Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

~~Large accelerated filer~~ ¨ ~~Accelerated filer~~ x ~~Non-accelerated filer~~ ¨

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

As of ~~November~~August 1, ~~2007,~~2008, the Registrant had ~~21,432,748~~21,567,303 shares of $0.00025 par value Common Stock outstanding.


	September 30, 2007			December 31, 2006			June 30, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	114,621		$	109,419		$	143,061		$	120,978
Restricted cash		6,388			4,626			6,668			8,456
Accounts receivable, net		28,576			25,677			29,020			25,108
Other current assets		9,061			9,231			91,868			7,746

Total current assets		158,646			148,953			270,617			162,288
Premises and equipment, net		8,475			10,691			6,081			7,559
Goodwill		16,684			14,760			16,684			16,684
Non-current deferred tax asset		9,178			8,060			7,192			8,454
Other non-current assets		7,630			7,605			6,945			7,168

Total assets	$	200,613		$	190,069		$	307,519		$	202,153

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,388		$	11,283		$	5,958		$	4,741
Accrued liabilities		20,794			22,245			15,696			14,631
Accrued compensation and related expenses		14,882			24,010			17,354			17,636
Deferred revenue		65,350			74,047			72,408			61,715

Total current liabilities		107,414			131,585			111,416			98,723
Total long-term debt, net		84,296			83,822			84,768			84,453
Taxes payable		4,476			—			6,278			4,484

Total liabilities		196,186			215,407			202,462			187,660
Commitments and contingencies
Stockholders’ equity (deficit):
Stockholders’ equity:
Preferred Stock, $0.001 par value, 5,000 shares authorized, none issued and outstanding		—			—			—			—
Series A junior participating preferred stock, $0.001 par value, 2,000 shares authorized, none issued and outstanding		—			—			—			—
Series B 2.5% convertible preferred stock, $1,000 par value, 150 shares authorized, 105 issued and outstanding at September 30, 2007 and December 31, 2006		102,013			101,686
Common stock, $0.00025 par value, 2,000,000 shares authorized, 21,417 and 21,005 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		5			5
Series B 2.5% convertible preferred stock, $1,000 par value, 150 shares authorized, 108 issued and outstanding at June 30, 2008 and 107 issued and outstanding December 31, 2007								105,003			103,450
Common stock, $0.00025 par value, 2,000,000 shares authorized, 21,560 and 21,448 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively								5			5
Additional paid-in capital		10,455,155			10,442,261			10,464,084			10,458,101
Accumulated other comprehensive income		9,321			2,398			9,649			9,963
Accumulated deficit		(10,562,067	)		(10,571,688	)		(10,473,684	)		(10,557,026	)

Net stockholders’ equity (deficit)		4,427			(25,338	)
Net stockholders’ equity								105,057			14,493

Total liabilities and stockholders’ equity (deficit)	$	200,613		$	190,069
Total liabilities and stockholders’ equity							$	307,519		$	202,153


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006			2008			2007			2008			2007
Revenues:
Software solutions	$	10,522		$	20,569		$	35,367		$	52,879		$	12,569		$	11,412		$	24,241		$	24,845
Services		33,365			27,007			93,613			77,023			30,508			31,553			59,350			60,248
Maintenance		22,571			23,745			65,598			70,080			21,651			22,018			43,713			43,027
Contract		—			33			2,450			99			—			—			—			2,450

Total revenues		66,458			71,354			197,028			200,081			64,728			64,983			127,304			130,570

Costs and expenses:
Cost of revenues:
Software solutions		2,066			3,271			6,715			9,121			2,874			2,175			5,488			4,649
Services and maintenance		27,420			25,156			81,467			73,002
Services														23,624			24,467			46,095			48,310
Maintenance														2,655			2,800			5,498			5,737
Amortization of acquired technology		6			—			19			—			—			6			4			12
Sales and marketing		7,928			12,307			32,582			35,976			13,072			12,957			25,022			24,654
Research and development		8,224			8,818			25,779			26,698			7,541			8,750			15,174			17,555
General and administrative		9,264			15,252			30,192			40,634			10,919			10,549			20,428			20,928
Amortization of intangibles		25			—			53			—			25			25			50			28
Restructuring charges and adjustments		3,921			(103	)		3,847			(248	)		—			(49	)		—			(75	)

Total costs and expenses		58,854			64,701			180,654			185,183
Costs and expenses, subtotal														60,710			61,680			117,759			121,798
Intellectual property settlement, net														(81,315	)		—			(79,860	)		—

Total (benefit) costs and expenses														(20,605	)		61,680			37,899			121,798

Operating income		7,604			6,653			16,374			14,898			85,333			3,303			89,405			8,772

Non-operating (expense) income, net:
Non-operating expense, net:
Interest income		1,413			1,553			4,061			3,771			932			1,302			2,127			2,648
Interest expense		(1,236	)		(1,523	)		(3,712	)		(4,595	)		(1,236	)		(1,236	)		(2,475	)		(2,476	)
Realized gains on investments, net		—			—			1			501
Foreign currency hedge and transaction losses, net		(107	)		(207	)		(298	)		(245	)		(464	)		(74	)		(605	)		(191	)
Other expense, net		(300	)		(327	)		(853	)		(289	)
Other (expense) income, net														(335	)		(231	)		284			(553	)

Total non-operating expense, net		(230	)		(504	)		(801	)		(857	)		(1,103	)		(239	)		(669	)		(572	)

Income before income taxes		7,374			6,149			15,573			14,041			84,230			3,064			88,736			8,200
Income tax expense		2,057			1,595			3,655			4,906			2,714			740			3,842			1,598

Net income	$	5,317		$	4,554		$	11,918		$	9,135		$	81,516		$	2,324		$	84,894		$	6,602

Preferred stock dividend and accretion of discount		773			770			2,297			2,169			776			765			1,552			1,524

Net income applicable to common stockholders	$	4,544		$	3,784		$	9,621		$	6,966		$	80,740		$	1,559		$	83,342		$	5,078

Net income per common share applicable to common stockholders:
Basic	$	0.18		$	0.15		$	0.37		$	0.28		$	3.09		$	0.06		$	3.20		$	0.20
Diluted	$	0.17		$	0.15		$	0.36		$	0.27		$	3.05		$	0.06		$	3.15		$	0.19
Weighted-average common shares outstanding:
Basic		25,900			25,370			25,760			25,271			26,105			25,770			26,080			25,690
Diluted		26,541			25,892			26,827			25,770			26,475			26,806			26,459			26,870


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2007		2006		2007		2006		2008			2007		2008			2007
Comprehensive income:
Net income applicable to common stockholders	$	4,544	$	3,784	$	9,621	$	6,966	$	80,740		$	1,559	$	83,342		$	5,078

Other comprehensive income:
Foreign currency translation adjustments		3,280		173		6,923		2,366		(2,019	)		2,918		(313	)		3,643

Total other comprehensive income		3,280		173		6,923		2,366		(2,019	)		2,918		(313	)		3,643

Total comprehensive income	$	7,824	$	3,957	$	16,544	$	9,332	$	78,721		$	4,477	$	83,029		$	8,721


	Nine Months Ended September 30,						Six Months Ended June 30,
	2007			2006			2008			2007
Cash flows from operating activities:
Net income	$	11,918		$	9,135		$	84,894		$	6,602
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of debt issuance expense								541			504
Warrant accretion								315			315
Depreciation and amortization		4,877			5,609			1,850			2,471
Stock based compensation		9,668			12,712			5,872			7,347
Gain on extinguishment of debt		—			(3	)
Gain on sale of securities		—			(501	)
Loss (gain) on disposal of equipment		251			(46	)
Credit for bad debts charged to costs and expenses		(88	)		(266	)
Loss on disposal of premises and equipment								144			222
Expense (credit) for bad debts charged to costs and expenses								173			(116	)
Deferred income taxes		(26	)		782			1,398			(92	)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable		(2,579	)		6			(4,033	)		(440	)
Other assets		5,885			3,868			(86,212	)		3,791
Accounts payable		(1,128	)		(77	)		1,769			(854	)
Taxes payable								2,055			(9	)
Accrued liabilities		(2,415	)		(7,518	)		1,178			(5,442	)
Accrued compensation and related expenses		(9,561	)		(5,094	)		(119	)		(7,516	)
Deferred revenue		(8,811	)		(9,802	)		10,575			(1,688	)

Net cash provided by operating activities		7,991			8,805			20,400			5,095

Cash flows used in investing activities:
Restrictions placed on cash		(1,762	)		(325	)
Cash flows provided by (used in) investing activities:
Restrictions (placed) released on cash								1,788			(1,656	)
Purchases of premises and equipment		(1,229	)		(1,664	)		(562	)		(1,209	)
Proceeds from sale of premises and equipment		24			143			17			12
Proceeds from sale of securities		—			501
Business acquisition		(2,124	)		(569	)
Business acquisitions								—			(2,125	)

Net cash used in investing activities		(5,091	)		(1,914	)
Net cash provided by (used in) investing activities								1,243			(4,978	)

Cash flows provided by financing activities:
Repurchase of debt		—			(3,149	)
Proceeds from sale of convertible debt		—			7,500
Cash dividends paid - preferred stock		(1,307	)		—			—			(1,307	)
Payment of debt issuance costs		—			(483	)
Net proceeds from common stock issuance from options and employee stock purchase plans		3,201			1,133			112			2,960

Net cash provided by financing activities		1,894			5,001			112			1,653

Effect of exchange rates on cash		408			181			328			(200	)

Net change in cash and cash equivalents		5,202			12,073			22,083			1,570
Cash and cash equivalents at beginning of period		109,419			112,882			120,978			109,419

Cash and cash equivalents at end of period	$	114,621		$	124,955		$	143,061		$	110,989

Supplemental cash flow information
Interest paid	$	2,156		$	2,688		$	2,156		$	2,156
Income taxes paid (net of refunds received)	$	3,411		$	3,866		$	882		$	1,772
Schedule of non-cash financing activities
Preferred stock dividend and accretion of discount	$	990		$	2,169		$	1,552		$	217

Nature of Operations.We are a provider of supply chain management solutions, ~~including~~consisting of various software and service offerings. In addition to application software, we offer hosted software solutions, such as business optimization and technical consulting, managed services, training, solution maintenance, software upgrades and development. We operate our business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, improving operational visibility, increasing operating velocity and integrating planning and execution. Our offerings are designed to help customers better achieve the following critical business objectives:

Our application software is often bundled with other service offerings we provide, such as assistance in implementation, integration, customization, training, consulting and maintenance. Our offerings are designed to help customers better achieve the following critical business objectives:

Basis of Presentation.Our unaudited condensed consolidated financial statements have been prepared by management and reflect all adjustments (all of which are normal and recurring in ~~nature, with the exception of certain accruals, mainly related to 2006, discussed in~~~~Note 7~~,~~Commitments and Contingencies~~)nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, ~~2007.~~2008. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted under the Securities and Exchange Commission’s (SEC) rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, presented in our Annual Report on Form 10-K for the year ended December 31, ~~2006~~2007 filed on March ~~30, 2007~~17, 2008 with the SEC ~~(2006~~(2007 Annual Report on Form 10-K).

Recent Accounting Pronouncements.~~In September 2006, the FASB issued~~We adopted SFAS No. 157,“Fair Value ~~Measurements.”~~Measurements ~~SFAS No. 157 defines~~, on January 1, 2008. The statement creates a single definition of fair value, establishes a framework for measuring fair value, ~~in generally accepted accounting principles~~ and expands ~~disclosures~~disclosure requirements about items measured at fair value measurements. This Statement applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.value. SFAS No. 157 ~~is effective for fiscal years beginning after December 15, 2007. We plan~~applies to ~~adopt~~both items recognized and reported at fair value in the financial statements and items disclosed at fair value in the notes to the financial statements. The statement does not change existing accounting rules governing what can or what must be recognized and reported at fair value in our financial statements, or disclosed at fair value in our notes to the financial statements. Additionally, SFAS No. 157 ~~beginning~~does not eliminate practicability exceptions that exist in accounting pronouncements amended by this Statement when measuring fair value. As a result, we are not required to recognize any new assets or liabilities at fair value.

Prior to SFAS No. 157, certain measurements of fair value were based on the ~~first quarter~~price that would be paid to acquire an asset, or received to assume a liability (an entry price). The statement clarifies the definition of ~~2008. We~~fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (that is, an exit price). The exit price is based on the amount that the holder of the asset or liability would receive or need to pay in an actual transaction (or in a hypothetical transaction if an actual transaction does not exist) at the measurement date. In some circumstances, the entry and exit price may be the same; however, they are ~~currently evaluating~~conceptually different.

Fair value is generally determined based on quoted market prices in active markets for identical assets or liabilities. If quoted market prices are not available, the ~~impact~~Company uses valuation techniques that place greater reliance on observable inputs and less reliance on unobservable inputs. In measuring fair value, the Company may make adjustments for risks and uncertainties, if a market participant would include such an adjustment in its pricing. Adoption of SFAS No. 157 did not have a material impact on our financial statements.

~~In February 2007 the FASB issued~~We adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial ~~Liabilities.~~Liabilities ~~The standard~~, on January 1, 2008. This statement permits but does not require entities to measure many financial instruments and certain other items at fair value. Once an entity has elected the fair value option for designated financial instruments and other items, changes in fair value must be recognized in the statement of operations. The election is irrevocable once made. ~~The statement~~Adoption of SFAS No. 159 did not have a material impact on the Company’s financial statements.

In December 2007, the FASB issued Statement No. 141R, Business Combinations (“SFAS No. 141R) which changes how an entity accounts for the acquisition of a business. When effective, SFAS No. 141R will replace existing SFAS No. 141 in its entirety, will amend SFAS No. 109 and Interpretation 48 and also will amend the goodwill impairment test requirements in SFAS No. 142. SFAS No. 141R is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. Early adoption is prohibited.

We currently record all changes to a valuation allowance for acquired deferred tax assets or the effect of changes in an acquired tax position that occur after the acquisition date by initially reducing the related goodwill to zero, next by reducing other noncurrent intangible assets related to the acquisition to zero and lastly by reducing income tax expense. However, SFAS No. 141R amends SFAS No. 109 and Interpretation 48 to require us to recognize changes to the valuation allowance for an acquired deferred tax asset or the effect of changes to an acquired tax position as adjustments to income tax expense or contributed capital, as appropriate, and not as adjustments to goodwill. This accounting will be required when SFAS No. 141R becomes effective (January 1, 2009) and applies to valuation allowances and tax positions related to acquisitions accounted for originally under SFAS No. 141 as well as those accounted for under SFAS No. 141R.

We intend to adopt SFAS No. 141R effective January 1, 2009 and apply its provisions prospectively. We are evaluating the impact that the adoption of SFAS No. 141R will have on our financial statements.

In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (“GAAP”). The pronouncement mandates that the GAAP hierarchy reside in the accounting literature as opposed to audit literature. This pronouncement will become effective 60 days following SEC approval. The Company does not believe this pronouncement will impact its financial statements.

In May 2008, the FASB issued FASB staff position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and shall be applied retrospectively to all periods presented. Early adoption of FSP APB 14-1 is not permitted.

Our 5% Senior Convertible Notes (“Notes”) are within the scope of FSP APB 14-1. During the first ~~fiscal year after November 15, 2007.~~quarter of 2009, we will be required to report the debt components of the Notes at fair value as of the date of issuance and amortize the discount as an increase to interest expense over the expected life of the debt. The implementation of this standard will result in a decrease to net income and earnings per share for all periods presented; however, there is no effect on our cash interest payments. We are currently ~~evaluating~~assessing the impact of adopting FSP APB 14-1 on our financial condition and results of operations.

From time to time, new accounting ~~permitted~~pronouncements applicable to the Company are issued by the ~~standard and have not determined if the fair value option will be elected for eligible financial instruments~~FASB or other ~~items.~~standards setting bodies, which we will adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

Short-term time deposits and other liquid investments in debt securities with original maturities of less than three months when acquired are classified as available-for-sale and reported as cash and cash equivalents on our condensed consolidated balance sheet. Based on their maturities, interest rate movements do not affect the balance sheet valuation of these investments. Investment securities reported as cash and cash equivalents as of ~~September~~June 30, ~~2007~~2008 and December 31, ~~2006~~2007 were as follows:

Due to volatility in the capital markets, beginning in the third quarter of 2007 we chose not to invest in commercial paper and instead invested in money market instruments. These money market instruments are reflected in cash and cash equivalents on our balance sheet. We typically invest our cash in a variety of interest-earning financial instruments, including bank time deposits, money market funds and taxable and tax-exempt variable-rate and fixed-rate obligations of corporations and federal, state and local governmental entities and agencies. These investments are primarily denominated in U.S. Dollars. ~~Furthermore, we attempt to limit our restricted cash and cash balances held in foreign locations.~~

The following table summarizes the outstanding debt and related capitalized debt issuance costs recorded on our condensed consolidated balance sheet at ~~September~~June 30, ~~2007~~2008 and December 31, ~~2006.~~2007.


	September 30, 2007			December 31, 2006			June 30, 2008			December 31, 2007
Senior convertible notes, 5% annual rate payable semi-annually, due November 15, 2015		86,250			86,250
Senior convertible notes, 5% annual rate payable semi-annually, due November 15, 2015.....								86,250			86,250
Unamortized discount on 5% notes		(1,955	)		(2,428	)		(1,482	)		(1,797	)

Total debt	$	84,296		$	83,822		$	84,768		$	84,453

Capitalized debt issuance costs, net	$	3,430		$	4,203		$	2,620		$	3,161

We recorded capitalized debt issuance costs, net of accumulated amortization, in other non-current assets and are amortizing these costs over a five-year period, beginning in November 2005.

In connection with the issuance of our 5% senior convertible notes, we issued certain warrants to purchase our common stock. We assessed the characteristics of the warrants and determined that they should be included in additional paid in capital in the stockholders’ equity ~~(deficit)~~ portion of our condensed consolidated balance sheet, valued using a Black-Scholes model. The effect of recording the warrants as equity is that the 5% senior convertible notes are recorded at an original discount to their face value. The discount recorded was originally $3.1 million, and this discount is being accreted ~~as interest expense~~ through earnings over five years. We determined a five-year life to be appropriate due to the conversion features of the 5% senior convertible notes and our assessment of the probability that the debt would be converted prior to the scheduled maturity.

Restructuring Plans.In ~~the third quarter of 2007,~~prior periods, we implemented a restructuring ~~plan eliminating approximately 50 positions. The purpose of the restructuring was to reduce management layers to both decrease cost and increase speed~~

~~around decision-making and internal processes. The realignment~~plans, which included the elimination of ~~certain management levels~~personnel as well as other targeted cost reductions. The third quarter 2007 charge was approximately $3.9 million, primarily related to severance costs. We expect to complete this restructuring in the fourth quarter of 2007. In previous periods, we implemented restructuring plans to reduce operating expenses. SeeNote 11, Restructuring Charges and Adjustments, in our Notes to Consolidated Financial Statements in our ~~2006~~2007 Annual Report on Form 10-K for a description of our previous restructuring plans.

The following table summarizes the changes to our restructuring accruals, as well as the components of the remaining restructuring accruals at ~~September~~June 30, 2008 and June 30, 2007.


	Employee Severance and Termination						Office Closure and Consolidation						Total						Employee Severance and Termination						Office Closure and Consolidation					Total
	2007			2006			2007			2006			2007			2006			2008			2007			2008		2007			2008			2007
January 1,	$	192		$	234		$	123		$	1,343		$	315		$	1,577		$	283		$	192			—	$	123		$	283		$	315

Adjustments to 2001 and 2002 restructuring plans		(8	)		—			(17	)		(50	)		(25	)		(50	)
Adjustments to restructuring plans																				—			(8	)		—		(17	)		—			(25	)
Cash payments		—			(6	)		(32	)		(358	)		(32	)		(364	)		(108	)		—			—		(32	)		(108	)		(32	)

Remaining accrual balance at March 31,	$	184		$	228		$	74		$	935		$	258		$	1,163		$	175		$	184		$	—	$	74		$	175		$	258

Adjustments to 2001 and 2002 restructuring plans		—			(36	)		(49	)		(59	)		(49	)		(95	)
Adjustments to restructuring plans																				—			—			—		(49	)		—			(49	)
Cash payments		—			—			10			(294	)		10			(294	)		(46	)		—			—		10			(46	)		10

Remaining accrual balance at June 30,	$	184		$	192		$	35		$	582		$	219		$	774		$	129		$	184		$	—	$	35		$	129		$	219

Adjustments to 2001 and 2002 restructuring plans		—			—			(60	)		(103	)		(60	)		(103	)
2007 Plan expense		3,782			—			147			(112	)		3,929			(112	)
Cash payments		(3,364	)		—			25			—			(3,339	)		—

Remaining accrual balance at September 30,	$	602		$	192		$	147		$	367		$	749		$	559

Net Income Per Common Share. Basic net income per common share was computed by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding for the reporting period following the two-class method. ~~The~~Under the two-class method, participating convertible securities are required to be included in the calculation of basic net income per common share when the effect is dilutive. Accordingly, for the periods presented, the effect of ~~our participating~~the convertible preferred stock is included in the calculation of basic ~~earnings~~net income per ~~share under the two-class method per EITF 03-6, “~~~~Participating Securities and the Two-Class Method~~~~” under FASB No. 128 —~~~~Earnings per Share~~.common share.

Diluted net income per common share includes the dilutive effect of stock options, share rights awards, and warrants granted using the treasury stock method, and the effect of contingently issuable shares earned during the period and shares issuable under the conversion feature of our convertible ~~debt.~~debt and convertible preferred stock using the if-converted method. A loss causes all common stock equivalents to be anti-dilutive due to an increase of the weighted average shares from the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. EITF 04-8 requires the inclusion of the effect of contingently convertible instruments in the calculation of diluted income per share including when the market price of our common stock is below the conversion price of the convertible security and the effect is not anti-dilutive. Accordingly, the effect of our convertible debt is ~~considered~~included in the calculation of diluted earnings per share. Convertible instruments are anti-dilutive when conversion would cause diluted earnings per share ~~although~~to be greater than basic earnings per share. The effect of our convertible preferred stock is included in basic earnings per share under the two-class method per EITF 03-6, “Participating Securities and the Two-Class Method” under FASB No. 128 —Earnings per Share; therefore, it is ~~not dilutive for any of~~similarly included in diluted income per share when the ~~periods presented.~~effect is dilutive.

The following is a reconciliation of the number of shares used in the calculation of basic income per share under the two-class method and diluted earnings per share and the number of anti-dilutive shares excluded from such computations for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006.~~


	Three Months Ended September 30,		Nine Months Ended September 30,		Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006	2008	2007	2008	2007
Common and common equivalent shares outstanding using two-class method - basic:
Weighted average common shares outstanding	21,352	20,822	21,212	20,760	21,500	21,222	21,475	21,142
Participating convertible preferred stock	4,548	4,548	4,548	4,511	4,605	4,548	4,605	4,548

Total common and common equivalent shares outstanding using two-class method - basic	25,900	25,370	25,760	25,271	26,105	25,770	26,080	25,690
Effect of dilutive securities:
Outstanding stock option and share right awards	624	522	954	499	370	916	379	1,031
Warrants associated with 5% debt	17	—	113	—	—	120	—	149

Weighted average common and common equivalent shares outstanding - diluted	26,541	25,892	26,827	25,770	26,475	26,806	26,459	26,870

Anti-dilutive shares excluded from calculation:
Outstanding stock option and share right awards	1,313	1,537	1,013	1,481	3,723	1,686	3,612	1,570
Warrants	—	484	—	484
Convertible debt	—	23	—	24	—	949	—	949

Total anti-dilutive shares excluded from calculation	1,313	2,044	1,013	1,989	3,723	2,635	3,612	2,519

We operate our business in one segment, ~~as defined by SFAS No. 131,~~~~“Disclosures About Segments of an Enterprise and Related Information.”~~~~This segment is~~ supply chain management solutions ~~which is~~ designed to help enterprises optimize business processes both internally and among trading partners. SFAS No. 131,“Disclosures About Segments of an Enterprise and Related Information,” establishes standards for the reporting of information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, who is our Chief Executive Officer (CEO), in deciding how to allocate resources and in assessing performance.

We market our software and services primarily through our worldwide sales organization augmented by other service providers, including both domestic and international systems consulting and integration firms and other industry-related partners. Our ~~Chief Executive Officer (CEO)~~chief executive officer evaluates resource allocation decisions and our performance based on financial information, presented on a consolidated basis, accompanied by disaggregated information by geographic regions. Sales to our customers generally include products from some or all of our product suites. We have not consistently allocated revenues from such sales to individual products for internal or general-purpose financial statements.

Revenues are attributable to regions based on the locations of ~~our~~the customers’ operations. Total revenues by geographic region, as reported to our CEO, were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30
	2007			2006			2007			2006			2008			2007			2008			2007
United States	$	35,316		$	43,149		$	110,362		$	113,388		$	36,058		$	37,005		$	74,425		$	75,046
International revenue:
Non-US Americas		1,811			2,379			5,118			8,952			1,297			1,959			2,276			3,307
Europe, Middle East and Africa		14,400			13,823			43,792			37,621			15,294			13,205			27,867			29,391
Greater Asia Pacific		14,931			12,003			37,756			40,120			12,079			12,814			22,736			22,826

Total international revenue		31,142			28,205			86,666			86,693			28,670			27,978			52,879			55,524

Total Revenue	$	66,458		$	71,354		$	197,028		$	200,081		$	64,728		$	64,983		$	127,304		$	130,570

International revenue as a percent of total revenue		47	%		40	%		44	%		43	%		44	%		43	%		42	%		43	%

No individual customer accounted for more than 10% of our total revenues during the periods presented.

Long-lived assets by geographic region excluding deferred taxes, as reported to our CEO, were as follows:


	June 30, 2008		December 31, 2007
United States	$	27,692	$	29,251
Europe, Middle East, Africa		94		113
Greater Asia Pacific		1,924		2,047

Total Long Lived Assets	$	29,710	$	31,411

On March 7, 2007, a purported shareholder derivative lawsuit was filed in the Delaware Chancery Court against certain of our current and former officers and directors, naming the company as a nominal defendant. The complaint, entitledGeorge Keritsis and Mark Kert v. Michael E. McGrath, Michael J. Berry, Pallab K. Chatterjee, Robert C. Donohoo, Hiten D. Varia, M. Miriam Wardak, Sanjiv S. Sidhu, Stephen P. Bradley, Harvey B. Cash, Richard L. Clemmer, Lloyd G. Waterhouse, Jackson L. Wilson Jr., Robert L. Crandall and i2 Technologies, Inc., alleges breach of fiduciary duty and unjust enrichment in connection with stock option grants to certain of the defendant officers and directors on three dates in 2004 and 2005. The complaint states that those stock option grants were manipulated so as to work to the recipients’ favor when material non-public information about the company was later disclosed to positive or negative effect. The complaint is derivative in nature and does not seek relief from the company, but does seek damages and other relief from the defendant officers and directors. We have entered into indemnification agreements in the ordinary course of business with certain of the defendant officers and directors and may be obligated throughout the pendency of this action to advance payment of legal fees and costs incurred by the defendants pursuant to our obligations under the indemnification agreements and/or applicable Delaware law. Based on the stage of the litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of this matter.

On October 23, 2007, a purported shareholder derivative lawsuit was filed in the Delaware Chancery Court against certain of our current and former officers and directors, naming the company as a nominal defendant. The complaint,entitled John McPadden, Sr. v. Sanjiv S. Sidhu, Stephen Bradley, Harvey B. Cash, Richard L. Clemmer, Michael E. McGrath, Lloyd G. Waterhouse, Jackson L. Wilson, Jr., Robert L. Crandall and Anthony Dubreville and i2 Technologies, Inc.,alleges breach of fiduciary duty and unjust enrichment based upon allegations that the company sold its wholly-owned subsidiary, Trade Services Corporation, for an inadequate price in 2005. The complaint is derivative in nature and does not seek relief from the company, but does seek damages and other relief from the defendant officers and directors.

We have indemnification agreements with certain of our officers, directors and employees that may require us, among other things, to indemnify such officers, directors and employees against certain liabilities that may arise by reason of their status or service as directors, officers or employees and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. We have also entered into agreements regarding the advancement of costs with certain other officers and employees.

Pursuant to these indemnification and cost-advancement agreements, we have advanced fees and expenses incurred by certain current and former directors, officers and employees in connection with the governmental investigations and actions related to the 2003 restatement of our consolidated financial statements and other matters. We incurred no such expenses during the three months ended June 30, 2008 and June 30, 2007, and incurred no such expense in the six months ended June 30, 2008 and incurred approximately $0.1 million of such expenses during the ~~three~~six months ended ~~September~~June 30, 2007 and incurred approximately $4.0 million of such expenses during the three months ended September 30, 2006; we incurred approximately $0.2 million and $9.2 million of such expenses during the nine months ended September 30, 2007 and September 30, 2006, respectively.2007.

We may continue to advance fees and expenses incurred by certain current and former directors, officers and employees in the future. The maximum potential amount of future payments we could be required to make under these indemnification and cost-advancement agreements is unlimited. Additionally, our corporate by-laws allow us to choose to indemnify any employee for certain events or occurrences while the employee is, or was, serving at our request in such capacity.

Under the terms of our software license agreements with our customers, we agree that in the event the licensed software infringes upon any patent, copyright, trademark, or any other proprietary right of a third-party, we will indemnify our customer licensees against any loss, expense, or liability from any damages that may be awarded against our customer. We include this infringement indemnification in substantially all of our software license agreements and selected managed service arrangements. In the event the customer cannot use the software or service due to infringement and we can not obtain the right to use, replace or modify the software or service in a commercially feasible

manner so that it no longer infringes, then we may terminate the license and provide the customer a pro-rata refund of the fees paid by the customer for the infringing software or service. We ~~have not recorded any liability associated with this indemnification, as we are not aware of any pending or threatened infringement actions that are probable losses. We~~ believe the estimated fair value of these intellectual property indemnification clauses is minimal.

If we believe a liability associated with any of the aforementioned indemnification obligations becomes probable and the amount of the liability is reasonably estimable then an appropriate liability will be recorded in our financial statements.

We currently are under income tax examinations in India primarily related to our intercompany pricing for services rendered by our Indian subsidiary to other i2 companies, the taxability of certain payments received from our Indian customers, and our statutory qualification for a tax ~~holiday, and have~~holiday. An aggregate of approximately $7.0 million has been assessed ~~an aggregate of $7.0 million~~by the tax authorities for the Indian statutory fiscal years ended March 31, 2002, 2003 and 2004. We believe the Indian tax authorities’ positions regarding ~~our intercompany transactions and tax holiday qualification are~~these matters to be without merit, that all intercompany transactions were conducted at ~~appropriate~~arm’s length pricing levels, all payments received from our Indian customers have been properly treated for tax purposes, and that our operations qualify for the tax holiday claimed. Accordingly, we ~~have~~ appealed all of these assessments and ~~have also~~ sought assistance from the United States competent authority under the mutual agreement procedure of the income tax treaty between the United States and ~~India, which~~the Republic of India. This provides us with an opportunity to resolve these matters in ~~an environment which~~a forum that includes governmental representatives of both countries.

Pending resolution of these matters, we have paid ~~$3.4~~approximately $3.7 million of the assessed amount and have arranged for ~~a $1.3~~$2.9 million in bank ~~guarantee~~guarantees in favor of the Indian government in respect of a portion of the ~~balance.~~balance as required. The bank ~~guarantee is~~guarantees are supported by ~~a letter~~letters of credit issued in the United States and isare reflected on our condensed consolidated balance sheet as restricted cash. We paid an additional $70,000 of the assessed amount as well as approximately $134,000 of interest in October 2007, and expect to arrange for a $1.9 million bank guarantee in respect of the remainder of the assessed amount later in the fourth quarter of 2007.

We expect subsequent tax years to be examined and assessments made similar to those discussed above and no assurances can be given that these issues ultimately will be resolved in our favor. We continue to monitor and assess these issues as they progress through the relevant processes and believe that the ultimate resolution of these matters will not exceed the tax contingency reserves we have established for them.

On June 23, 2008 we entered into a settlement agreement with SAP America, Inc., a Delaware corporation, and SAP AG, a German corporation and the parent of SAP America, Inc., to settle existing patent litigation between us and the SAP companies.

Under the terms of the settlement agreement, each party licenses to the other party certain patents in exchange for a one-time cash payment to i2 of $83.3 million. In addition, each party has agreed not to pursue legal action against the other party for its actions taken to enforce any of the licensed patents prior to the effective date of the agreement. The agreement also provides for general releases, indemnification for its violation, and dismisses the existing litigations between the parties with prejudice. We have satisfied all our obligations under the agreement and no additional contingencies exist with respect to receipt of the settlement proceeds.

During the second quarter of 2008, we recorded income from an intellectual property lawsuit settlement. The settlement was for $83.3 million and was recorded net of external litigation expenses of $2.0 million and $3.5 million for the three and six month periods ending June 30, 2008, respectively. The patent licenses received in the settlement have no significant value.

We have accrued for estimated losses in the accompanying condensed consolidated financial statements for matters where we believe the likelihood of an adverse outcome is probable and the amount of the loss is reasonably estimable.

We are subject to various claims and legal proceedings that arise in the ordinary course of our business from time to time, including claims and legal proceedings that have been asserted against us by former employees and certain customers, and have been in negotiations to settle certain of those contingencies. The adverse resolution of any one or more of those matters or the matters described above, over and above the amount, if any, that has been estimated and accrued in our condensed consolidated financial statements could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

For a description of our stock-based compensation plans, seeNote 10, Stock-Based Compensation, in our Notes to Consolidated Financial Statements filed in our ~~2006~~2007 Annual Report on Form 10-K.

Stock-based compensation expense for the three-month and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006~~2007 is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Services	$	432	$	597	$	1,043	$	1,187
Maintenance		61		57		130	$	130
Sales and marketing		760		676		1,386		1,774
Research and development		627		713		1,382		1,604
General and administrative		1,090		1,125		1,931		2,652

Total	$	2,970	$	3,168	$	5,872	$	7,347

Included in stock-based compensation expense was restricted stock expense of ~~$0.5~~$1.0 million and ~~$0.3~~$0.2 million for the three-month periods ended ~~September~~June 30, 2008 and June 30, 2007, ~~and September 30, 2006,~~ respectively, and ~~$1.7~~$1.9 million and ~~$0.5~~$1.2 million for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006,~~2007, respectively.

In February 2007, we granted Restricted Stock Units (“RSUs”) to certain key employees that vest based on specified performance over a two-year performance period. This performance period is from January 1, 2008 to December 31, 2009. We are required to assess whether the performance criteria is probable of being achieved, and only recognize compensation expense if the vesting is considered probable. On a quarterly basis, we assess whether vesting is probable and based on that assessment record the appropriate expense. Based on our ~~third~~second quarter ~~2007 assessment,~~2008 and prior assessments, no compensation expense associated with these performance-based RSUs is reflected in our results of operations in the three-month ~~period~~periods or six-month periods ended June 30, 2008 and ~~nine-month period ended September~~June 30, 2007.

Fair values of stock options and employee stock purchase plan (ESPP) shares are estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Income taxes ~~have been~~are provided using the liability method in accordance with SFAS No. 109,Accounting for Income Taxes (“SFAS 109”). In accordance with Accounting Principles Board Opinion No. 28,Interim Financial Reporting (“APB 28”), and FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods – an interpretation of APB Opinion No. 28 (“FIN 18”), the provision for income taxes reflects the Company’s estimate of the effective rate expected to be applicable for the full fiscal year, adjusted by any discrete events which are reported in the period in which they occur. This estimate is re-evaluated each quarter based on our estimated tax expense for the year.

We ~~recognized~~recorded income tax expense of approximately ~~$2.1~~$2.7 million for the three months ended ~~September~~June 30, ~~2007~~2008 and ~~$1.6~~$0.7 million for the three months ended ~~September~~June 30, ~~2006,~~2007, representing effective income tax rates of ~~27.9%~~3.2% and ~~25.9%~~24.1%, respectively. ~~Factors that~~Various factors affect our effective income tax ~~expense include,~~rate including, among others, changes in our valuation allowance, the effect of foreign operations, state income taxes (net of federal income tax benefits), certain non-deductible meals and entertainment expenses, research and development tax credits, and the effect of foreign withholding taxes. Our effective income tax rates during the three months ended June 30, 2008 and June 30, 2007 differ from the U.S. statutory rate primarily due to the effect these items have on our valuation allowance.

~~normally~~ upon receipt of such payments ~~from certain non-US customers,~~that are received net of the withheld taxes. Foreign withholding taxes generally are available to reduce domestic income tax. Due to our net operating loss carryforwards and ~~affect~~associated valuation allowance against our domestic deferred tax assets, these withholding taxes increase our income tax expense.

During the three months ended June 30, 2008 we recorded a benefit to operating expense ~~due~~of approximately $83.3 million related to ~~our domestic valuation allowance. Accordingly, our effective~~the settlement of the SAP patent litigation. We utilized net operating loss carryforwards and other tax attributes to reduce taxes on the settlement. We recorded federal and state alternative minimum tax (AMT) of approximately $1.1 million and $0.1 million, respectively, and other state income taxes of approximately $0.2 million in income tax ~~rates~~expense during the three months ended ~~September~~June 30, 2008 related to the settlement. Alternative minimum tax generally is available to reduce regular income tax in the future. Due to our net operating loss carryforwards and associated valuation allowance against our domestic deferred tax assets, these AMT amounts increase our income tax expense.

Income tax expense during the three months ended June 30, 2007 ~~and September 30, 2006, as well as the nine months ended September 30, 2007 and September 30, 2006, differ~~included a benefit of approximately $0.8 million resulting from the ~~U.S. statutory rate primarily due to changes in~~favorable resolution of our ~~valuation allowance.~~

~~We adopted the provisions of FASB Interpretation No. 48,~~~~Accounting for Uncertainty in Income Taxes~~ ~~(“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, there was no adjustment~~United Kingdom tax examination related to the ~~January 1, 2007 balance of our accumulated deficit.~~2003 tax year.

Estimated potential interest and penalties related to our unrecognized tax benefits within our global organization isare recorded in income tax expense and totaled approximately ~~$0.2~~$0.1 million and $0.3 million for the three and six months ended ~~September~~June 30, ~~2007.~~2008, respectively. Accrued interest and penalties were approximately ~~$1.2~~$1.9 million ~~and $1.8 million as of January 1, 2007 and September~~at June 30, ~~2007, respectively.~~2008. Management believes recording interest and penalties related to income tax uncertainties as income tax expense better reflects income tax expense and provides better information reporting.

We or one of our subsidiaries file income tax returns in the United States (U.S.) federal jurisdiction and various state and foreign jurisdictions. We have open tax years for the U.S. federal return back to 1992 with respect to our net operating loss (“NOL”) carryforwards, where the IRS may not raise tax for these years, but can reduce NOLs. Otherwise, with few exceptions, we are no longer subject to federal, state, local or foreign income tax examinations for years prior to 2003.

We are subject to potential ~~change~~challenges and assessments by various tax jurisdictions into the inter-company pricing at which we have conducted business within our global related group of ~~companies.~~companies or our tax treatment of certain types of revenue generated in the conduct of business with our international customers. Additional tax examinations may be opened or existing examinations may be resolved within the next 12 months. We closely monitor developments in ~~this area~~these areas and make changes as necessary in the accruals we have ~~made~~recorded for what we believe will be the ultimate outcome of any tax ~~adjustments. It is reasonably possible that, within the next 12 months, the accrual we have recorded for this issue may increase by approximately $0.5 million to $1.2 million.~~

~~During the fourth quarter of 2007, we plan to file amended state income tax returns related to~~ adjustments made to our 1999-2001 federal taxable income as a result of our previous IRS examination, which was concluded in 2003 and had no material federal income tax effect. We believe we have fully accrued all state income tax liability, including potential interest and penalties, related to these filings. Upon filing the returns, the recorded tax liability will be reduced by the amount of taxes paid with the returns. We expect the state tax authorities will assess interest and potential penalties on the amended tax returns. Any difference between the ultimate income tax liability on the filed returns and our existing accrual will be recorded in the quarter in which the tax filings are ultimately resolved.resulting from such examinations. It is not ~~expected that~~possible to reasonably estimate a range of potential increases or decreases of such ~~difference, if any, will be material.~~changes.

As part of the process of preparing unaudited condensed consolidated financial statements, we are required to estimate our full-year income and the related income tax expense in each jurisdiction in which we operate. Changes in the geographical mix or estimated level of annual pre-tax income can impact our effective tax rate. This process involves estimating our current tax liabilities in each jurisdiction in which we operate, including the impact, if any, of additional taxes resulting from tax examinations, as well as making judgments regarding the recoverability of deferred tax assets. To the extent recovery of deferred tax assets is not likely based on, among other things, our estimation of future taxable income in each jurisdiction, a valuation allowance is established. Tax controversies often involve complex issues across multiple jurisdictions and may require an extended period to resolve.

On October 23, 2007, a purported shareholder derivative lawsuit was filed in the Delaware Chancery Court against certain of our current and former directors and officers, naming the company as a nominal defendant. The complaint, entitledJohn McPadden, Sr. v. Sanjiv S. Sidhu, Stephen Bradley, Harvey B. Cash, Richard L. Clemmer, Michael E. McGrath, Lloyd G. Waterhouse, Jackson L. Wilson Jr., Robert L. Crandall, Anthony Dubreville and i2 Technologies, Inc., alleges breach of fiduciary duty and unjust enrichment in connection with the sale of Trade Service Corporation, a wholly-owned subsidiary of the company (“TSC”), to Anthony Dubreville (“Dubreville”) and other members of TSC management in 2005. The complaint states that the individual defendants caused the company to sell TSC to a group led by Dubreville in bad faith for a below-market price. The complaint is derivative in nature and does not seek relief from

the company, but does seek damages and other relief from the defendant directors and officers. We have entered into indemnification agreements in the ordinary course of business with certain of the defendant directors and officers and may be obligated throughout the pendency of this action to advance payment of legal fees and costs incurred by the defendants pursuant to our obligations under the indemnification agreements and/or applicable Delaware law. Based on the stage of the litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of this matter.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical or current facts, including, without limitation, statements about our business strategy, plans, objectives and future prospects, are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from these expectations, which could have a material adverse effect on our business, results of operations, cash flow and financial condition. Such risks and uncertainties include, without limitation, the following:

Certain large stockholders have called for the public sale of the Company, and the Board of Directors of i2 has formed a Strategic Review Committee in connection with an ongoing review of i2’s management, operations and strategy. Continued pressure by activist stockholders for the sale of the Company , and/or the Company’s ongoing exploration of strategic options, could create distractions for our management, sales staff and other employees and create uncertainty in existing and potential customers regarding our ability to meet our contractual obligations. Such distractions and uncertainty could harm our business, results of operations, cash flow and financial condition.

Holders of our 5% senior convertible notes may convert the senior convertible notes upon the occurrence of certain events prior to May 15, 2010, and at any time on or after May 15, 2010, and have the right to require us to repurchase all or any portion of the senior convertible notes on November 15, 2010. There is no assurance that at the time of conversion or required repurchase, we will have the ability to satisfy the cash portion of any such conversion obligation or to make any such required repurchase.

The indenture governing our 5% senior convertible notes contains a debt incurrence covenant that places restrictions on the amount and type of additional indebtedness that we can incur. The debt incurrence restrictions imposed by the indenture could restrict or impede our ability to incur additional debt, which in turn could impair our ability to support our operations, adversely affect our liquidity and threaten our ability to repay our debts when they become due.

Many of these risks and uncertainties are beyond our control and, in many cases, we cannot accurately predict the risks and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. When used in this document, the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions as they relate to us, our customers or our management are intended to identify forward-looking statements.

References in this report to the terms “optimal” and “optimization” and words to that effect are not intended to connote the mathematically optimal solution, but may connote near-optimal solutions, which reflect practical considerations such as customer requirements as to response time, precision of the results and other commercial factors.

We are a provider of supply chain management solutions, ~~including~~consisting of various software and service offerings. In addition to application software, we offer hosted software solutions, such as business optimization and technical consulting, managed services, training, solution maintenance, software upgrades and development. We operate our business in one business segment. Supply chain management is the set of processes, technology and expertise involved in managing supply, demand and fulfillment throughout divisions within a company and with its customers, suppliers and partners. The goals of our solutions include increasing supply chain efficiency and enhancing customer and supplier relationships by managing variability, reducing complexity, improving operational visibility, increasing operating velocity and integrating planning and execution.

~~Our application software is often bundled with other service offerings we provide, such as assistance in implementation, integration, customization, training, consulting and maintenance.~~ Our offerings are designed to help customers better achieve the following critical business objectives:

Planning – supply chain optimization to match supply and demand considering system-wide constraints

Collaboration – interoperability with supply chain partners and elimination of functional silos

Control – management of data and business processes across the extended supply chain

We recognize revenue for software and our related service offerings in accordance withStatement of Position (SOP) 81-1, “Accounting for Certain Construction Type and Certain Production Type Contracts,” SOP 97-2, “Software Revenue Recognition,” as modified by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions,” SEC Staff Accounting Bulletin (SAB) 104, “Revenue Recognition,” andSAB 103, “Update of Codification of Staff Accounting Bulletins,” and~~SAB~~SEC Staff Accounting Bulletin “Topic 13, Revenue ~~Recognition.~~Recognition.”

Software Solutions.Software solutions revenue includes core license revenue, recurring license revenue, and fees received to develop the licensed functionality. We recognize these revenues under SOP 97-2 or SOP 81-1 based on our evaluation of whether the associated services are essential to the licensed software as described within SOP 97-2. If the services are considered essential, revenue is generally recognized on a percentage of completion basis under SOP 81-1. Services are considered essential to the software when they involve significant modifications or additions to the software features and functionality. In addition, we have several subscription and other recurring revenue transactions, which are recognized ratably over the life of each contract.

Services.Services revenue is primarily derived from fees for services that are not essential to the software, including implementation, integration, training and consulting, and is generally recognized when services are performed. In addition, services revenue may include fees received from arrangements to customize or enhance previously purchased licensed software, when such services are not essential to the previously licensed software. Services revenue also includes reimbursable expense revenue, with the related costs of reimbursable expenses included in cost of services.

Maintenance. Maintenance revenue consists of fees generated by providing support services, such as telephone support, and unspecified upgrades/enhancements on a when-and-if available basis. A customer typically prepays maintenance and support fees for an initial period, and the related revenue is deferred and generally recognized over the term of such initial period. Maintenance is renewable by the customer on an annual basis thereafter. Rates for maintenance, including subsequent renewal rates, are typically established based upon a specified percentage of net license fees as set forth in the contract.

Contract Revenue. As explained in more detail below, we do not consider contract revenue to be an indication of the current performance of our business. We collected the cash associated with contract revenue in prior periods and recorded the revenue as we fulfilled the contract obligations. As of March 31, 2007 our deferred contract revenue balance was zero.

Our software and service offerings have changed in recent years in response to market demands as well as the introduction of new technology and products. We are transitioning our business approach to being a solutions-oriented provider, and accordingly have experienced a shift to a greater level of services revenue versus software solutions revenue.

~~In early~~Beginning in 2006, we increased our hiring of services personnel based on our expectations regarding the demand for our services and our existing services backlog. In addition to generating increased services revenue from the increased headcount, we have also increased the ~~billability~~utilization of our services personnel so more revenue is generated for each person and have been successful at strategically placing certain of our research and development staff on billable services projects when their skill sets are appropriate.

~~These changes impact the~~The focus on services impacts our mix of revenues ~~we generate. This affects our~~and profitability because services will typically earn a lower margin than software solutions. These changes also influence the proportion of revenue recognized on a percentage of completion basis or subscription basis. We now expect ~~that~~ a higher proportion of our software solutions revenue will be recognized under a percentage of completion basis or subscription basis, rather than being recognized in the period the contract is signed.

The markets in which we operate are highly competitive. Our competitors are diverse and offer a variety of solutions targeting various segments of the extended supply chain as well as the enterprise as a whole. Some competitors offer suites of applications, while most offer solutions designed to target specific processes or industries.

We believe our principal competitors continue to strengthen, in part based on consolidation within the industry. In addition, our shift to a more solutions-oriented approach, where services are more critical, increases our exposure to competition from offshore providers and consulting companies. All of these factors are creating pricing pressure for our software and service offerings. However, we believe our focus on a solutions-oriented approach that leverages our deep supply chain expertise differentiates us from our competitors.

In managing our business and reviewing our results, management focuses most intently on our revenue generation process, including bookings, backlog, ~~and~~ operating revenue (total revenue excluding contract revenue), ~~as well as our~~ cash flow from operations and liquidity.

Bookings. We define bookings as the total value of non-contingent fees payable to the company pursuant to the terms of duly executed contracts. Bookings are expected to result in revenue as products are delivered or services are performed, and may reflect contracts from which revenue will be recognized over multi-year ~~periods.~~periods, however there can be no assurance that bookings will result in future revenue. Bookings do not include amounts subject to contingencies, such as optional renewal periods, amounts subject to a customer’s internal approvals, amounts subject to customer specific cancellation provisions and amounts that are refundable for reasons outside of our standard warranty provisions. Based on the nature of the transactions, certain of our subscription bookings have termination provisions upon payment of a penalty. Because our revenues are recognized under several different accounting standards and thus are subject to period-to-period variability, we closely monitor our bookings as a leading indicator of future revenues and the overall performance of our business.

Total bookings for the three months ended ~~September~~June 30, 2008 and June 30, 2007 ~~and September 30, 2006~~ were ~~$46.5~~$64.1 million and ~~$56.4~~$75.0 million, respectively, a ~~decline~~decrease of ~~17.6%~~15% or ~~$9.9~~$10.9 million. ~~While third quarter bookings are typically the weakest of the year,~~Included in total bookings for the ~~three months ended September 30,~~second quarter of 2007 ~~were below our expectations. We believe this was due~~are $13.1 million related to ~~execution issues, our restructuring initiatives during~~ the ~~third quarter and public comments made by certain large stockholders regarding our competitive position and future direction.~~renewal of two supply chain leader agreements from 2004. Total bookings for the ~~nine~~six months ended ~~September~~June 30, 2008 and June 30, 2007 ~~and September 30, 2006~~ were ~~$183.0~~$130.5 million and ~~$193.3~~$136.5 million, respectively, a decline of approximately ~~5.3%~~4% or ~~$10.3~~$6.0 million. ~~Unless we are able to generate bookings growth in the next several quarters, in the future our revenue will continue to decline.~~

Backlog.Backlog represents the balance of bookings that has ~~yet to be~~not been recognized as revenue. The amount of backlog for which we have received payment is recorded as deferred revenue on our condensed consolidated balance sheet. We review our backlog to assess future revenue that may be recognized from bookings in previous fiscal periods. This review allows us to determine whether we are recognizing more or less revenue compared to the bookings in that period and whether our backlog is increasing or decreasing.

Revenue.In our internal analysis of revenue, we focus on operating revenue (total revenue excluding contract revenue). Contract revenue is the result of the recognition of certain revenue that was carried on our balance sheet as a portion of deferred revenue and was a result of our 2003 financial restatement. Inclusion of contract revenue in the evaluation of our performance would skew comparisons of our periodic results since recognition of that revenue was based on fulfillment of contractual obligations which often required only minimal cash outlays and generally did not involve any significant activity in the period of recognition. Additionally, the cash associated with contract revenue had been collected in prior periods. All remaining contract revenue was recognized by March 31, 2007, so it is not relevant to our on-going operations and we exclude it from comparisons to prior period results.

For the three months ended ~~September~~June 30, ~~2007~~2008 operating revenue (total revenue excluding contract revenue) was down ~~6.8%~~0.4% or ~~$4.9~~$0.3 million compared to the same period in ~~2006,~~2007, and for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 operating revenue was down ~~2.7%~~0.6% or ~~5.4~~$0.8 million compared to the same period in ~~2006.~~2007. Our annual operating revenue was approximately ~~$275~~$257.9 million, ~~$294~~$275.6 million and ~~$289~~$294.3 million in 2007, 2006 and 2005, ~~and 2004,~~ respectively. ~~We currently expect total operating revenue will be lower~~These declines represent annual declines of 6% for ~~the full year 2007 then it was in 2006.~~each period. As part of our transition to being a solutions-oriented provider, we have experienced a shift to a greater level of services revenue, which has partially offset our decline in software solutions and maintenance revenue.

Software solutions revenue ~~declined 48.8%~~increased 10% or ~~$10.0~~$1.2 million for the three months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006,~~2007, and declined ~~33.1%~~2% or ~~$17.5~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006. In 2005,~~2007. The primary reason for the increase is that during the second quarter of 2008 we recognized approximately $5.5 million from prior period bookings versus approximately $3.4 million in the second quarter of 2007. During the 12 months ended December 31, 2006 and the ~~nine~~six months ended ~~September~~June 30, ~~2007 our total~~2008, we have recognized more

revenue from backlog than from new software solutions ~~bookings were consistently lower then our software solutions~~bookings. We monitor whether we are recognizing more or less revenue ~~thereby significantly reducing~~in each period compared to the amount we book in that period as an indicator of whether we are adding to or subtracting from our backlog ~~as indicated in the table below. This has contributed to lower software solutions~~and deferred revenue. We have generally been recognizing more revenue in each quarter than the ~~three~~corresponding amount of bookings, leading to a decline in our backlog. As a result, in order to increase future revenues, our future bookings need to increase and ~~nine months ended September 30, 2007 versus the comparable periods in 2006. This trend will continue unless we experience growth in software solutions bookings in the next several quarters.~~


							Nine Months Ended September 30, 2007			Twelve Months Ended					Six Months Ended
	December 31, 2005			December 31, 2006			Nine Months Ended September 30, 2007			December 31, 2006			December 31, 2007		June 30, 2008
Additions to Backlog:
Software Solutions Bookings	$	36,433		$	49,540		$	32,682		$	49,540		$	54,556	$	16,940
Platform Technology/Source Code Bookings		10,000			10,480			500			10,480			500		—

Net Additions to Backlog		46,433			60,020			33,182			60,020			55,056		16,940
Less: Software Solutions Revenue Recognized		89,937			76,243			35,367			76,243			47,721		24,241

Increase/(Decrease) in Backlog	$	(43,504	)	$	(16,223	)	$	(2,185	)	$	(16,223	)	$	7,335	$	(7,301	)

Services revenue ~~increased 23.5%~~decreased 3% or ~~$6.4~~$1.0 million for the three months ended ~~September~~June 30, ~~2007~~2008 when compared to the same period in ~~2006,~~2007, and ~~increased 21.5%~~decreased 1% or ~~$16.6~~$0.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 when compared to the same period in ~~2006. These increases are~~2007.This decline in services revenue is primarily due to ~~continual shifts~~a mix shift in the ~~demands~~type of services work performed in the ~~market, changes in our sales approach and an increase in our services offerings.~~second quarter of 2008. We expect services revenue to continue to be a larger percentage of our total revenue than it has been in previous years. Services revenue generally earns a lower margin than our other revenue ~~types, although we have experienced significantly higher margins in our services business in 2007 compared to 2006 due to leverage and efficiency from the services platform.~~types.

Maintenance revenue declined ~~4.9%~~2% or ~~$1.2~~$0.4 million for the three months ended ~~September~~June 30, ~~2007~~2008 when compared to the same period in ~~2006,~~2007, and ~~declined 6.4%~~increased 2% or ~~$4.5~~$0.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 when compared to the same period in ~~2006.~~2007. Declines in maintenance revenue occur when customers fail to renew their maintenance agreements or renew them at a lower rates. ~~Although we have put programs in place that demonstrate the value of maintenance to our customers, we expect maintenance revenue to continue to decline in the near term.~~

Operating Cash Flow and Liquidity.We closely monitor our operating cash flow, working capital and cash levels. In doing so, we attempt to limit our restricted cash and cash balances held inby foreign subsidiaries.

~~While we experienced negative cash flows for the quarters ended March 31, 2007, September 30, 2006 and March 31, 2006, and for each of the five years ended December 31, 2005, our~~Our operating cash flow for the ~~nine~~six months ended ~~September~~June 30, ~~2007 and September 30, 2006,~~2008 was approximately ~~$8.0~~$20.4 million compared to operating cash flow of $5.1 million in the six months ended June 30, 2007. The main components of our cash flow improvement are as follows: Higher cash inflows of approximately $7.1 million, which includes higher collections of approximately $4.8 million and ~~$8.8~~a net tax refund from an international tax authority of approximately $1.0 million ~~respectively.~~for previously paid taxes, and lower cash disbursements of approximately $7.9 million, consisting of lower annual bonus payments and lower non-operating legal and legal-litigation payments.

Our working capital was approximately ~~$51.2~~$159.2 million at ~~September~~June 30, ~~2007, a substantial~~2008, an improvement from the ~~$17.4~~$73.8 million balance at ~~December~~March 31, ~~2006~~2008 and the ~~($34.3)~~$63.6 million ~~deficit~~ at December 31, ~~2005.~~2007. The increase in current assets during the second quarter of 2008 includes the effect of the SAP litigation settlement for $83.3 million. The chart below shows the components of our working capital and the dollar changes from period to period for ~~2005,~~ 2006 and 2007 and the first ~~three~~and second quarters of ~~2007.~~2008.


	December 31, 2005			December 31, 2006		March 31, 2007		June 30, 2007		September 30, 2007		December 31, 2006		December 31, 2007		March 31, 2008		June 30, 2008
Total cash	$	117,655		$	114,045	$	108,493	$	117,271		121,009	$	114,045	$	129,434	$	138,862	$	149,729
Accounts receivable		25,887			25,677		25,491		26,294		28,576		25,677		25,108		27,446		29,020
Other current assets, net		19,530			9,231		10,749		8,330		9,061		9,231		7,746		10,797		91,868

Total current assets		163,072			148,953		144,733		151,895		158,646		148,953		162,288		177,105		270,617

Current liabilities		72,538			57,538		41,980		40,559		42,064		57,538		37,008		34,314		39,008
Deferred revenue		99,870			74,047		70,468		72,287		65,350		74,047		61,715		68,986		72,408
Current portion long-term debt		25,000			—		—		—		—		—		—		—		—

Total current liabilities		197,408			131,585		112,448		112,846		107,414		131,585		98,723		103,300		111,416

Working capital	$	(34,336	)	$	17,368	$	32,285	$	39,049	$	51,232	$	17,368	$	63,565	$	73,805	$	159,201

Dollar change from previous period				$	51,704	$	14,917	$	6,764	$	12,183	$	51,704	$	46,197	$	10,240	$	85,396
Net cash	$	16,964		$	30,223	$	24,513	$	33,133	$	36,713	$	30,223	$	44,981	$	54,252	$	64,961

In addition to assessing our liquidity based on operating cash flow and working capital, management also considers our cash balances and our net cash balance, which we define as the sum of our total cash and cash equivalents and restricted cash minus our total short-term and long-term debt. As the table above indicates, our cash position and net cash position has improved.

There have been no changes during the ~~third~~second quarter of ~~2007~~2008 to the critical accounting policies ~~we described in our 2006 Annual Report on Form 10-K. The accounting~~or the areas that involve the use of significant judgments and estimates ~~are further~~we described ~~below.~~

~~Software Solutions Revenue – SOP 97-2~~. The recognition of revenue under SOP 97-2 requires us to make judgments concerning whether the services associated with the license, if any, are considered “essential” to the licensed functionality. If they are deemed essential, revenue cannot be recognized under SOP 97-2, but rather is required to be recognized under SOP 81-1. During 2003, we implemented formal processes for evaluation of each of our licensed products to determine whether they can be implemented without essential services, and are therefore considered eligible for recognition under 97-2. We also implemented processes, including internal representations from sales, services and research and development personnel, to evaluate each transaction that is comprised solely of products that are eligible under SOP 97-2 to determine whether there are specific requirements or commitments associated with the licensed functionality that would require recognition under SOP 81-1. We are also required to assess the existence of vendor specific objective evidence (“VSOE”) of fair value for undelivered elements in agreements recognized under SOP 97-2, which for our arrangements commonly include implementation services and maintenance. If we lose our ability to demonstrate VSOE for undelivered elements, the timing of recognition of transactions under SOP 97-2 will change.

~~Software Solutions Revenue – SOP 81-1- and Services Revenue.~~ A significant portion of these revenues pertain to projects recognized under the percentage of completion method of SOP 81-1, which requires that we make estimates about the number of hours required and the amount of fees to be received to periodically assess the progress to completion of a particular project. We are also required as a prerequisite for using percentage of completion to assess whether we have the ability to reliably estimate the hours and fees for each project.

~~Collectibility.~~All of our revenues are subject to our assessment of the probability of collection of the underlying fees. The revenue type that is most susceptible to collection risk is software solutions revenue recognized under SOP 97-2, since the revenue is generally recognized up-front upon delivery of the software, and payment is usually due approximately 30 to 60 days after recognition. To assess our collection risk, we have reviewed our collection history and determined that for certain countries, particularly in the Greater Asia Pacific region and in certain of the developing countries within Europe, we will only recognize our license revenues under SOP 97-2 on a cash received basis. For our other revenue types, which are recurring in nature in that they occur over several months, we have a policy in place whereby we review customers that have invoices that are overdue by more than 30 days and we begin deferring recognition of revenue for customers that become delinquent in their payment. This policy prevents us from continuing to recognize revenue related to an implementation or maintenance arrangement when payments are late, and it therefore appears that collection is not reasonably assured. Our policies and procedures in this area have resulted in minimizing our bad debt expense since we are diligent in our ~~evaluation of collectibility risk prior to recognizing revenue.~~

~~As disclosed in our footnotes, the valuation of stock compensation expense is based~~2007 Annual Report on several variables that are inputs to the Black Scholes model. The most critical judgment involved in this area involves the estimation of the impact of forfeitures. Under FAS 123(R), we are required to estimate the impact of forfeitures of stock options, and reduce our expenses based on those estimates. We calculate our monthly forfeiture rates, annualize the amount and apply the resulting amount as a reduction of current period expense. We are then required to regularly evaluate our actual forfeiture experience and make periodic adjustments to expense as needed.

In February 2007, we granted Restricted Stock Units (“RSUs”) to certain key employees that vest based on specified performance over a two-year performance period. This performance period is from January 1, 2008 to December 31, 2009. On a quarterly basis, we estimate the potential impact of forfeitures on this grant and assess whether vesting is probable. Based on these assessments, we record the appropriate expense.

We operate directly and indirectly in numerous countries and are subject to the tax laws, rules and regulations of those jurisdictions. Positions we take in our tax filings are subject to scrutiny by the local country tax authorities and, to the extent it affects our domestic tax position, the Internal Revenue Service. Determining the appropriate tax treatment of complicated issues involves the use of significant judgments and estimates; such judgments and estimates may not be agreed to by the relevant taxing authority, which may require extensive discussions and negotiations to resolve these matters. We accrue tax expense in an amount at which we believe an issue may be ultimately resolved in a manner differently from the position taken in our tax filings. The amount of our accrued tax expense for a particular matter may be significantly different from that determined upon the ultimate resolution of the issue. It is also possible that a tax issue may arise of which we were unaware and no accrual was made. In both cases, adjustments to income tax expense in the relevant reporting period may be material.

~~We expect tax expense variability to increase as a result of the implementation of FIN 48, which was effective January 1, 2007.~~

We are required to use judgment in estimating amounts recorded as accrued expenses. Such estimates include our assessment of estimated losses resulting from claims and legal proceedings. We record a liability if our assessments indicate that the likelihood of an unfavorable outcome is probable and the related cost can be reasonably estimated.Form 10-K.

Analysis of Financial Results – Three Months Ended ~~September~~June 30, ~~2007~~2008 Compared to Three Months Ended ~~September~~June 30, ~~2006~~2007.

The following table sets forth revenues and the percentages of total revenues of selected items reflected in our condensed consolidated statements of operations and comprehensive income for the three months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006.~~2007. The period-to-period comparisons of financial results are not necessarily indicative of future results.


	Three Months Ended				Three Months Ended				Change 2007 versus 2006					Three Months Ended June 30, 2008		Percent of Revenue		Three Months Ended June 30, 2007		Percent of Revenue		Change 2008 versus 2007
	September 30,		Percent of		September 30,		Percent of		Three months ended September 30													Three months ended June 30
	2007		Revenue		2006		Revenue		$ Change			% Change										$ Change			% Change
SOP 97-2 recognition	$	1,897	3	%	$	3,359	5	%	$	(1,462	)	-44	%	$	1,427	2	%	$	3,180	5	%	$	(1,753	)	-55	%
SOP 81-1 recognition		3,199	5	%		5,814	8	%		(2,615	)	-45	%		5,392	8	%		2,552	4	%		2,840		111	%
Recurring items		5,426	8	%		11,396	16	%		(5,970	)	-52	%		5,750	9	%		5,680	9	%		70		1	%

Total Software solutions		10,522	16	%		20,569	29	%		(10,047	)	-49	%		12,569	19	%		11,412	18	%		1,157		10	%
Services		33,365	50	%		27,007	38	%		6,358		24	%		30,508	48	%		31,553	48	%		(1,045	)	-3	%
Maintenance		22,571	34	%		23,745	33	%		(1,174	)	-5	%		21,651	33	%		22,018	34	%		(367	)	-2	%
Contract		—	—			33	—			(33	)	-100	%

Total revenues	$	66,458	100	%	$	71,354	100	%	$	(4,896	)	-7	%	$	64,728	100	%	$	64,983	100	%	$	(255	)	—

Software Solutions Revenue. Total software solutions revenue ~~decreased 49%~~increased 10% or ~~$10.0~~$1.2 million for the three months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006.~~2007. The components of the changes in software solutions revenue are explained below.

The primary cause of the decline in revenue recognized under SOP 97-2 for the three months ended ~~September~~June 30, ~~2007~~2008 is ~~the recognition~~due to declines in the ~~three months ended September 30, 2006~~number and size of deals being recognized from current quarter bookings as well as a ~~$1.3 million agreement from backlog that was not repeated~~decrease in the ~~comparable period~~number and size of ~~2007.~~deals recognized from backlog. During the three months ended ~~September~~June 30, ~~2007~~2008 we recognized revenue related to 1413 contracts at an average of $0.1 million per contract compared to 1320 contracts at an average of ~~$0.3~~$0.2 million per contract in the comparable period of ~~2006.~~2007.

The primary cause of the decline in revenue recognized under SOP 81-1 for the three months ended September 30, 2007 is a decline in the number and size of projects generating revenue as compared to the same period in 2006, due mainly to the continued decline in our backlog. Revenue recognized under SOP 81-1 is dependent upon the amount of work performed on software solutions projects and milestones met during the applicable period on projects booked in both current and prior ~~periods.~~periods and typically has a longer recognition period than revenue recognized under SOP 97-2. During the three months ended ~~September~~June 30, ~~2007~~2008 we recognized revenue related to 1323 projects at an average of $0.2 million per project compared to 1613 projects at an average of ~~$0.4~~$0.2 million in the comparable period of ~~2006.~~2007.

~~The decline in revenue~~Revenue from recurring items was relatively unchanged, increasing $0.1 million for the three months ended ~~September~~June 30, ~~2007 was primarily driven by~~2008 when compared to the ~~recognition of $5.2 million from a significant platform technology transaction~~same period in ~~the three months ended September 30, 2006, which was not repeated in the comparable period of~~ 2007. In addition, there was a decrease in revenue from two Supply Chain Leader transactions renewed in the second quarter of 2007, one at a lower renewal rate and one that was determined to be, in substance, a maintenance renewal and is now being classified as such.

Services Revenue.Services revenue ~~increased 24%~~decreased 3% or ~~$6.4~~$1.0 million for the three months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006~~2007 primarily asdue to a ~~result~~lower number of ~~a 16% increase in revenue recognized per billable hour worked. Billable~~ hours ~~were relatively unchanged from the three months ended September 30, 2006.~~ worked on services projects, due to personal working on software solutions projects,

Maintenance Revenue.Maintenance revenue ~~decreased 5%~~was relatively unchanged, decreasing 2% or ~~$1.2~~$0.4 million for the three months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006 primarily as a result~~2007. This decrease was partially related to the delay of ~~customers renewing their~~some maintenance ~~agreements on less favorable terms, with such decreases not being offset by initial maintenance agreements with new customers.~~ renewals that had been expected in the second quarter of 2008, which are subject to continued renewal efforts in the third quarter of 2008.

Maintenance revenue varies from period-to-period based on several factors, including:

International Revenue. Our international revenues included in the categories discussed above are primarily generated from customers located in Europe, Asia, Latin America and Canada. International revenue totaled ~~$31.1~~$28.7 million, or ~~47%~~44% of total revenue, in the three months ended ~~September~~June 30, ~~2007~~2008 compared to ~~$28.2~~$28.0 million, or ~~40%~~43% of total revenue, in the same period in ~~2006.~~2007.

Customer Concentration.During the periods presented, no individual customer accounted for more than 10% of total revenues.

Assuming a constant currency exchange rate for our rupee expenditures in 2008 as we experienced in 2007, the impact of rupee depreciation was approximately $0.1 million for the three months ended June 30, 2008.

The following table sets forth cost of revenues and the gross margins of selected items reflected in our condensed consolidated statements of operations and comprehensive income for the three months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006.~~2007. The period-to period comparisons of financial results are not necessarily indicative of future results.


	Three Months Ended				Three Months Ended				Change 2007 versus 2006					Three Months Ended June 30, 2008		Gross Margin		Three Months Ended June 30, 2007		Gross Margin		Change 2008 versus 2007
	September 30,		Gross		September 30,		Gross		Three months ended September 30													Three months ended June 30
	2007		Margin		2006		Margin		$ Change			% Change										$ Change			% Change
Software solutions	$	2,066	80	%	$	3,271	84	%	$	(1,205	)	-37	%	$	2,874	77	%	$	2,175	81	%	$	699		32	%
Services and maintenance		27,420	51	%		25,156	50	%		2,264		9	%
Services															23,624	23	%		24,467	22	%		(843	)	-3	%
Maintenance															2,655	88	%		2,800	87	%		(145	)	-5	%
Amortization of acquired technology		6	—			—	—			6		—			—	—			6	—			(6	)	-100	%

Total cost of revenues	$	29,492			$	28,427			$	1,065		4	%	$	29,153			$	29,448			$	(295	)	-1	%

Cost of software solutions ~~decreased 37%~~increased 32% or ~~$1.2~~$0.7 million for the three months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006~~2007 primarily because of ~~a decrease~~an increase in the number of hours worked on projects requiring essential ~~services, which is reflected in our lower software solutions revenues for the 2007 period.~~services.

During the three months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006,~~2007, the costs attributable to the performance of essential services related to ~~software solutions projects recognized under~~ SOP 81-1 was ~~$0.8~~$1.9 million and ~~$1.8~~$0.8 million, respectively. The remaining costs of software solutions are not directly attributable to specific arrangements, so we do not believe there is a reasonable basis to calculate the cost of each type of software solutions transaction or the resulting contribution margin.

Cost of Services ~~and Maintenance~~. These costs consist of expenses associated with the delivery of non-essential services, ~~which includes~~such as implementation, integration, process consulting and training. Cost of services decreased 3% or $0.8 million for the three months ended June 30, 2008 compared to the same period in 2007. This decrease was related primarily to a decrease in employee-related costs of $2.2 million partially offset by an increase in travel and entertainment expense of $0.8 million. The decrease in employee related costs was driven by a shift of approximately 28 associates from the services organization to the sales organization. This shift was done as part of our refocus in late 2007 to a sales approach centered on customer business units.

Cost of Maintenance. These costs consist of expenses including support services such as telephone support and unspecified upgrades/enhancements provided on a when-and-if-available basis. Cost of ~~services and~~ maintenance ~~increased 9%~~decreased 5% or ~~$2.3~~$0.1 million for the three months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006~~2007. This decrease was primarily asrelated to a ~~result of increased services personnel to support our growing services business. Average services~~decrease in travel and maintenance headcount increased 4% for the three months ended September 30, 2007 as compared to the same period in 2006. For the three months ended September 30, 2007, employee-related costs associated with this expense category increased $1.9 million as compared to the same period in 2006.entertainment expense.

Amortization of Acquired Technology. In connection with our business acquisitions, we acquired developed technology that we offer as a part of our solutions. In accordance with applicable accounting standards, the amortization of acquired technology is included as a part of our cost of revenues because it relates to software products that are marketed to potential customers.

The following table sets forth operating expenses and the percentages of total revenue for those operating expenses as reported in our condensed consolidated statements of operations and comprehensive income. The period-to-period comparisons of financial results are not necessarily indicative of future results.


	Three Months Ended				Three Months Ended					Change 2007 versus 2006					Three Months Ended June 30, 2008			Percent of Revenue			Three Months Ended June 30, 2007				Percent of Revenue		Change 2008 versus 2007
	September 30,		Percent of		September 30,			Percent of		Three months ended September 30														Three months ended June 30
	2007		Revenue		2006			Revenue		$ Change			% Change											$ Change				% Change
Sales and marketing	$	7,928	12	%	$	12,307		17	%	$	(4,379	)	-36	%	$	13,072				20	%		$	12,957				20	%	$	115		1	%
Research and development		8,224	12	%		8,818		12	%		(594	)	-7	%		7,541				12	%			8,750			13	%		(1,209	)	-14	%
General and administrative		9,264	14	%		15,252		21	%		(5,988	)	-39	%		10,919		17	%			10,549			16	%		370		4	%
Amortization of intangibles		25	—			—		—			25		—			25		—				25			—			—		—
Restructuring charges and adjustments		3,921	6	%		(103	)	—			4,024		-3907	%		—		—				(49	)		—			49		-100	%

Total operating expenses	$	29,362			$	36,274				$	(6,912	)	-19	%
Costs and expenses, subtotal																31,557						32,232						(675	)	-2	%
Intellectual property settlement, net																(81,315	)					—						(81,315	)	—

Total operating (benefit), expense															$	(49,758	)				$	32,232					$	(81,990	)	-254	%

Sales and Marketing ~~Expense~~Expense.. These expenses consist primarily of personnel costs, commissions, office facilities, travel and promotional events such as trade shows, seminars, technical conferences, advertising and public relations programs. For the three months ended ~~September~~June 30, ~~2007, average~~2008, sales and marketing ~~headcount decreased 17%~~expense increased 1% or $0.1 million when compared to the same period in 2006. These headcount reductions primarily occurred at management levels, resulting in a 36% or $4.3 million decrease in sales and marketing expense (including a $2.1 million decrease in bonus expense, a $1.0 million decrease in commissions expense and a $0.9 million decrease in salary expense).2007.

Research and Development Expense. These expenses consist of costs related to software development and product enhancements to existing software. Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. To date, the establishment of technological feasibility of our products and general release of such software has substantially coincided. As a result, software development costs qualifying for capitalization have been insignificant; therefore, we have not capitalized any software development costs other than those recorded in connection with our acquisitions. The primary component of research and development expense is employee-related cost. For the three months ended ~~September~~June 30, ~~2007, our average~~2008, the decrease in research and development expense included a $0.4 million decrease in subcontractor expense and a $0.2 million decrease in employee-related costs. The decrease in employee-related expenses is due to a 14% decrease in average headcount ~~decreased 5%~~when compared to the same period in ~~2006, resulting in a $0.4 million decrease in employee-related costs and contributing to a 7% or $0.6 million decrease in research and development expense.~~2007.

General and Administrative Expense. These expenses include the personnel and other costs of our finance, legal, accounting, human resources, information systems and executive departments, as well as external legal costs. General and administrative expense for the three months ended ~~September~~June 30, ~~2007 decreased 39%~~2008 increased 4% or ~~$6.0~~$0.4 million compared to the same period in ~~2006~~2007 primarily due to ~~a decline~~an increase in legal ~~expense~~and litigation related expenses of ~~$3.2~~$2.1 million, ~~(including a $4.3 million decrease in indemnification expense~~ partially offset by ~~a $1.0 million increase in other legal and litigation expense), a decline~~decreases in employee-related ~~costs~~expense of ~~$1.1~~$0.7 million, a ~~decline~~decrease in ~~insurance expense~~non-income taxes of ~~$0.6 million, a decline in professional services expense of $0.4~~$0.7 million and a ~~decline~~decrease in travel and entertainment ~~costs~~expense of $0.3 million. ~~For~~The increase in legal and litigation related expenses is primarily due to $1.8 million of expenses related to the ~~three months ended September 30, 2007,~~resolution of certain litigation activities, which date back to 2005. The decrease in employee related expenses is reflective of a decrease of 11% in average ~~general and administrative~~ headcount ~~decreased 18%~~when compared to the same period in ~~2006.~~2007.

Amortization of Intangible Assets and Impairment of Intangible Assets. From time to time, we have sought to enhance our product offerings through technology and business acquisitions. When an acquisition of a business is accounted for using the purchase method, the amount of the purchase price is allocated to the fair value of assets acquired, net of liabilities assumed. Any excess purchase price is allocated to goodwill. Intangible assets are amortized over their estimated useful lives, while goodwill is only written down if and when it is deemed to be impaired.

Restructuring Expense.During the three months ended ~~September~~June 30, 2008 we incurred no restructuring expense. In the three months ended June 30, 2007 we ~~initiated~~made adjustments to our restructuring accrual.

Intellectual Property Settlement, Net.On June 23, 2008, we reached a ~~reorganization~~settlement with SAP to settle existing patent litigation between i2 and ~~eliminated approximately 50 positions. The purpose~~SAP. Under the terms of the ~~restructuring was~~settlement, SAP agreed to reduce management layers to both decrease cost and increase speed around decision-making and internal processes. The realignment included the elimination of certain management levels as well as other targeted cost reductions.pay i2 $83.3 million. We recorded ~~a charge~~the $83.3 million net of ~~$3.9~~external litigation expenses of $2.0 million ~~primarily related to severance costs.~~for the three months ended June 30, 2008.

For the three months ended ~~September~~June 30, 2008 and June 30, 2007, ~~and September 30, 2006,~~ non-operating (expense) ~~income,~~, net, was as follows:

~~Total non-operating expense, net, decreased 54% or $0.3 million for the three months ended September 30, 2007 as compared to the same period in 2006.~~

Interest income decreased in the three-month period ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006~~2007 due to lower investment yields on average cash balances, offset partially by higher average cash balances. For the three months ended ~~September~~June 30, ~~2007,~~2008, average cash balances ~~decreased 10%.~~increased 26.4% from the three months ended June 30, 2007. The average rate earned for the three months ended ~~September~~June 30, 2008 was 2.5%, and for June 30, 2007 ~~and September 30, 2006~~ was ~~4.58%~~4.56%.

Interest expense ~~decreased~~was flat for the three months ended ~~September~~June 30, ~~2007~~2008 as compared to the same period in ~~2006 due to lower debt levels following the retirement of certain indebtedness in December 2006.~~2007.

The market interest rates on investments and the relative exchange values of foreign currencies are influenced by the monetary and fiscal policies of the governments in the countries in which we operate. The nature, timing and extent of any impact on our financial statements resulting from changes in those governments’ policies are not predictable. Risks associated with market interest rates and foreign exchange rates are discussed below under the section captioned “Sensitivity to Market Risks.”

We ~~recognized~~recorded income tax expense of ~~$2.1~~approximately $2.7 million for the three months ended ~~September~~June 30, ~~2007~~2008 and ~~$1.6~~$0.7 million for the three months ended ~~September~~June 30, ~~2006,~~2007, representing effective income tax rates of ~~27.9%~~3.2% and ~~25.9%~~24.1%, respectively. ~~A number of~~Various factors affect our effective income tax ~~expense. These include,~~rate including, among ~~others:~~others, changes in our valuation allowance, ~~differences in~~ the ~~tax rates~~effect of ~~our~~ foreign operations, state income taxes (net of federal income tax benefits), certain non-deductible meals and entertainment expenses, research and development tax credits, and the effect of foreign withholding taxes. Our effective income tax rates during the three months ended June 30, 2008 and June 30, 2007 differ from the U.S. statutory rate primarily due to the effect these items have on our valuation allowance.

Income tax expense included the effect of foreign withholding taxes of $0.6 million for the three months ended ~~September~~June 30, ~~2007~~2008 and ~~$0.9~~$1.0 million for the three months ended ~~September~~June 30, ~~2006.~~2007. Foreign withholding taxes are ~~recorded when~~ incurred ~~normally~~on certain payments from international customers and are recorded upon receipt of such payments ~~from certain non-US customers,~~which are received net of the withheld taxes. Foreign withholding taxes generally are available to reduce domestic federal regular income tax. Due to our net operating loss carryforwards and ~~affect~~associated valuation allowance against our domestic deferred tax assets, these withheld taxes increase our income tax ~~expense due to their interaction with our domestic valuation allowance. Our effective income tax rates for~~expense.

During the three months ended ~~September~~June 30, 2008 we recorded a benefit to operating expense of approximately $83.3 million related to the settlement of the SAP patent litigation. We utilized net operating loss carryforwards and other tax attributes to reduce taxes on the settlement. Accordingly, we recorded federal and state alternative minimum tax (AMT) of approximately $1.1 million and $0.1 million, respectively, and other state income taxes of approximately $0.2 million in income tax expense during the three months ended June 30, 2008 related to the settlement. Alternative minimum tax generally is available to reduce regular income tax in the future. Due to our net operating loss carryforwards and associated valuation allowance against our domestic deferred tax assets, these amounts increase our income tax expense.

Income tax expense during the three months ended June 30, 2007 ~~and September 30, 2006 differ from~~included a benefit of approximately $0.8 million as a result of the ~~U.S. statutory rate primarily due~~favorable resolution of our United Kingdom tax examination related to ~~fluctuations in our valuation allowance.~~the 2003 tax year.

Analysis of Financial ~~Results - Nine~~Results—Six Months Ended ~~September~~June 30, ~~2007~~2008 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2006~~2007

The following table sets forth revenues and the percentages of total revenues of selected items reflected in our condensed consolidated statements of operations and comprehensive income for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006.~~2007. The period-to-period comparisons of financial results are not necessarily indicative of future results.


	Nine Months Ended September 30, 2007			Percent of Revenue			Nine Months Ended September 30, 2006			Percent of Revenue			Change 2007 versus 2006							Six Months Ended June 30, 2008			Percent of Revenue			Six Months Ended June 30, 2007			Percent of Revenue			Change 2008 versus 2007
												Nine Months Ended September 30																			Six months ended June 30
												$ Change				% Change															$ Change				% Change
SOP 97-2 recognition		$	7,682		4	%		$	15,400		8	%		$	(7,718	)		-50	%		$	1,803		2	%		$	5,785		4	%		$	(3,982	)		-69	%
SOP 81-1 recognition			10,656		5	%			15,539		8	%			(4,883	)		-31	%			10,460		8	%			7,457		6	%			3,003			40	%
Recurring items		17,029		9	%			21,940		11	%			(4,911	)		-22	%			11,978		9	%			11,603		9	%			375			3	%

Total software solutions		35,367		18	%			52,879		27	%			(17,512	)		-33	%
Total Software solutions																					24,241		19	%			24,845		19	%			(604	)		-2	%
Services		93,613		48	%			77,023		38	%			16,590			22	%			59,350		47	%			60,248		46	%			(898	)		-1	%
Maintenance		65,598		33	%			70,080		35	%			(4,482	)		-6	%			43,713		34	%			43,027		33	%			686			2	%
Contract		2,450		1	%			99		—				2,351			2375	%			—		—				2,450		2	%			(2,450	)		-100	%

Total revenues	$	197,028		100	%		$	200,081		100	%		$	(3,053	)		-2	%		$	127,304		100	%		$	130,570		100	%		$	(3,266	)		-3	%

Software Solutions Revenue.Total software solutions revenue decreased ~~33%~~2% or ~~$17.5~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in 2006. Overall we experienced lower software solutions revenue in the nine months ended September 30, 2007 due to less current period bookings being recognized as revenue and a smaller size of projects being recognized under percentage of completion accounting, when compared to the same period in 2006. In addition, we did not have revenue from platform technology transactions in the 2007 period.2007. The components of the changes in software solutions revenue are explained below.

~~A significant~~The primary cause of the decline in revenue recognized under SOP 97-2 for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 is ~~the recognition~~due to declines in the ~~nine~~number and size of deals being recognized from current quarter bookings as well as a decrease in the number and size of deals recognized from backlog. During the six months ended ~~September~~June 30, ~~2006 of three large deals totalling $5.1 million that were not repeated in the comparable period of 2007. During the nine months ended September 30, 2007,~~2008 we recognized revenue related to 4019 contracts at an average of $0.1 million per contract compared to 36 contracts at an average of $0.2 million per contract ~~compared to 53 contracts at an average of $0.3 million per contract~~ in the comparable period of ~~2006.~~2007.

The primary cause of the decline in revenue recognized under SOP 81-1 for the nine months ended September 30, 2007 is a decline in the amount of revenue generated on each project as compared to the same period in 2006, due mainly to the continued decline in our backlog. Revenue recognized under SOP 81-1 is dependent upon the amount of work performed on software solutions projects and milestones met during the applicable period on projects booked in prior periods. During the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 we recognized revenue under 3023 projects at an average of $0.5 million per project compared to 25 projects at an average of $0.3 million per project ~~compared to 30 projects at an average of $0.5 million per project in the comparable period of 2006.~~

The decline in revenue from recurring items for the nine months ended September 30, 2007 was primarily driven by the recognition of $5.2 million in the three months ended September 30, 2006 from a platform technology transaction which was not repeated in the comparable period of 2007.

~~Services Revenue.~~~~Services revenue increased 22% or $16.6~~Revenue from recurring items was relatively unchanged, increasing $0.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 when compared to the same period in ~~2006 primarily as a result of a 6% increase~~2007.

Services Revenue.Services revenue was relatively unchanged decreasing 1% or $0.9 million for the six months ended June 30, 2008 compared to the same period in revenue recognized per billable hour worked together with a 12% increase in total billable hours. The increase in billable hours was due to a 10% increase in average number of services personnel from the nine month period ended September 30, 2006.2007.

Maintenance Revenue.Maintenance revenue ~~decreased 6%~~increased 2% or ~~$4.5~~$0.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in 2006 primarily as a result of customers not renewing their maintenance agreements or customers renewing on less favorable terms, with such decreases not being offset by initial maintenance agreements with new customers.2007.

International Revenue. Our international revenues included in the categories discussed above are primarily generated from customers located in Europe, Asia, Latin America and Canada. International revenue totaled ~~$86.7~~$52.9 million, or ~~44%~~42% of total revenue, in the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 compared to ~~$86.7~~$55.5 million, or 43% of total revenue, in the same period in ~~2006.~~2007. International revenue remained relatively consistent in the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006.~~2007.

Customer Concentration. During the periods presented, no individual customer accounted for more than 10% of total revenues.

During the six months ended June 30, 2008 we experienced margin compression compared to the six months ended June 30, 2007, as a result of appreciation in the Indian rupee. Our rupee-denominated expenses increased modestly during 2008, but this translated into a 14% increase in our dollar-denominated expenses in our India operations. If we assume the same currency exchange rate for our rupee expenditures in 2008 as we experienced in 2007, the impact of rupee appreciation was approximately $0.6 million for the six months ended June 30, 2008.

The following table sets forth cost of revenues and the gross margins of selected items reflected in our condensed consolidated statements of operations and comprehensive income for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006.~~2007. The period-to period comparisons of financial results are not necessarily indicative of future results.


	Nine Months Ended September 30, 2007			Gross Margin			Nine Months Ended September 30, 2006			Gross Margin			Change 2007 versus 2006							Six Months Ended June 30, 2008			Gross Margin			Six Months Ended June 30, 2007			Gross Margin			Change 2008 versus 2007
												Nine Months Ended September 30																			Six months ended June 30
												$ Change				% Change															$ Change				% Change
Software solutions		$	6,715		81	%		$	9,121		83	%		$	(2,406	)		-26	%		$	5,488		77	%		$	4,649		81	%		$	839			18	%
Services and maintenance			81,467		49	%			73,002		50	%			8,465			12	%
Services																					46,095		22	%			48,310		20	%			(2,215	)		-5	%
Maintenance																					5,498		87	%			5,737		87	%			(239	)		-4	%
Amortization of acquired technology		19		—				—		—				19			—				4		—				12		—				(8	)		-67	%

Total cost of revenues	$	88,201					$	82,123					$	6,078			7	%		$	57,085					$	58,708					$	(1,623	)		-3	%

Cost of SoftwareS~~olutions.~~ Solutions. Cost of software solutions ~~decreased 26%~~increased 18% or ~~$2.4~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006~~2007 primarily because of ~~a decrease~~an increase in the number of hours worked on projects requiring essential ~~services, which is reflected in our lower software solutions revenues for the 2007 period.~~services.

During the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 and ~~September~~June 30, ~~2006,~~2007, the costs attributable to the performance of essential services related to software solutions projects recognized under SOP 81-1 was ~~$2.5~~$3.8 million and ~~$4.8~~$1.2 million, respectively.

Cost of S~~ervices and~~M~~aintenance~~ Services. These costs consist of expenses associated with the delivery of non-essential services, such as implementation, integration, process consulting and training. Cost of services ~~and maintenance increased 12%~~decreased 5% or ~~$8.5~~$2.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 compared to the same period in ~~2006~~2007. This decrease was primarily related to a decrease in employee related costs of $3.1 million partially offset by an increase in travel and entertainment of $0.8 million. The decrease in employee related costs was driven by a shift of approximately 28 associates from the services organization to the sales organization. This shift was done as part of our refocus in late 2007 to a ~~result~~sales approach centered on customer business units.

Cost of ~~increased~~Maintenance. These costs consist of expenses including support services ~~personnel to~~such as telephone support ~~our growing services business. Average services~~ and unspecified upgrades/enhancements provided on a when-and-if-available basis. Cost of maintenance ~~headcount increased 11%~~decreased 4% or $0.2 million for the ~~nine~~three months ended ~~September~~June 30, ~~2007 as~~2008 compared to the same period in ~~2006. For the nine months ended September 30, 2007, employee-related costs associated with this expense category increased $6.4 million,~~2007. This decrease was primarily related to a decrease in travel and entertainment ~~increased $1.0 million and equipment expense increased $0.4 million as compared to the same period in 2006.~~expense.


	Nine Months Ended September 30, 2007			Percent of Revenue			Nine Months Ended September 30, 2006				Percent of Revenue			Change 2007 versus 2006						Six Months Ended June 30, 2008				Percent of Revenue			Six Months Ended June 30, 2007			Percent of Revenue		Change 2008 versus 2007
						Nine Months Ended September 30												Six months ended June 30
						$ Change							% Change						$ Change							% Change
Sales and marketing		$	32,582							17		%		$	35,976		18	%					$		(3,394	)		-9	%	$	25,022		20	%	$	24,654	19	%	$	368	1	%
Research and development			25,779					13	%			26,698			13	%		(919	)			-3	%
Research and development .																					15,174			12	%			17,555		13	%		(2,381	)	-14	%
General and administrative		30,192		15	%			40,634			20	%			(10,442	)	-26	%			20,428			16	%			20,928		16	%		(500	)	-2	%
Amortization of intangibles		53		—				—			—				53		—				50			—				28		—			22		79	%
Restructuring charges and adjustments		3,847		2	%			(248	)		—				4,095		-1651	%
Restructuring charges and adjustments.																					—			—				(75	)	—			75		-100	%

Total operating expenses	$	92,453					$	103,060						$	(10,607	)	-10	%
Costs and expenses, subtotal																					60,674							63,090					(2,416	)	-4	%
Intellectual property settlement, net																					(79,860	)						—					(79,860	)	—

Total operating (benefit), expense																				$	(19,186	)					$	63,090				$	(82,276	)	-130	%

Sales and Marketing Expense.For the ~~nine~~six months ended ~~September~~June 30, ~~2007, average~~2008, the increase in sales and marketing ~~headcount decreased 3% compared to the same period~~expense included an increase in ~~2006. Sales and marketing expense for the nine months ended September 30, 2007 decreased 9% or $3.4 million compared to the same period in 2006 primarily due to decreases in employee-related~~employee related costs of ~~$4.1~~$1.6 million (including $1.4 million of employee commissions expense and $0.7 million of benefits expense). This increase in employee related costs was partially offset by ~~an increase~~a decrease in ~~travel and entertainment~~trade show expense of ~~$0.3~~$0.2 million.

Research and Development Expense. ~~The primary component of~~For the six months ended June 30, 2008, the decrease in research and development expense isincluded a decrease in employee-related ~~cost. Our average headcount remained relatively consistent during the periods presented as reflected by the relatively consistent level~~costs $0.8 million, a decrease in subcontractor cost of ~~expense.~~$0.6 million, a decrease in travel and entertainment of $0.2 million and a decrease in equipment cost of $0.2 million.

General and Administrative Expense.General and administrative expense for the ~~nine~~six months ended ~~September~~June 30, ~~2007~~2008 decreased ~~26%~~2% or ~~$10.4~~$0.5 million compared to the same period in ~~2006~~2007 primarily due to a ~~decline~~decrease in ~~legal~~employee related expense of ~~$6.6~~$1.7 million, a ~~decline~~decrease in ~~insurance~~equipment expense of ~~$1.9~~$0.9 million, a ~~decline~~decrease in ~~professional services~~subcontractor expense of ~~$1.2~~$0.6 million and a ~~decline of employee-related~~decrease in travel and entertainment expense of ~~$1.1 million. For~~$0.5. These decreases in expenses were partially offset by an increase legal and litigation related expenses of $1.8 million related to the ~~nine months ended September 30, 2007,~~resolution of certain litigation activities, which date back to 2005. The decrease in employee related expenses is reflective of a decrease of 16% in average ~~general and administrative~~ headcount ~~decreased 7%~~when compared to the same period in ~~2006.~~2007.

Restructuring Expense.During the six months ended June 30, 2008 we had no restructuring expense. In the three months ended ~~September~~June 30, 2007 we ~~initiated~~had adjustments to our restructuring accrual.

Intellectual Property Settlement, Net.On June 23, 2008, we reached a ~~reorganization,~~settlement with SAP to settle existing patent litigation between i2 and ~~eliminated approximately 50 positions. The purpose~~SAP. Under the terms of the ~~restructuring was~~settlement, SAP agreed to reduce management layers to both decrease cost and increase speed around decision-making and internal processes. The realignment included the elimination of certain management levels as well as other targeted cost reductions.pay i2 $83.3 million. We recorded ~~a charge~~the $83.3 million net of ~~approximately $3.9~~legal expense of $3.5 million ~~primarily related to severance costs. The remaining expense~~ for the ~~periods presented reflects adjustments to previously established accruals, based on changes in estimates.~~six months ended June 30, 2008.

For the ~~nine~~six months ended ~~September~~June 30, 2008 and June 30, 2007, ~~and September 30, 2006,~~ non-operating (expense) ~~income,~~, net, was as follows:

general direction of market interest rates in the U.S. where the majority of our cash and investments are held. As of ~~September~~June 30, ~~2007~~2008 and ~~December 31, 2006,~~2007, the weighted-average yield on cash and cash equivalent balances was ~~4.37%~~2.5% and ~~4.69%~~5.2%, respectively. If overall interest rates fell by 100 basis points in the ~~fourth~~third quarter of ~~2007,~~2008, our interest income would decline approximately ~~$0.3~~$0.4 million for the quarter, assuming cash and cash equivalent levels consistent with ~~September~~June 30, ~~2007~~2008 levels.

Credit Risk. Financial assets that potentially subject us to a concentration of credit risk consist principally of investments and accounts receivable. During the third quarter of 2007, we shifted our investments from commercial paper into money-market instruments due to the volatility in the commercial paper markets. Cash on deposit is held with financial institutions with high credit standings. Debt security investments are generally in highly-rated corporations and municipalities as well as agencies of the U.S. government; however, a significant portion of these investments are in corporate debt securities, which carry a higher level of risk compared to municipal and U.S. government-backed securities. Our customer base consists of large numbers of geographically diverse enterprises dispersed across many industries. As a result, concentration of credit risk with respect to accounts receivable is not significant. However, we periodically perform credit evaluations for most of our customers and maintain reserves for potential losses. In certain situations we may seek letters of credit to be issued on behalf of some customers to mitigate our exposure to credit risk. We currently use foreign exchange contracts to hedge the risk associated with receivables denominated in foreign currencies. Risk of non-performance by counterparties to such contracts is minimal due to the size and credit standings of the financial institutions involved.

~~Market Price Risk.~~ We have invested in several privately held companies, many of which can still be considered in the start-up or development stages or may no longer be viable or operational. As a result of significant declines in the expected realizable amounts of these investments, in previous periods we wrote off the book value of most of these investments as the decline in fair value was considered other than temporary.

Inflation. Inflation has not had a material impact on our results of operations or financial condition.

This information is included in the section captioned “Sensitivity to Market Risks,” included in Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Evaluation of Disclosure Controls and Procedures. As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (Exchange Act), our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), carried out an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” as of the end of the period covered by this report. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures of our company that are designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is accumulated and communicated to our company’s management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on this evaluation, our CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to provide reasonable assurance that such information is accumulated and communicated to our company’s management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that any system of controls, however well designed and operated, is based in part upon certain assumptions and can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

Changes in Internal Control over Financial Reporting.As required by Rule 13a-15(d) under the Exchange Act, our management, including our CEO and CFO, also conducted an evaluation of our internal control over financial reporting to determine whether any change occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on our evaluation, during our most recent fiscal quarter there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During the quarter ended March 31, 2008, we did not timely file an Item 5.02 Form 8-K related to the resignation of an officer of the Company. We have implemented improvements to our disclosure controls, including a notification process which is designed to provide for the timely disclosure of executive resignations. We plan to formalize these improvements with the audit committee during the quarter ending September 30, 2008. We have re-evaluated our internal controls in light of these matters and concluded the late filing did not occur as a result of a material weakness.

The information set forth inNote 7 – Commitments and Contingencies in our Notes to Condensed Consolidated Financial Statements is incorporated herein by reference.

~~Other than as described below, there~~There have been no material changes from the risk factors disclosed under the heading “Risk Factors” in Item 1A of our ~~2006~~2007 Annual Report on Form 10-K.

Certain Large Stockholders Have Called For the Public Sale of the Company, and the Board of Directors of i2 Has Formed a Strategic Review Committee in Connection With an Ongoing Review of i2’s Management, Operations and Strategy

On September 13, 2007, Amalgamated Gadget, L.P., a beneficial owner of approximately 17.6% of our common stock, filed an amendment to its Schedule 13D announcing that it was exercising rights under the terms of our Series B preferred stock to name two persons to our Board of Directors and stating, among other things, that i2 should explore strategic options, including a possible outright sale of i2 or its assets. On October 3, 2007, S.A.C. Capital Advisors, LLC filed a Schedule 13D announcing that it was a beneficial owner of approximately 8.9% of our common stock and stating, among other things, that the value of i2’s assets is not appropriately reflected in the price of our common stock and that the best way to increase shareholder value would be a public sale of i2. On November 1, 2007, the Company announced that, in connection with an ongoing review of i2’s management, operations and strategy which was initiated early this year, the Board of Directors of i2 has formed a Strategic Review Committee comprised of three independent directors to consider and evaluate the merits of the various strategic options available to i2 to enhance shareholder value. Those strategic options may include: changes to our operations; actions or transactions intended to enhance the value or utilization of our existing assets; joint ventures or strategic partnerships; selective acquisitions, dispositions or other capital transactions; and a merger, sale or other extraordinary business transaction involving the Company.

Continued pressure by activist stockholders for the sale of the Company, and/or the Company’s ongoing exploration of strategic options, could create distractions for our management, sales staff and other employees and create uncertainty in existing and potential customers regarding our ability to meet our contractual obligations. Such distractions and uncertainty could harm our business, results of operations, cash flow and financial condition.

~~Restructuring and Reorganization Initiatives Have Been Executed, And Such Activities Pose Significant Risks To Our Business~~

~~In late July 2007~~, we began restructuring initiatives involving reducing our workforce in an effort to achieve our profitability objectives. These activities pose significant risks to our business, including the risk that terminated employees will disparage the company, file legal claims against us related to their termination of employment, become employed by competitors or share our intellectual property or other sensitive information with others and that the reorganization will not achieve targeted efficiencies. The failure to retain and effectively manage our remaining employees or achieve our targeted efficiencies through the reorganization could increase our costs, adversely affect our development efforts and adversely affect the quality of our products and customer service. If customers become dissatisfied with our products or service, our maintenance renewals may decrease, our customers may take legal action against us and our sales to existing customers could decline, leading to reduced revenues. Failure to achieve the desired results of our restructuring and reorganization initiatives could harm our business, results of operations, cash flow and financial condition.

Effective July 30, 2007, Pallab K. Chatterjee was appointed interim CEO following the resignation of Michael E. McGrath from his positions as an officer of the Company. Prior to his appointment as interim CEO, Mr. Chatterjee was our Executive Vice President, Solutions Operations and Chief Delivery Officer. Our Board of Directors has identified a number of CEO candidates and expects to name a permanent CEO pending the outcome of the ongoing exploration of strategic options currently being conducted by the Strategic Review Committee of the Board. Until that time, Mr. Chatterjee will continue to serve as the company’s interim CEO and remains a candidate for the permanent CEO position.

This transition to an interim CEO and then a permanent CEO could be a distraction to our senior management, business operations and customers. The search for a permanent replacement could also result in significant recruiting and relocation costs. If we fail to successfully attract and appoint a permanent CEO with the appropriate level of expertise, we could experience harm to our business, results of operations, cash flow and financial condition.

On ~~September 13, 2007, a special~~May 29, 2008, we held an annual meeting of ~~the holders of~~ our ~~Series B Preferred Stock was held~~stockholders for the ~~purpose of electing a director~~following purpose:

To elect J. Coley Clark, Richard L. Hunter and Lloyd G. Waterhouse as Class II directors to ~~our Board of Directors. At such~~serve until the annual stockholders’ meeting ~~Michael J. Simmons~~in 2011, and until their respective successors have been elected and qualified.

Mr. Clark was elected ~~to the Board~~ with ~~105,288 votes cast~~17,255,914 common shares voting for his election, ~~by the holder of the~~all outstanding Series B ~~no votes withheld~~preferred shares voting for his election and ~~no abstentions.~~ 143,416 common shares withholding their vote. Mr. Hunter was elected with 17,255,975 common shares voting for his election, all outstanding Series B preferred shares voting for his election and 143,355 common shares withholding their vote. Mr. Waterhouse was elected with 17,212,654 common shares voting for his election, all outstanding Series B preferred shares voting for his election and 186,676 common shares withholding their vote.

The terms of office of Stephen P. Bradley, ~~Harvey B. Cash,~~ Richard L. Clemmer ~~Michael E. McGrath, Sanjiv S. Sidhu, Lloyd G. Waterhouse~~ and ~~Jackson L. Wilson continued after the meeting.~~

~~On September 20, 2007, a special meeting of the holders of our Series B Preferred Stock was held for the purpose of electing a second director to our Board of Directors. At such meeting,~~ David L. Pope, ~~was elected to the Board with 105,288 votes cast for his election by the holder of the Series B, no votes withheld~~all Class I directors and ~~no abstentions. The terms of office of Stephen P. Bradley, Harvey B. Cash, Richard L. Clemmer, Michael E. McGrath,~~ Sanjiv S. Sidhu, Michael J. Simmons ~~Lloyd G. Waterhouse~~ and Jackson L. Wilson, Jr. all Class III directors, continued after the meeting.

~~None~~ Harvey B. Cash and Michael E. McGrath did not stand for re-election at the annual meeting.



10.2		— Amended and Restated Executive Retention Agreement between the Company and Pallab K. Chatterjee (filed as Exhibit 10.2 to the 8-K filed by i2 on ~~August 1, 2007)~~May 23, 2008).

~~10.2~~ 10.3		— ~~Resignation~~Amendment to Executive Retention Agreement between the Company and ~~General Release executed by Barbara Stinnett, in connection with Ms. Stinnett’s resignation~~Michael J. Berry (filed as ~~exhibit 10.1~~Exhibit 10.3 to the 8-K filed by i2 on ~~August 8, 2007.~~ May 23, 2008).

~~31.1~~ 10.4		— Settlement Agreement dated June 23, 2008 between the Company and SAP America, Inc. and SAP AG..

31.1		— Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of Pallab K. Chatterjee, ~~Interim~~ Chief Executive Officer (Principal Executive Officer) of i2.

31.2		— Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of Michael J. Berry, Executive Vice President, Finance and Accounting, and Chief Financial Officer (Principal Accounting and Financial Officer) of i2.


32.1		— Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Pallab K. Chatterjee, ~~Interim~~ Chief Executive Officer (Principal Executive Officer) of i2.

32.2		— Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Michael J. Berry, Executive Vice President, Finance and Accounting, and Chief Financial Officer (Principal Accounting and Financial Officer) of i2.

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


Delaware		75-2294945
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)		~~(I.R.S. Employer~~ ~~Identification No.)~~


One i2 Place
11701 Luna Road
Dallas, Texas		75234
(Address of principal executive offices)		(Zip code)


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


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3

~~Item 1.~~	~~Financial Statements (Unaudited)~~	3

	~~Condensed Consolidated Balance Sheets~~	3

	Condensed Consolidated Statements of Operations and Comprehensive Income	4

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1516

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3233

Item 4.	Controls and Procedures	3233
PART II	OTHER INFORMATION
Item 1.	~~PART II OTHER INFORMATION~~Legal Proceedings	34

Item 1.1A.	~~Legal Proceedings~~Risk Factors	34

~~Item 1A.~~	~~Risk Factors~~	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3534

Item 3.	Defaults Upon Senior Securities	3534

Item 4.	Submission of Matters to a Vote of Security Holders	3534

Item 5.	Other Information	3534

Item 6.	Exhibits	35

~~SIGNATURES~~		3734
SIGNATURES		36


	September 30, 2007		December 31, 2006
Short-term time deposits		9,771	$	4,048
Commercial paper		—		86,376

	$	9,771	$	90,424


	Stock Options				ESPP			Stock Options				ESPP
	Three Months Ended September 30,				Three Months Ended September 30,			Nine Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007	2006		2007		2006		2007		2006
Expected term (years)	4		4		*	0.5		4		4		0.5		0.5
Volatility factor	0.70		0.87		*	0.68		0.81		0.93		0.32		0.59
Risk-free interest rate	4.15	%	5.01	%	*	4.93	%	4.69	%	4.85	%	4.67	%	4.77	%
Dividend yield	0	%	0	%	*	0	%	0	%	0	%	0	%	0	%


	Stock Options Three Months Ended June 30,				ESPP Three Months Ended June 30,			Stock Options Six Months Ended June 30,				ESPP Six Months Ended June 30,
	2008		2007		2008	2007		2008		2007		2008	2007
Expected term (years)	4		4		*	0.5		4		4		*	0.5
Volatility factor	66	%	78	%	*	36	%	67	%	81	%	*	34	%
Risk-free interest rate	2.95	%	4.77	%	*	4.64	%	2.74	%	4.70	%	*	4.66	%
Dividend yield	0	%	0	%	*	0	%	0	%	0	%	*	0	%


	Three Months Ended September 30, 2007			Three Months Ended September 30, 2006
Interest income	$	1,413		$	1,553
Interest expense		(1,236	)		(1,523	)
Foreign currency hedge and transaction losses, net		(107	)		(207	)
Other expense, net		(300	)		(327	)

Total non-operating expenses, net	$	(230	)	$	(504	)


Exhibit Number		Description
~~10.1~~
3.1		— ~~Resignation Agreement~~Amended and Restated Bylaws of ~~Michael McGrath~~the Company that amended the advance notice provisions of Section 2.5 of the Bylaws relating to stockholder proposals and ~~general release executed by Mr. McGrath in favor~~stockholder nominees to the Company’s Board of ~~i2 and certain other persons~~Directors (filed as ~~exhibits~~exhibit 9.1 to the 8-K filed by i2 on April 29, 2008).

10.1		— Employment Agreement between the Company and Jackson L. Wilson, Jr. (filed as Exhibit 10.1 to the 8-K filed by i2 on May 23, 2008).


		i2 TECHNOLOGIES, INC.

~~November 6, 2007~~	August 7, 2008	By:	/s/ ~~Michael J. Berry~~
		Michael J. Berry
			Michael J. Berry Executive Vice President, Finance and Accounting, and Chief Financial Officer
		(On behalf of the Registrant and as Principal Accounting and Financial Officer)