   |  |   | 103,750 |  
|Deferred other services revenue    |  |                   | 13,052  |   |                  |   | 14,363  |                   |  |   | 12,357  |  
|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  
|Gross current deferred revenue     |  |                   | 138,779 |   |                  |   | 146,478 |                   |  |   | 125,521 |  
|Less: unpaid deferred revenue      |  |                   | (52,977 | ) |                  |   | (68,695 | )                 |  |   | (52,476 | )
|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  
|Net current deferred revenue       |  | $                 | 85,802  |   |                  | $ | 77,783  |                   |  | $ | 73,045  |  
|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  
|                                   |  |                   |        
|Non-current:                       |  |                   |         |   |                  |   |         |                   |  |   |         |  
|Deferred product licenses revenue  |  | $                 | 4,455   |   |                  | $ | 542     |                   |  | $ | 291     |  
|Deferred product support revenue   |  |                   | 8,394   |   |                  |   | 5,090   |                   |  |   | 6,073   |  
|Deferred other services revenue    |  |                   | 1,844   |   |                  |   | 279     |                   |  |   | 102     |  
|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  
|Gross non-current deferred revenue |  |                   | 14,693  |   |                  |   | 5,911   |                   |  |   | 6,466   |  
|Less: unpaid deferred revenue      |  |                   | (6,264  | ) |                  |   | (2,066  | )                 |  |   | (2,618  | )
|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  
|Net non-current deferred revenue   |  | $                 | 8,429   |   |                  | $ | 3,845   |                   |  | $ | 3,848   |  
|                                   |  |                   |         |   |                  |   |         |                   |  |   |         |  

We offset our accounts receivable and deferred revenue for any unpaid items included in deferred revenue and advance
payments.

The decrease in gross current deferred revenue as of September 30, 2010, as compared to December 31, 2009, was primarily
attributable to the seasonally large volume of product support invoices generated during the three months ended December 31, 2009. The increase in gross current deferred revenue and advance payments as of September 30, 2010, as compared to
September 30, 2009, was primarily attributable to an increase in the number of technical support contracts in our installed customer base and an increase in the deferral of product licenses revenues for which revenue recognition criteria have
not been satisfied.

Including unpaid deferred revenue, we expect to recognize approximately $138.8 million of deferred revenue and advance
payments over the next 12 months. However, the timing and ultimate recognition of our deferred revenue and advance payments depend on our performance of various service obligations, and the amount of deferred revenue and advance payments at any date
should not be considered indicative of revenues for any succeeding period.

As of September 30, 2010, we had agreements that included
future minimum commitments by our customers to purchase products, product support or other services through 2015 totaling approximately $80.5 million. Revenue relating to such future commitments by our customers is not included in our deferred
revenue balances.



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Revenue relating to such agreements
will be recognized during the period in which all revenue recognition criteria are met. The timing and ultimate recognition of any revenue from such customer purchase commitments depend on our customers meeting their future purchase
commitments and our meeting our associated performance obligations related to those purchase commitments.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents and on-going collection of our accounts receivable. On September 30,
2010 and December 31, 2009, we had $184.3 million and $224.8 million, respectively, in cash and cash equivalents. Management believes that existing cash and cash anticipated to be generated by operations will be sufficient to meet working
capital requirements and anticipated capital expenditures for at least the next 12 months. Based upon our cash position, we do not currently expect to borrow money to finance our operations.

On March 15, 2005, we entered into a security agreement with a bank under which we posted cash to secure existing letters of credit. These letters of credit are used as security deposits for office
leases, including the office lease for our corporate headquarters, as well as collateral for performance bonds. We may invest the cash collateral under the security agreement in certain permitted investments. As of September 30, 2010, we had
$0.8 million in cash collateral posted under the security agreement, all of which is invested in money market funds.

On July 28, 2005,
we announced that our Board of Directors had authorized our repurchase of up to an aggregate of $300.0 million of our class A common stock from time to time on the open market (the 2005 Share Repurchase Program). On April 29, 2008,
our Board of Directors amended the 2005 Share Repurchase Program to increase the amount of class A common stock that we are authorized to repurchase from $300.0 million to $800.0 million in the aggregate. The term of the 2005 Share Repurchase
Program was also extended to April 29, 2013, although the program may be suspended or discontinued by us at any time. The timing and amount of any shares repurchased will be determined by our management based on its evaluation of market
conditions and other factors. The 2005 Share Repurchase Program may be funded using our working capital, as well as proceeds from any credit facilities and other borrowing arrangements which we may enter into in the future. During the three months
ended September 30, 2010, we repurchased an aggregate of 510,733 shares of our class A common stock at an average price per share of $78.21 and an aggregate cost of $39.9 million pursuant to the 2005 Share Repurchase Program. During the nine
months ended September 30, 2010, we repurchased an aggregate of 1,048,335 shares of our class A common stock at an average price per share of $77.86 and an aggregate cost of $81.6 million pursuant to the 2005 Share Repurchase Program. As of
September 30, 2010, we had repurchased an aggregate of 3,517,808 shares of our class A common stock at an average price per share of $90.37 and an aggregate cost of $317.9 million pursuant to the 2005 Share Repurchase Program.

All of the amounts above relating to average price per share and aggregate cost include broker commissions.

We lease office space and computer and other equipment under operating lease agreements. In addition to base rent, we are responsible for certain taxes,
utilities and maintenance costs, and other fees, and several leases include options for renewal or purchase. In January 2010, we entered into a lease for approximately 142,000 square feet of office space at a new location in Northern Virginia that
began serving as our new corporate headquarters in October 2010. The lease grants an abatement of base rent until March 2011. In May 2010, we entered into an amendment to the lease pursuant to which we have leased an additional 24,000 square feet of
office space at the same location. This amendment provides for an abatement of base rent on the additional space until July 2011. The initial term of the lease expires in December 2020. The following table shows future minimum payments under
noncancellable operating leases and agreements with initial terms of greater than one year, net of total future minimum rentals to be received under noncancellable sublease agreements (in thousands), based on the currently expected due dates of the
various installments:



|                         |  |                                   |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       |  |   |        |  |  |   |         | 
|------------------------ |  | --------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  | ---------- | - | ------ | ----- |  | - | ------ |  |  | - | ------- | 
|                         |  | Twelve Months Ended September 30, |        |  |      |   |        |      | 
|                         |  | 2011                              |        |  | 2012 |   |        | 2013 |  |   | 2014   |  |  | 2015 |        |  | Thereafter |   |        | Total | 
|Contractual Obligations: |  |                                   |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       |  |   |        |  |  |   |         | 
|Operating leases         |  | $                                 | 13,806 |  |      | $ | 16,337 |      |  | $ | 14,977 |  |  | $    | 14,123 |  |            | $ | 12,887 |       |  | $ | 62,858 |  |  | $ | 134,988 | 
|                         |  |                                   |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       |  |   |        |  |  |   |         | 
|                         |  |                                   |        |  |      |   |       
|Total                    |  | $                                 | 13,806 |  |      | $ | 16,337 |      |  | $ | 14,977 |  |  | $    | 14,123 |  |            | $ | 12,887 |       |  | $ | 62,858 |  |  | $ | 134,988 | 
|                         |  |                                   |        |  |      |   |        |      |  |   |        |  |  |      |        |  |            |   |        |       |  |   |        |  |  |   |         | 



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As of September 30, 2010, we had
$14.2 million of total gross unrecognized tax benefits. The timing of any payments which could result from these unrecognized tax benefits will depend on a number of factors, and accordingly the amount and period of any future payments cannot be
estimated. We do not expect a significant tax payment related to these obligations within the next year.

Net Cash Provided by Operating
Activities.Net cash provided by operating activities was $55.9 million and $56.8 million for the nine months ended September 30, 2010 and 2009, respectively. The major components of net cash provided by operating activities for the
nine months ended September 30, 2010 were $25.9 million of net income from continuing operations, a $12.9 million increase in deferred revenue and advance payments, a $10.8 million increase in other long-term liabilities, $9.3 million of
non-cash depreciation and amortization charges, a $2.4 million increase in bad debt expense and a $1.5 million increase in accounts payable and accrued expenses, partially offset by a $4.2 million increase in accounts receivable and a $2.6 million
increase in prepaid expenses and other current assets. The decrease in net cash provided by operating activities for the nine months ended September 30, 2010, as compared to the same period in the prior year, was primarily attributable to a
decrease of $14.8 million in deferred taxes, a $14.1 million decrease in net income from continuing operations and an increase of $2.2 million in prepaid expenses and other current assets, partially offset by an increase of $9.2 million in other
long-term liabilities, an increase of $5.8 million in deferred revenue and advance payments, an increase of $5.5 million in accrued compensation and employee benefits, an increase in accounts receivable of $3.7 million, an increase of $3.4 million
in accounts payable and accrued expenses, an increase of $1.6 million in non-cash depreciation and amortization charges and an increase of $1.3 million in bad debt expense.

Net Cash (Used in) Provided by Investing Activities. Net cash used in investing activities was $13.8 million for the nine months ended September 30, 2010. Net cash provided by investing
activities was $19.0 million for the nine months ended September 30, 2009. The major components of net cash used in investing activities for the nine months ended September 30, 2010 consisted of $11.8 million of purchases of property and
equipment, $2.2 million of capitalized software development costs, partially offset by a $0.2 million decrease in restricted cash and investments. The increase in net cash used in investing activities for the nine months ended September 30,
2010, as compared to the same period in the prior year, was primarily attributable to a $24.5 million decrease in cash provided by discontinued operations, since the proceeds from the February 2009 sale of our equity interest in Alarm.com were
included for the nine months ended September 30, 2009, as well as a $10.0 million increase in purchases of property and equipment, partially offset by a $2.0 million decrease in capitalized software development costs.

Net Cash (Used in) Provided by Financing Activities.Net cash used in financing activities was $81.3 million for the nine months ended
September 30, 2010. Net cash provided by financing activities was $0.7 million for the nine months ended September 30, 2009. The increase in net cash used in financing activities for the nine months ended September 30, 2010, as
compared to the same period in the prior year, was primarily attributable to an increase in purchases of treasury stock of $81.6 million for the nine months ended September 30, 2010.

Off-Balance Sheet Arrangements.On March 15, 2005, we entered into a security agreement with a bank under which we posted cash to secure existing letters of credit. These letters
of credit are used as security deposits for office leases, including the office lease for our corporate headquarters, as well as collateral for performance bonds. We may invest the cash collateral under the security agreement in certain permitted
investments. As of September 30, 2010, we had $0.8 million of cash collateral posted under the security agreement.



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As of September 30, 2010, we did
not have any off-balance sheet arrangements that had or were reasonably likely to have a current or future material impact on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.

We are exposed to the impact of both interest rate changes and foreign currency fluctuations.

Interest Rate Risk.We face exposure to changes in interest rates primarily relating to our investments. We generally invest our excess cash in short-term, highly-rated, fixed-rate financial
instruments. These fixed-rate investments are subject to interest rate risk and may fall in value if interest rates increase.

As of
September 30, 2010, we did not have any material investments.

Foreign CurrencyRisk. We conduct a significant
portion of our business in currencies other than the U.S. dollar, the currency in which we report our consolidated financial statements. International sales accounted for 40.2% and 37.9% of our total revenues for the three months ended
September 30, 2010 and 2009, respectively, and 38.8% and 39.0% of our total revenues for the nine months ended September 30, 2010 and 2009, respectively. We anticipate that international revenues will continue to account for a
significant portion of our total revenues. The functional currency of each of our foreign subsidiaries is the local currency.

Assets and
liabilities of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable balance sheet date and any resulting translation adjustments are included as an adjustment to stockholders equity.
Revenues and expenses generated from these subsidiaries are translated at average monthly exchange rates during the quarter in which the transactions occur. Gains and losses from transactions in local currencies are included in net income.

Historically, we have generated a significant portion of our revenues and incurred a significant portion of our expenses in euros and British
pounds sterling. As a result of transacting in multiple currencies and reporting our financial statements in U.S. dollars, our operating results may be adversely impacted by currency exchange rate fluctuations in the future. Further
information on the impact of foreign currency exchange rate fluctuations on current and comparable periods is described in Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations.

We cannot predict the effect of exchange rate fluctuations upon our future results. We attempt to minimize our foreign currency risk by
converting our excess foreign currency held in foreign jurisdictions to U.S. dollar denominated cash and investment accounts. To date, we have not hedged the risks associated with foreign currency exchange exposure. Although we may do so
in the future, we cannot be sure that any hedging techniques will be successful or that our business, results of operations, financial condition and cash flows will not be materially adversely affected by exchange rate fluctuations.

As of September 30, 2010, a 10% adverse change in foreign currency exchange rates versus the U.S. dollar would have decreased our aggregate reported
cash and cash equivalents and restricted cash and investments by 0.5%. If average exchange rates had changed unfavorably by 10%, our total revenues for the nine months ended September 30, 2010 would have decreased by 0.1%.



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|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation
of disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of September 30, 2010. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives. Based on the
evaluation of our disclosure controls and procedures as of September 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable
assurance level.

Changes in internal controls. No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

On November 8,
2007, Diagnostic Systems Corp., a subsidiary of Acacia Research Corporation (Acacia Research), filed a complaint for patent infringement against the Company and a number of other unrelated defendants in the United States District Court
for the Central District of California, Southern Division. On December 14, 2009, the Company and Acacia Research, Acacia Patent Acquisition LLC and Acacia Technology Services LLC reached a settlement with respect to the consolidated complaint
(the Settlement Agreement), and on December 28, 2009, the Court dismissed all parties claims with prejudice. On June 29, 2010, the Company received correspondence from a law firm representing Database Application
Solutions LLC (DAS), an affiliate of Acacia Research, alleging that the Company infringes U.S. Patent Number 5,444,842 (the 842 Patent) and requesting a meeting to discuss whether the Company would be willing to pay DAS to license
the 842 Patent. On August 17, 2010, the Company sued Acacia Research and DAS in the Delaware Court of Chancery to enjoin DAS from proceeding with any attempt to enforce the 842 Patent against the Company in light of representations,
warranties and releases made in connection with the Settlement Agreement. Acacia Research and DAS filed separate motions to dismiss the Companys lawsuit. This matter is in its earliest stages. The outcome of this matter is not presently
determinable. Accordingly, no estimated liability for this matter has been accrued in the accompanying consolidated financial statements.

In
February 2010, our corporate aircraft was damaged when the hangar space that we lease at Dulles International Airport to house the aircraft collapsed during snowfall in the Washington, DC area. We reported the hangar collapse to United States
Aviation Underwriters, Inc. and United States Aircraft Insurance Group (collectively, the USAU Group), the agents for the insurance carriers and to the carriers themselves, who are Ace American Insurance Company and Liberty Mutual
Insurance Company (collectively, the Insurance Carriers). On April 8, 2010, we sent a proof of loss statement to the Insurance Carriers in the amount of $50.0 million (the insured value of the aircraft) for the physical loss of
the aircraft. On April 19, 2010, the Insurance Carriers rejected our proof of loss. On May 14, 2010, we sent a second proof of loss statement to the Insurance Carriers in the amount of $50.0 million for the accidental physical damage
of the aircraft. On May 26, 2010, 821,393 LLC (the LLC), a subsidiary of MicroStrategy Services Corporation (MSC), filed a complaint against the Insurance Carriers in the Court of Common Pleas in Philadelphia County,
Pennsylvania. The complaint seeks damages from the Insurance Carriers resulting from their alleged: (1) breach of contract for failure to pay the Companys claim resulting from the physical loss of the aircraft; (2) breach
of contract for failure to pay the Companys claim resulting from the damage to the aircraft; and (3) bad faith. On July 1, 2010, the LLC, together with the Company and MSC as new parties (the Company, MSC and the LLC, collectively,
the MicroStrategy Group), filed an amended complaint, which added (1) the USAU Group as defendants and (2) new allegations in support of the MicroStrategy Groups bad faith claim against all of the defendants. On
July 20, 2010, the defendants answered the amended complaint and filed a motion to dismiss. On August 24, 2010, the defendants filed a motion for judgment relating to the bad faith count of the amended complaint. The outcome of this
litigation is not presently determinable.

We are also involved in various other legal proceedings arising in the normal course of business.
Although the outcomes of these other legal proceedings are inherently difficult to predict, we do not expect the resolution of these other legal proceedings to have a material adverse effect on our financial position, results of operations or cash
flows.



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|Item 1A. | Risk Factors
|-------- | ------------

You should carefully
consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing MicroStrategy. Additional risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business operations.

If any of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. In such case, the trading price of our class A common stock could decline and you may lose all or part of your investment.

Our quarterly operating results, revenues and expenses may fluctuate significantly, which could have an adverse effect on the market price of our stock

For a number of reasons, including those described below, our operating results, revenues and expenses have in the past varied and may in the future vary
significantly from quarter to quarter. These fluctuations could have an adverse effect on the market price of our class A common stock.

Fluctuations in Quarterly Operating Results. Our quarterly operating results may fluctuate, in part, as a result of:



| |  |  | the size, timing, volume and execution of significant orders and shipments;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the mix of products and services of customer orders, which can affect whether we recognize revenue upon the signing and delivery of our software
products or whether revenue must be recognized as work progresses or over the entire contract period;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of the release or delivery of new or enhanced products, which may affect the period in which we are able to recognize revenue;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing of new product announcements by us or our competitors;
| | - |  | -----------------------------------------------------------------



| |  |  | changes in our pricing policies or those of our competitors;
| | - |  | ------------------------------------------------------------



| |  |  | market acceptance of business intelligence software generally and of new and enhanced versions of our products in particular;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | the length of our sales cycles;
| | - |  | -------------------------------



| |  |  | seasonal factors, such as our traditionally lower pace of new product licenses transactions in the summer;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | changes in our operating expenses;
| | - |  | ----------------------------------



| |  |  | personnel changes;
| | - |  | ------------------



| |  |  | our use of direct and indirect distribution channels;
| | - |  | -----------------------------------------------------



| |  |  | utilization of our consulting and education services, which can be affected by delays or deferrals of customer implementation of our software products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the quarterly performance of our Angel.com business, which is highly variable and particularly difficult to forecast;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in foreign currency exchange rates;
| | - |  | -------------------------------------------



| |  |  | our profitability and expectations for future profitability and its effect on our deferred tax assets and net income for the period in which any
adjustment to our net deferred tax asset valuation allowance may be made;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases or decreases in our liability for unrecognized tax benefits under ASC Topic No. 740, Income Taxes (ASC 740); and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in customer budgets.
| | - |  | ----------------------------

Limited Ability to Adjust Expenses.We base our operating expense budgets on expected revenue trends. Many of our expenses, such as office leases and certain personnel costs, are relatively fixed.
We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in revenue may cause significant variation in operating results in any quarter.

Based on the above factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.
It is possible that in one or more future quarters, our operating results may be below the expectations of public market analysts and investors. In that event, the trading price of our class A common stock may fall.

The trading price of our class A common stock has been and may continue to be volatile

The trading price of our class A common stock historically has been volatile and may continue to be volatile. The trading price of our class A common stock may fluctuate widely in response to various
factors, some of which are beyond our control. These factors include, but are not limited to:



| |  |  | quarterly variations in our results of operations or those of our competitors;
| | - |  | ------------------------------------------------------------------------------



| |  |  | announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the emergence of new sales channels in which we are unable to compete effectively;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | our ability to develop, market and deliver new and enhanced products on a timely basis;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | commencement of, or our involvement in, litigation;
| | - |  | ---------------------------------------------------



| |  |  | any major change in our board or management;
| | - |  | --------------------------------------------



| |  |  | changes in governmental regulations or in the status of our regulatory approvals;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | recommendations by securities analysts or changes in earnings estimates;
| | - |  | ------------------------------------------------------------------------



| |  |  | announcements about our earnings that are not in line with analyst expectations, the likelihood of which may be enhanced because it is our policy not
to give guidance relating to our anticipated financial performance in future periods;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements by our competitors of their earnings that are not in line with analyst expectations;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | the volume of shares of class A common stock available for public sale;
| | - |  | -----------------------------------------------------------------------



| |  |  | sales of stock by us or by our stockholders;
| | - |  | --------------------------------------------



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| |  |  | short sales, hedging and other derivative transactions involving shares of our class A common stock; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions and slow or negative growth of related markets.
| | - |  | ---------------------------------------------------------------------------

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our class A common stock, regardless of our actual operating performance.

Current economic uncertainties, particularly in the financial services and retail industries, could adversely affect our business and results of
operations

General worldwide economic conditions have experienced a significant prolonged downturn and remain uncertain. Challenging
economic times make it extremely difficult for our customers and us to accurately forecast and plan future business activities, and they could cause our customers to slow spending on our products and services, which would delay and lengthen sales
cycles. Furthermore, during challenging economic times our customers may face issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may be
required to increase our allowance for doubtful accounts and our results would be negatively impacted.

Furthermore, we have a significant
number of customers in the financial services and retail industries. A significant downturn in these industries may cause firms to react by reducing their capital expenditures in general or by specifically reducing their spending on information
technology. In addition, customers in these industries may delay or cancel information technology projects or seek to lower their costs by renegotiating vendor contracts. Customers with excess information technology resources may choose to develop
in-house software solutions rather than obtain those solutions from us. Moreover, competitors may respond to challenging market conditions by lowering prices and attempting to lure away our customers. In addition, consolidation in the financial
services industry may result in reduced overall spending on our products.

We cannot predict the timing, strength or duration of any economic
slowdown or subsequent economic recovery, generally or in the financial services and retail industries. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition and
results of operations could be materially and adversely affected.

Revenue recognition accounting pronouncements may adversely affect our
reported results of operations

We continuously review our compliance with all new and existing revenue recognition accounting
pronouncements. Depending upon the outcome of these ongoing reviews and the potential issuance of further accounting pronouncements, implementation guidelines and interpretations, we may be required to modify our reported results, revenue
recognition policies or business practices, which could have a material adverse effect on our results of operations.

We may have exposure
to greater than anticipated tax liabilities

We are subject to income taxes and non-income taxes in a variety of domestic and foreign
jurisdictions. Our future income taxes could be adversely affected by earnings that are lower than anticipated in jurisdictions where we have lower statutory rates and earnings that are higher than anticipated in jurisdictions where we have higher
statutory rates, by changes in the valuation of our deferred tax assets and liabilities, changes in the amount of unrecognized tax benefits under ASC 740, or by changes in tax laws, regulations, accounting principles or interpretations thereof.

Our determination of our tax liability is subject to review by applicable domestic and foreign tax authorities. For example, we are currently
under tax examination in Germany and the Netherlands. Any



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adverse outcome of such a review could have an adverse effect on our operating results and financial condition. The determination of our worldwide provision for income taxes and other tax
liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Moreover, as a multinational business, we have subsidiaries that
engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is uncertain.

We also have
contingent tax liabilities that, in managements judgment, are not probable of assertion. If such unasserted contingent liabilities were to be asserted, or become probable of assertion, we may be required to record significant expenses and
liabilities in the period in which these liabilities are asserted or become probable of assertion.

As a result of these and other factors,
the ultimate amount of tax obligations owed may differ from the amounts recorded in our financial statements and any such difference may materially affect our financial results in future periods in which we change our estimates of our tax
obligations or in which the ultimate tax outcome is determined.

If the market for business intelligence software fails to grow as we
expect, or if businesses fail to adopt our products, our business, operating results and financial condition could be materially adversely affected

Nearly all of our revenues to date have come from sales of business intelligence software and related technical support, consulting and education services. We expect these sales to account for a large
portion of our revenues for the foreseeable future. Although demand for business intelligence software has grown in recent years, the market for business intelligence software applications is still evolving. Resistance from consumer and privacy
groups to increased commercial collection and use of data on spending patterns and other personal behavior and governmental restrictions on the collection and use of personal data may impair the further growth of this market, as may other
developments. We cannot be sure that this market will continue to grow or, even if it does grow, that businesses will adopt our solutions. We have spent, and intend to keep spending, considerable resources to educate potential customers about
business intelligence software in general and our solutions in particular. However, we cannot be sure that these expenditures will help our products achieve any additional market acceptance. If the market fails to grow or grows more slowly than we
currently expect, our business, operating results and financial condition would be materially adversely affected.

We face intense
competition, which may lead to lower prices for our products, reduced gross margins, loss of market share and reduced revenue

The markets
for business intelligence software, analytical applications and information delivery are intensely competitive and subject to rapidly changing technology. In addition, many companies in these markets are offering, or may soon offer, products and
services that may compete with MicroStrategy products.

MicroStrategy faces competitors in several broad categories, including business
intelligence software, analytical processes, query and web-based reporting tools, and report delivery. Independent competitors that are primarily focused on business intelligence products include, among others, Actuate, Information Builders, Qlik
Technologies and the SAS Institute. We also compete with large software corporations, including suppliers of enterprise resource planning software that provide one or more capabilities competitive with our products, such as IBM, Microsoft, Oracle,
SAP and Infor, and with open source business intelligence vendors, including Pentaho and JasperSoft.

Many of our competitors have longer
operating histories, significantly greater financial, technical, marketing or other resources, and greater name recognition than we do. In addition, many of our competitors have strong relationships with current and potential customers and extensive
knowledge of the business intelligence industry. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development,



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promotion and sale of their products than we can. Increased competition may lead to price cuts, reduced gross margins and loss of market share. We may not be able to compete successfully against
current and future competitors and the failure to meet the competitive pressures we face may have a material adverse effect on our business, operating results and financial condition.

Current and future competitors may also make strategic acquisitions or establish cooperative relationships among themselves or with others. For example, IBM acquired SPSS in October 2009. By doing so,
these competitors may increase their ability to meet the needs of our potential customers. Our current or prospective indirect channel partners may establish cooperative relationships with our current or future competitors. These relationships may
limit our ability to sell our products through specific distribution channels. Accordingly, new competitors or alliances among current and future competitors may emerge and rapidly gain significant market share. These developments could limit our
ability to obtain revenues from new customers and to maintain technical support revenues from our installed customer base. In addition, basic office productivity suites, such as Microsoft Office, could evolve to offer analysis and reporting
capabilities that may reduce the demand for our products and services.

We depend on revenue from a single suite of products

Our MicroStrategy business intelligence platform and related products account for a substantial portion of our revenue. Because of this
revenue concentration, our business could be harmed by a decline in demand for, or in the prices of, our MicroStrategy business intelligence platform software as a result of, among other factors, any change in our pricing model, increased
competition, a maturation in the markets for these products or other risks described in this document.

If we are unable to develop and
release product enhancements and new products to respond to rapid technological change in a timely and cost-effective manner, our business, operating results and financial condition could be materially adversely affected

The market for our products is characterized by rapid technological change, frequent new product introductions and enhancements, changing customer demands
and evolving industry standards. The introduction of products embodying new technologies can quickly make existing products obsolete and unmarketable. We believe that our future success depends largely on three factors:



| |  |  | our ability to continue to support a number of popular operating systems and databases;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | our ability to maintain and improve our current product line; and
| | - |  | -----------------------------------------------------------------



| |  |  | our ability to rapidly develop new products that achieve market acceptance, maintain technological competitiveness and meet an expanding range of
customer requirements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Business intelligence applications are inherently complex, and it can take a long time and require
significant research and development expenditures to develop and test new products and product enhancements. In addition, customers may delay their purchasing decisions because they anticipate that new or enhanced versions of our products will soon
become available. We cannot be sure that we will succeed in developing and marketing, on a timely and cost-effective basis, product enhancements or new products that respond to technological change or new customer requirements, nor can we be sure
that any new products and product enhancements will achieve market acceptance. Moreover, even if we introduce a new product, we may experience a decline in revenues of our existing products that is not fully matched by the new products
revenue. For example, customers may delay making purchases of a new product to permit them to make a more thorough evaluation of the product, or until industry and marketplace reviews become widely available. Some customers may hesitate migrating to
a new product due to concerns regarding the complexity of migration and product infancy issues on performance. In addition, we may lose existing customers who choose a competitors product rather than migrate to our new product. This could
result in a temporary or permanent revenue shortfall and materially affect our business.



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Business disruptions could affect
our operating results

A significant portion of our research and development activities and certain other critical business operations are
concentrated in a single facility in Northern Virginia. We are also a highly automated business and a disruption or failure of our systems could cause delays in completing sales and providing services. A major earthquake, fire, act of terrorism or
other catastrophic event that results in the destruction or disruption of any of our critical business operations or information technology systems could severely affect our ability to conduct normal business operations and as a result our future
operating results could be materially and adversely affected.

If we are required to further write down the value of our corporate aircraft
or to reduce its estimated salvage value as a result of damage to the aircraft sustained in connection with the collapse of the hangar in which it was located, such loss could materially and adversely affect our results of operations

On December 21, 2009, we took delivery of a corporate aircraft. Our balance sheet as of September 30, 2010 includes as part of property and
equipment, net, an asset of $44.6 million representing the capitalized costs of the aircraft and aircraft-related equipment, net of accumulated depreciation and a $1.9 million impairment charge taken during the three month period ended
September 30, 2010.

In February 2010, the aircraft was damaged when the hangar space that we lease at Dulles International Airport
to house the aircraft collapsed during snowfall in the Washington, DC area. Our ability to assess the damage to the aircraft was impeded for months due to the state of the collapsed hangar. The aircraft was extracted from the hangar in July 2010.
The aircrafts manufacturer has begun an inspection and assessment of the damage to the aircraft. Significant further inspection and assessment are required to determine the full extent of the damage, including whether the aircraft is
repairable at all. As the inspection and damage assessment process continues, additional information may become available that would enable us to make a more accurate estimate of the damage to the aircraft, and would help to determine whether the
aircraft must be deemed a total loss. Consequently, we may record additional impairment charges in one or more future periods in amounts that may be up to and including the remaining carrying value of the aircraft. We carry insurance that covers
both accidental damage to and physical loss of the aircraft. Our policy will pay up to $50.0 million in repair costs to the extent the aircraft is repairable or $50.0 million if the aircraft is determined to be a total loss. Alternatively, the
policy will pay $50.0 million in the event that the aircraft is physically lost. Litigation with our insurance carriers may determine the amount that is recoverable under our insurance policy and the period in which we may realize any such recovery.
If any future aircraft impairment charge is not offset by insurance proceeds of an equivalent amount, or if such offset does not occur in the same period as the impairment charge, our reported results of operations and stockholders equity in
the period in which the impairment charge occurs may be adversely affected.

In addition, if in the future we determine that the estimated
salvage value of the aircraft has been reduced as a result of this event, the aggregate amount of depreciation expense that we would incur over the useful life of the aircraft could increase, which in turn may reduce our net income in future
periods.

We use strategic channel partners and if we are unable to maintain successful relationships with them, our business, operating
results and financial condition could be materially and adversely affected

In addition to our direct sales force, we use strategic channel
partners such as value-added resellers, system integrators and original equipment manufacturers to license and support our products. For the nine months ended September 30, 2010, transactions by channel partners for which we recognized revenues
accounted for 18.7% of our total product licenses revenues. Our channel partners generally offer customers the products of several different companies, including products that compete with ours. Because our channel partners generally do not have an
exclusive relationship with us, we cannot be certain that they will prioritize or provide adequate resources to selling our products. Moreover, divergence in strategy or contract defaults by any of these channel partners may materially adversely
affect our ability to develop, market, sell or support our products.



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Although we believe that direct sales
will continue to account for a majority of product licenses revenues, we seek to maintain a significant level of indirect sales activities through our strategic channel partners. There can be no assurance that our strategic channel partners will
continue to cooperate with us. In addition, there can be no assurance that actions taken or omitted to be taken by such parties will not adversely affect us. Our ability to achieve revenue growth in the future will depend in part on our success in
maintaining successful relationships with our strategic partners. If we are unable to maintain our relationships with these strategic partners, our business, operating results and financial condition could be materially adversely affected.

In addition, we rely on our strategic channel partners to operate in accordance with the terms of their contractual agreements with us. For
example, our agreements with our channel partners limit the terms and conditions pursuant to which they are authorized to resell or distribute our software and offer technical support and related services. We also typically require our channel
partners to represent to us the dates and details of product licenses transactions sold through to end user customers. If our strategic channel partners do not comply with their contractual obligations to us, our business, results of operations and
financial condition may be materially and adversely affected.

Our recognition of deferred revenue and advance payments and future customer
purchase commitments is subject to future performance obligations and may not be representative of revenues for succeeding periods

Our
gross current and non-current deferred revenue and advance payments totaled $153.5 million as of September 30, 2010. We offset our accounts receivable and deferred revenue for any unpaid items, which totaled $59.2 million, resulting in net
deferred revenue and advance payments of $94.2 million as of September 30, 2010. The timing and ultimate recognition of our deferred revenue and advance payments depend on various factors, including our performance of various service
obligations.

We have also entered into certain additional agreements that include future minimum commitments by our customers to purchase
products, product support or other services through 2015 totaling $80.5 million. These future commitments are not included in our deferred revenue balances. Because of the possibility of customer changes or delays in customer development or
implementation schedules or budgets, and the need for us to satisfactorily perform product support services, deferred revenue and advance payments at any particular date may not be representative of actual revenue for any succeeding period.

We may not be able to sustain or increase profitability in the future

We generated net income for each of the nine months ended September 30, 2010 and 2009; however, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future.

As part of our initiatives to focus specific research and development efforts on providing our customers with the highest levels of
performance for BI applications of all sizes and to develop and offer mobile application platforms, we anticipate significantly increasing our headcount during 2010. As a result, we expect our cost of revenues and operating expenses will continue to
increase in future periods. If our revenues are not sufficient to offset these increased operating expenses or we are unable to timely adjust our operating expenses in response to any shortfall in anticipated revenue, our profitability may decrease
or we may cease to be profitable, and our business, results of operations and financial condition may be materially and adversely affected.

As of September 30, 2010, we had $19.9 million of deferred tax assets, net of valuation allowance, and if we are unable to sustain profitability, we
may be required to increase the valuation allowance against these deferred tax assets, which would result in a charge that would adversely affect net income in the period in which the charge is incurred.



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Managing our international
operations is complex and our failure to do so successfully or in a cost-effective manner could have a material adverse effect on our business, operating results and financial condition

We receive a significant portion of our total revenues from international sales from foreign direct and indirect operations. International revenues accounted for 40.2% and 37.9% of our total revenues for
the three months ended September 30, 2010 and 2009, respectively, and 38.8% and 39.0% of our total revenues for the nine months ended September 30, 2010 and 2009, respectively. Our international operations require significant management
attention and financial resources.

There are certain risks inherent in our international business activities including:



| |  |  | changes in foreign currency exchange rates;
| | - |  | -------------------------------------------



| |  |  | unexpected changes in regulatory requirements;
| | - |  | ----------------------------------------------



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



| |  |  | costs of localizing products;
| | - |  | -----------------------------



| |  |  | lack of acceptance of localized products;
| | - |  | -----------------------------------------



| |  |  | difficulties in and costs of staffing, managing and operating our international operations;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | tax issues, including restrictions on repatriating earnings;
| | - |  | ------------------------------------------------------------



| |  |  | weaker intellectual property protection;
| | - |  | ----------------------------------------



| |  |  | economic weakness or currency related crises;
| | - |  | ---------------------------------------------



| |  |  | the burden of complying with a wide variety of laws, including labor laws;
| | - |  | --------------------------------------------------------------------------



| |  |  | generally longer payment cycles and greater difficulty in collecting accounts receivable;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our ability to adapt to sales practices and customer requirements in different cultures; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | political instability in the countries where we are doing business.
| | - |  | -------------------------------------------------------------------

On February 1, 2010, President Obamas administration submitted its fiscal year 2011 budget to Congress. Included in the submission were several proposals to reform U.S. tax laws, including a
proposal to further limit foreign tax credits and tax excess returns associated with offshore intangibles. Certain of the proposals were included in the Education Jobs and Medicaid Assistance Act that was enacted on August 10, 2010.
The new legislation is not expected to have a material adverse effect on our operating results or financial condition. It is unclear whether the remaining proposals will be enacted or, if enacted, what the scope of the reforms will be. The remaining
proposals could, if enacted, have a material adverse effect on our operating results and financial condition.

In addition, compliance with
foreign and U.S. laws and regulations that are applicable to our international operations is complex and may increase our cost of doing business in international jurisdictions, and our international operations could expose us to fines and penalties
if we fail to comply with these regulations. These laws and regulations include import and export requirements, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. Although we
have implemented policies and procedures designed to help ensure compliance with these laws, there can be no assurance that our employees, partners and other persons with whom we do business will not take actions



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in violation of our policies or these laws. Any violations of these laws could subject us to civil or criminal penalties, including substantial fines or prohibitions on our ability to offer our
products and services to one or more countries, and could also materially damage our reputation, our brand and our international expansion efforts.

These factors may have a material adverse effect on our future sales and, consequently, on our business, operating results and financial condition.

We may lose sales, or sales may be delayed, due to the long sales and implementation cycles for our products, which could reduce our revenues

To date, our customers have typically invested substantial time, money and other resources and involved many people in the decision to
license our software products and purchase our consulting and other services. As a result, we may wait nine months or more after the first contact with a customer for that customer to place an order while it seeks internal approval for the purchase
of our products or services. During this long sales cycle, events may occur that affect the size and/or timing of the order or even cause it to be canceled. For example, our competitors may introduce new products, or the customers own budget
and purchasing priorities may change.

Even after an order is placed, the time it takes to deploy our products and complete consulting
engagements can vary widely. Implementing our product can take several months, depending on the customers needs, and may begin only with a pilot program. It may be difficult to deploy our products if the customer has complicated deployment
requirements, which typically involve integrating databases, hardware and software from different vendors. If a customer hires a third party to deploy our products, we cannot be sure that our products will be deployed successfully.

Our results in any particular period may depend upon the number and volume of large transactions in that period and these transactions may involve
more lengthy, complex and unpredictable sales cycles than other transactions

As existing and potential customers seek to standardize on a
single business intelligence vendor, our business may experience larger transactions at the enterprise level and larger transactions may account for a greater proportion of our business. The presence or absence of one or more large transactions in a
particular period may have a material positive or negative effect on our revenue and operating results for that period. For the nine months ended September 30, 2010 and 2009, our top three product licenses transactions with recognized revenue
totaled $8.3 million in each period, or 10.4% and 11.6% of total product licenses revenues, respectively. These transactions represent significant business and financial decisions for our customers and require considerable effort on the part of
customers to assess alternative products and require additional levels of management approval before being concluded. They are also often more complex than smaller transactions. These factors generally lengthen the typical sales cycle and increase
the risk that the customers purchasing decision may be postponed or delayed from one period to another subsequent or later period or that the customer will alter his purchasing requirements. The sales effort and service delivery scope for
larger transactions also require additional resources to execute the transaction. These factors could result in lower than anticipated revenue and earnings for a particular period or in the reduction of estimated revenue and earnings in future
periods.

We face a variety of risks in doing business with the U.S. and foreign governments, various state and local governments, and
agencies, including risks related to the procurement process, budget constraints and cycles, termination of contracts and audits

Our
customers include the U.S. government and a number of state and local governments or agencies. There are a variety of risks in doing business with government entities, including:

Procurement.Contracting with public sector customers is highly competitive and can be time-consuming and expensive, requiring that
we incur significant up-front time and expense without any assurance that we will win a contract.



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Budgetary
Constraints and Cycles.Demand and payment for our products and services are impacted by public sector budgetary cycles and funding availability, with funding reductions or delays adversely impacting public sector demand for our products and
services.

Termination of Contracts.Public sector customers often have contractual or other legal rights to terminate
current contracts for convenience or due to a default. If a contract is terminated for convenience, which can occur if the customers needs change, we may only be able to collect for products or services delivered prior to termination and
settlement expenses. If a contract is terminated because of default, we may not recover even those amounts, and we may be liable for excess costs incurred by the customer for procuring alternative products or services.

Audits.The U.S. government and state and local governments and agencies routinely investigate and audit government contractors for
compliance with a variety of complex laws, regulations, and contract provisions relating to the formation, administration or performance of government contracts, including provisions governing reports of and remittances of fees based on sales under
government contracts, price protection, compliance with socio-economic policies, and other terms that are particular to government contracts. If, as a result of an audit or review, it is determined that we have failed to comply with such laws,
regulations or contract provisions, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, cost associated with the triggering of price reduction clauses, fines and
suspensions or debarment from future government business, and we may suffer harm to our reputation.

Our customers also include a number of
foreign governments and agencies. Similar procurement, budgetary, contract and audit risks also apply to our doing business with these entities. In addition, compliance with complex regulations and contracting provisions in a variety of
jurisdictions can be expensive and consume significant management resources. In certain jurisdictions our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these
difficulties could adversely affect our business and results of operations.

We depend on technology licensed to us by third parties, and
the loss of this technology could impair our software, delay implementation of our products or force us to pay higher license fees

We
license third-party technologies that we incorporate into our existing products. There can be no assurance that the licenses for such third-party technologies will not be terminated or that we will be able to license third-party software for future
products. In addition, we may be unable to renegotiate acceptable third-party license terms. Changes in or the loss of third party licenses could lead to a material increase in the costs of licensing or to our software products becoming inoperable
or their performance being materially reduced, with the result that we may need to incur additional development costs to ensure continued performance of our products, and we may experience a decreased demand for our products.

If we are unable to recruit or retain skilled personnel, or if we lose the services of any of our key management personnel, our business, operating
results and financial condition could be materially adversely affected

Our future success depends on our continuing ability to attract,
train, assimilate and retain highly skilled personnel. Competition for these employees is intense. We may not be able to retain our current key employees or attract, train, assimilate or retain other highly skilled personnel in the future. Our
future success also depends in large part on the continued service of key management personnel, particularly Michael J. Saylor, our Chairman, President and Chief Executive Officer, and Sanju K. Bansal, our Vice Chairman, Executive Vice President and
Chief Operating Officer. If we lose the services of one or both of these individuals or other key personnel, or if we are unable to attract, train, assimilate and retain the highly skilled personnel we need, our business, operating results and
financial condition could be materially and adversely affected.



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The emergence of new industry
standards may adversely affect the demand for our existing products

The emergence of new industry standards in related fields may
adversely affect the demand for our existing products. This could happen, for example, if new web standards and technologies emerged that were incompatible with customer deployments of our products. MicroStrategy currently supports SQL and MDX
standards in database access technology. If we are unable to adapt our products on a timely basis to new standards in database access technology, the ability of MicroStrategys products to access customer databases could be impaired. In
addition, the emergence of new standards in the field of operating system support could adversely affect the demand for our existing products. MicroStrategy technology is currently compatible with most major operating systems, including, among
others, Windows Server, Sun Solaris, IBM AIX, HPs HP-UX, Red Hat Linux AS and SuSE Linux Enterprise Server. If a different operating system were to gain widespread acceptance, we may not be able to achieve compatibility on a timely basis,
resulting in an adverse effect on the demand for our products.

The nature of our products makes them particularly vulnerable to undetected
errors, or bugs, which could cause problems with how the products perform and which could in turn reduce demand for our products, reduce our revenue and lead to product liability claims against us

Software products as complex as ours may contain errors and/or defects. Although we test our products extensively, we have in the past discovered software
errors in our products after their introduction. Despite testing by us and by our current and potential customers, errors may be found in new products or releases after commercial shipments begin. This could result in lost revenue, damage to our
reputation or delays in market acceptance, which could have a material adverse effect upon our business, operating results and financial condition. We may also have to expend resources and capital to correct these defects.

Our license agreements with customers typically contain provisions designed to limit our exposure to product liability, warranty and other claims. It is
possible, however, that these provisions may not be effective under the laws of certain domestic or international jurisdictions and we may be exposed to product liability, warranty and other claims. A successful product liability claim against us
could have a material adverse effect on our business, operating results and financial condition.

Our intellectual property rights are
valuable, and any inability to protect them could reduce the value of our products, services and brand

We rely on a combination of
copyright, patent, trade secrets, confidentiality procedures and contractual commitments to protect our proprietary information. Despite our efforts, these measures can only provide limited protection. Unauthorized third parties may try to copy or
reverse engineer portions of our products or otherwise obtain and use our intellectual property. Any patents owned by us may be invalidated, circumvented or challenged. Any of our pending or future patent applications, whether or not being currently
challenged, may not be issued with the scope of the claims we seek, if at all. In addition, the laws of some countries do not provide the same level of protection of our proprietary rights as do the laws of the United States. If we cannot protect
our proprietary technology against unauthorized copying or use, we may not remain competitive.

Third parties may claim we infringe their
intellectual property rights

We periodically receive notices from others claiming we are infringing their intellectual property rights,
principally patent rights. We expect the number of such claims will increase as the number of products and level of competition in our industry segments grow, the functionality of products overlap, and the volume of issued software patents and
patent applications continues to increase. Responding to any infringement claim, regardless of its validity, could:



| |  |  | be time-consuming, costly and/or result in litigation;
| | - |  | ------------------------------------------------------



| |  |  | divert managements time and attention from developing our business;
| | - |  | --------------------------------------------------------------------



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| |  |  | require us to pay monetary damages or enter into royalty and licensing agreements that we would not normally find acceptable;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to stop selling certain of our products;
| | - |  | ---------------------------------------------------



| |  |  | require us to redesign certain of our products using alternative non-infringing technology or practices, which could require significant effort and
expense; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to satisfy indemnification obligations to our customers.
| | - |  | -------------------------------------------------------------------

If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations, financial condition or cash flows could be adversely affected.

For example, on November 8, 2007, Diagnostic Systems Corp., a subsidiary of Acacia Research Corporation (Acacia Research),
filed a complaint for patent infringement against the Company and a number of other unrelated defendants in the United States District Court for the Central District of California, Southern Division. On December 14, 2009, the Company and Acacia
Research, Acacia Patent Acquisition LLC and Acacia Technology Services LLC reached a settlement with respect to the consolidated complaint (the Settlement Agreement), and on December 28, 2009, the Court dismissed all parties
claims with prejudice. On June 29, 2010, the Company received correspondence from a law firm representing Database Application Solutions LLC (DAS), an affiliate of Acacia Research, alleging that the Company infringes U.S. Patent
Number 5,444,842 (the 842 Patent) and requesting a meeting to discuss whether the Company would be willing to pay DAS to license the 842 Patent. On August 17, 2010, the Company sued Acacia Research and DAS in the Delaware Court of
Chancery to enjoin DAS from proceeding with any attempt to enforce the 842 Patent against the Company in light of representations, warranties and releases made in connection with the Settlement Agreement. Acacia Research and DAS filed separate
motions to dismiss the Companys lawsuit. This matter is in its earliest stages. The outcome of this matter is not presently determinable.

Pending or future litigation could have a material adverse impact on our results of operation and financial condition

In addition to intellectual property litigation, from time to time, we have been subject to other litigation. Where we can make a reasonable estimate of
the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of
uncertainties relating to litigation, the amount of our estimates could be wrong. In addition to the related cost and use of cash, pending or future litigation could cause the diversion of managements attention and resources.

Because of the rights of our two classes of common stock, and because we are controlled by our existing holders of class B common stock, these
stockholders could transfer control of MicroStrategy to a third party without the approval of our Board of Directors or our other stockholders, prevent a third party from acquiring MicroStrategy, or limit your ability to influence corporate matters

We have two classes of common stock: class A common stock and class B common stock. Holders of our class A common stock generally have the
same rights as holders of our class B common stock, except that holders of class A common stock have one vote per share while holders of class B common stock have ten votes per share. As of October 27, 2010, holders of our class B common stock
owned 2,694,362 shares of class B common stock, or 76.6% of the total voting power. Michael J. Saylor, our Chairman, President and Chief Executive Officer, beneficially owned 393,146 shares of class A common stock and 2,358,700 shares of class B
common stock, or 67.4% of the total voting power, as of October 27, 2010. Accordingly, Mr. Saylor is able to control MicroStrategy through his ability to determine the outcome of elections of our directors, amend our certificate of
incorporation and by-laws and take other actions requiring the vote or consent of stockholders, including mergers, going-private transactions and other extraordinary transactions and their terms.



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Our certificate of incorporation
allows holders of class B common stock, all of whom are current employees or directors of our company or related parties, to transfer shares of class B common stock, subject to the approval of stockholders possessing a majority of the outstanding
class B common stock. Mr. Saylor or a group of stockholders possessing a majority of the outstanding class B common stock could, without the approval of our Board of Directors or our other stockholders, transfer voting control of MicroStrategy
to a third party. Such a transfer of control could have a material adverse effect on our business, operating results and financial condition. Mr. Saylor or a group of stockholders possessing a majority of the outstanding class B common stock
will also be able to prevent a change of control of MicroStrategy, regardless of whether holders of class A common stock might otherwise receive a premium for their shares over the then current market price. In addition, this concentrated control
limits stockholders ability to influence corporate matters and, as a result, we may take actions that our non-controlling stockholders do not view as beneficial. As a result, the market price of our class A common stock could be adversely
affected.



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

The following table provides information about our repurchases of equity securities during the periods indicated that are registered by us pursuant to Section 12 of the Exchange Act:



|                                       |  |                                         |         |  |                                         |   |       |                                                                                             |  |  |                                                                                                                        |  |  |   |             | 
|-------------------------------------- |  | --------------------------------------- | ------- |  | --------------------------------------- | - | ----- | ------------------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------- |  |  | - | ----------- | 
|                                       |  | (a)                                     |         |  | (b)                                     |   |       | (c)                                                                                         |  |  | (d)                                                                                                                    | 
|                                       |  |                                         |         | 
|Period                                 |  | TotalNumber ofShares (orUnits)Purchased |         |  | AveragePrice Paidper
Share(or Unit) (1) |   |       | Total Number ofShares (or
Units)Purchased as Part ofPublicly
AnnouncedPlans or Programs (2) |  |  | Maximum Number (orApproximate
DollarValue) of Shares (orUnits) that May Yet BePurchased Under thePlans or Programs (2) | 
|July 1, 2010  July 31, 2010           |  |                                         |        |  |                                         |   | N/A   |                                                                                             |  |  |                                                                                                                       |  |  | $ | 522,027,604 | 
|August 1, 2010  August 31, 2010       |  |                                         | 368,853 |  |                                         | $ | 76.92 |                                                                                             |  |  | 368,853                                                                                                                |  |  | $ | 493,656,849 | 
|September 1, 2010  September 30, 2010 |  |                                         | 141,880 |  |                                         | $ | 81.57 |                                                                                             |  |  | 141,880                                                                                                                |  |  | $ | 482,083,183 | 
|Total:                                 |  |                                         | 510,733 |  |                                         | $ | 78.21 |                                                                                             |  |  | 510,733                                                                                                                |  |  | $ | 482,083,183 | 



|(1) | The Average Price Paid per Share includes broker commissions.
|--- | -------------------------------------------------------------

|(2) | On July 28, 2005, we announced that our Board of Directors had authorized our repurchase of up to an aggregate of $300.0 million of our class A common stock from
time to time on the open market, pursuant to the 2005 Share Repurchase Program. The timing and amount of any shares repurchased is determined by our management based on its evaluation of market conditions and other factors. The 2005 Share
Repurchase Program may be funded using our working capital, as well as proceeds from any credit facilities and other borrowing arrangements which we may enter into in the future. On April 29, 2008, our Board of Directors amended the 2005 Share
Repurchase Program to increase the amount of class A common stock that we are authorized to repurchase from $300.0 million to $800.0 million in the aggregate. The term of the 2005 Share Repurchase Program was also extended to April 29, 2013,
although the program may be suspended or discontinued by us at any time. As of September 30, 2010, we had repurchased an aggregate of 3,517,808 shares of our class A common stock at an average price per share of $90.37 and an aggregate cost of
$317.9 million under the 2005 Share Repurchase Program. As of September 30, 2010, $482.1 million of our class A common stock remained available for repurchase pursuant to the 2005 Share Repurchase Program.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 6. | Exhibits
|------- | --------

We hereby file as part of this
Quarterly Report on Form 10-Q the exhibits listed in the Index to Exhibits.

All other items not included in this Quarterly Report on Form
10-Q are omitted because they are not applicable or the answers thereto are none.



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SIGNATURES

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



MICROSTRATEGY INCORPORATEDBy:

/s/ Michael J. SaylorMichael J. SaylorChairman of the Board of Directors, President and Chief Executive OfficerBy:

/s/ Douglas K. ThedeDouglas K. ThedeExecutive Vice President, Finance & Chief Financial Officer


Date: November 3, 2010



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INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                                                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                     
|              | 
|3.1           |  | Second Restated Certificate of Incorporation of the registrant (filed as Exhibit 3.1 to the registrants Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2003 (File No. 000-24435) and incorporated by reference herein).
|              | 
|3.2           |  | Amended and Restated By-Laws of the registrant (filed as Exhibit 3.2 to the registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No.
000-24435) and incorporated by reference herein).                     
|              | 
|4.1           |  | Form of Certificate of Class A Common Stock of the registrant (filed as Exhibit 4.1 to the registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2003 (File No. 000-24435) and incorporated by reference herein).  
|              | 
|10.1          |  | Summary of Compensation for Named Executive Officers (filed as Exhibit 10.1 to the registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 (File
No. 000-24435) and incorporated by reference herein).          
|              | 
|10.2          |  | Summary of Compensation for Non-Employee Directors (filed as Exhibit 10.2 to the registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010 (File
No. 000-24435) and incorporated by reference herein).            
|              | 
|31.1          |  | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Chairman of the Board of Directors,
President and Chief Executive Officer.                                                                                                    
|              | 
|31.2          |  | Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Chief Financial Officer.                                                                                                                                                      
|              | 
|32            |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                         



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