##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-29154
 IONA Technologies PLC
 (Exact name of registrant as specified in its charter)
 Ireland(State or other jurisdiction of 
incorporation or organization)
    
    N/A(I.R.S. Employer
Identification No.)The IONA Building 
Shelbourne Road, Ballsbridge 
Dublin 4, Ireland(Address of principal executive offices)
    
    N/A(Zip Code)
 +353-1-637-2000
 þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
  Class
    
    Outstanding at July 31, 2008Ordinary Shares, par value 0.0025 per share
    
    36,837,821




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##### 



TABLE OF CONTENTS
 Part I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited):(a) Condensed Consolidated Balance Sheets at June 30, 2008
and December 31, 2007
    
    
    1(b) Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2008 and 2007
    
    
    2(c) Condensed Consolidated Statements of Cash Flows for the Three
and Six Months Ended June 30, 2008 and 2007
    
    
    3(d) Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    33Part II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    33Item 1A.
    
    Risk Factors
    
    
    33Item 6.
    
    Exhibits
    
    
    35SIGNATURES
    
    
    36EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEO & CFO




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item Financial Statements
 
 IONA Technologies PLC
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
 June 30,2008
    
    
    December 31,(unaudited)
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,963
    
    
    $
    21,767Restricted cash
    
    
    200
    
    
    
    200Marketable securities
    
    
    2,026
    
    
    
    34,514Accounts receivable, net of allowance of $344 and $583, respectively
    
    
    10,726
    
    
    
    12,378Prepaid expenses
    
    
    2,650
    
    
    
    2,138Deferred tax asset  current
    
    
    888
    
    
    
    888Other assets  current
    
    
    15
    
    
    
    205Total current assets
    
    
    52,468
    
    
    
    72,090Property and equipment, net of accumulated depreciation of $18,079 and $17,865, respectively
    
    
    2,381
    
    
    
    2,644Goodwill and intangible assets
    
    
    9,750
    
    
    
    10,149Marketable securities, non-current
    
    
    16,975
    
    
    
    Deferred tax asset
    
    
    1,040
    
    
    
    1,040Other assets
    
    
    401
    
    
    
    388Total assets
    
    $
    83,015
    
    
    $
    86,311LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,701
    
    
    $
    1,470Accrued payroll and related expenses
    
    
    4,974
    
    
    
    4,946Deferred revenue
    
    
    18,013
    
    
    
    15,931Other accrued liabilities
    
    
    14,308
    
    
    
    10,513Total current liabilities
    
    
    39,996
    
    
    
    32,860Long-term deferred revenue
    
    
    1,041
    
    
    
    1,317Other non-current liabilities
    
    
    2,895
    
    
    
    2,583Shareholders equity:Ordinary shares, 0.0025 par value, 150,000,000 shares authorized;
36,816,338 and 36,531,565, respectively,
shares issued and outstanding
    
    
    102
    
    
    
    101Additional paid-in capital
    
    
    510,592
    
    
    
    508,474Accumulated deficit
    
    
    (470,579
    )
    
    
    (459,032
    )Accumulated other comprehensive (loss) / income
    
    
    (1,032
    )
    
    
    8Total shareholders equity
    
    
    39,083
    
    
    
    49,551Total liabilities and shareholders equity
    
    $
    83,015
    
    
    $
    86,311
  1




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IONA Technologies PLC
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Product revenue
    
    $
    7,489
    
    
    $
    9,880
    
    
    $
    14,085
    
    
    $
    16,148Service revenue
    
    
    9,961
    
    
    
    9,890
    
    
    
    19,806
    
    
    
    19,204Total revenue
    
    
    17,450
    
    
    
    19,770
    
    
    
    33,891
    
    
    
    35,352Cost of revenue:Cost of product revenue
    
    
    199
    
    
    
    240
    
    
    
    386
    
    
    
    470Cost of service revenue
    
    
    3,691
    
    
    
    3,785
    
    
    
    7,526
    
    
    
    7,238Total cost of revenue
    
    
    3,890
    
    
    
    4,025
    
    
    
    7,912
    
    
    
    7,708Gross profit
    
    
    13,560
    
    
    
    15,745
    
    
    
    25,979
    
    
    
    27,644Operating expenses:Research and development
    
    
    4,752
    
    
    
    5,088
    
    
    
    9,673
    
    
    
    9,515Sales and marketing
    
    
    6,743
    
    
    
    8,283
    
    
    
    13,952
    
    
    
    16,134General and administrative
    
    
    6,049
    
    
    
    3,380
    
    
    
    10,058
    
    
    
    6,506Amortization of intangible assets
    
    
    52
    
    
    
    48
    
    
    
    104
    
    
    
    56Restructuring and impairments
    
    
    1,841
    
    
    
    
    
    
    
    3,370
    
    
    
    Total operating expenses
    
    
    19,437
    
    
    
    16,799
    
    
    
    37,157
    
    
    
    32,211Loss from operations
    
    
    (5,877
    )
    
    
    (1,054
    )
    
    
    (11,178
    )
    
    
    (4,567
    )Interest income, net
    
    
    244
    
    
    
    515
    
    
    
    743
    
    
    
    1,090Net exchange loss
    
    
    (290
    )
    
    
    (307
    )
    
    
    (221
    )
    
    
    (294
    )Loss before provision for income taxes
    
    
    (5,923
    )
    
    
    (846
    )
    
    
    (10,656
    )
    
    
    (3,771
    )Provision for income taxes
    
    
    500
    
    
    
    366
    
    
    
    891
    
    
    
    289Net loss
    
    $
    (6,423
    )
    
    $
    (1,212
    )
    
    $
    (11,547
    )
    
    $
    (4,060
    )Basic and diluted net loss per ordinary share and per American
Depositary Shares
    
    $
    (0.17
    )
    
    $
    (0.03
    )
    
    $
    (0.31
    )
    
    $
    (0.11
    )Shares used in computing basic and diluted net loss per ordinary
share and per American Depositary Shares
    
    
    36,806
    
    
    
    36,307
    
    
    
    36,724
    
    
    
    36,191
  2




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IONA Technologies PLC
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 Six Months EndedJune 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (11,547
    )
    
    $
    (4,060
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:Depreciation
    
    
    757
    
    
    
    835Amortization
    
    
    398
    
    
    
    267Share-based compensation
    
    
    1,333
    
    
    
    2,776Restructuring and impairments
    
    
    3,370
    
    
    
    Realized gain on marketable securities
    
    
    (15
    )
    
    
    (408
    )Recovery of bad debt expense
    
    
    (219
    )
    
    
    (44
    )Deferred income taxes
    
    
    
    
    
    
    (409
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    1,871
    
    
    
    5,902Prepaid expenses
    
    
    (512
    )
    
    
    (1,285
    )Other assets
    
    
    162
    
    
    
    1Accounts payable
    
    
    1,231
    
    
    
    1,284Accrued payroll and related expenses
    
    
    28
    
    
    
    (1,959
    )Other liabilities
    
    
    823
    
    
    
    416Deferred revenue
    
    
    1,806
    
    
    
    4,190Net cash (used in) provided by operating activities
    
    
    (514
    )
    
    
    7,506CASH FLOWS FROM INVESTING ACTIVITIES:Business acquired in purchase transaction, net of cash acquired
    
    
    
    
    
    
    (10,558
    )Sales of marketable securities
    
    
    25,358
    
    
    
    4,950Purchases of marketable securities
    
    
    (10,869
    )
    
    
    (5,642
    )Purchases of property and equipment
    
    
    (580
    )
    
    
    (461
    )Proceeds from disposal of property and equipment
    
    
    15
    
    
    
    Net cash provided by (used in) investing activities
    
    
    13,924
    
    
    
    (11,711
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    570
    
    
    
    849Proceeds from employee share purchase plan
    
    
    216
    
    
    
    309Net cash provided by financing activities
    
    
    786
    
    
    
    1,158NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    14,196
    
    
    
    (3,047
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    21,767
    
    
    
    37,569CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    35,963
    
    
    $
    34,522
  3




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IONA Technologies PLC
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. Basis of Presentation and New Accounting Standards
    Fair Value Measurements,
 The Fair Value
Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No.
115,
 Business
Combinations
 4




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##### Table of Contents



Noncontrolling
Interests in Consolidated Financial Statements  an amendment of Accounting Research Bulletin
(ARB) No. 51
 Disclosures about
Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133
 The Hierarchy of
Generally Accepted Accounting Principles The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles
 2. Acquisition Agreement with Progress Software Corporation
  3. Revenue Recognition
 Software
Revenue Recognition
  5




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
    
    persuasive evidence of an arrangement exists;
    
    delivery has occurred;
    
    customer fee is fixed or determinable; and
    
    collection is probable.
   
    
    Support contracts are regularly sold on a stand-alone basis to customers that choose to
renew the support contract beyond the initial term. Support contract pricing is based on
established list pricing. Renewal purchases at consistent pricing provide the basis for
VSOE on the support contracts. Support revenue is recognized ratably over the contract
term.
    
    Consulting contracts are regularly sold on a stand-alone basis to customers requesting
these services. Consulting contract pricing is at a daily flat rate and customers purchase
an appropriate number of service days. The consulting services delivered on a stand-alone
basis at consistent pricing provide the basis for VSOE on the consulting contracts.
Consulting revenue is recognized as the services are performed.
     6




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4. Share-Based Compensation Plans
 Accounting for Stock-Based Compensation,
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Employee share options *
    
    $
    694
    
    
    $
    1,254
    
    
    $
    1,269
    
    
    $
    2,493Employee share purchases *
    
    
    30
    
    
    
    57
    
    
    
    64
    
    
    
    113Phantom share units *+
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    170Total share-based compensation
    
    $
    724
    
    
    $
    1,423
    
    
    $
    1,333
    
    
    $
    2,776
 
  *
    
    service conditions+
    
    performance conditions 1999 Employee Share Purchase Plan
 
 Employee Share-Based Compensation Plans
  7




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Available forPlan
    
    Authorized
    
    
    Outstanding
    
    
    Future Grants1997 Share Option Scheme
    
    
    12,900,000
    
    
    
    4,980,353
    
    
    
    2006 Share Incentive Plan
    
    
    4,000,000
    
    
    
    1,457,000
    
    
    
    4,118,416
    *1997 Director Share Option Scheme
    
    
    500,000
    
    
    
    351,000
    
    
    
    Genesis Development Corporation 1997 Stock Option Plan
    
    
    
    **
    
    
    228
    
    
    
    Netfish Technologies, Inc. 1999 Stock Option Plan
    
    
    
    **
    
    
    25,594
    
    
    
    17,400,000
    
    
    
    6,814,175
    
    
    
    4,118,416
 
 *
    
    Includes 1,654,728 shares, as of June 30, 2008, from the 1997 Share Option Scheme and 1997
Director Share Option Scheme that were forfeited, cancelled, held back upon exercise of an
option or settlement of an award to cover the exercise price or tax withholding, reacquired by
the Company prior to vesting, satisfied without the issuance of shares or otherwise terminated
(other than by exercise).**
    
    In connection with acquisitions of Genesis Development Corporation and Netfish Technologies,
Inc., or Netfish, all of the outstanding share options for these plans were converted into
options to purchase the Companys ordinary shares.
 General Share-Based Awards Information
  Number
    
    
    Weighted-Averageof Awards
    
    
    Exercise PriceBalance outstanding at December 31, 2007
    
    
    7,999
    
    
    $
    4.84Granted  share options
    
    
    229
    
    
    
    3.52Granted  phantom share units
    
    
    
    
    
    
    Forfeitures
    
    
    (1,211
    )
    
    
    4.53Exercised
    
    
    (203
    )
    
    
    2.81Balance outstanding at June 30, 2008
    
    
    6,814
    
    
    $
    4.91
  Awards Outstanding
    
    
    Awards ExercisableWeighted-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    
    Weighted-
    
    
    Aggregate
    
    
    
    
    
    
    Remaining
    
    
    Weighted-
    
    
    AggregateRange of
    
    Number
    
    
    Contractual Life
    
    
    Average
    
    
    Intrinsic
    
    
    Number
    
    
    Contractual Life
    
    
    Average
    
    
    IntrinsicExercise Prices
    
    of Shares
    
    
    (Years)
    
    
    Exercise Price
    
    
    Value
    
    
    of Shares
    
    
    (Years)
    
    
    Exercise Price
    
    
    Value$0.00  $3.50
    
    
    2,445
    
    
    
    5.8
    
    
    $
    2.77
    
    
    $
    2,849
    
    
    
    2,114
    
    
    
    5.5
    
    
    $
    2.72
    
    
    $
    2,589$3.51  $5.00
    
    
    1,663
    
    
    
    7.7
    
    
    
    4.13
    
    
    
    119
    
    
    
    829
    
    
    
    7.1
    
    
    
    4.24
    
    
    
    20$5.01  $6.50
    
    
    1,836
    
    
    
    7.5
    
    
    
    5.45
    
    
    
    
    
    
    
    1,009
    
    
    
    6.9
    
    
    
    5.39
    
    
    
    $6.51  $8.00
    
    
    691
    
    
    
    5.5
    
    
    
    7.34
    
    
    
    
    
    
    
    690
    
    
    
    5.5
    
    
    
    7.34
    
    
    
    $8.00  $74.50
    
    
    179
    
    
    
    2.1
    
    
    
    26.55
    
    
    
    
    
    
    
    179
    
    
    
    2.1
    
    
    
    26.55
    
    
    
    Total
    
    
    6,814
    
    
    
    6.6
    
    
    $
    4.91
    
    
    $
    2,968
    
    
    
    4,821
    
    
    
    5.6
    
    
    $
    5.08
    
    
    $
    2,609
  8




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Valuation and Expense Information under SFAS 123R
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Cost of service revenue
    
    $
    98
    
    
    $
    201
    
    
    $
    196
    
    
    $
    344Research and development
    
    
    165
    
    
    
    303
    
    
    
    350
    
    
    
    593Sales and marketing
    
    
    220
    
    
    
    452
    
    
    
    396
    
    
    
    906General and administrative
    
    
    241
    
    
    
    467
    
    
    
    391
    
    
    
    933
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    
    2.6
    %
    
    
    4.9
    %
    
    
    2.2
    %
    
    
    4.8
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected volatility
    
    
    56.3
    %
    
    
    67.8
    %
    
    
    56.3
    %
    
    
    67.8
    %Expected life (years)
    
    
    3.02
    
    
    
    3.90
    
    
    
    3.02
    
    
    
    3.90
    Three and SixMonths EndedJune 30,2008
    
    2007Risk-free interest rate
    
    
    3.0
    %
    
    
    5.1
    %Expected dividend yield
    
    
    
    
    
    
    Expected volatility
    
    
    25.0
    %
    
    
    67.8
    %Expected life (years)
    
    
    0.5
    
    
    
    0.5
 9




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Share option plans
    
    $
    1.55
    
    
    $
    3.06
    
    
    $
    1.41
    
    
    $
    3.02Employee share
purchase plan
    
    $
    0.71
    
    
    $
    1.73
    
    
    $
    0.75
    
    
    $
    1.67
 5. Restricted Cash
  6. Fair Value Measurements
 Basis of Presentation and New Accounting Standards
  Fair Value Measurements at June 30, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs(In thousands)
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash and cash equivalents
    
    $
    36,163
    
    
    $
    36,163
    
    
    $
    
    
    
    $
    Marketable securities 
current and non-current
    
    
    19,001
    
    
    
    
    
    
    
    2,026
    
    
    
    16,975Total
    
    $
    55,164
    
    
    $
    36,163
    
    
    $
    2,026
    
    
    $
    16,975
  10




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AvailableFor-sale(In thousands)
    
    SecuritiesBalance, December 31, 2007
    
    $
    Transfers from Level 2
    
    
    20,000Purchases
    
    
    3,250Redemptions and sales
    
    
    (5,250
    )Unrealized losses included in accumulated other comprehensive loss
    
    
    (1,025
    )Balance, June 30, 2008
    
    $
    16,975
  7. Marketable Securities
 Accounting for Certain Investments in Debt and Equity Securities,
  As of June 30, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAuction rate securities
    
    $
    18,000
    
    
    $
    
    
    
    $
    (1,025
    )
    
    $
    16,975Fixed income securities
    
    
    2,033
    
    
    
    
    
    
    
    (7
    )
    
    
    2,026Commercial paper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total marketable securities
    
    $
    20,033
    
    
    $
    
    
    
    $
    (1,032
    )
    
    $
    19,001
 11




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As of December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAuction rate securities
    
    $
    20,000
    
    
    $
    
    
    
    $
    
    
    
    $
    20,000Fixed income securities
    
    
    8,000
    
    
    
    8
    
    
    
    
    
    
    
    8,008Commercial paper
    
    
    6,506
    
    
    
    
    
    
    
    
    
    
    
    6,506Total marketable securities
    
    $
    34,506
    
    
    $
    8
    
    
    $
    
    
    
    $
    34,514
 8. Accumulated Other Comprehensive Loss
 Reporting Comprehensive Income,
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (6,423
    )
    
    $
    (1,212
    )
    
    $
    (11,547
    )
    
    $
    (4,060
    )Other comprehensive loss:Unrealized holding losses arising during the
period
    
    
    (251
    )
    
    
    
    
    
    
    (1,017
    )
    
    
    Less: reclassification adjustment for gains
realized in net income
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    Net unrealized losses on investments
    
    
    (251
    )
    
    
    
    
    
    
    (1,032
    )
    
    
    Total comprehensive loss
    
    $
    (6,674
    )
    
    $
    (1,212
    )
    
    $
    (12,579
    )
    
    $
    (4,060
    )
 9. Advanced Billings
  10. Goodwill and Intangible Assets
  June 30, 2008Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingPeriod (Years)
    
    
    Amount
    
    
    Amortization
    
    
    AmountGoodwill
    
    
    
    
    
    $
    7,521
    
    
    $
    
    
    
    $
    7,521Intangible assetsTechnology
    
    
    4
    
    
    
    2,350
    
    
    
    (780
    )
    
    
    1,570Customer relationships
    
    
    5
    
    
    
    730
    
    
    
    (185
    )
    
    
    545Non-competition agreements
    
    
    3
    
    
    
    200
    
    
    
    (86
    )
    
    
    114Amortizable intangible assets
    
    
    
    
    
    
    3,280
    
    
    
    (1,051
    )
    
    
    2,229Total goodwill and intangible assets
    
    
    
    
    
    $
    10,801
    
    
    $
    (1,051
    )
    
    $
    9,750
 12




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##### Table of Contents



2008
    
    2009
    
    2010
    
    2011
    
    2012Amortization expense
    
    $
    400
    
    
    $
    800
    
    
    $
    747
    
    
    $
    244
    
    
    $
    37
 11. Restructurings and Impairments
    SeveranceExcess
    
    
    and OtherFacilities
    
    
    Direct Costs
    
    
    TotalBalance at December 31, 2007
    
    $
    2,391
    
    
    $
    
    
    
    $
    2,3912008 charges
    
    
    1,758
    
    
    
    1,547
    
    
    
    3,305Cash outlays in 2008
    
    
    (252
    )
    
    
    (1,464
    )
    
    
    (1,716
    )Balance at June 30, 2008
    
    $
    3,897
    
    
    $
    83
    
    
    $
    3,980
   12. Net Loss Per Ordinary Share and ADS
  13. Income Taxes
  13




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##### Table of Contents



14. Segment Information
 Disclosures About Segments
of an Enterprise and Related Information,
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Americas
    
    $
    9,566
    
    
    $
    7,433
    
    
    $
    19,444
    
    
    $
    15,903Europe, Middle East and Africa
    
    
    4,729
    
    
    
    9,238
    
    
    
    9,114
    
    
    
    13,841Asia-Pacific Rim
    
    
    3,155
    
    
    
    3,099
    
    
    
    5,333
    
    
    
    5,608Total
    
    $
    17,450
    
    
    $
    19,770
    
    
    $
    33,891
    
    
    $
    35,352
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007AT&T Inc.
    
    
    13
    %
    
    
    
    *
    
    
    18
    %
    
    
    
    *The Boeing Company
    
    
    15
    %
    
    
    21
    %
    
    
    13
    %
    
    
    16
    %
 
 *
    
    Customer accounted for less than 10% of the Companys revenue 14




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##### Table of Contents



15. Contingencies
  16. Guarantees
   15




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##### Table of Contents



I tem 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
of IONA Technologies PLC, hereinafter referred to as we, us, our, IONA, or the Company,
should be read in conjunction with the accompanying condensed consolidated financial statements for
the periods specified and the associated notes. Managements Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or Exchange Act, made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 that relate to future events or
our future financial performance. In some cases, you can identify forward-looking statements by
terminology, such as may, will, should, could, expect, plan, anticipate, believe,
estimate, project, predict, intend, potential, or continue or the negative of such
terms or other comparable terminology, although not all forward-looking statements contain such
terms. In addition, these forward-looking statements include, but are not limited to, statements
regarding, among other things, our plans, objectives, expectations and intentions. These
forward-looking statements are neither promises nor guarantees but rather are subject to a number
of risks and uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements, including risks and uncertainties relating to IONAs
cost management efforts; growth in market demand for service oriented architectures and integration
software; IONAs sales model; volume, timing and seasonal patterns of product sales; impact of
competitive products and pricing; development, launch and market acceptance of new and improved
products; undetected errors in software; the integration of any acquisitions; anticipated tax
rates; and general economic conditions, including their effect on the acquisition of new accounts
and the time required to close sales transactions. You should not rely on these forward-looking
statements, which are current only as of the date when made. You should not expect that these
forward-looking statements will be updated or supplemented as a result of changing circumstances or
otherwise, and we disavow and disclaim any obligation to do so. Further reference should be made to
Item 1A. Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2007, as
updated by our subsequently filed Quarterly Reports on Form 10-Q and other SEC filings, as well as
elsewhere in this report.
 Overview
    
    
    Revenue growth which provides an important guide to our overall business growth and the
success of our sales and marketing efforts;
    
    Gross margin which is an indicator of our offering mix, competitive pricing pressures and
the cost of our operations;
    
    Growth in our Artix product revenue which is an indicator of the success of our focused
sales efforts;
    
    Earnings per share which is an indicator of our overall performance;
    
    Liquidity and cash flow which are indicators of our management of our balance sheet and
expenses; and
    
    Growth in our FUSE open source services revenue which is an indicator of market acceptance of
our
 16




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##### Table of Contents



introductory offerings.
  Critical Accounting Policies and Estimates
  
    
    Revenue Recognition;
    
    Allowances for Doubtful Accounts;
    
    Share-Based Compensation;
    
    Accounting for Income Taxes;
    
    Goodwill and Intangible Assets;
    
    Marketable Securities;
    
    Restructuring; and
    
    Foreign Currency.
 Notes to the
Consolidated Financial Statements
 Revenue Recognition
 Software Revenue Recognition
   
    
    we enter into a legally binding arrangement with a customer for the license of software;
    
    delivery has occurred;
 17




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##### Table of Contents




    
    the license fee is fixed or determinable; and
    
    collection is probable.
   
    
    Support contracts are regularly sold on a stand-alone basis to customers that choose to renew
the support contract beyond the initial term. Support contract pricing is based on established
list pricing. The renewal purchases at consistent pricing provide the basis for VSOE on the
support contracts. Support revenue is recognized ratably over the contract support term.
    
    Consulting contracts are regularly sold on a stand-alone basis to customers requesting these
services. Consulting contract pricing is at a flat daily rate and customers purchase an
appropriate number of service days. The consulting services delivered on a stand-alone basis
at consistent pricing provide the basis for VSOE on the consulting contracts. Consulting
revenue is recognized as the services are performed.
      18




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##### Table of Contents



Allowances for Doubtful Accounts
  Share-Based Compensation
 Share-Based Payment,
    Accounting for Income Taxes
  19




---



##### Table of Contents



Goodwill and Intangible Assets
 20




---



##### Table of Contents



Goodwill and
Other Intangible Assets
 Marketable Securities
 Accounting for Certain Investments in Debt and
Equity Securities, and SAB Topic 5M, Accounting for Noncurrent Marketable Equity Securities
 Fair Value Measurements
 Restructurings
  21




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##### Table of Contents



Foreign Currency
  22




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Revenue:Product revenue
    
    
    42.9
    %
    
    
    50.0
    %
    
    
    41.6
    %
    
    
    45.7
    %Service revenue
    
    
    57.1
    
    
    
    50.0
    
    
    
    58.4
    
    
    
    54.3Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenue:Cost of product revenue
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.1
    
    
    
    1.3Cost of service revenue
    
    
    21.2
    
    
    
    19.2
    
    
    
    22.2
    
    
    
    20.5Total cost of revenue
    
    
    22.3
    
    
    
    20.4
    
    
    
    23.3
    
    
    
    21.8Gross margin
    
    
    77.7
    
    
    
    79.6
    
    
    
    76.7
    
    
    
    78.2Operating expenses:Research and development
    
    
    27.2
    
    
    
    25.7
    
    
    
    28.6
    
    
    
    26.9Sales and marketing
    
    
    38.6
    
    
    
    41.9
    
    
    
    41.2
    
    
    
    45.6General and administrative
    
    
    34.7
    
    
    
    17.1
    
    
    
    29.7
    
    
    
    18.4Amortization of purchased intangible assets
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2Restructuring and impairments
    
    
    10.6
    
    
    
    0.0
    
    
    
    9.9
    
    
    
    0.0Total operating expenses
    
    
    111.4
    
    
    
    84.9
    
    
    
    109.7
    
    
    
    91.1Loss from operations
    
    
    (33.7
    )
    
    
    (5.3
    )
    
    
    (33.0
    )
    
    
    (12.9
    )Interest income, net
    
    
    1.4
    
    
    
    2.6
    
    
    
    2.2
    
    
    
    3.0Net exchange loss
    
    
    (1.6
    )
    
    
    (1.6
    )
    
    
    (0.6
    )
    
    
    (0.8
    )Loss before provision for income taxes
    
    
    (33.9
    )
    
    
    (4.3
    )
    
    
    (31.4
    )
    
    
    (10.7
    )Provision for income taxes
    
    
    2.9
    
    
    
    1.8
    
    
    
    2.7
    
    
    
    0.8Net loss
    
    
    (36.8
    )%
    
    
    (6.1
    )%
    
    
    (34.1
    )%
    
    
    (11.5
    )%Gross margin:Product
    
    
    97.3
    %
    
    
    97.6
    %
    
    
    97.3
    %
    
    
    97.1
    %Service
    
    
    62.9
    %
    
    
    61.7
    %
    
    
    62.0
    %
    
    
    62.3
    %
 23




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##### Table of Contents



Three months ended June 30, 2008, compared to three months ended June 30, 2007
 Total Revenue
  Three Months Ended June 30,($ in millions)
    
    2008
    
    
    % of Total
    
    
    2007
    
    
    % of Total
    
    
    % ChangeAmericas
    
    $
    9.6
    
    
    
    54.8
    %
    
    $
    7.4
    
    
    
    37.6
    %
    
    
    28.7
    %Europe, Middle East and Africa
    
    
    4.7
    
    
    
    27.1
    %
    
    
    9.3
    
    
    
    46.7
    %
    
    
    (48.8
    )%Asia-Pacific Rim
    
    
    3.2
    
    
    
    18.1
    %
    
    
    3.1
    
    
    
    15.7
    %
    
    
    1.8
    %Total revenue
    
    $
    17.5
    
    
    
    
    
    
    $
    19.8
    
    
    
    
    
    
    
    (11.7
    )%
  Three Months Ended June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    % ChangeProduct revenue
    
    $
    7.5
    
    
    $
    9.9
    
    
    
    (24.2
    )%Service revenue
    
    
    10.0
    
    
    
    9.9
    
    
    
    0.7
    %Total revenue
    
    $
    17.5
    
    
    $
    19.8
    
    
    
    (11.7
    )%
   Cost of Product Revenue
 Three Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeCost of product revenue
    
    $
    0.2
    
    
    $
    0.2
    
    
    
    (17.1
    )%Gross margin
    
    
    97.3
    %
    
    
    97.6
    %
  24




---



##### Table of Contents



Cost of Service Revenue
 Three Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeCost of service revenue
    
    $
    3.7
    
    
    $
    3.8
    
    
    
    (2.5
    )%Gross margin
    
    
    62.9
    %
    
    
    61.7
    %
  Research and Development
 Three Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeResearch and development
    
    $
    4.8
    
    
    $
    5.1
    
    
    
    (6.6
    )%Percentage of revenue
    
    
    27.2
    %
    
    
    25.7
    %
  Sales and Marketing
 Three Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeSales and marketing
    
    $
    6.7
    
    
    $
    8.3
    
    
    
    (18.6
    )%Percentage of revenue
    
    
    38.6
    %
    
    
    41.9
    %
  25




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##### Table of Contents



General and Administrative
 Three Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeGeneral and administrative
    
    $
    6.0
    
    
    $
    3.4
    
    
    
    79.0
    %Percentage of revenue
    
    
    34.7
    %
    
    
    17.1
    %
  Amortization of Intangible Assets
  Restructurings and Impairments
    Interest Income, Net
  26




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##### Table of Contents



Net Exchange Loss
  Provision for Income Taxes
  Six months ended June 30, 2008, compared to six months ended June 30, 2007
 Total Revenue
  Six Months Ended June 30,($ in millions)
    
    2008
    
    
    % of Total
    
    
    2007
    
    
    % of Total
    
    
    % ChangeAmericas
    
    $
    19.5
    
    
    
    57.4
    %
    
    $
    15.9
    
    
    
    45.0
    %
    
    
    22.3
    %Europe, Middle East and Africa
    
    
    9.1
    
    
    
    26.9
    %
    
    
    13.8
    
    
    
    39.1
    %
    
    
    (34.2
    )%Asia-Pacific Rim
    
    
    5.3
    
    
    
    15.7
    %
    
    
    5.6
    
    
    
    15.9
    %
    
    
    (4.9
    )%Total revenue
    
    $
    33.9
    
    
    
    
    
    
    $
    35.3
    
    
    
    
    
    
    
    (4.1
    )%
  Six Months Ended June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    % ChangeProduct revenue
    
    $
    14.1
    
    
    $
    16.1
    
    
    
    (12.8
    )%Service revenue
    
    
    19.8
    
    
    
    19.2
    
    
    
    3.1
    %Total revenue
    
    $
    33.9
    
    
    $
    35.3
    
    
    
    (4.1
    )%
   27




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##### Table of Contents



Cost of Product Revenue
 Six Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeCost of product revenue
    
    $
    0.4
    
    
    $
    0.5
    
    
    
    (17.9
    )%Gross margin
    
    
    97.3
    %
    
    
    97.1
    %
  Cost of Service Revenue
 Six Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeCost of service revenue
    
    $
    7.5
    
    
    $
    7.2
    
    
    
    4.0
    %Gross margin
    
    
    62.0
    %
    
    
    62.3
    %
  Research and Development
 Six Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeResearch and development
    
    $
    9.7
    
    
    $
    9.5
    
    
    
    1.7
    %Percentage of revenue
    
    
    28.6
    %
    
    
    26.9
    %
  Sales and Marketing
 Six Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeSales and marketing
    
    $
    14.0
    
    
    $
    16.1
    
    
    
    (13.5
    )%Percentage of revenue
    
    
    41.2
    %
    
    
    45.6
    %
  28




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##### Table of Contents



General and Administrative
 Six Months Ended June 30,($ in millions)
    
    2008
    
    2007
    
    % ChangeGeneral and administrative
    
    $
    10.0
    
    
    $
    6.5
    
    
    
    54.6
    %Percentage of revenue
    
    
    29.7
    %
    
    
    18.4
    %
  Amortization of Intangible Assets
  Restructurings and Impairments
    Interest Income, Net
  Net Exchange Loss
  29




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##### Table of Contents



Provision for Income Taxes
  Liquidity and Capital Resources
   Six Months EndedJune 30,2008
    
    
    2007Cash and cash equivalents, beginning of period
    
    $
    21,767
    
    
    $
    37,569Net cash (used in) provided by operating activities
    
    
    (514
    )
    
    
    7,506Net cash provided by (used in) investing activities
    
    
    13,924
    
    
    
    (11,711
    )Net cash provided by financing activities
    
    
    786
    
    
    
    1,158Cash and cash equivalents, end of period
    
    $
    35,963
    
    
    $
    34,522
    30




---



##### Table of Contents



Payment due by periodLess than
    
    1-3
    
    4-5
    
    More thanContractual Obligations
    
    Total
    
    1 year
    
    years
    
    years
    
    5 yearsOperating Lease Obligations
    
    $
    22,100
    
    
    $
    5,583
    
    
    $
    9,023
    
    
    $
    7,201
    
    
    $
    293
   31




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##### Table of Contents



Exposure to Currency Fluctuations
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
     32




---



##### Table of Contents



Item 4. Controls and Procedures
 (a) Disclosure Controls and Procedures.
  (b) Changes in Internal Controls Over Financial Reporting.
  
 Part
II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Our business and stock price may be materially and adversely affected if the acquisition of IONA by
a wholly-owned subsidiary Progress Software Corporation is not completed.
  33




---



##### Table of Contents



Restrictions on the conduct of our business prior to the completion of the pending Acquisition with
Progress may have a negative impact on our operating results.
  34




---



##### Table of Contents



Item 6. Exhibits
  ExhibitNo.
    
    Description of Exhibit2.1
    
    Implementation Agreement, dated as of June 25, 2008, by and
among SPK Acquisitions Limited, IONA Technologies PLC and,
with respect to Section 7.4 and Section 7.7 only, Progress
Software Corporation (1)10.1
    
    Expenses Reimbursement and Non-Solicitation Agreement, dated
June 25, 2008, by and between SPK Acquisitions Limited and
IONA Technologies PLC (1)10.2
    
    Deed of Limited Guaranty and Indemnity from Progress Software
Corporation, dated June 25, 2008 (1)31.1*
    
    Certification of Principal Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200231.2*
    
    Certification of Principal Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1**
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.**
    
    Furnished herewith.(1)
    
    Incorporated by reference to the Companys Current Report on Form 8-K filed on June 25, 2008. 35




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##### Table of Contents



SIGNATURES
  Date: August 11, 2008
    IONA Technologies PLCBy:
    /s/ Peter M. ZottoPeter M. Zotto, Chief Executive Officer(Principal Executive Officer)By:
    /s/ Christopher M. MirabileChristopher M. Mirabile, Chief Financial Officer(Principal Financial Officer) 36