Pricing is an important component of an enterprise\\\\\\\\\\\\\\\'s business processes and financial performance. Companies can face a variety of pricing problems such as unnecessary discounting and quoting prices below breakeven. According to a 2006 Gartner Research report, on average, a 1% improvement in price translated to an 11% increase in profitability. By contrast, according to the same report, a 1% improvement in fixed costs or in variable costs only increases profitability by 3% and 7%, respectively.

The pocket price is a measure of the effective price paid by the customer in a particular transaction after accounting for all relevant discounts, promotions, rebates and allowances. The pocket margin is a measure of the profitability of a particular transaction determined after subtracting direct product costs and other costs attributed to a customer from the pocket price. Companies can face challenges in determining the pocket price and pocket margin of their products due in part to the lack of timely access to relevant data.

The potential for business and financial improvement from pricing software solutions has generated increasing focus on addressing the pricing problem through pricing and revenue optimization software products.

It is believed the market for pricing and revenue optimization solutions is a large and rapidly growing opportunity that spans most major industries. An August 2006 AMR Research report estimated that the price management applications market will be $348 million in 2007 and will grow to approximately $1.1 billion in 2010, a compound annual growth rate of 46%.

The Company’s pricing analytics software product is the base product that is present in all implementations. The Company’s pricing execution products, pricing manager and deal manager, extend the usability of the base analytics product and provide real-time transaction level optimized prices by customer and product. The Company’s pricing optimization products help companies arrive at an optimal price by analyzing the relationships among demand, price and profit margin.

The Company’s Pricing Solution Suite uses its Database that aggregates data from a wide variety of data sources, including the customers\\\\\\\\\\\\\\\' enterprise applications and external market data sources. The Company’s Database uses its internally-developed data loaders to import data from these data sources for access by its Pricing Solution Suite.

The Company’s pricing execution software products consist of the pricing manager and deal manager products.

The Company’s pricing manager product allows companies to streamline pricing processes and institute control of pricing policies to support corporate business goals. It allows organizations to create multiple rules-based price lists and quickly modify prices or guidelines in response to changes in business conditions or strategy.

The Company’s deal manager product provides pricing decision-makers with guidelines, additional context and information to negotiate better prices.

The Company’s pricing optimization software products help companies arrive at an optimal price by analyzing the relationships among demand, price and profit margin taking into account operational and financial constraints. The Company’s pricing optimization software products use advanced statistical techniques to determine optimal prices consistent with pricing strategies. These products utilize optimization and forecasting engines to solve many distinct pricing problems.

Cost of revenue increased $2.2 million from $13.4 million in 2005 to $15.6 million in 2006, representing a 17% increase.

Gross profit increased $8.7 million from $21.7 million in 2005 to $30.4 million in 2006, representing a 40% increase.

Selling, general and administrative expenses increased $1.3 million from $12.0 million in 2005 to $13.3 million in 2006, representing a 10% increase.

Research and development expenses increased $3.9 million from $6.4 million in 2005 to $10.3 million in 2006, representing a 61% increase.

Interest income increased $847,000 from $1.1 million in 2005 to $1.9 million in 2006, representing a 79% increase.