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          (Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from ______ to ______

Commission File Number 0-23078

MAPINFO CORPORATION
(Exact name of registrant as specified in its charter)

One Global View
Troy, New York 12180
(Address of principal executive offices and zip code)

(518-285-6000)
(Registrant's Telephone Number, Including Area Code

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. Yes X          No  

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X   No  

The number of shares outstanding of the registrant's common stock, $.002 par value per share, as of February 1, 2005 was 20,398,238.

MapInfo Corporation and Subsidiaries
Income Statements
(in thousands, except per share data)
(unaudited)

See accompanying notes.

MapInfo Corporation and Subsidiaries
Balance Sheets
(in thousands)

See accompanying notes.

MapInfo Corporation and Subsidiaries
Cash Flows Statements
(in thousands)
(unaudited)

See accompanying notes.

MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(unaudited)

1.  Basis of Presentation

In the opinion of management, the accompanying balance sheets and related income statements and statements of cash flows include the accounts of MapInfo Corporation and its subsidiaries ("MapInfo", "the Company", "we", "our", or "us") and include all adjustments (consisting only of normal recurring items) necessary for their fair presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim period are not necessarily indicative of the results of operations for the full year.

The September 30, 2004 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.

The Company has various stock-based employee compensation plans, which are described more fully in Note 12 of the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2004. SFAS No. 123, "Accounting for Stock-Based Compensation", requires the measurement of the fair value of stock options or warrants granted to employees to be included in the statement of income or, alternatively, disclosed in the notes to consolidated financial statements. The Company accounts for stock-based compensation of employees under the intrinsic value method of accounting included in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations and has elected the disclosure-only alternative under SFAS No. 123. The Company has adopted the disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure", in its discussion of stock-based employee compensation .

MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(unaudited)

2.  Stock Based Compensation (continued)

The following table summarizes the proforma operating results of the Company had compensation cost been determined in accordance with the fair value-based method prescribed by SFAS No. 123.

The following table represents the reconciliation of the basic and diluted earnings per share amounts for the three months ended December 31, 2004 and 2003.

MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(unaudited)

3.  Earnings Per Share (EPS) (continued)

The impact of outstanding stock options with an exercise price equal to or greater than the average market price of the Company's common stock was anti-dilutive and therefore excluded from the calculation. Outstanding stock options, with an exercise price equal to or greater than the average market price of the Company's common stock for the three months ended December 31, 2004 and 2003, were 902 thousand shares and 963 thousand shares, respectively.

4.  Comprehensive Income

Comprehensive income was as follows:

5.  Derivative Instruments and Hedging Activities

In order to reduce exposure to movements in interest rates, in January 2003 the Company entered into an interest rate swap agreement to convert its variable rate mortgage loan to a fixed rate. The agreement involves the exchange of fixed and floating interest rate payments over the ten-year life of the loan. The variable interest rate on the mortgage loan is the greater of 3.5% or the sum of the 30-day LIBOR rate plus 2.25%. The interest rate swap has fixed the effective interest rate that we will pay at 6.82%. The 6.82% interest rate is based on the assumption that the 30-day LIBOR rate plus 2.25% is 3.5% or higher, due to the interest rate minimum which applies to the mortgage. The impact of the fluctuations in interest rates on the interest rate swap agreement will be naturally offset by the opposite impact on the related mortgage debt. The Company accounts for this interest rate swap in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities".

MapInfo Corporation and Subsidiaries
Notes to Financial Statements
(unaudited)

5.  Derivative Instruments and Hedging Activities (continued)

At December 31, 2004 and September 30, 2004, the fair value of the swap agreement, which represents the cash the Company would pay to settle the agreement, was $294 thousand and $397 thousand, respectively. The current portion of $37 thousand and $48 thousand is included on the balance sheet under the caption Accrued Liabilities and the long-term portion of $257 thousand and $349 thousand is included under the caption Other long-term liabilities for December 31, 2004 and September 30, 2004, respectively. The Company records the payments or receipts on the agreement as adjustments to interest expense. The Company recognized interest expense related to the swap of $97 thousand and $131 thousand for the three months ended December 31, 2004 and December 31, 2003, respectively.

6.  Segment Information

The Company's operations involve the design, development, marketing, licensing and support of software and data products, application development tools, and industry-specific solutions, together with a range of consulting, analytical, training and technical support services.

The Company conducts business globally and is managed geographically. The Company's management relies on an internal management accounting system. This system includes revenue and cost information by geographic location. Revenues are attributed to a geographic location based on the origination of the order from the customer. The Company's management makes financial decisions and allocates resources based on the information it receives from this internal system. Based on the criteria set forth in SFAS No. 131, the Company has reportable segments by geography: the Americas, EMEA (Europe, the Middle East, and Africa) and Asia-Pacific.

The Company's geographic segments are discussed below.

MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

6.  Segment Information (continued)

Geographic Segments

Summarized financial information by geographic segment for the three months ended December 31, 2004 and 2003, as taken from the internal management accounting system discussed above, is as follows:

The operating income by segment above differs from the amounts presented under accounting principles generally accepted in the United States of America because the Company does not allocate certain costs for research and development, marketing, and general and administrative activities to the geographic locations. The table above reconciles the operating income by geographic segment to operating income as reported on the Income Statements by including adjustments for certain unallocated costs.

MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

7.  Commitments and Contingencies

Mortgage Payable. On December 21, 2001, the Company entered into a mortgage loan and other related agreements with a commercial bank to finance construction of a 150,000 square foot office building in Troy, New York and the related land lease. The total construction financing borrowed under this financing arrangement was $15.1 million. In December 2002, the Company converted the entire construction loan to a ten-year mortgage loan. Principal together with interest, at a rate of LIBOR plus 2.25%, with a 3.50% minimum, is payable monthly. As described in Note 5 above, the Company has entered into an interest rate swap agreement to convert this variable rate mortgage loan to a fixed rate. As of December 31, 2004, the outstanding balance due on this mortgage loan was $14.5 million.

Credit Facility. In January 2003, the Company borrowed $3.0 million under a one-year revolving credit facility with a commercial bank. In March 2003, the Company converted this obligation into a forty-two month term loan. Principal outstanding under this term loan is payable monthly in forty-one equal installments of $72 thousand and a final payment of $69 thousand, along with interest at a rate of LIBOR plus 1.75%. The balance outstanding under this term loan agreement as of December 31, 2004 was $1.9 million.

In addition, the Company has a $10.0 million credit facility with a commercial bank that expires on March 31, 2005. As of December 31, 2004 and September 30, 2004, there were no outstanding borrowings under this credit facility. During fiscal year 2004, the Company entered into an agreement with a bank to provide a credit facility for up to $15.0 million that expires on September 28, 2005. On December 31, 2004, there were no outstanding borrowings under this credit facility.

Legal Proceedings. On August 5, 2002, the Company filed an action against Spatial Re-Engineering Consultants ("SRC"), a former MapInfo reseller, in the United States District Court for the Northern District of New York to collect approximately $100 thousand in receivables owed by SRC to the Company under contractual obligations. SRC answered and asserted fifteen counterclaims against the Company. The counterclaims include allegations of breach of contract and copyright infringement. The District Court dismissed one counterclaim and SRC voluntarily withdrew a second counterclaim; thirteen counterclaims remain. In its computation of damages made pursuant to court rules, SRC has alleged general damages of $5.1 million. SRC has also claimed special damages of $14.8 million. The Company is vigorously defending against all remaining counterclaims. In addition, the Company has amended its complaint against SRC to add five claims relating to unauthorized distribution of the Company's products and copyr ight infringement.

The Company is also party to other legal proceedings, none of which it believes is material to its balance sheet, income statement, or cash flow.

MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

8.  Goodwill and Purchased Intangible Assets

In applying SFAS No. 142 during the second quarter of fiscal year 2004, the Company performed the annual reassessment and impairment of goodwill tests required as of December 31, 2003. As a result of these annual tests, there was no indication of impairment.

The balance of goodwill as of September 30, 2004 was $44.6 million. During the three months ended December 31, 2004, goodwill increased by $441 thousand. The strengthening in foreign currencies versus the U.S. dollar increased goodwill by $1.7 million, which was primarily offset by a write-off of the remaining value of the Company's forty-nine percent equity investment in Alps Mapping Co. Ltd. ("Alps") of $1.3 million. As a result, the goodwill balance as of December 31, 2004 was $45.0 million.

The components of purchased intangible assets are as follows (in thousands):

Amortization of purchased intangible assets for the three months ended December 31, 2004 and December 31, 2003 was $625 thousand and $325 thousand, respectively. The Company has reassessed the useful lives of the purchased intangible assets and concluded that no changes were required to the lives.

MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

8.  Goodwill and Purchased Intangible Assets (continued)

The estimated annual amortization expense of purchased intangible assets for fiscal year 2005 and beyond is as follows (in thousands):

9.     Investment in Alps Mapping Co. Ltd

In March 2000, the Company acquired 16.7% of the outstanding common stock of Alps Mapping Co., Ltd. ("Alps"), a leading Japanese data provider headquartered in Nagoya, Japan. The Company invested 100 million Yen (approximately $750 thousand) to acquire the 16.7% equity position and 400 million Yen (approximately $3.7 million) in three debt instruments with warrants that could be converted over time into as much as a 51% common stock ownership position. In February 2002, the Company redeemed, at face value, one debt instrument of 100 million Yen (approximately $750 thousand). In addition, the remaining two debt instruments with warrants were converted into equity, which increased the Company's ownership in Alps to 49%. This investment is accounted for under the equity method of accounting. As of September 30, 2004, $300 thousand and $1.3 million pertaining to this investment was included on the Company's balance sheet under the captions "Investment and other assets" and "Goodwill", respectively.

During the quarter ended December 31, 2004, the Company wrote-off the remaining balance of its equity investment in Alps based primarily on the Company's proportionate share of Alps' quarterly operating loss. The impact, net of effect of foreign currency and other adjustments, was approximately $1.4 million and has been included in the Company's Consolidated Income Statement under the caption "Other income (expense) - net." As a result of the write-down of the investment, the Company also recorded an impairment of the deferred tax asset related to this investment of approximately $600 thousand, which has been included in the Company's Consolidated Income Statement under the caption "Provision for income taxes."

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard ("SFAS") No. 123 (Revised 2004) ("SFAS No. 123R"), "Share-

MapInfo Corporation and Subsidiaries
Notes to Financial Statements - Continued
(unaudited)

10.  Recent Accounting Pronouncements (continued)

Based Payment," which is a revision of FASB SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R supersedes Accounting Principal Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Generally, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as a charge to earnings in the financial statements based on the grant-date fair value of the award. Currently the Company accounts for these payments under the intrinsic value provisions of APB No. 25 with no expense recognized in the financial statements. SFAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 and the Company will adopt the standard in the fourth quarter of fiscal 2005. The Company is currently assessing the impact that this statement will have on its consolidated financial position and results of operations.

11. Issuance of Additional Common Stock

On April 2, 2004 the Company completed a follow-on public offering of its common stock. The Company sold 4,312,500 shares of common stock at an offering price of $11.00. Net proceeds, after the underwriters' discount and offering expenses, were approximately $44.2 million.

In connection with this offering, on February 24, 2004, the Company filed a registration statement on Form S-3 (Commission No. 333-113029) with the Securities and Exchange Commission relating to the public offering of 3,750,000 shares of the Company's common stock. On February 23, 2004, an employee of Adams, Harkness & Hill, Inc., one of the underwriters in the Company's offering, made an unauthorized disclosure to one prospective institutional investor, and on February 24, 2004 and February 25, 2004, employees of First Albany Capital Inc., the lead underwriter in the Company's offering, sent unauthorized emails to approximately 223 addressees. The unauthorized pre-filing disclosure by the Adams Harkness employee may have constituted an impermissible pre-filing offer under the Securities Act of 1933, and the unauthorized emails by the employees of First Albany may have constituted a prospectus that does not meet the requirements of the Securities Act of 1933, each of which may entitle the recipi ents of the unauthorized disclosure and emails to rescission rights if they purchased shares of the Company's common stock in the offering. The rescission rights would allow any recipient, for a period of one year from the date of such recipient's purchase of shares of the Company's common stock in the offering, to seek recovery of the consideration paid in connection with the purchase. Adams Harkness & Hill, Inc. and First Albany Capital Inc. have agreed to indemnify the Company for losses, costs, and expenses that the Company may incur as a result of the unauthorized disclosure and the emails. As such, the Company does not expect the effect of the unauthorized disclosure and emails to have a material impact on the Company's results of operations, financial position, or cash flows.

We are a leading provider of location-based business intelligence solutions that help organizations make more insightful decisions. Our integrated offering of software, data sets and services helps organizations in vertical markets, including telecommunications, the public sector, retail and financial services, which includes insurance, solve complex business problems in which location is a critical consideration. In the private sector, businesses use our products and services for marketing, customer service, risk analysis, network optimization and planning, asset management, and site selection. In the public sector, government agencies use our products and services to improve public safety and for crime analysis, homeland security-related applications, asset management and network optimization and planning, and emergency preparedness and response. By using our products and services, organizations can uncover valuable location-based business intelligence that is not typically recognized in traditional analyt ical methods, which can provide them with a competitive advantage in today's challenging business environment.

Our standards-based Envinsa^™ enterprise location platform allows organizations to rapidly build location-based applications, which they can provide to their customers as well as use internally in their own organizations. Envinsa was designed to be a single platform combining different components of location-based business intelligence functionality. Envinsa is modular in nature, meaning that enterprises and organizations can deploy and use pieces of the platform, depending on their needs. Envinsa scales to support large enterprises with thousands of users and is designed to integrate with existing IT systems. In addition to this platform, our set of core capabilities consisting of mapping tools, geocoding tools and routing tools can be licensed in the form of discrete products. We also offer data sets to our customers. Some data that is used in our solutions, such as addresses, area codes or postal codes, already exists in corporate databases. However, in many cas es customers choose to use our data sets, which are more granular and sophisticated. We also offer consulting and analytical services to customers in order to help them build predictive models for, and generate answers to, location-oriented problems.

We develop solutions directly for our customers and also work with technology vendors, including Agilent Technologies, Business Objects, Cognos, IBM, MicroStrategy, Oracle, Siebel Systems and Siemens. We market our solutions through a worldwide network comprised of a direct sales organization, value-added resellers ("VARs"), systems integrators, distributors and original equipment manufacturers ("OEMs"). More than 7,000 organizations in numerous industry sectors around the world utilize our products and services, including AT&T, Brinker International, The Gap, The Home Depot, MasterCard International, The State of New York, TD Canada Trust and Vodafone.

Our focus is on targeted vertical markets, where we believe we can build on our domain expertise and location is critical to helping customers achieve their strategic objectives. These vertical markets include telecommunications, retail, the public sector and financial services, which includes insurance. For the first quarter of fiscal year 2005, the public sector represented approximately 33 percent, retail approximately 21 percent, telecommunications approximately 17 percent, and financial services, which includes insurance, approximately 5 percent of total revenues.

We have established teams that bring together sales, marketing, services, and product management by vertical market. With this structure, we believe we will deepen long-standing customer relationships, create new customer relationships, and enhance our expertise in target markets and focused solutions.

Southbank Acquisition

On September 7, 2004, through our wholly owned subsidiary, MapInfo UK Limited, we completed the acquisition of the outstanding shares of Southbank Systems Limited ("Southbank"), a privately held company headquartered in Chatham, England. Southbank is a provider of infrastructure management software and services solutions for the public sector in the United Kingdom and the Asia-Pacific region. Southbank also has operations in Scotland, Australia and New Zealand. The purchase price was ₤11.7 million, or approximately $21.1 million, in cash, subject to a net asset adjustment. In October 2004, we paid an additional ₤3.2 million, or approximately $5.7 million, in cash, and a preliminary net asset adjustment, which is subject to a final net asset adjustment. The acquisition is intended to strengthen our offering to the public sector, one of our targeted vertical markets. As a result of this transaction, Southbank became a wholly owned subsidiary of MapInfo UK Limited. Southbank's results of oper ations have been included in our consolidated financial statements since the date of acquisition. Seventy-one employees of Southbank became employees of ours upon the acquisition.

Goodwill recorded as a result of the acquisition totaled $16.7 million. Intangible assets acquired, other than goodwill, totaled $8.6 million. Of the $8.6 million of acquired intangible assets, $1.6 million was assigned to trademarks that are not subject to amortization. The remaining $7.0 million of acquired intangible assets have a weighted-average useful life of approximately 6 years. The intangible assets that make up the $7.0 million include: technology intangibles of $3.5 million (8-year weighted average useful life), and customer intangibles of $3.5 million (5-year weighted average useful life). The allocation of the purchase price is based on preliminary data and could change when final valuation of net assets is obtained.

We derive our revenue from product licenses (software and data) and services fees. We also derive revenue from annual maintenance fees on both our software and data products. We market our solutions through a worldwide network comprised of a direct sales organization, VARs, systems integrators, distributors and OEMs.

Revenues generated in the United States represented approximately 42% of our total revenues for the first quarter of fiscal year 2005. As of December 31, 2004, we had sales offices located internationally in Canada, the United Kingdom, Germany, Australia, Spain, Italy, Sweden and The Netherlands.

Product Revenue

We earn product revenues from licensing our software and data products. We license our software and data products primarily under perpetual licenses, and we offer maintenance on our software and data products under agreements that typically cover one year. We recognize revenue from licensing of products to an end-user when persuasive evidence of an arrangement exists and the product has been delivered to the customer, provided there are no uncertainties surrounding product acceptance, the fees are fixed or determinable and collectibility is probable. The revenue related to maintenance for software and data products is deferred and recognized ratably over the term of the agreement, which, in both cases, is typically one year. We consider all arrangements with payment terms that extend beyond twelve months not to be fixed or determinable, and revenue is recognized for these arrangements when the fee becomes due. If collectibility is not considered probable for reasons other than extended payment terms, revenue is recognized when the fee is collected.

We derive services revenue primarily from systems integration and custom application development, technical support arrangements, analytical services, business consulting services and training. Revenue from business consulting services, analytical services, and systems integration and custom application development is recognized as the services are performed and upon customer acceptance when required. We recognize technical support revenue using the straight-line method over the period that the support is provided, which is typically one year. Revenue from training arrangements is recognized as the services are performed. 

Deferred Revenue 

At December 31, 2004, we had deferred revenues of approximately $17.3 million, primarily consisting of revenues related to post-contract customer support, including maintenance for software and data products and technical support, which is deferred and recognized ratably over the term of the agreement.

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the amounts reported for assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Management evaluates these estimates, including those related to product returns, bad debts, inventories, investments, intangible assets, goodwill, income taxes, restructuring, contingencies and litigation, on an on-going basis. The estimates are based on historical experience and on various assumptions that management believes are reasonable. When the basis for carrying values of assets and liabilities are not apparent from other sources, they are determined from these estimates. Our actual results may differ from these estimat es under different conditions or assumptions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

• Allowance for Doubtful Accounts and Sales Returns. We record reductions to revenue for estimated product returns. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, an additional allowance may be recognized. Our estimate for the allowance for doubtful accounts and sales returns is based on historical collections and sales returns experience. In addition, we review the status of the current trade receivables, reserving amounts deemed to pose a collection or sales return risk.
• Revenue Recognition. We recognize revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9, "Software Revenue Recognition with Respect to Certain Transactions". We recognize revenue when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant obligations remain, the fee is fixed or determinable and collectibility is probable. Revenue earned on product and services arrangements involving multiple elements is allocated to each element based on the relative fair value of each element. Multiple-element arrangements consist primarily of perpetual product licenses sold with 1-year maintenance arrangements. The maintenance arrangements are primarily sold separately from or as a premium to the product license fee and accordingly, vendor specific objective evidence ("VSOE") is determinable. The fair value used to allocate revenue to the elements is based on VSOE of fair values of the elements. In general, r evenue related to post contract customer support, including maintenance and technical support, is deferred and recognized ratably over the term of the agreement. Revenue from customer training, business consulting services, analytical services and systems integration and custom application development is generally recognized when the service is performed.
• Impairment of Intangible Assets. Intangible assets other than goodwill are amortized on a straight-line basis over their estimated useful lives of three to ten years, with the exception of certain trademarks, which have been determined to have an indefinite useful life and therefore are not subject to amortization. We review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Management's determination of impairment is based on estimates of future cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.
• Goodwill Impairment. Effective October 1, 2001, we adopted Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). In accordance with SFAS 142, we do not amortize goodwill. We test goodwill for impairment on an annual basis or when a triggering event occurs and write down goodwill if it is determined that the asset has been impaired. Management's determination of impairment is based on estimates of future cash flows.
• Investments Impairment. We have held minority interests in companies having operations or technology in areas within our strategic focus. The most recent of these is Alps, in which we have a 49% equity ownership, which as of December 31, 2004, has a carrying value of zero. We record an investment impairment charge when an investment has experienced a decline in value that we believe is not temporary.
• Deferred Tax Assets. At December 31, 2004, we had net deferred tax assets of $12.8 million, reflecting tax credit carryforwards, net operating losses and other deductible temporary differences, which reduce taxable income in future years. We are required to assess the realization of our deferred tax assets. Significant changes in circumstances may require adjustments in future periods. A portion of our future tax benefits related to foreign tax credits has been reserved as it is more likely than not that they will not be realized. Although realization is not assured, we have concluded that it is more likely than not that the remaining net deferred tax assets will be realized principally based upon forecasted taxable income generally within the foreign tax credit, research and development credit and net operating loss carryforward periods, giving consideration to the substantial benefits realized to date through our restructuring program and successful growth. The amount of the net deferred tax assets actually realized could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities or changes in the actual amounts of future taxable income. If our forecast is determined to no longer be reliable due to uncertain market conditions or improvement in our results of operations does not continue, our long-term forecast will require reassessment. As a result, we may need to establish additional valuation allowances for all or a portion of the net deferred tax assets

Net Revenues, Cost of Revenues and Gross Profit
(Dollars in thousands)

Net Revenue

Revenues for the first quarter of fiscal year 2005 increased 21%, or $6.1 million, to $34.7 million from $28.6 million in the prior year first quarter. The September 2004 acquisition of Southbank accounted for $3.9 million of the revenue increase. Product revenues, which include software, data and solutions, increased by $4.9 million, or 22%, and services revenue increased $1.2 million or 20%, compared to the first quarter of the prior year. The increase in product and services revenues was mainly due to the acquisition of Southbank and increased sales in our targeted vertical markets, including the public sector, retail, and telecommunications. On a geographic basis, first quarter revenues in the Americas increased $379 thousand, or 2%, compared to the same period a year ago. Europe, the Middle East, and Africa, or EMEA, revenues increased $4.8 million, or 55%, primarily due to Southbank, and revenues in the Asia-Pacific region increased $905 thousand, or 27%, when compared to the same period a year ago, pr imarily due to strong revenues in Australia. The strengthening of foreign currencies against the U.S. dollar added $785 thousand to the first quarter 2005 revenue compared to the prevailing exchange rates in the comparable period from the prior year.

Cost of Revenues and Gross Profit

Cost of revenues consists primarily of salaries and related costs for engineers associated with consulting and analytical services, technical support and training personnel, and product royalties. Cost of revenues as a percentage of revenues increased to 29.9% in the first quarter of fiscal year 2005 from 29.2% in the first quarter of fiscal year 2004. As a result, the gross margin in the first quarter of fiscal year 2005 decreased to 70.1% from 70.8% in the prior year's first quarter. The decrease in gross margin for the first quarter of fiscal year 2005 is attributable to costs related to the amortization of intangibles resulting from the Southbank acquisition.

Gross profit margin as a percentage of revenue that related to product revenue was 79.0% and 80.2%, in the first quarter of fiscal years 2005 and 2004, respectively. Gross profit margin as a percentage of revenue that related to services revenue was 37.5% and 36.5%, in the first quarter of fiscal years 2005 and 2004, respectively.

Operating Expenses
(Dollars in thousands)

Research and development

Research and development (R&D) expenses increased 13% to $5.7 million in the first quarter of fiscal year 2005 from $5.1 million in fiscal year 2004's first quarter. R&D expenses attributable to the September 2004 Southbank acquisition were $413 thousand to the fiscal year 2005 first quarter and the impact of the strengthening of foreign currencies versus the U.S. dollar added approximately $165 thousand. R&D headcount was 208 (inclusive of sixteen Southbank employees) compared to 187 at the end of prior year's first quarter. As a percentage of net revenues, R&D expenses were 16.5% in the first quarter of fiscal year 2005 as compared with 17.8% last year's comparable period.

Selling and marketing

Selling and marketing expenses increased $1.3 million or 13% in the first quarter of fiscal year 2005 to $11.5 million from $10.2 million in the prior year first quarter. Selling and marketing expenses attributable to the September 2004 Southbank acquisition were $849 thousand. The effect of foreign currencies increased selling and marketing expense by approximately $300 thousand in the first quarter of fiscal year 2005. Selling and marketing headcount was 261 (inclusive of twenty Southbank employees) compared to 233 at the end of the prior year's first quarter. As a percentage of net revenues, selling and marketing expenses were 33.3% in the first quarter of fiscal year 2005 compared to 35.8% in the first quarter of fiscal year 2004.

General and administrative

General and administrative (G&A) expense increased $88 thousand or 2% in the first quarter of fiscal year 2005 to $3.9 million from $3.8 million in prior year's first quarter. G&A expense attributable to the September 2004 acquisition of Southbank was $233 thousand and the strengthening of foreign currencies increased fiscal year 2005's first quarter G&A expense by approximately $100 thousand. These increases were offset by a decrease of approximately $210 thousand of legal and professional fees in the first quarter of fiscal year 2005 compared to prior year's first quarter. G&A headcount was 133 (inclusive of nine Southbank employees) compared to 121 at the end of the fiscal year 2004's first quarter. As a percentage of net revenues, G&A expenses were 11.3% in the first quarter of fiscal year 2005 compared to 13.4% in the first quarter of fiscal year 2004.

Interest and Other Income (Expense), Net
(Dollars in thousands)

Interest and other income (expense), net in the first quarter of fiscal 2005 of negative $1.2 million was $1.2 million lower than the first quarter of the prior year. The expense in the first quarter of fiscal 2005 is primarily attributable to the $1.4 million write-off of the remaining value of our investment in Alps Mapping Co. Ltd., the Japanese company in which we have a 49% equity ownership, offset primarily by a gain of $70 thousand related to foreign currency translation.

Provision for Income Taxes
(Dollars in thousands)

The income tax expense of $760 thousand in the first quarter of fiscal year 2005 is the tax effect of pretax income at approximately 34% ($652), adjusted for the tax effect on the Alps Mapping loss which is not deductible ($383), the impairment of the deferred tax asset related to the Company's investment in Alps Mapping ($607) and an increase in the deferred tax asset from recognition of foreign tax credits as a result of the tax law changes made under the American Jobs Creation Act of 2004 ($882). During the first quarter of fiscal year 2004 the tax expense of $424 was 40% of pretax income.

Our cash and short-term investments totaled $67.3 million at December 31, 2004 compared to $72.8 million at September 30, 2004. Our investment portfolio consisted primarily of short-term, investment grade marketable securities.

Operating Activities

Net cash from operating activities was $1.9 million for the first quarter of fiscal year 2005 compared to net cash from operating activities of $1.2 million for the same period in fiscal year 2004. Cash generated from operating activities in the first quarter of fiscal year 2005 resulted primarily from net income, and the collection of accounts receivable, offset by cash used to reduce accounts payable and accrued expenses.

Investing Activities

Net cash used for investing activities was $1.3 million during the first quarter of fiscal year 2005, which consisted of an additional payment related to the September 2004 Southbank acquisition of $5.7 million, a contingent payment related to the Thompson acquisition of $1.0 million, fixed asset additions of $618 thousand, and capitalized translation costs of $230 thousand, offset by a reduction of short-term investments of $6.3 million.

Financing Activities

Net cash used for financing activities for the first quarter of fiscal year 2005 was $94 thousand, which consisted of repayments of debt obligations of $327 thousand, offset by proceeds from the exercise of stock options of $233 thousand.

Contractual Obligations

The following table summarized our contractual obligations as of December 31, 2004 (in thousands):

We have a $10.0 million credit facility with a bank that expires on March 31, 2005. As of December 31, 2004 and September 30, 2004, there were no outstanding borrowings under this credit facility. During fiscal 2004, we entered into an agreement with a bank for a $15.0 million credit facility that expires on September 28, 2005. As of December 31, 2004, there were no outstanding borrowings under this credit facility. Both credit facilities contain certain financial covenants with which we are in compliance.

For information regarding legal proceedings, see Part II Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Management believes existing cash and short-term investments together with funds generated from operations and available financing will be sufficient to meet our operating and capital requirements for the next twelve months. Factors that could adversely affect our financial condition include a decrease in revenues, and increased costs associated with acquisitions.

During the first quarter of fiscal year 2005, we did not engage in:

• material off-balance sheet activities, including the use of structured finance or special purpose entities,
• material trading activities in non-exchange traded commodity contracts, or
• material transactions with person or entities that benefit from their non-independent relationship with us.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard ("SFAS") No. 123 (Revised 2004) ("SFAS No. 123R"), "Share-Based Payment," which is a revision of FASB SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R supersedes Accounting Principal Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Generally, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as a charge to earnings in the financial statements based on the grant-date fair value of the award. Currently the Company accounts for these payments under the intrinsic value provisions of APB No. 25 with no expense recognized in the financial statements. SFAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 and the Company will adopt the standard in the fourth quarter of fiscal 2005. The Company is currently accessing the im pact that this statement will have on its consolidated financial position and results of operations.

Factors Affecting Future Performance

In addition to the other information in this Quarterly Report on Form 10-Q, the following factors and risks, among others, could affect our future performance and should be considered in evaluating our outlook.

We have incurred losses in past fiscal years, and we may incur losses in the future. We reported losses for fiscal years 2002 and 2003. Although we reported positive net income for the last two quarters of fiscal year 2003, all four quarters of fiscal year 2004, and the first quarter of our current fiscal year, we may not be able to sustain profitability. To maintain profitability, we will have to generate significant revenues to offset our cost of revenues and our research and development, selling, marketing, and general and administrative expenses. If we are unable to maintain and expand our current customer base, increase our revenues and decrease our costs, we may not be able to maintain profitability.

Our quarterly results have fluctuated significantly in the past and may continue to fluctuate significantly in the future. Our quarterly operating results can vary significantly from quarter to quarter, depending upon factors such as the introduction and market acceptance of new products and new versions of existing products, the ability to reduce expenses or increase revenues at a level sufficient to offset increases in expenses, the level of technology spending and the activities of our competitors. Because a high percentage of our expenses are relatively fixed in the near term, minor variations in the timing of orders and shipments can cause significant variations in quarterly operating results. A significant portion of our revenues in each quarter results from software and data licenses issued in that quarter. Accordingly, our ability to accurately forecast future revenues and income for any period is necessarily limited. Also, we could experience reduced revenues in the telecommunications, retail and public sector vertical markets as a result of decreased spending in those industries. In addition, we typically derive a significant portion of our revenue each quarter from the orders we receive in the last month of the quarter.

We may be unable to keep pace with the rapid technological changes in our industry or to timely introduce new or enhanced products that achieve market acceptance. Our industry is characterized by extremely rapid technological change, evolving industry standards, changing customer demands and frequent new product introductions. These conditions require continuous expenditures on product research and development to enhance existing products, create new products and avoid product obsolescence. We believe that the timely development of new products and continuing enhancements to existing products is essential to maintain our competitive position in the marketplace. During recent years, we introduced a number of new or substantially updated releases of products, including Routing J Server^®, TargetPro^®, Envinsa^™, Exponare^™, MapMarker^® and MapInfo® Discovery^™. Our future success depends in part upon customer and market acceptance of these new products and initiatives, which is uncertain. Any failure to achieve increased acceptance of these and other new product offerings could have a material adverse effect on our business and results of operations. We cannot assure you that we will successfully complete the development of new or enhanced products in a timely manner or successfully manage transitions from one product release to the next.