Organizations are increasingly seeking to license software that will help them improve their strategic business processes and enable them to operate and compete more effectively in a complex, global market. Historically, organizations have installed a wide range of software applications designed to improve the effectiveness of a particular business function, such as enterprise resource planning, supply chain management and customer relationship management software applications.

In order to have a more complete view of their end-to-end business processes, promote process improvement and further benefit from previous technology investments, some organizations have purchased business process management, or BPM, software. With the adoption of BPM software, there has been a fundamental shift in the way organizations manage and improve their business processes. Increasingly, these organizations view their processes strategically and as a source of competitive advantage.

Despite the shortcomings of many existing BPM solutions, the market for BPM software is large and growing. In its \"Magic Quadrant for Business Process Management Suites, 2007\" report, Gartner, Inc., a market research firm, stated, \"Gartner expects that the BPMS [market] will reach $5.1 billion in total software revenues by 2011. Gartner estimates that the BPMS [market] will have a compound annual growth rate of more than 24% from 2006 to 2011.\"

The Business Process Management Suite market referenced by Gartner encompasses software that enables organizations to automate, manage, and control business processes and emphasizes business user involvement in the entire process improvement lifecycle, from design through implementation, deployment, monitoring and ongoing optimization.

The Company’s EA software is used to create a complete visual model of the strategy, people, systems and data within an organization, facilitating collaborative strategic planning and visibility into the impact of change across an organization.

Metastorm ProVision is the Company’s software for EA. This software allows customers to translate business strategy and operational objectives into more effective organizational change through visual models that describe an organization\'s assets – strategy, people, systems and data – and their relationships.

The Company’s BPA software enables the modeling, analysis and improvement of business processes.

Metastorm ProVisionBPA is the Company’s software for BPA. This product enables the Company’s customers to document, analyze and streamline complex processes using sophisticated modeling, simulation and analysis.

Metastorm ProVision for Federal helps U.S. Government agencies improve process performance and establish a framework for collaborative process improvements. Metastorm ProVision for Federal includes a variety of pre-built models, which are called frameworks, which are used to encourage the use of a consistent structure for descriptions of process architectures.

The Company offers pre-built reference models for Metastorm ProVision that provides a comprehensive process specific template for quickly defining the operations of key business functions. Spanning a variety of industries and processes, including finance, telecommunications, supply chain, design chain and customer chain, these models are based on published standards, industry expertise and the Company’s practical experience.

The Company offers model templates, called modelers, which provide process and organizational mapping capabilities for documenting and analyzing targeted business processes and organizational interactions.

Metastorm Knowledge Exchange is a web-based collaborative modeling solution, that enables the Company’s customers to manage process models and information through a standard web browser. Metastorm Knowledge Exchange provides a centralized view of process knowledge within an organization.

Gross profit in 2007 totaled $43.2 million, an increase of $13.1 million, or 44%, over gross profit of $30.1 million in 2006.

Cost of professional services totaled $12.9 million in 2007, an increase of $3.4 million, or 36%, over the cost of professional services of $9.5 million in 2006.

Research and development expense in 2007 totaled $6.5 million, an increase of $2.0 million, or 46%, from $4.5 million in 2006.

Interest and other expense, net increased by $408,000, to $830,000 in 2007 compared to $422,000 in 2006.