**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-QSB**
| **(Mark One)**                                                                                                              | ** ** | ** **                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|
| x                                                                                                                           | ** ** | **Quarterly Report under Section 13 or 15(d)  of the Securities Exchange Act of 1934** |
| ** **                                                                                                                  | ** ** | ** **                                                                                  |
| **For the  quarterly period ended December 31, 2006**                                                                       |
| ** **                                                                                                                  | ** ** | ** **                                                                                  |
| o                                                                                                                           | ** ** | **Transition Report Pursuant to Section 13 or  15(d) of the Exchange Act**             |
| ** **                                                                                                                  | ** ** | ** **                                                                                  |
| **For the  transition period from                to** |

**CommissionFile number 0-16449**

**RAINING DATA CORPORATION**

(Exactname of registrant as specified in its charter)

| **Delaware**              |   | **94-3046892**                     |
|---------------------------|--------|------------------------------------|
| (State of  Incorporation) |   | (IRS Employer  Identification No.) |

 

**25ATechnology DriveIrvine, CA 92618**

(Addressof principal executive offices)

**(949)442-4400**

(Registrant’s telephonenumber)

Checkwhether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yes x  No o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).        Yes o   No x

As of December 31, 2006,there were  21,148,837  shares of registrant’s Common Stock, $.10 parvalue, outstanding.

Transitional Small BusinessDisclosure Format (Check one): Yes o  No x

 

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**RAINING DATACORPORATIONINDEX**
| PART I.  |   | FINANCIAL  INFORMATION                                                                                                    |   |   |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|--------|
| ITEM 1.  |   | FINANCIAL  STATEMENTS                                                                                                     |   |   |
|     |   | UNAUDITED  CONDENSED CONSOLIDATED BALANCE SHEETS — DECEMBER 31, 2006 AND MARCH 31,  2006                        |   |   |
|     |   | UNAUDITED  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — THREE AND NINE MONTHS ENDED  DECEMBER 31, 2006 AND 2005 |   |   |
|     |   | UNAUDITED  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — NINE MONTHS ENDED DECEMBER  31, 2006 AND 2005           |   |   |
|     |   | NOTES TO THE  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                       |   |   |
| ITEM 2.  |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                           |   |   |
| ITEM 3.  |   | CONTROLS AND  PROCEDURES                                                                                                  |   |   |
| PART II. |   | OTHER INFORMATION                                                                                                         |   |   |
| ITEM  1. |   | LEGAL  PROCEEDINGS                                                                                                        |   |   |
| ITEM  6. |   | EXHIBITS                                                                                                                  |   |   |

2

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**PART I. FINANCIAL INFORMATION**

ITEM 1.  FINANCIAL STATEMENTS

**RAINING DATA CORPORATION AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                         | ** ** | **December 31, 2006** | ** ** | **March 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
| ** **                                                                                         | ** ** | **(In thousands)**         | ** ** |
| ASSETS                                                                                             |       |                            |       |                         |       |
|                                                                                               |       |                            |       |                         |       |
| Current assets                                                                                     |       |                            |       |                         |       |
| Cash and cash  equivalents                                                                         |       | $                               | 10,532     |                         | $          | 10,789 |   |
| Trade  accounts receivable, less allowance for doubtful accounts of $306 in 2006 and  $182 in 2005 |       | 2,191                           |       | 2,019                        |       |
| Other current  assets                                                                              |       | 585                             |       | 355                          |       |
| Total current  assets                                                                              |       | 13,308                          |       | 13,163                       |       |
|                                                                                               |       |                            |       |                         |       |
| Property, furniture and  equipment-net                                                             |       | 1,030                           |       | 1,055                        |       |
| Goodwill                                                                                           |       | 26,788                          |       | 26,845                       |       |
| Other assets                                                                                       |       | 101                             |       | 96                           |       |
| Total assets                                                                                       |       | $                               | 41,227     |                         | $          | 41,159 |   |
|                                                                                               |       |                            |       |                         |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                         |       |                            |       |                         |       |
|                                                                                               |       |                            |       |                         |       |
| Current liabilities                                                                                |       |                            |       |                         |       |
| Accounts payable                                                                                   |       | $                               | 230        |                         | $          | 399 |   |
| Accrued  liabilities                                                                               |       | 2,409                           |       | 2,885                        |       |
| Deferred revenue                                                                                   |       | 5,005                           |       | 4,886                        |       |
| Total current  liabilities                                                                         |       | 7,644                           |       | 8,170                        |       |
| Long-term debt-net of  discount                                                                    |       | 23,835                          |       | 22,893                       |       |
| Total  liabilities                                                                                 |       | 31,479                          |       | 31,063                       |       |
|                                                                                               |       |                            |       |                         |       |
| Commitments and  contingencies                                                                     |       |                            |       |                         |       |
|                                                                                               |       |                            |       |                         |       |
| Stockholders’ equity                                                                          |       |                            |       |                         |       |
| Preferred stock                                                                                    |       | —                          |       | —                       |       |
| Common stock                                                                                       |       | 2,115                           |       | 2,064                        |       |
| Additional  paid-in-capital                                                                        |       | 101,102                         |       | 99,341                       |       |
| Accumulated  other comprehensive income                                                            |       | 1,418                           |       | 1,234                        |       |
| Accumulated  deficit                                                                               |       | (94,887                         | )          | (92,543                      | )          |
| Total  stockholders’ equity                                                                   |       | 9,748                           |       | 10,096                       |       |
|                                                                                               |       |                            |       |                         |       |
| Total liabilities and  stockholders’ equity                                                   |       | $                               | 41,227     |                         | $          | 41,159 |   |

 

See accompanying notes tothe unaudited condensed consolidated financial statements.

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**RAINING DATACORPORATION AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, exceptper share amounts)**
| ** **                                                    | ** ** | **Three Months Ended December 31,** | ** ** | **Nine Months Ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2006**                                                | ** ** | **2005**                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net revenues                                                  |       |                                                    |       |                                                   |       |   |   |   |   |
| Licenses                                                      |       | $                                                       | 1,793      |                                                   | $          | 2,334 |   | $ | 5,133 |   | $ | 6,271 |   |
| Services                                                      |       | 2,983                                                   |       | 2,965                                                  |       | 8,911 |   | 8,930 |   |
| Total net  revenues                                           |       | 4,776                                                   |       | 5,299                                                  |       | 14,044 |   | 15,201 |   |
| Operating expenses                                            |       |                                                    |       |                                                   |       |   |   |   |   |
| Cost of license  revenues                                     |       | 28                                                      |       | 27                                                     |       | 68 |   | 78 |   |
| Cost of service  revenues                                     |       | 442                                                     |       | 542                                                    |       | 1,583 |   | 1,745 |   |
| Selling and  marketing                                        |       | 1,387                                                   |       | 1,337                                                  |       | 4,204 |   | 3,923 |   |
| Research and  development                                     |       | 2,175                                                   |       | 2,429                                                  |       | 7,052 |   | 7,062 |   |
| General and  administrative                                   |       | 962                                                     |       | 986                                                    |       | 2,843 |   | 2,823 |   |
| Total operating  expenses                                     |       | 4,994                                                   |       | 5,321                                                  |       | 15,750 |   | 15,631 |   |
| Operating loss                                                |       | (218                                                    | )          | (22                                                    | )          | (1,706 | ) | (430 | ) |
| Other expense                                                 |       |                                                    |       |                                                   |       |   |   |   |   |
| Interest  expense-net                                         |       | (205                                                    | )          | (239                                                   | )          | (636 | ) | (728 | ) |
| Other (expense)  income-net                                   |       | 19                                                      |       | (7                                                     | )          | 55 |   | (79 | ) |
| Total other  expense                                          |       | (186                                                    | )          | (246                                                   | )          | (581 | ) | (807 | ) |
| Loss before income  taxes                                     |       | (404                                                    | )          | (268                                                   | )          | (2,287 | ) | (1,237 | ) |
| Provision for income  taxes                                   |       | 17                                                      |       | —                                                 |       | 57 |   | — |   |
| Net loss                                                      |       | $                                                       | (421       | )                                                      | $          | (268 | ) | $ | (2,344 | ) | $ | (1,237 | ) |
|                                                          |       |                                                    |       |                                                   |       |   |   |   |   |
| Basic and diluted net  loss per share                         |       | $                                                       | (0.02      | )                                                      | $          | (0.01 | ) | $ | (0.11 | ) | $ | (0.06 | ) |
|                                                          |       |                                                    |       |                                                   |       |   |   |   |   |
| Shares used in computing basic and diluted net loss per share |       | 21,142                                                  |       | 20,485                                                 |       | 20,928 |   | 20,065 |   |

 

See accompanying notes tothe unaudited condensed consolidated financial statements.

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**RAINING DATA CORPORATION AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                             | ** ** | **Nine Months Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
| ** **                                                                             | ** ** | **(In thousands)**                                | ** ** |
| Cash flows from  operating activities:                                                 |       |                                                   |       |   |   |
| Net loss                                                                               |       | $                                                      | (2,344     | ) | $ | (1,237 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:           |       |                                                   |       |   |   |
| Depreciation and  amortization of long-lived assets                                    |       | 232                                                    |       | 206 |   |
| Provision for  bad debt                                                                |       | 105                                                    |       | 33 |   |
| Note payable  discount amortization                                                    |       | 62                                                     |       | 62 |   |
| Stock-based  compensation expense                                                      |       | 695                                                    |       | 10 |   |
| Income tax  expense                                                                    |       | 57                                                     |       | — |   |
| Change in assets  and liabilities:                                                     |       |                                                   |       |   |   |
| Trade accounts  receivable                                                             |       | (299                                                   | )          | (392 | ) |
| Other current  and non-current assets                                                  |       | (218                                                   | )          | (23 | ) |
| Accounts payable                                                                       |       | (182                                                   | )          | (317 | ) |
| Accrued  liabilities                                                                   |       | 328                                                    |       | 869 |   |
| Deferred revenue                                                                       |       | 243                                                    |       | (396 | ) |
| Net cash used in  operating activities                                                 |       | (1,321                                                 | )          | (1,185 | ) |
|                                                                                   |       |                                                   |       |   |   |
| Cash flows used in  investing activities-purchase of property, furniture and equipment |       | (139                                                   | )          | (421 | ) |
|                                                                                   |       |                                                   |       |   |   |
| Cash flows from  financing activities:                                                 |       |                                                   |       |   |   |
| Proceeds from  exercise of stock options and warrants                                  |       | 1,005                                                  |       | 716 |   |
| Proceeds from  issuance of common stock                                                |       | 112                                                    |       | 65 |   |
| Net cash  provided by financing activities                                             |       | 1,117                                                  |       | 781 |   |
|                                                                                   |       |                                                   |       |   |   |
| Effect of exchange rate  changes on cash                                               |       | 86                                                     |       | (66 | ) |
|                                                                                   |       |                                                   |       |   |   |
| Net decrease in cash  and cash equivalents                                             |       | (257                                                   | )          | (891 | ) |
| Cash and cash equivalents  at beginning of period                                      |       | 10,789                                                 |       | 10,625 |   |
| Cash and cash equivalents at end of period                                             |       | $                                                      | 10,532     |   | $ | 9,734 |   |
|                                                                                   |       |                                                   |       |   |   |
| Non-cash financing activities:                                                         |       |                                                   |       |   |   |
| Accrued interest added  to long-term debt                                              |       | $                                                      | 863        |   | $ | 821 |   |
| Conversion of preferred  stock to common stock                                         |       | —                                                 |       | $ | 300 |   |

 

See accompanying notes tothe unaudited condensed consolidated financial statements.

5

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**RAINING DATA CORPORATION ANDSUBSIDIARIES**

**NOTES TO THE UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTSDecember 31, 2006**

**1.  INTERIMFINANCIAL STATEMENTS**

The unaudited interimcondensed consolidated financial information furnished herein reflects alladjustments, consisting only of normal recurring items, which in the opinion ofmanagement are necessary to fairly state the consolidated financial position ofRaining Data Corporation and its subsidiaries (collectively, the “Company”),the results of the operations and the cash flows for the dates and periodspresented and to make such information presented not misleading. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been omitted pursuant to SEC rules andregulations; nevertheless, management of the Company believes that thedisclosures herein are adequate to make the information presented notmisleading. These condensed consolidated financial statements should be read inconjunction with the Company’s audited financial statements for the year endedMarch 31, 2006, contained in the Company’s Annual Report on Form 10-KSB.The results of operations for thethree and nine months ended December 31, 2006, are not necessarily indicativeof results to be expected for any other interim period or the fiscal yearending March 31, 2007.

Certain amounts in the prior period’s consolidatedfinancial statements have been reclassified to be consistent with the currentyear presentation.

**2.  STOCK-BASED COMPENSATION**

The Company has a stockoption plan (“1999 Plan”) that provides for the granting of stock options,restricted stock and restricted stock units to directors, employees andconsultants.  The Company also has anEmployee Stock Purchase Plan (“ESPP”) which allows employees to purchase theCompany’s common stock at at discount.  Atotal of  7.1 million shares of commonstock have been authorized for issuance under the 1999 plan.

*Adoption of SFAS No. 123(R)*

Priorto April 1, 2006, the Company’s stock-based compensation plans wereaccounted for in accordance with Accounting Principles Board Opinion No. 25 (“APBNo. 25”), “*Accounting for Stock Issued to Employees,*”by applying the intrinsic value method to account for employee fixedstock-based awards.  Under this method,deferred stock-based compensation is recorded on the date of grant only if thecurrent market price of the underlying stock exceeds the exercise price.  Deferred stock-based compensation is thenamortized using the straight-line method over the vesting term of theunderlying option.  Additionally, theESPP qualified as a non-compensatory plan under APB 25; therefore, nocompensation cost was recorded in relation to the discount offered to employeesfor purchases made under the ESPP. The Company disclosed pro formanet income (loss) and earnings (loss) per share as if compensation for itsstock options were determined based on the estimated fair value at the grantdate in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 123, *“Accounting for Stock-BasedCompensation”*.

EffectiveApril 1, 2006, the Company adopted the fair value recognition provisionsof SFAS No. 123(R) (“SFAS No. 123 (R)”), “*Share-BasedPayment*,” which is a revision of SFAS No. 123. SFASNo. 123(R) supersedes APB No. 25, and amends SFAS No. 95, “*Statement of Cash Flows*.” SFASNo. 123(R) generally requires share-based payments to employees,including grants of employee stock options and other equity awards, to berecognized in the statement of operations based on their fair values.In addition, SFAS No. 123(R) requires thebenefits of tax deductions in excess of recognized compensation expense to bereported as a financing cash flow, rather than as an operating cash flow asprescribed under previous accounting rules. In its adoption, the Companyelected to use the modified prospective method, under which compensationexpense is recognized for all share-based awards granted after March 31, 2006and for all awards granted to employees prior to April 1, 2006, that wereunvested on the date of adoption, as adjusted for estimated forfeitures.Accordingly, prior period amounts have not been restated.

Additionally,under SFAS No. 123(R), the Company’s ESPP is considered a compensatoryplan and requires recognition of compensation expense for purchases of commonstock made under the ESPP.  The Companyrecognizes compensation expense for stock option and ESPP awards ratably overthe vesting period and purchase period, respectively.

6

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*Determining Fair Value*

Valuation Method - TheCompany estimates the fair value of stock options granted and ESPP purchaserights using the Black-Scholes option-pricing model and a single option awardapproach. Under this approach, the compensation expense for awards that have agraded vesting schedule is recognized on a straight-line basis over therequisite service period.

Expected Term - The expectedterm represents the period the Company’s stock-based awards are expected to beoutstanding and was determined based on historical experience with similarawards, giving consideration to the contractual terms of the stock-basedawards, vesting schedules and expectations of future employee behavior asinfluenced by changes to the terms of its stock-based awards.

Expected Volatility*-*The computation of expected volatilityis based on historical volatility.

Risk-Free Interest Rate - Therisk-free interest rate used in the Black-Scholes valuation method is based onthe yield currently available on U.S. Treasury securities with an equivalentremaining term.

Expected Dividend - Nodividends are expected to be paid.

Estimated Forfeitures - Whenestimating forfeitures, the Company considers voluntary termination behavior aswell as analysis of actual option forfeitures.

The Company estimated thefair value of its stock options and ESPP purchase rights using theBlack-Scholes option-pricing model, by using the following assumptions for thenine months ended December 31, 2006: 
|                          | ** ** | ** **     | ** ** | **ESPP**     | ** ** |
|--------------------------|------------|----------------|------------|--------------|------------|
| ** **               | ** ** | **Stock**      | ** ** | **purchase** | ** ** |
| ** **               | ** ** | **options**    | ** ** | **rights**   | ** ** |
| Dividend yield           |       | 0              | %          | 0            | %          |
| Expected  volatility     |       | 62             | %          | 55           | %          |
| Risk-free  interest rate |       | 4.7            | %          | 4.9          | %          |
| Estimated life           |       | 6.1 Years |       | 0.5 Years    |       |
| Forfeiture rate          |       | 11             | %          | 0            | %          |

 

Total stock-basedcompensation expense included in the unaudited condensed consolidatedstatements of operations for the three and nine months ended December 31, 2006(in thousands) was as follows:
|                                         | ** ** | **Three months  ended**    | ** ** | **Nine months  ended** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **December 31, 2006** | ** ** |
|                                    |       |                            |       |                        |       |
| Operating expense:                      |       |                            |       |                        |       |
| Selling and marketing                   |       | $                               | 93         |                        | $          | 275 |   |
| Research and development                |       | 69                              |       | 212                         |       |
| General and administrative              |       | 76                              |       | 208                         |       |
| Total  stock-based compensation expense |       | 238                             |       | 695                         |       |
| Income tax benefit                      |       | —                          |       | —                      |       |
| Net stock-based  compensation expense   |       | $                               | 238        |                        | $          | 695 |   |

 

*Stockoptions*

Stock options are generallygranted with an exercise price equal to the stock’s fair market value at thedate of grant.  All options under the1999 Plan have ten-year terms and generally vest ratably over a period of fouryears.  As of December 31, 2006, therewere 1,950,803 shares available for future option grants under the 1999 Plan.

7

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A summary of changes incommon stock options is as follows:

|                                                   | ** ** | ** **               | ** ** | ** **   | ** ** | **Weighted**                | ** ** | ** **          | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|--------------|------------|-----------------------------|------------|---------------------|------------|
| ** **                                        | ** ** | ** **               | ** ** | **Weighted** | ** ** | **Average**                 | ** ** | ** **          | ** ** |
| ** **                                        | ** ** | ** **               | ** ** | **Average**  | ** ** | **Remaining **         | ** ** | **Aggregate ** | ** ** |
| ** **                                        | ** ** | **Number of ** | ** ** | **Exercise** | ** ** | **Contractual**             | ** ** | **Intrinsic ** | ** ** |
| ** **                                        | ** ** | **Shares**               | ** ** | **Price**    | ** ** | **Term in Years** | ** ** | **Value**           | ** ** |
|                                              |       |                     |       |         |       |                        |       |                |       |
| Options  outstanding as of March 31, 2006         |       | 4,190,691                |       | $            | 2.75       |                        |       |                |       |   |
| Granted                                           |       | 760,000                  |       | $            | 3.42       |                        |       |                |       |   |
| Exercised                                         |       | (453,959                 | )          | $            | 2.21       |                        |       |                |       |   |
| Forfeited                                         |       | (230,879                 | )          | $            | 2.80       |                        |       |                |       |   |
| Expired                                           |       | (127,174                 | )          | $            | 4.44       |                        |       |                |       |   |
| Options outstanding  as of December 31, 2006      |       | 4,138,679                |       | $            | 2.87       |                        | 6.3        |                | $          | 4,977,024 |   |
| Vested and  expected to vest at December 31, 2006 |       | 3,951,665                |       | $            | 2.86       |                        | 6.1        |                | $          | 4,836,245 |   |
| Exercisable at December  31, 2006                 |       | 2,815,359                |       | $            | 2.77       |                        | 5.0        |                | $          | 3,918,101 |   |

 

The aggregate intrinsic valuein the table above represents the difference between the exercise price of theunderlying awards and the quoted price of our common stock for the options thatwere in-the-money at December 31, 2006. During the nine months ended December 31, 2006, the aggregate intrinsicvalue of options exercised under the 1999 plan was $829,233, determined as ofthe date of option exercise. Weighted-average grant-date fair values of the options granted duringthe nine months ended December 31, 2006 and 2005 were $2.10 and $2.04,respectively.

*Employee Stock Purchase Plans*

Under the ESPP, eligibleemployees may authorize payroll deductions of up to 10% of their regular basesalary to purchase shares at the lower of 85% of the closing price of theCompany’s common stock on the first or last day of the six-month purchaseperiod. In the three months ended December 31, 2006, no shares of commonstock were issued under the ESPP.  Forthe nine months end December 31, 2006, 50,302 shares of common stock wereissued under the ESPP.  As of December31, 2006, employee withholdings under the ESPP aggregated $76,493.

*Pro-forma Disclosure under SFASNo. 123 for Periods prior to Fiscal 2006*

The following tableillustrates the effect on net loss and net loss per share as if we had appliedthe fair value recognition provisions of SFAS No. 123 to stock-basedcompensation during the three and nine months ended December 31, 2005 (inthousands, except per share amounts):
|                                                                                                                       | ** ** | **Three Months  Ended**    | ** ** | **Nine Months  Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                            | ** ** | **December 31, 2005** | ** ** |
|                                                                                                                  |       |                            |       |                        |       |
| Net loss, as  reported                                                                                                |       | $                               | (268       | )                           | $          | (1,237 | ) |
| Add:                                                                                                                  |       |                            |       |                        |       |
| Stock-based compensation expense included in  reported net loss                                                       |       | —                          |       | 10                          |       |
| Less:                                                                                                                 |       |                            |       |                        |       |
| Total stock-based employee compensation expense  determined under fair value based methods for all awards, net of tax |       | (303                            | )          | (981                        | )          |
| Pro forma net  loss                                                                                                   |       | $                               | (571       | )                           | $          | (2,208 | ) |
| Basic and  diluted loss per share                                                                                     |       |                            |       |                        |       |
| As reported                                                                                                           |       | $                               | (0.01      | )                           | $          | (0.06 | ) |
| Pro forma                                                                                                             |       | $                               | (0.03      | )                           | $          | (0.11 | ) |

 

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**3.  RECENTLY ISSUED ACCOUNTING STANDARDS**

In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”)No. 108, *“Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements,”* which becomes effective for the first fiscal yearending after November 15, 2006.  SAB No.108 provides guidance on the consideration of the effects of prior periodmisstatements in quantifying current year misstatements for the purpose of a materialityassessment. SAB No. 108 requires an entity to evaluate the impact of correctingall misstatements, including both the carryover and reversing effects of prioryear misstatements, on current year financial statements. If a misstatement ismaterial to the current year financial statements, the prior year financialstatements should also be corrected, even though such revision was, andcontinues to be, immaterial to the prior year financial statements. Correctingprior year financial statements for immaterial errors would not requirepreviously filed reports to be amended. Such corrections could be made in thecurrent period filings. We are currently evaluating the impact of adopting SAB No.108.

In September 2006,the Financial AccountingStandards Board (“FASB”)  issuedSFAS No. 157, “*Fair Value Measurement*.” Thisstatement defines fair value, establishes a framework for measuring fair valuein generally accepted accounting principles, and expands disclosures about fairvalue measurements. It also applies under other accounting pronouncements thatrequire or permit fair value measurement as a relevant attribute. SFAS No. 157is effective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and all interim periods within that fiscal year. Managementof the Company is evaluating the impact of this pronouncement on the Company’sconsolidated results of operations and financial condition.

In June 2006, the FASB issued FASB Interpretation No. 48  (“FIN 48”), *“Accountingfor Uncertainty in Income Taxes.”* This interpretation clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance with SFASNo. 109, *“Accounting for Income Taxes.” *This interpretation prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.FIN 48 willbecome effective for the Company in fiscal year 2008. Management of the Companydoes not expect the impact of this pronouncement to be material on the Company’sconsolidated results of operations and financial condition.

In June 2006, theFASB’s Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-3 (“EITFNo. 06-3”), *“How Taxes Collected from Customers and Remitted toGovernmental Authorities should be presented in the Income Statement (That is,Gross versus Net Presentation).” *Thescope of EITF No. 06-3 includes any tax assessed by a governmental authority thatis directly imposed on a revenue-producing transaction between a seller and acustomer may include, but are not limited to, sales, use, value added, and someexcise taxes.  EITF No. 06-3 allows forthe presentation of such taxes on either a gross (included in revenues andcosts) or a net (excluded from revenues) basis and requires the accountingpolicy to be disclosed pursuant to APB Opinion No. 22.  EITF No. 06-3 applies to financial reportsfor interim and annual reporting periods beginning after December 15,2006.  Management of the Company does notexpect the impact of EITF No. 06-3 to be material on the Company’s consolidatedresults of operations and financial condition.

In November 2005, the FASB issued FSP SFAS 123(R)-3, “*Transition Election Related to Accounting for the TaxEffects of Share-Based Payment Awards*,”**which allows an entity up to one year from the later of itsinitial adoption of SFAS No. 123(R) or the effective date of FSP SFAS123(R)-3 to evaluate its available transition alternatives in calculating thepool of excess tax benefits available to absorb tax deficiencies recognizedsubsequent to the adoption of SFAS No. 123(R) for recognition purposes (the “APICpool”) and to make its one-time election. The available transition alternativesallow an entity to elect either the transition guidance in paragraph 81 of SFASNo. 123(R) or the alternative transition method described in FSP SFAS 123(R)-3,which comprises (a) a computational component that establishes a beginningbalance of the APIC pool related to the employee compensation and (b) asimplified method to determine the subsequent impact on the APIC pool ofemployee awards that are fully vested and outstanding upon the adoption of SFASNo. 123(R). Management of the Company is in the process of evaluating itsavailable transition alternatives and the Company will make its one-timeelection prior to March 31, 2007.

**4. LONG-TERM DEBT**

Long-term debt of the Company, including the Convertible SubordinatedNote payable to Astoria Capital Partners, L.P. (“Astoria”), the Company’scontrolling stockholder, as of December 31, 2006 and March 31, 2006, is asfollows (in thousands):

 
|                                                   | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                        | ** ** | **2006**              | ** ** | **2006**           | ** ** |
| Subordinated  convertible note payable to Astoria |       | $                     | 23,648     |               | $          | 22,785 |   |
| Plus accrued  interest                            |       | 298                   |       | 281                |       |
| Less unamortized  discount                        |       | (111                  | )          | (173               | )          |
| Total long-term debt                              |       | $                     | 23,835     |               | $          | 22,893 |   |

 

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**5.  STOCKHOLDERS’EQUITY**

Basic loss per share is computed using the net lossand the weighted average number of common shares outstanding during the period.Diluted loss per share is computed using the net loss and the weighted averagenumber of common shares and dilutive potential common shares outstanding duringthe period when the potential common shares are not anti-dilutive. Potentialdilutive common shares include outstanding stock options and convertible debt.There were outstanding options to purchase 4,138,679 shares of the Company’scommon stock with exercise prices ranging from $0.75 to $17.00 per share as ofDecember 31, 2006.  There wereoutstanding options to purchase 4,121,067 shares of the Company’s common stockwith exercise prices ranging from $0.75 to $33.13 per share as of December 31,2005, respectively.  There was convertible debt outstanding at December31, 2006 and 2005, which was convertible into 4,729,600 and 4,500,283 shares ofcommon stock, respectively.  The effects of these items were not includedin the computation of diluted earnings per share because their effect wouldhave been anti-dilutive.

The change in accumulated other comprehensive income during the threeand nine month periods ended December 31, 2006 and 2005 is the result of theeffect of foreign exchange rate changes. The following table reconciles netloss as reported with total comprehensive loss (in thousands):

|                                   | ** ** | **Three Months ended  December 31,** | ** ** | **Nine Months ended  December 31,** | ** ** |
|-----------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                            | ** ** | **2005**                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net loss  reported                |       | $                                                   | (421       | )                                                  | $          | (268 | ) | $ | (2,344 | ) | $ | (1,237 | ) |
| Translation  adjustments—net |       | 100                                                 |       | 54                                                 |       | 184 |   | (96 | ) |
| Total comprehensive  loss         |       | $                                                   | (321       | )                                                  | $          | (214 | ) | $ | (2,160 | ) | $ | (1,333 | ) |

 

**6. BUSINESS SEGMENT**

The Company operates in one reportable segment. International operationsconsist primarily of foreign sales offices selling software developed in theUnited States of America combined with local maintenance revenue. The followingtable summarizes consolidated financial information of the Company’s operationsby geographic location (in thousands):

|                      | ** ** | **Three months ended  December 31,** | ** ** | **Nine months ended  December 31,** | ** ** |
|----------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| **Net revenue** | ** ** | **2006**                                            | ** ** | **2005**                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|                 |       |                                                |       |                                               |       |   |   |   |   |
| North America        |       | $                                                   | 3,314      |                                               | $          | 3,577 |   | $ | 9,750 |   | $ | 10,576 |   |
| Europe/Africa        |       | 1,462                                               |       | 1,722                                              |       | 4,294 |   | 4,625 |   |
| Total                |       | $                                                   | 4,776      |                                               | $          | 5,299 |   | $ | 14,044 |   | $ | 15,201 |   |

 

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|                            | ** ** | ** ** | ** ** | ** ** | ** ** | **December ** | ** ** | **March ** | ** ** |
|----------------------------|------------|------------|------------|------------|------------|--------------------|------------|-----------------|------------|
| **Long-lived assets** | ** ** | ** ** | ** ** | ** ** | ** ** | **31,2006**        | ** ** | **31,2006**     | ** ** |
|                       |       |       |       |       |       |               |       |            |       |
| North America              |       |       |       |       |       | $                  | 26,999     |            | $          | 27,170 |   |
| Europe/Africa              |       |       |       |       |       | 920                |       | 826             |       |
| Total                      |       |       |       |       |       | $                  | 27,919     |            | $          | 27,996 |   |

 

The Company is engaged in the design, development, sale and support ofsoftware infrastructure. The Company divides its products into two maincategories: (1) Pick-based database technology (“Databases”), whichincludes Multi-dimensional Database Management Systems, XML Data ManagementServers and the Pick Data Provider for the Microsoft .NET developmentenvironment; and (2) Rapid Application Development software tools (“RADTools”). The following table represents the net revenue from the Company’ssegment by product line (in thousands):
|                      | ** ** | **Three months ended  December 31,** | ** ** | **Nine months ended  December 31,** | ** ** |
|----------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| **Net revenue** | ** ** | **2006**                                            | ** ** | **2005**                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **           | ** ** | ** **                                          | ** ** | ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Databases            |       | $                                                   | 3,644      |                                               | $          | 3,503 |   | $ | 10,916 |   | $ | 11,874 |   |
| RAD Tools            |       | 1,132                                               |       | 1,796                                              |       | $ | 3,129 |   | 3,327 |   |
| Total                |       | $                                                   | 4,776      |                                               | $          | 5,299 |   | $ | 14,044 |   | $ | 15,201 |   |

 

**7. COMMITMENTS AND CONTINGENCIES**

The Company is subject from time to time tolitigation, claims and suits arising in the ordinary course of business.  The Company is currently a party to thefollowing legal proceedings:

1.  Raining Datav. Intrametrics.  On or about January 19,2007, the Company filed a complaint in Orange County Superior Court that setsforth allegations that Intrametrics threatens to and has misappropriated theCompany’s trade secrets.  The Company’sallegations in the complaint include that Intrametrics has obtained the Company’ssource code in violation of the Parties’ OEM (Original Equipment Manufacturer) DistributionAgreement and in violation of California’s laws prohibiting themisappropriation of trade secrets.  TheCompany seeks injunctive relief from Intrametrics, including, but not limitedto, compelling Intrametrics to fully comply with all of the terminationprovisions set forth in the OEM Agreement; enjoining Intrametrics and itsemployees and agents from using or disclosing the Company’s trade secrets;prohibiting Intrametrics from soliciting the Company's current or potentialcustomers for 3 years, and from soliciting or employing certain of Company'sformer employees for 3 years.  TheCompany is prepared to file a motion for a preliminary injunction to ensure thenon-use by Intrametrics of the Company’s trade secret information and licenses.  The Company will also proceed with discoveryin this litigation.

2.  Raining Datav. Soheil Raissi (formerly the Company’s Vice President, Product Developmentand Professional Services), Mario Barrenechea (formerly the Company’s SeniorVice President, Worldwide Sales and Marketing, Pick and Omnis Products), andAdevnet.  On or about December 8, 2006, theCompany filed a complaint in Orange County Superior Court that sets forthallegations that the defendants threaten to and have missappropriated theCompany’s trade secrets.  The Company’sallegations in the complaint include that the individual defendants have usedand/or disclosed the Company’s trade secrets (in the form of source code andlicenses and other trade secret information) in violation of their agreementswith the Company to maintain the confidentiality of such trade secretinformation, and in violation of California laws prohibiting themisappropriation of trade secrets.  TheCompany seeks injunctive relief from the defendants, including, but not limitedto, compelling the defendants to immediately return all of the Company's tradesecrets and property; enjoining the defendants and their employees and agentsfrom using or disclosing the Company's trade secrets, including the Company'ssource code; ordering the defendants to disclose all gains and profits theyhave derived from the misappropriation of the Company's trade secrets;enjoining the defendants from directly or indirectly supplying, selling orpromoting any product that incorporates the Company's trade secrets.  The Company is prepared to proceed withdiscovery in this litigation.

3. Cross-Complaint by Soheil Raissi, Mario Barrenechea and Adevnet v.Raining Data:  On or about January 10,2007, the defendants in the case above filed a cross-complaint, allegingseveral claims against the Company and Carlton Baab, the Company’s Presidentand Chief Executive Officer: unfair business practices, violation of civilrights, intentional interference with prospective economic advantage, negligentinterference with prospective economic advantage, malicious prosecution, abuseof process, negligence, civil conspiracy, and injunctive relief.  Cross-complainants allege general,compensatory, special, and punitive and exemplary damages in amounts"according to proof", and seek to enjoin the Company from engaging inimproper and unlawful conduct.  TheCompany and Carlton Baab assert that all of the claims are baseless, and willvigorously defend all allegations.

An unfavorable resolution of these legal proceedings couldhave a material adverse effect on the Company's business, results ofoperations, financial condition and cash flows.

TheCompany’s standard customer license and software agreements containindemnification and warranty provisions which are generally consistent withpractice in the Company’s industry.  Theduration of the Company’s service warranties generally does not exceed 30 daysfollowing completion of its services. The Company has not incurred significant obligations.  Accordingly, the Company does not maintainaccruals for potential customer indemnification or warranty-relatedobligations.  The maximum potentialamount of future payments that the Company could be required to make isgenerally limited under the indemnification provisions in its customer liceneseand service agreements.

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOR PLAN OF OPERATION**

This Form 10-QSBcontains forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). These statements maygenerally be identified by the use of such words as “expect,” “anticipate,” “believe,”“intend,” “plan,” “will,” or “shall,” or the negative of those terms. We havebased these forward-looking statements on our current expectations andprojections about future events. Forward-looking statements involve certainrisks and uncertainties and actual results may differ materially from thosediscussed in any such statement. Factors that could cause actual results todiffer materially from such forward-looking statements include the risksdescribed under the heading “Risk Factors” in Item 2 of this Form 10-QSBand elsewhere in this Form 10-QSB. The forward-looking statementscontained in this Form 10-QSB include, but are not limited tostatements about the following: (1) our future success, (2) ourresearch and development efforts, (3) our future operating results andcash flow, (4) our competitive ability and position, (5) the marketsin which we operate, (6) our revenue, (7) cost of license revenue andcost of service revenue, (8) our selling and marketing costs, (9) ourresearch and development costs, (10) our general and administrative costs,(11) the possibility that we may experience transaction gains or losses infuture periods, (12) the possibility that we may seek to take advantage ofopportunities in the equity and capital markets, (13) our belief that ourexisting cash balances combined with our cash flow from operating activitieswill be sufficient to meet our operating and capital expenditure requirementsfor the remainder of the fiscal year ending March 31, 2007 and through theforeseeable future, (14) our belief that our credit facility is not requiredfor liquidity purposes or to meet our cash flow needs for the foreseeablefuture, (15) our focus on the continued development and enhancement of theTigerLogic XDMS product line, identification of new and emerging applicationareas and discussions with channel partners for the sale and distribution ofthe TigerLogic product line and (16) litigation matters. All forward-lookingstatements in this document are made as of the date hereof, based oninformation available to us as of the date hereof, and we assume no obligationto update any forward-looking statement.

**Overview**

We were incorporated in theState of Delaware in August 1987. We were originally incorporated as BlythHoldings, Inc. and our name was changed to Omnis Technology Corporation inSeptember 1997. Effective December 1, 2000, we completed theacquisition of PickAx, Inc., a Delaware corporation (“PickAx”). Concurrentwith the acquisition, we changed our name to Raining Data Corporation.

**Products**

Our principal business is thedesign, development, sale and support of software infrastructure. Our productsallow customers to create and enhance flexible software applications for theirown needs, and our software may be categorized into three product lines: XMLdata management systems (“XDMS”), Multi-dimensional database managementsystems (“MDMS”), and Rapid Application Development (“RAD”) software tools.

Many of our products arebased on the Pick Universal Data Model (“Pick UDM”), which we created, and arecapable of handling data from many sources. The Pick UDM is a core componentacross the XDMS and MDMS product lines.

Beginning in 2001, we beganan extensive effort to leverage our time-proven Pick UDM and core intellectualproperty to create an enterprise class XML database management system for theemerging XML market, the growing need for native XML data stores and theability to handle structured and unstructured data. This significant investmentof time and resources resulted in the TigerLogic XDMS product line. We arefocused on the continued development and enhancement of this product line,identification of new and emerging application areas and discussions withchannel partners for the sale and distribution of the TigerLogic product line.

***TigerLogic XDMS***

TigerLogicXML Data Management Server provides high-performance management andquery of XML data by leveraging the time-proven Pick UDM. TigerLogic alsoenables the ability to query external data sources as if they were one logicaldatabase and maintains referential integrity across data sources. TigerLogic’spatent-pending XML Indexing and Profiling technology enables it to access XMLdata via XQuery between 10x to 150x faster in internal tests than relationaldatabases, XML repositories or XML Index and Search engines. TigerLogic providesXML, Java, WSDL and SOAP compatibility for simplified plug-in and integrationwith development environments of choice.

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TigerLogic provides anextensible and flexible development and deployment environment. Unlike otherXML data management alternatives, TigerLogic XDMS does not need to know theschema or structure of data before processing and storing it. We believe theability to make XML schemas optional is a vital innovation because thestructures of operational systems frequently change, and mapping schemas forthe purpose of linking to a new data source is both difficult andtime-consuming. The system also enables support for schema versioning, which iscritical when addressing evolving standards and XML schemas. The GeneralAvailability Release of TigerLogic XDMS version 2.1, which included manyfeature enhancements and the full implementation of our XQuery engine, wasreleased in May 2005, and Version 2.5, which included platformsupport for Linux in addition to Windows and Solaris, was released inOctober 2005. In September 2005, we announced our first commercialOEM agreement for TigerLogic XDMS.

***Multi-dimensional Databases (MDMS)***

The MDMS product lineconsists principally of the D3 Data Base Management System (“D3”), which runson many operating systems such as IBM AIX, Linux and Windows NT. D3 allowsapplication programmers to create new business solution software in less timethan it normally takes in many other environments. This can translate intolower costs for the developer, lower software prices for the customer andreduced costs of ownership for both the developer and end user. Our MDMSproducts also include mvEnterprise, a scalable multi-dimensional databasesolution that allows the user to leverage the capabilities of the UNIX operatingsystem, and mvBase, a multi-dimensional database solution that runs on allWindows platforms.

MDMS components include thePick Data Provider for .Net (“PDP”) and our Pick Reporting Services Connector.The PDP component for the Microsoft .NET Framework is tightly integrated withMicrosoft Visual Studio .NET. It allows software developers using IBM’sUniverse and Unidata databases and our D3 database platform to buildclient/server applications, Web applications or Web services using any of thelanguages and technologies that run on the Microsoft .NET Framework, such asMicrosoft ASP.NET, Visual Basic .NET, Visual C# .NET and Visual J# .NET. OurPick Reporting Services Connector enables a data connection that allows Pickdatabase users to unlock the benefits of Microsoft Reporting Services to takeadvantage of a comprehensive, server-based reporting solution that can author,manage, and deliver both paper-oriented and interactive, Web-based reports.This solution also allows access to IBM UniVerse, IBM UniData and Pick D3 data.Our MDMS products also include mvEnterprise, a scalable multi-dimensionaldatabase solution that allows the user to leverage the capabilities of the UNIXoperating system, and mvBase, a multi-dimensional database solution that runs onall Windows platforms.

***Rapid ApplicationDevelopment (RAD) Tools***

Our RAD products support thefull life cycle of software application development and are designed for rapidprototyping, development and deployment of graphical user interface (“GUI”)client/server and Web applications. The RAD products include Omnis Studio,Omnis Studio for SAP and Omnis Classic, and are object-oriented andcomponent-based, providing the ability to deploy applications on operatingsystem platforms such as Windows, Unix and Linux, as well as databaseenvironments such as MySQL, Oracle, DB2, Sybase, Microsoft SQL Server and otherOpen Data Base Connectivity (“ODBC”) compatible database management systems.

**Technical Support**

Our products are used by ourcustomers to build and deploy applications that may become a critical componentof their business operations. As a result, continuing to provide customertechnical support services is an important element of our business strategy.Customers who participate in our support programs receive periodic maintenancereleases on a when-and-if available basis and direct technical support whenrequired.

**Sales and Distribution**

In the United States, we sellour products through established distribution channels consisting of OEMs,system integrators, specialized vertical application software developers andconsulting organizations. We also sell our products directly through our salespersonnel to end user organizations. Outside the United States, we maintaindirect sales offices in the United Kingdom, France and Germany. Approximately31% of our revenue came from sales through our offices located outside theUnited States for the three and nine months ended December 31, 2006, comparedto 32% and 30% for the same periods in 2005.

We sell our products in U.S.Dollars in North America, British Pounds Sterling in the United Kingdom andEuros in France and Germany. Because we recognize revenue and expense in thesevarious currencies but report our financial results in U.S. Dollars, changes inexchange rates may cause variances in our period-to-period revenue and resultsof operations in future periods. Recorded foreign exchange gains and losseshave not been material to our performance to date.

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We license our software on aper-CPU, per-server, per-port or per-user basis. Therefore, the addition of CPU’s,servers, ports or users to existing systems increases our revenue from ourinstalled base of licenses. In addition to software products, we providecontinuing maintenance and other services to our customers includingprofessional services, technical support and training to help plan, analyze,implement and maintain application software based on our products.

**Customers**

Our customers may be classified into two general categories:

·       Independent Software Vendors and SoftwareDevelopers. The majority of our revenue is derived from independent softwarevendors, which typically write their own vertical application software thatthey sell as a complete package to end user customers. This category includesvalue added resellers (“VARs”) and software-consulting companies that providecontract programming services to their customers.

·       Corporate Information Technology (“IT”)Departments.

For each of the three andnine months ended December 31, 2006 and 2005, no single customer accounted formore than 10% of our revenue.

**Research and Development**

We have devoted significantresources to the research and development of our products and technology. Webelieve that our future success will depend largely on a strong developmenteffort with respect to both our existing and new products. These developmentefforts have resulted in updates and upgrades to existing MDMS and RAD productsand the launch of new products including the XDMS product line. New productreleases in all of our product lines are currently in progress. We expect tocontinue our research and development efforts in all product lines for theforeseeable future. We intend for these efforts to improve our future operatingresults and increase cash flow. However, such efforts may not result inadditional new products or revenue, and we can make no assurances that therecently announced products or future products will be successful. We spent$2.1 million and $6.8 million on research and development (excluding SFAS No.123(R) stock option expense) for the three and nine months ended December 31,2006, respectively, compared to  $2.4million and $7.0 million for the three and nine months ended December 31, 2005,respectively.

**Competition**

The application developmenttools software market is rapidly changing and intensely competitive. Our MDMSproducts compete with products developed by companies such as Oracle, Microsoftand IBM. Our RAD products currently encounter competition from several directcompetitors including Microsoft, and competing development environmentsincluding JAVA. Competition is developing and evolving in the XML market forwhich our XDMS products are intended. Companies that do or are expected tocompete in this market include Oracle, IBM, Microsoft and Sybase, as well as anumber of smaller companies with products that directly and indirectly competewith our XDMS products. Most of our competitors have significantly morefinancial, technical, marketing and other resources than we do. As a result, thesecompetitors may be able to respond more quickly to new or emergingtechnologies, evolving markets and changes in customer requirements, and maydevote greater resources to the development, promotion and sale of theirproducts.

We believe that our abilityto compete in the various MDMS, RAD, and XDMS markets depends on factors bothwithin and outside our control, including the timing of release, performanceand price of new products developed by both us and our competitors. Although webelieve that we currently compete favorably with respect to most of thesefactors, we may not be able to maintain our competitive position againstcurrent and potential competitors especially those with greater resources.

**Intellectual Property andOther Proprietary Rights**

We rely primarily on acombination of trade secret, copyright and trademark laws and contractualprovisions to protect our intellectual property and proprietary rights. Ourtrademarks include Raining Data, Pick, TigerLogic, D3, Omnis, Omnis Studio,mvEnterprise, mvBase, and mvDesigner, among others. We also have one pendingU.S. patent application as of December 31, 2006.

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We license our products toend users on a “right to use” basis pursuant to a perpetual license agreementthat restricts use of products to a specified number of users. We generallyrely on “click-wrap” licenses that become effective when a customer downloadsand installs the software on its system. In order to retain exclusive ownershiprights to our software and technology, we generally provide our software inobject code only, with contractual restrictions on copying, disclosure, andtransferability. There can be no assurance that these protections will beadequate, or that our competitors will not independently develop technologiesthat are substantially equivalent or superior to our technology. See footnote7, Commitments and Contingencies for current legal proceedings relating to ourintellectual property and other proprietary rights.

**Backlog**

We generally ship softwareproducts as orders are received and have historically operated with littlebacklog. As a result, our license revenue in any given quarter is dependentupon orders received and product shipped during the quarter. Historically,there has been a short cycle between receipt of an order and shipment.Consequently, we do not believe that our backlog as of any particular date ismeaningful.

**Employees**

At December 31, 2006, we had 119 employees worldwide of which 87 were inthe United States and 32 were in our international offices. Of the 119employees, 113 are full-time and approximately 47% are in research anddevelopment, 17% in technical support, 21% in sales and marketing and 15% ingeneral and administrative functions.

**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

The discussion and analysis of our financial condition and results ofoperations is based on our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America. The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenue and expenses and disclosure ofcontingent liabilities.

On an on-going basis, we evaluate our estimates, including those relatedto revenue recognition and accounting for intangible assets and goodwill. Webase our estimates on historical experience and on various other assumptionsthat we believe to be reasonable under the circumstances. Actual results maydiffer from these estimates under different assumptions or conditions.

We have identified the accounting policies below as the policiescritical to our business operations and the understanding of our results ofoperations. We believe the following critical accounting policies and therelated judgments and estimates affect the preparation of our condensedconsolidated financial statements:

REVENUERECOGNITION.   Werecognize revenue using the residual method pursuant to the requirements ofStatement of Position No. 97–2, “*Software RevenueRecognition*” (“SOP 97–2”), as amended. Under the residual method,revenue is recognized for multiple element arrangement when company-specificobjective evidence of fair value exists for all of the undelivered elements inthe arrangement, but does not exist for one or more of the delivered elementsin the arrangement. At the outset of the arrangement with the customer, wedefer revenue for the fair value of our undelivered elements (e.g.,maintenance) based on company-specific objective evidence of the amount suchitems are sold individually to our customers and recognize revenue for theremainder of the arrangement fee attributable to the elements initiallydelivered in the arrangement (e.g., software license) when the basic criteria inSOP 97–2 have been met.

Under SOP 97–2, revenue attributable to an element in a customerarrangement is recognized when persuasive evidence of an arrangement exists anddelivery has occurred, provided the fee is fixed or determinable,collectibility is probable and the arrangement does not require significantcustomization of the software. If, at the outset of the customer arrangement,we determine that the arrangement fee is not fixed or determinable, we deferthe revenue and recognize the revenue when the arrangement fee becomes due andpayable.

Service revenue relates primarily to consulting services, maintenanceand training. Maintenance revenue is initially deferred and then recognizedratably over the term of the maintenance contract, typically 12 months.Consulting and training revenue is recognized as the services are performed andis usually calculated on a time and materials basis. Such services primarilyconsist of implementation services related to the installation of our productsand do not include significant customization to or development of theunderlying software code. We do not have price protection programs, conditionalacceptance agreements or warranty programs, and sales of our products are madewithout right of return.

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For contracts that require significant modification or customization tothe software in accordance with customers’ specifications, we recognize revenueusing the completed-contract method pursuant to the requirements of Statementof Position No. 81-1, “*Accounting for Performanceof Construction-Type and Certain Production-Type Contracts.*”  Under this method, revenue and expenses aredeferred until customer acceptance of the finished product occurs.  Additionally, arrangements thatinclude services that are essential to the functionality of the softwareelement require the application of contract accounting to the software andservice elements included in the arrangement.

GOODWILL.   We assess the impairment of long-lived assetsand goodwill whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. We also assess the value of goodwill atleast annually. Factors we consider to be important which could trigger animpairment review include the following:

·                                          Significant underperformance relative toexpected historical or projected future operating results;

·                                          Timing of our revenue, significant changes inthe manner of use of the acquired assets or the strategy for the overallbusiness;

·                                          Significant negative industry or economictrends;

·                                          Significant decline in our stock price for asustained period; and

·                                          Our market capitalization relative to net bookvalue.

When we determine that the carrying value of long-lived assets may notbe recoverable based upon the existence of one or more of the above indicatorsof impairment and the carrying value of the asset cannot be recovered fromprojected undiscounted cash flows, we measure any impairment based on aprojected discounted cash flow method using a discount rate determined by our managementto be commensurate with the risk inherent in the current business model.Significant management judgment is required in determining whether an indicatorof impairment exists and in projecting cash flows.

In accordance with Statement of Financial Accounting StandardsNo. 142, “*Goodwill and Other Intangible Assets*”(“SFAS No. 142”), we do not amortize goodwill, but test for goodwillimpairment following a two-step process. The first step is used to identifypotential impairment by comparing the fair value of a reporting unit with itsnet book value (or carrying amount), including goodwill. If the fair valueexceeds the carrying amount, goodwill of the reporting unit is considered notimpaired and the second step of the impairment test is unnecessary. If thecarrying amount of a reporting unit exceeds its fair value, the second step ofthe goodwill impairment test is performed to measure the amount of impairmentloss, if any. The second step of the goodwill impairment test compares theimplied fair value of the reporting unit’s goodwill with the carrying amount ofthat goodwill. If the carrying amount of the reporting unit’s goodwill exceedsthe implied fair value of that goodwill, an impairment loss is recognized in anamount equal to that excess. The implied fair value of goodwill is determinedin the same manner as the amount of goodwill recognized in a businesscombination. That is, the fair value of the reporting unit is allocated to allof the assets and liabilities of that unit (including any unrecognizedintangible assets) as if the reporting unit had been acquired in a businesscombination and the fair value of the reporting unit was the purchase pricepaid to acquire the reporting unit. Currently, we have one reporting unit forgoodwill impairment testing.

Determining the fair value of a reporting unit under the first step ofthe goodwill impairment test and determining the fair value of individualassets and liabilities of a reporting unit (including unrecognized intangibleassets) under the second step of the goodwill impairment test is judgmental innature and often involves the use of significant estimates and assumptions.These estimates and assumptions could have a significant impact on whether ornot an impairment charge is recognized and the magnitude of any such charge.Estimates of fair value are based on our stock price as reported by Nasdaq.

**Results of Operations**

The following table sets forth certain Condensed Consolidated Statementof Operations data in total dollars, as a percentage of total net revenues andas a percentage change from the same period in the prior year.  Cost of license revenues and cost of servicerevenues are expressed as a percentage of the related revenues. Thisinformation should be read in conjunction with the Condensed ConsolidatedFinancial Statements included elsewhere in this Form 10-QSB.
| ** **                                             | ** ** | **Three Months Ended  December 31, 2006** | ** ** | **Three Months Ended  December 31, 2005** | ** ** | **Nine Months Ended  December 31, 2006** | ** ** | **Nine Months Ended  December 31, 2005** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                                    | ** ** | **% of Net**                                        | ** ** | **Percent**                                                  | ** ** | ** **                                                   | ** ** | **% of Net** | ** ** | ** ** | ** ** | **% of Net** | ** ** | **Percent** | ** ** | ** ** | ** ** | **% of Net** | ** ** |
| ** **                                             | ** ** | **Results**                                                   | ** ** | **Revenues**                                                  | ** ** | **Change**                                                   | ** ** | **Results**                                                  | ** ** | **Revenues** | ** ** | **Results** | ** ** | **Revenues** | ** ** | **Change** | ** ** | **Results** | ** ** | **Revenues** | ** ** |
| Net revenues                                           |       |                                                          |       |                                                          |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Licenses                                               |       | $                                                             | 1,793      |                                                          | 37.5%      |                                                         | (23.2)%    |                                                         | $          | 2,334 |   | 44.0% |   | $ | 5,133 |   | 36.5% |   | (18.1)% |   | $ | 6,271 |   | 41.3% |   |
| Services                                               |       | 2,983                                                         |       | 62.5%                                                         |       | 0.6%                                                         |       | 2,965                                                        |       | 56.0% |   | 8,911 |   | 63.5% |   | (0.2)% |   | 8,930 |   | 58.7% |   |
| Total  net revenues                                    |       | 4,776                                                         |       | 100.0%                                                        |       | (9.9)%                                                       |       | 5,299                                                        |       | 100.0% |   | 14,044 |   | 100.0% |   | (7.6)% |   | 15,201 |   | 100.0% |   |
| Operating expense                                      |       |                                                          |       |                                                          |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of revenues:                                      |       |                                                          |       |                                                          |       |                                                         |       |                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost  of license revenues (as a % of license revenues) |       | 28                                                            |       | 1.6%                                                          |       | 3.7%                                                         |       | 27                                                           |       | 1.2% |   | 68 |   | 1.3% |   | (12.8)% |   | 78 |   | 1.2% |   |
| Cost  of service revenues (as a % of service revenues) |       | 442                                                           |       | 14.8%                                                         |       | (18.5)%                                                      |       | 542                                                          |       | 18.3% |   | 1,583 |   | 17.8% |   | (9.3)% |   | 1,745 |   | 19.5% |   |
| Selling and marketing                                  |       | 1,387                                                         |       | 29.0%                                                         |       | 3.7%                                                         |       | 1,337                                                        |       | 25.2% |   | 4,204 |   | 29.9% |   | 7.2% |   | 3,923 |   | 25.8% |   |
| Research and development                               |       | 2,175                                                         |       | 45.5%                                                         |       | (10.5)%                                                      |       | 2,429                                                        |       | 45.8% |   | 7,052 |   | 50.2% |   | (0.1)% |   | 7,062 |   | 46.5% |   |
| General and  administrative                            |       | 962                                                           |       | 20.1%                                                         |       | (2.4)%                                                       |       | 986                                                          |       | 18.6% |   | 2,843 |   | 20.2% |   | 0.7% |   | 2,823 |   | 18.6% |   |
| Total  operating expenses                              |       | 4,994                                                         |       | 104.6%                                                        |       | (6.1)%                                                       |       | 5,321                                                        |       | 100.4% |   | 15,750 |   | 112.1% |   | 0.8% |   | 15,631 |   | 102.8% |   |
| Operating loss                                         |       | (218)                                                         |       | (4.6)%                                                        |       | 890.9%                                                       |       | (22)                                                         |       | (0.4)% |   | (1,706) |   | (12.1)% |   | 296.7% |   | (430) |   | (2.8)% |   |
| Other expense-net                                      |       | (186)                                                         |       | (3.9)%                                                        |       | (24.4)%                                                      |       | (246)                                                        |       | (4.6)% |   | (581) |   | (4.1)% |   | (28.0)% |   | (807) |   | (5.3)% |   |
| Loss before income taxes                               |       | (404)                                                         |       | (8.5)%                                                        |       | 50.7%                                                        |       | (268)                                                        |       | (5.1)% |   | (2,287) |   | (16.3)% |   | 84.9% |   | (1,237) |   | (8.1)% |   |
| Provision for income  taxes                            |       | 17                                                            |       | 0.4%                                                          |       | 100.0%                                                       |       | —                                                       |       | 0.0% |   | 57 |   | 0.4% |   | 100.0% |   | — |   | 0.0% |   |
| Net loss                                               |       | $                                                             | (421)      |                                                          | (8.8)%     |                                                         | 57.1%      |                                                         | $          | (268) |   | (5.1)% |   | $ | (2,344) |   | (16.7)% |   | 89.5% |   | $ | (1,237) |   | (8.1)% |   |

 

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**REVENUE**

NETREVENUE. Our revenue is derived principally from two sources: fees fromsoftware licensing and fees for post contract technical support. We license oursoftware on a per-CPU, per-server, per-port or per-user basis. Therefore, theaddition of CPU’s, servers, ports or users to existing systems increases ourrevenue from our installed base of licenses. We view the MDMS and RAD marketsin which we operate to be relatively stable and consistent from period toperiod and anticipate that our revenue on an annual basis from those productswill remain stable for the foreseeable future. Fluctuations in revenue betweenquarters or year-to-year are primarily the result of the timing of orders andcustomer ordering patterns. We do not view the decrease in year-to-yearrevenues for the nine month periods ended December 31, 2006 and 2005, to berepresentative of immediate market trends. In the longer term, we expect thatthe MDMS and RAD markets will eventually contract as customers adopt newertechnologies, and, therefore, the revenue generated from sales of our MDMS andRAD products is expected to decrease.

We have been activelydeveloping and marketing our XDMS product line. Should our development effortsand the adoption of these product lines be successful, we anticipate additionalrevenues in future periods related to the sale of these products. However, wecan give no assurances as to customer acceptance of any new products orservices, or the ability of the current or any new products and services togenerate revenue. While we are committed to research and development effortsthat are intended to allow us to penetrate new markets and generate new sourcesof revenue, such efforts may not result in additional products, services orrevenue. In September 2005, we announced our first commercial OEMagreement for TigerLogic XDMS.

**OPERATINGEXPENSES**

COSTOF LICENSE REVENUE. Cost of license revenue is comprised of direct costsassociated with software license sales including software packaging,documentation, physical media costs and royalties. Cost of license revenuedecreased  in the nine-month period endedDecember 31, 2006, as compared to the same period in the prior year due to reducedroyalties.  We anticipate that the costof license revenue, as a percentage of license revenue and in absolute dollars,will be relatively stable in future periods.

COSTOF SERVICE REVENUE. Cost of service revenue includes primarily personnel costsrelating to providing consulting, technical support and training services.  Cost of service revenue decreased for threeand nine month period ended December 31, 2006, as compared to the same periodsin the prior year due to reduced headcount. We anticipate that the cost of service revenue, as a percentage ofservice revenue and in absolute dollars, will be relatively stable in futureperiods.

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**OPERATINGEXPENSES**

SELLINGAND MARKETING. Selling and marketing expense consists primarily of salaries,benefits, advertising, tradeshows, travel and overhead costs for our sales andmarketing personnel.  The increase inselling and marketing expense in the three and nine month periods endedDecember 31, 2006, compared to the same periods in prior year included theadoption of SFAS No. 123(R) pursuant to which stock option compensation isrequired to be recorded as an expense, partially offset by reducedheadcount.  We anticipate that sellingand marketing costs related to XDMS products may increase as we further developthe sales channel for these products and if customer acceptance of theseproducts increases. In addition, if our continued research and developmentefforts are successful, including with respect to our XDMS products, and newproducts or services are created, we may incur increased sales and marketingexpense to promote those new products in future periods.

RESEARCHAND DEVELOPMENT. Research and development expense consists primarily ofsalaries and other personnel-related expenses and overhead costs forengineering personnel including employees in the US and the UK and contractorsin the US and India. The decrease in selling and marketing expense in the threemonth period ended December 31, 2006, as compared to the same periods in theprior year was mainly due to reduced headcount and consulting expense partiallyoffset by the adoption of SFAS No. 123(R). We are committed to our research and development efforts and expectresearch and development expense will remain at the current level in futureperiods or increase if we believe that additional spending is warranted. Suchefforts may not result in additional new products and any new products,including the XDMS products, may not generate sufficient revenue, if any, tooffset the research and development expense.

GENERALAND ADMINISTRATIVE. General and administrative expense consists primarily ofcosts associated with our finance, human resources, legal and otheradministrative functions. These costs consist principally of salaries and otherpersonnel-related expenses, professional fees, depreciation and overhead costs.The decrease to general and administrative expense in the three month periodended December 31, 2006, as compared to the same period in prior year was primarilydue to reduced employee and office expenses partially offset by SFASNo. 123(R) expense.  The increase togeneral and administrative expense in the nine month period ended December 31,2006, as compared to the same periods in prior year was mainly due to costsincurred relating to the restatement of our 10-KSB for the year ended March 31,2006, and the adoption of SFAS No. 123(R). 

OTHEREXPENSE. Other expense consists primarily of net interest expense and, to amuch lesser extent, gains and losses on foreign currency transactions. The decreasein other expense during three and nine month period ended December 31, 2006, ascompared to the same period in the prior year was due to higher interest incomeas a result of higher investment balances. Due to the uncertainty in exchange rates, we may experience transactiongains or losses in future periods, the effect of which cannot be determined atthis time.

PROVISIONFOR INCOME TAXES.   Our effective tax rate was 4.2% and  2.5% for the three and nine months endedDecember 31, 2006, respectively. The provision for income taxes reflects thetax on earnings from foreign subsidiaries. The Company is able to reduce thecurrent tax liability at foreign subsidiaries with net operating losscarryforwards. However, certain carryforwards were acquired in our 2000acquisition. Therefore, the benefit realized from utilizing those net operatingloss carryforwards reduced goodwill instead of income tax expense. Due touncertainties surrounding the timing of realizing the benefits of the netoperating loss carryforwards in the future, the Company has established a fullvaluation allowance against its net deferred tax assets.

**LIQUIDITYAND CAPITAL RESOURCES**

Inconnection with the acquisition of PickAx, we assumed a Secured Promissory Noteissued to Astoria Capital Partners, L.P. (“Astoria”) dated November 30,2000, in the amount of $18.5 million. In January 2003, we entered into aNote Exchange Agreement (the “Exchange Agreement”) with Astoria to replace theexisting Secured Promissory Note, as amended, with a Convertible SubordinatedNote. Under the terms of the Exchange Agreement, the Secured Promissory Notewas exchanged and replaced with a Convertible Subordinated Note having aprincipal amount of $22.1 million, which principal amount was equal to theoutstanding principal and accrued interest payable on the Secured PromissoryNote as of the date of the Exchange Agreement. In October 2005, Astoriaassigned a portion of its common stock holdings totaling 870,536 shares and aportion of the Subordinated Convertible Note, totaling $1,751,832, to two ofits limited partners. As such, we issued an Amended and Restated Note toAstoria for $20,749,581 and corresponding notes directly to the limitedpartners for $862,979 and $888,853, respectively. The Convertible SubordinatedNotes are convertible into common stock at

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any time, at the optionof the holder, at a price of $5.00 per share. The Convertible SubordinatedNotes mature on May 30, 2008, extending the May 30, 2003, maturitydate of the Secured Promissory Note. The interest rate of the ConvertibleSubordinated Notes is 5% per annum as compared to an interest rate of 10% perannum under the Secured Promissory Note. The interest is payable quarterly atour option in cash or through increases to the outstanding principal of theConvertible Subordinated Notes.

On December 14, 2004, weentered into an Agreement Regarding Amended and Restated Common Stock PurchaseWarrant and 5% Convertible Subordinated Note Due 2008 with Astoria whereby wecould redeem, in part, the Convertible Subordinated Note in advance ofJanuary 30, 2005. On December 14, 2004, Astoria exercised its warrantin the amount of $2,670,904. In lieu of a cash payment, we used the proceeds ofthe exercise to pay down a portion of the indebtedness to Astoria. The pay downconsisted of $247,129 for accrued and unpaid interest, and $2,423,775 as areduction of principal of the Convertible Subordinated Note. For theforeseeable future, we expect to increase the principal of the ConvertibleSubordinated Notes in lieu of cash payments for the interest. If theConvertible Subordinated Notes are converted into common stock, ourstockholders may experience substantial dilution. Unlike the Secured PromissoryNote, the Convertible Subordinated Notes are not secured by our assets.

If our future financial performance improves, we may seek to takeadvantage of opportunities in the equity and capital markets to raise additionalfunds for operating needs or to pay down our debt to Astoria and others. Therecan be no assurances that such opportunities will arise. In addition to holdingthe majority of the Convertible Subordinated Notes, Astoria is a majorstockholder of ours, holding a majority of our outstanding common stock.Richard W. Koe, Chairman of the Board of Directors, serves as the ManagingGeneral Partner for Astoria. Carlton H. Baab, our President, ChiefExecutive Officer, and Director, served as a Managing Principal of AstoriaCapital Management, which is a general partner of Astoria, until taking aformal leave of absence to join us in August 2001. Gerald F. Chew, amember of our Board of Directors, is the cousin of Mr. Koe.

At December 31, 2006, we had$10.5 million in cash. We believe that our existing cash balances combinedwith our cash flow from operating activities will be sufficient to meet ouroperating and capital expenditure requirements for the remainder of the fiscalyear ending March 31, 2007 and through the foreseeable future. We arecommitted to research and development efforts that are intended to allow us topenetrate new markets and generate new sources of revenue and improve operatingresults. However, our research and development efforts have required, and willcontinue to require, cash outlays without the immediate or short-term receiptof related revenue. Our ability to service our long-term debt and meet ourexpenditure requirements is dependent upon our future financial performance,which will be affected by, among other things, prevailing economic conditions,our ability to penetrate new markets and attract new customers, marketacceptance of our new and existing products and services, the success ofresearch and development efforts and other factors beyond our control.

On February 11, 2004, weentered into a two year credit facility with Silicon Valley Bank which providedus with the ability to borrow up to $1.5 million at an annual interest rate ofPrime plus 1.0%, provided that the annual interest rate shall never be lessthan 5%. We renewed this credit facility on February 11, 2006. The creditfacility is collateralized by our assets and expires in February 2008. Thecredit facility contains financial and reporting covenants that require us tomaintain certain financial ratios only when we have outstanding borrowings onthe line. There were no outstanding borrowings at December 31, 2006. Uponexpiration of the term of this facility we will assess our credit and liquidityneeds in relation to market factors. However, we believe that the facility isnot required for liquidity purposes or to meet our cash flow needs for theforeseeable future.

On November 9, 2004, weentered into a lease agreement with The Irvine Company whereby weleased one building in Irvine, California, comprisingapproximately 29,000 square feet, to replace our then headquartersfacility. The lease commenced in November 2005 and has a five-yearterm. If certain conditions are met, we have the option to extend the term ofthe lease for an additional thirty-six months. The total basic rentover the five-year term is approximately $2.6 million, which represents a lowerper square foot cost than our prior property lease. The annual basic rentduring the five-year term ranges from approximately $475,000during the first year to approximately $545,000 during the fifth year. The rentexpense is being recognized on a straight line basis over the lease term.

We had no material commitments for capitalexpenditures at December 31, 2006.

Net cash used in operating activities was $1.3 millionand $1.2 million for the nine-month periods ended December 31, 2006 and 2005,respectively.  The increase in net cashused in operating activities was due to an increase in research and developmentexpense coupled with higher audit expenses related to restating prior year’sfinancial statements.  Cash used ininvesting activities decreased due to fewer purchases of equipment in thecurrent year.  The increase in cashprovided by financing activities was due to proceeds received from stock optionexercises and employee’s ESPP purchases.

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Our earnings beforeinterest, taxes, depreciation and amortization (EBITDA) was $0.1 million,or 2% of total net revenue for the three months ended December 31, 2006, and($0.8) million, or (6%) of total net revenue for the nine months endedDecember 31, 2006.  Our EBITDA was breakevenfor the three months ended December 31, 2005, and ($0.2) million, or (1%)of total net revenue for the nine months ended December 31, 2005. The increasein EBITDA for the three months ended December 31, 2006 compared to the sameperiod in prior year was a result of reduced personnel costs in the thirdquarter of fiscal year 2007.  The decreasein EBITDA for the nine months ended December 31, 2006 compared to the sameperiod in prior year was a result of decreased license revenue.  EBITDA is defined as net loss with anadd-back for depreciation and amortization, non-cash stock-based compensationexpense, interest expense, other income and expense, and income taxes. Thefollowing table reconciles EBITDA to the reported net loss:

RECONCILIATION OFEBITDA TO NET LOSS(in thousands)
| ** **                     | ** ** | **Three Months Ended December 31,** | ** ** | **Nine Months Ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                                | ** ** | **2005**                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|                           |       |                                                    |       |                                                   |       |   |   |   |   |
| Reported net  loss             |       | $                                                       | (421       | )                                                      | $          | (268 | ) | $ | (2,344 | ) | $ | (1,237 | ) |
| Depreciation and  amortization |       | 78                                                      |       | 59                                                     |       | 232 |   | 206 |   |
| Stock-based  compensation      |       | 238                                                     |       | —                                                 |       | 695 |   | 10 |   |
| Interest  expense-net          |       | 205                                                     |       | 239                                                    |       | 636 |   | 728 |   |
| Other expense  (income)-net    |       | (19                                                     | )          | 7                                                      |       | (55 | ) | 79 |   |
| Provision for  income taxes    |       | 17                                                      |       | —                                                 |       | 57 |   | — |   |
| EBITDA                         |       | $                                                       | 98         |                                                   | $          | 37 |   | $ | (779 | ) | $ | (214 | ) |

 

EBITDA does not represent funds available formanagement’s discretionary use and is not intended to represent cash flow fromoperations. EBITDA should not be construed as a substitute for net loss or as abetter measure of liquidity than cash flow from operating activities, which aredetermined in accordance with United States generally accepted accountingprinciples (“GAAP”). EBITDA excludes components that are significant in understandingand assessing our results of operations and cash flows. In addition, EBITDA isnot a term defined by GAAP and as a result our measure of EBITDA might not becomparable to similarly titled measures used by other companies.

However,EBITDA is used by management to evaluate, assess and benchmark our operationalresults and we believe that EBITDA is relevant and useful information, which isoften reported and widely used by analysts, investors and other interestedparties in our industry. Accordingly, we are disclosing this information topermit a more comprehensive analysis of our operating performance, to providean additional measure of performance and liquidity and to provide additionalinformation with respect to our ability to meet future debt service, capitalexpenditure and working capital requirements.

OurEBITDA financial information is also comparable to net cash used in operatingactivities. The table below reconciles EBITDA to the GAAP disclosure of netcash used in operating activities:

RECONCILIATION OF EBITDA TO NET CASH USED IN OPERATINGACTIVITIES(in thousands)
|                                                 | ** ** | **Nine Months Ended December 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
| Net cash used in  operating activities          |       | $                                                      | (1,321     | ) | $ | (1,185 | ) |
| Interest  expense-net                           |       | 636                                                    |       | 728 |   |
| Other expense  (income)-net                     |       | (55                                                    | )          | 79 |   |
| Change in  accounts receivable                  |       | 299                                                    |       | 392 |   |
| Change in other current  and non-current assets |       | 218                                                    |       | 23 |   |
| Change in  accounts payable                     |       | 182                                                    |       | 317 |   |
| Change in  accrued liabilities                  |       | (328                                                   | )          | (869 | ) |
| Change in  deferred revenue                     |       | (243                                                   | )          | 396 |   |
| Note payable  discount amortization             |       | (62                                                    | )          | (62 | ) |
| Provision for  bad debt                         |       | (105                                                   | )          | (33 | ) |
|                                            |       |                                                   |       |   |   |
| EBITDA                                          |       | $                                                      | (779       | ) | $ | (214 | ) |

 

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**RISK FACTORS**

We operate in a rapidlychanging environment that involves numerous risks and uncertainties. Thefollowing section lists some, but not all, of these risks anduncertainties that may have a material adverse effect on our business,financial condition or results of operation.

**IF WE DO NOT DEVELOP NEWPRODUCTS AND ENHANCE EXISTING PRODUCTS TO KEEP PACE WITH RAPIDLY CHANGINGTECHNOLOGY AND INDUSTRY STANDARDS, OUR REVENUE MAY DECLINE.**

We have devoted significantresources to the research and development of products and technologies. Webelieve that our future success will depend in large part on a strong researchand development effort with respect to both our existing and new products.Beginning in 2001, we began an extensive effort to leverage our time-provenPick UDM and core intellectual property to create an enterprise class XMLdatabase management server for the emerging XML market. This significantinvestment of time and resources resulted in the TigerLogic XDMS product line.While we intend for these efforts to improve our future operating results andincrease cash flow, such efforts may not result in new products or revenue, andany new products that do result may not be successful. The development of newor enhanced software products is a complex and uncertain process requiring highlevels of innovation, as well as accurate anticipation of customer and technicaltrends. In developing new products and services, we may fail to develop andmarket products that respond to technological changes or evolving industrystandards in a timely or cost-effective manner, or experience difficulties thatcould delay or prevent the successful development, introduction and marketingof these new products. The development and introduction of new or enhancedproducts also requires us to manage the transition from older products in orderto minimize disruptions in customer ordering patterns and to ensure thatadequate supplies of new products can be delivered to meet customer demand.Failure to develop and introduce new products, or enhancements to existingproducts, in a timely manner in response to changing market conditions or customerrequirements, or lack of customer acceptance of our products, will materiallyand adversely affect our business, results of operations and financialcondition.

**OUR FAILURE TO COMPETE EFFECTIVELY MAY HAVE AN ADVERSE IMPACT ONOUR OPERATING RESULTS.**

The market for our productsis highly competitive, diverse and subject to rapid change. Our products andservices compete on the basis of the following key characteristics:performance; inter-operability; scalability; functionality; reliability;pricing; post sale customer support; quality; compliance with industrystandards; and overall total cost of ownership.

Theapplication development tools software market is rapidly changing and intenselycompetitive. Our MDMS products compete with products developed by companiessuch as Oracle, Microsoft and IBM. Our RAD products currently encountercompetition from several direct competitors, including Microsoft, and competingdevelopment environments, including JAVA. Competition is developing andevolving in the XML market for which our XDMS products are intended. Companiesthat do or are expected to compete in this market include Oracle, IBM,Microsoft and Sybase, as well as a number of smaller companies with productsthat directly and indirectly compete with our XDMS products. Additionally, aswe expand our business, we expect to compete with a different group ofcompanies including smaller, highly focused companies offering single products.

Mostof our competitors have significantly more financial, technical, marketing andother resources than we do. As a result, these competitors may be able torespond more quickly to new or emerging technologies, evolving markets andchanges in customer requirements and may devote greater resources to thedevelopment, promotion and sale of their products. While we currently believethat our products and services compete favorably in the marketplace, ourproducts and services could fall behind marketplace demands at any time. If wefail to address the competitive challenges, our business would suffermaterially.

**BECAUSE THE MARKET FOR OUR MDMS AND RAD PRODUCTS IS RELATIVELY STABLE ORMAY BE DECLINING, OUR REVENUE MAY DECLINE IF WE CANNOT MAINTAIN OURSALES TO EXISTING CUSTOMERS OR GENERATE SALES TO NEW CUSTOMERS.**

We believe that the marketsfor our MDMS and RAD products are relatively stable and consistent from periodto period. As a result, to maintain or grow our revenue in these markets, wewill need to maintain our sales to existing customers and to generate sales tonew customers, including corporate development teams, commercial applicationdevelopers, system integrators, independent software vendors and independentconsultants. If we fail to attract new customers, if we lose our customers tocompetitors, or if the MDMS or RAD markets decline, our revenue may beadversely affected. In the longer term, it is expected that the MDMS and RADmarkets will eventually decline as customers adopt newer technologies.

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**OUR PRODUCTS HAVE A LONG SALESCYCLE WHICH COULD RESULT IN DELAYS IN THE RECEIPT OF REVENUE.**

The sales cycle for our MDMSand RAD products typically ranges from three to nine months or longer and thesales cycle for our XDMS products is anticipated to be significantly longersince these markets are emerging and the products are still in the process ofbeing adopted by the marketplace. Our products are typically used byapplication developers, system integrators and value added resellers to developapplications that are critical to their corporate end user’s business. Becauseour products are often part of an end user’s larger business process,re-engineering initiative, or implementation of client/server or web-basedcomputing, the end users frequently view the purchase of our products as partof a long-term strategic decision regarding the management of theirworkforce-related operations and expenditures. Thus, this sometimes results inend users taking a significant period of time to assess alternative solutionsby competitors or to defer a purchase decision as a result of an unrelatedstrategic issue beyond our control. As a result, a significant period of timemay elapse between our research and development efforts and recognition ofrevenue, if any.

**IF WE FAIL TO INCREASE REVENUE OR IMPROVE OUR OPERATING RESULTS, WEMAY NOT BE ABLE TO REPAY OUR DEBT TO ASTORIA AND OTHERS.**

We believe that our cash andcash flow from operating activities will be sufficient to meet our operatingand capital expenditure requirements at least through the foreseeable future.Our ability to meet our expenditures and service our debtobligations is dependent upon our future financial performance, which will beaffected by, among other things, prevailing economic conditions, our ability topenetrate new markets and attract new customers, market acceptance of our newand existing products and services, the success of research and developmentefforts and other factors beyond our control. As previously noted, inJanuary 2003, we entered into the Exchange Agreement with Astoria toreplace the existing Secured Promissory Note, which was due May 2003, witha Convertible Subordinated Note, which is due and payable in May 2008. TheConvertible Subordinated Notes bear interest at 5% per annum and areconvertible into common stock at any time at a price of $5.00 per share. If weare unable to penetrate new markets, generate new sources of revenue orotherwise improve our operating results, we may be unable to repay our debt toAstoria and others or to access opportunities in the equity and capital marketsto raise additional funds for operating needs.

**THE CONCENTRATION OF OUR STOCK OWNERSHIP AND THE DEBT OWED TO ASTORIAGIVE CERTAIN STOCKHOLDERS SIGNIFICANT CONTROL OVER OUR BUSINESS.**

As of December 31, 2006,Astoria beneficially owned approximately 58% of our outstanding common stock.In addition, as of December 31, 2006, the Convertible Subordinated Note issuedto Astoria had a balance of approximately $23.8 million in principal andaccrued interest maturing on May 30, 2008. Richard W. Koe, Chairman of theBoard of Directors, serves as the Managing General Partner for Astoria CapitalManagement, which is a general partner of Astoria. Carlton H. Baab, ourPresident, Chief Executive Officer, and Director, served as a ManagingPrincipal of Astoria Capital Management until taking a formal leave of absenceto join us in August 2001. This concentration of stock ownership, togetherwith the outstanding debt, would allow Astoria, acting alone, to block anyactions that require approval of our stockholders, including the election ofmembers to the Board of Directors and the approval of significant corporatetransactions. Moreover, this concentration of ownership may delay or prevent achange in control.

**WE MAY EXPERIENCE QUARTERLY FLUCTUATIONS IN OPERATING RESULTS,WHICH MAY RESULT IN VOLATILITY OF OUR STOCK PRICE.**

We expect to continue to spend substantial amounts of money in the areaof research and development, sales and marketing and operations in order topromote new product development and introduction. Because the expenses associatedwith these activities are relatively fixed in the short-term, we may be unableto timely adjust spending to offset any unexpected shortfall in revenue growthor any decrease in revenue levels. Operating results may also fluctuate due tofactors such as:

·       the size and timing of customer orders;

·       changes in pricing policies by us or ourcompetitors;

·       our ability to develop, introduce, and marketnew and enhanced versions of our products;

·       the number, timing, and significance ofproduct enhancements and new product announcements by our competitors;

·       the demand for our products;

·       non-renewal of customer support agreements;

·       software defects and other product qualityproblems; and

·       personnel changes.

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We operate withouta significant backlog of orders. As a result, the quarterly sales and operatingresults in any given quarter are dependent, in large part, upon the volume andtiming of orders booked and products shipped during that quarter. Accordingly,we may be unable to adjust spending in a timely manner to compensate for anyunanticipated decrease in orders, sales or shipments. Therefore, any decline indemand for our products and services, in relation to the forecast for any givenquarter, could materially and negatively impact the results of our operations.As a result, our quarterly operating results may fluctuate, which may cause ourstock price to be volatile. In addition, we believe that period-to-periodcomparisons of our operating results should not be relied upon as indicationsof future performance.

**THE SUCCESS OF OUR BUSINESS DEPENDS IN PART UPON OUR ABILITY TORECRUIT AND RETAIN KEY PERSONNEL AND MANAGEMENT.**

The majority of our executiveofficers joined us subsequent to the acquisition of PickAx, including ourPresident, Chief Executive Officer, and Director, Carlton H. Baab, who joinedus in August 2001. The loss of one or more of these or other executivescould adversely affect our business. In addition, we believe that our futuresuccess will depend to a significant extent on our ability to recruit, hire andretain highly skilled management and employees with experience in engineering,product management, business development, sales, marketing and customerservice. Competition for such personnel in the software industry can be intense,and there can be no assurance that we will be successful in attracting andretaining such personnel. If we are unable to do so, we may experienceinadequate levels of staffing to develop and license our products and performservices for our customers, which could adversely affect our business.

**THE INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OURABILITY TO COMPETE.**

Our ability to competesuccessfully will depend, in part, on our ability to protect our proprietarytechnology and operations without infringing upon the rights of others. We mayfail to do so. In addition, the laws of certain countries in which our productsare, or may be, licensed may not protect our proprietary rights to the sameextent as the laws of the United States. We rely primarily on a combination oftrade secret, copyright and trademark laws and contractual provisions toprotect our intellectual property and proprietary rights. Our trademarksinclude Raining Data, Pick, D3, Omnis, Omnis Studio, mvEnterprise, mvBase, mvDesignerand TigerLogic, among others. We also have one pending U.S. patent applicationas of December 31, 2006. In addition to trademark and copyright protections, welicense our products to end users on a “right to use” basis pursuant to aperpetual license agreement that restricts use of products to a specifiednumber of users.

We generally rely on “click-wrap”licenses that become effective when a customer downloads and installs softwareon its system. In order to retain exclusive ownership rights to our softwareand technology, we generally provide our software in object code only, withcontractual restrictions on copying, disclosure and transferability. There canbe no assurance that these protections will be adequate, or that ourcompetitors will not independently develop technologies that are substantiallyequivalent or superior to our technology.

**OUR PRODUCTS MAY CONTAIN SOFTWARE DEFECTS WHICH COULD HARM OURBUSINESS.**

Our enterprise applicationssoftware may contain undetected errors or failures. This includes our XDMSproducts, which are at higher risk given these products are in the earlieststages of the product life cycle. This may result in loss of, or delay in,customer acceptance of our products and could harm our reputation and ourbusiness. Undetected errors or failures in computer software programs are notuncommon. While we make every effort to thoroughly test our software, in theevent that we experience significant software errors, we could experiencedelays in release, customer dissatisfaction and lost revenue. Any of theseerrors or defects could harm our business.

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**IF THE REGISTRATION RIGHTS HELDBY ASTORIA AND OTHER SECURITIES HOLDERS ARE EXERCISED, OR THESE SECURITIESHOLDERS SELL A SUBSTANTIAL AMOUNT OF RESTRICTED SECURITIES IN THE OPEN MARKET,OUR STOCK PRICE MAY DECLINE.**

As of  December 31, 2006, we had 21,148,837outstanding shares of common stock, of which approximately 9,700,000 shareswere restricted securities held by Astoria and other holders. Restrictedsecurities may be sold in the public market only if they are registered or ifthey qualify for an exemption from registration promulgated under theSecurities Act of 1933, as amended. At present, all of our outstandingrestricted securities are either entitled to registration rights or eligiblefor public sale under Rule 144, subject to volume limitations and otherrequirements of Rule 144. If Astoria or other holders decide to exercisetheir demand registration rights, we would incur costs and expenses associatedwith the registration of securities.

Furthermore, sales of asubstantial number of shares by Astoria or other securities holders in thepublic market, or the perception that those sales may occur, could cause themarket price of our common stock to decline. In addition, if we register sharesof our common stock in connection with a public offering of securities, we maybe required to include shares of restricted securities in the registration,which may have an adverse effect on our ability to raise capital.

**OUR GLOBAL OPERATIONS EXPOSE US TO ADDITIONAL RISKS AND CHALLENGESASSOCIATED WITH CONDUCTING BUSINESS INTERNATIONALLY.**

We operate on a global basis with offices or distributors in Europe,Africa, Asia, Latin America, South America, Australia and North America anddevelopment efforts in North America, India and Europe. Approximately 31% ofour revenue for the three and nine months ended December 31, 2006 was generatedfrom our international offices. We face several risks inherent in conductingbusiness internationally, including but not limited to the following:

·       fluctuations in interest rates or currencyexchange rates;

·       language and cultural differences;

·       local and governmental requirements;

·       difficulties and costs of staffing andmanaging international operations;

·       differences in intellectual propertyprotections;

·       difficulties in collecting accounts receivableand longer collection periods;

·       seasonal business activities in certain partsof the world; and

·       trade policies.

Any of these factors could harm our internationaloperations and, consequently, affect the international growth or maintenance ofour business. These factors or any combination of these factors may adverselyaffect our revenue or our overall financial performance.

**THE FAILURE OF OUR PRODUCTS TO CONTINUE TO CONFORM TO INDUSTRYSTANDARDS MAY HARM OUR OPERATING RESULTS.**

A key factor in our futuresuccess will continue to be the ability of our products to operate and performwell with existing and future leading, industry-standard enterprise software applicationsintended to be used in connection with our MDMS, RAD, and XDMS products.Inter-operability may require third party licenses, which may not be availableto us on favorable terms or at all. Failure to meet existing or futureinter-operability and performance requirements of industry standardapplications in a timely manner could adversely affect our business.Uncertainties relating to the timing and nature of new product announcements orintroductions or modifications of third party software applications could delayour product development, increase our product development expense or causecustomers to delay evaluation, purchase, and deployment of our products.

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**THIRDPARTIES COULD ASSERT THAT OUR SOFTWARE PRODUCTS AND SERVICES INFRINGE ON THEIRINTELLECTUAL PROPERTY RIGHTS, WHICH COULD RESULT IN COSTLY LITIGATION, CAUSEPRODUCT SHIPMENT DELAYS, PROHIBIT PRODUCT LICENSING OR REQUIRE US TO ENTER INTOROYALTY OR LICENSING AGREEMENTS.**

There has been a substantialamount of litigation in the software industry regarding intellectual propertyrights. Third parties may claim that our current or potential future productsand services infringe upon their intellectual property. We expect that softwareproduct developers and providers of software applications will increasingly besubject to infringement claims as the number of products and competitors in ourindustry segment grow and the functionality of products in different industrysegments overlap. Any claims, with or without merit, could be time consuming, resultin costly litigation, cause product shipment delays, prohibit product licensingor require us to enter into royalty or licensing agreements. Royalty orlicensing agreements, if required, may not be available on terms acceptable tous or at all, which could seriously harm our business.

**ITEM 3.  CONTROLS AND PROCEDURES**

**Evaluation of Disclosure Controlsand Procedures**

Our principal executive officer and principal financial officerevaluated the effectiveness of our disclosure controls and procedures as of theend of the period covered by this report. Based on such evaluation, ourprincipal executive officer and principal financial officer have concluded thatour disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act) areeffective, as of the end of the period covered by this report, to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in Securities and Exchange Commission rules andaccumulated and communicated to the Company’s management, including itsprincipal executive officer and principal financial officer, to allow timelydecisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. Management necessarily applied its judgment in assessing thebenefits of controls relative to their costs. Because of the inherentlimitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues, if any, within our company has beendetected.

**Changes in Internal Control overFinancial Reporting**

There was no change in ourinternal control over financial reporting that occurred during our last fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

**PART II. OTHER INFORMATION**

**ITEM 1.  LEGAL PROCEEDINGS**

TheCompany is subject from time to time to litigation, claims and suits arising inthe ordinary course of business.  TheCompany is currently a party to the following legal proceedings.:

1.  Raining Datav. Intrametrics.  On or about January 19,2007, the Company filed a complaint in Orange County Superior Court that setsforth allegations that Intrametrics threatens to and has misappropriated theCompany’s trade secrets.  The Company’sallegations in the complaint include that Intrametrics has obtained the Company’ssource code in violation of the Parties’ OEM (Original Equipment Manufacturer) DistributionAgreement and in violation of California’s laws prohibiting themisappropriation of trade secrets.  TheCompany seeks injunctive relief from Intrametrics, including, but not limitedto, compelling Intrametrics to fully comply with all of the terminationprovisions set forth in the OEM Agreement; enjoining Intrametrics and itsemployees and agents from using or disclosing the Company’s trade secrets;prohibiting Intrametrics from soliciting the Company's current or potentialcustomers for 3 years, and from soliciting or employing certain of Company'sformer employees for 3 years.  TheCompany is prepared to file a motion for a preliminary injunction to ensure thenon-use by Intrametrics of the Company’s trade secret information and licenses.  The Company will also proceed with discoveryin this litigation.

2.  Raining Datav. Soheil Raissi (formerly the Company’s Vice President, Product Developmentand Professional Services), Mario Barrenechea (formerly the Company’s SeniorVice President, Worldwide Sales and Marketing, Pick and Omnis Products), andAdevnet.  On or about December 8, 2006, theCompany filed a complaint in Orange County Superior Court that sets forthallegations that the defendants threaten to and have missappropriated theCompany’s trade secrets.  The Company’sallegations in the complaint include that the individual defendants have usedand/or disclosed the Company’s trade secrets (in the form of source code andlicenses and other trade secret information) in violation of their agreementswith the Company to maintain the confidentiality of such trade secretinformation, and in violation of California laws prohibiting themisappropriation of trade secrets. The Company seeks injunctive relief from thedefendants, including, but not limited to, compelling the defendants toimmediately return all of the Company's trade secrets and property; enjoiningthe defendants and their employees and agents from using or disclosing theCompany's trade secrets, including the Company's source code; ordering thedefendants to disclose all gains and profits they have derived from themisappropriation of the Company's trade secrets; enjoining the defendants fromdirectly or indirectly supplying, selling or promoting any product that incorporatesthe Company's trade secrets.  The Companyis prepared to proceed with discovery in this litigation.

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3. Cross-Complaint by Soheil Raissi, Mario Barrenechea and Adevnet v.Raining Data:  On or about January 10,2007, the defendants in the case above filed a cross-complaint, allegingseveral claims against the Company and Carlton Baab, the Company’s Presidentand Chief Executive Officer, unfair business practices, violation of civilrights, intentional interference with prospective economic advantage, negligentinterference with prospective economic advantage, malicious prosecution, abuseof process, negligence, civil conspiracy, and injunctive relief.  Cross-complainants allege general,compensatory, special, and punitive and exemplary damages in amounts"according to proof", and seek to enjoin the Company from engaging inimproper and unlawful conduct.  TheCompany and Carlton Baab assert that all of the claims are baseless, and willvigorously defend all allegations.

An unfavorable resolution of these legal proceedingscould have a material adverse effect on the Company's business, results ofoperations, financial condition and cash flows.

**ITEM 6.  EXHIBITS**
| Exhibits: | ** ** | ** **                                                                                                                                                                    |
|-----------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |       |                                                                                                                                                                          |
| 31.1      |       | Certification of Chief Executive Officer.                                                                                                                                     |
| 31.2      |       | Certification of Chief Financial Officer.                                                                                                                                     |
| 32.1      |       | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

**SIGNATURES**

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
| Date:  February  14, 2007 | **RAINING DATA CORPORATION**                        |
|-------------------------------------|-----------------------------------------------------|
| ** **                          | ** **                                          |
| * *                            | /s/ Thomas Lim                                      |
|                                | Thomas Lim                                          |
| * *                            | Chief Financial Officer and Duly Authorized Officer |

 

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**EXHIBITINDEX**
| 31.1 |   | Certification of Chief Executive Officer                                                                                                                                      |
|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Chief Financial Officer                                                                                                                                      |
| 32.1 |   | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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