Edgar Filing: AGILE SOFTWARE CORP

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended April 30, 2006

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 000-27071

AGILE SOFTWARE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

77-0397905

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

(Address of principal executive office)

6373 San Ignacio Avenue, San Jose, California 95119-1200

(Registrant’s telephone number, including area code)

(408) 284-4000

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par Value $0.001

(Title of Class)

The NASDAQ Stock Market LLC

(Name of Exchange in which Registered)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 the filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange 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

The aggregate market value of Agile Software Corporation common stock, $0.001 par value, held by non-affiliates as of October 31, 2005, was approximately $253 million, based upon the last sales price reported for such date on the Nasdaq National Market. For purposes of this disclosure, shares of common stock held by persons who held more than 5% of the outstanding shares of common stock and shares held by officers and directors of the registrant have been excluded in that such persons may be deemed to be affiliates. Share ownership information of certain persons known by the registrant to own greater than 5% of the outstanding common stock for purposes of the preceding calculation is based solely on information on Schedule 13F or 13G filed with the Securities and Exchange Commission and is as of October 31, 2005. The determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of common stock of Agile Software Corporation issued and outstanding as of December 31, 2006 was 57,545,957.

AGILE SOFTWARE CORPORATION

FORM 10-K

APRIL 30, 2006

TABLE OF CONTENTS


Form 10-K Item No.	Name of Item	Page

	PART I

	EXPLANATORY NOTE	1
Item 1.	BUSINESS	5
Item 1A.	RISK FACTORS	15
Item 1B.	UNRESOLVED STAFF COMMENTS	26
Item 2.	PROPERTIES	26
Item 3.	LEGAL PROCEEDINGS	27
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	28

	PART II

Item 5.	MARKET FOR AGILE SOFTWARE CORPORATION’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	29
Item 6.	SELECTED CONSOLIDATED FINANCIAL DATA	31
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	71
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	72
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	114
Item 9A.	CONTROLS AND PROCEDURES	114
Item 9B.	OTHER INFORMATION	119

	PART III

Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF AGILE SOFTWARE CORPORATION	120
Item 11.	EXECUTIVE COMPENSATION	125
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	131
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	135
Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	135

	PART IV

Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	137

SIGNATURES		139

PART I

FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, the following discussion includes 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 that involve risks and uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and we are including this statement for purposes of complying with these safe harbor provisions. We have based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially, as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” in this report and our other Securities and Exchange Commission (“SEC”) filings. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including those set forth in this section as well as those under the caption, “Item 1A Risk Factors.”

Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

Unless expressly stated or the context otherwise requires, the terms “we”, “our”, “us”, “Agile”, “Agile Software” and “the Company” refer to Agile Software Corporation and its subsidiaries.

EXPLANATORY NOTE

In this Form 10-K, Agile is restating its consolidated balance sheet as of April 30, 2005 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended April 30, 2005, and each of the quarters in its 2005 fiscal year. Our decision to restate was based on the results of an independent review into our historical stock option grant practices, and related accounting, that was conducted by a special committee (the “Special Committee”) of one independent director appointed by the Audit Committee of the board of directors of the Company (the “Board”), with the assistance of independent counsel.

The Special Committee found instances in which incorrect measurement dates were used to account for certain option grants. In addition, the Company found that it did not appropriately account for certain other aspects of stock compensation, but which did not result in a material adjustment to our historical consolidated financial statements. The total cumulative adjustment to stock compensation expense resulting from these findings, as well as adjustments related to other immaterial stock compensation expense accounting errors found by the Company, is $69.6 million. Accordingly, this Form 10-K includes restatements of the following previously filed financial statements and data (and related disclosures): (1) our consolidated financial statements as of and for the fiscal years ended April 30, 2005 and 2004; (2) our selected consolidated financial data as of and for the fiscal years ended April 30, 2005, 2004, 2003 and 2002; and (3) our unaudited quarterly financial data for all quarters in fiscal 2005. See Note 2, “Restatement of Consolidated Financial Statements,” and Note 16 “Unaudited Quarterly Consolidated Financial Data,” to the consolidated financial statements included in this Form 10-K for a detailed discussion of the effect of the restatements.

In connection with our restatement, we assessed generally whether there were other matters which should have been corrected in our previously issued financial statements. As a result, Agile made certain adjustments in this Form 10-K to our previously filed consolidated statement of cash flows for fiscal year 2005, and the consolidated statements of cash flows included within our unaudited quarterly financial data for each of the quarters in fiscal 2005 and the first three quarters in fiscal 2006. These adjustments were primarily the result of

errors in the calculation of the effect of exchange rate changes on cash balances, which principally resulted in reclassifications between cash provided by (used in) operating activities and the effect of exchange rate changes on cash. These adjustments had no impact on the total change in cash and cash equivalents within the consolidated statements of cash flows, the consolidated statement of operations or the consolidated balance sheets for the affected periods.

Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatements have not been amended and, as such, should not be relied upon. On October 26, 2006, we issued a press release announcing that, although we had not yet concluded which specific periods may require restatement, the Audit Committee of our Board had concluded that our previously issued financial statements should no longer be relied upon.

Stock Option Review

On September 19, 2006, Agile announced that it had commenced a voluntary review of stock option grant practices through a Special Committee of one independent director appointed by the Audit Committee of the Board, with the assistance of independent legal counsel. The review covered option grants made to all employees, directors and non-employees during the period from the date of our initial public offering in August 1999 to July 2006, consisting of over 200 grant dates (representing over 3,000 individual option grants). The review included an extensive examination of our stock option grant practices, accounting policies, accounting records, supporting documentation, and electronic data, including e-mail, as well as interviews with current and former employees and members of our Board. The Special Committee’s review identified circumstances where the grant date used as the “measurement date” for accounting purposes preceded the appropriate measurement date, as defined under Generally Accepted Accounting Principles in the United States (“GAAP”). The Special Committee determined that grants for which errors were found were primarily granted from August 1999 through October 2003.

For approximately two-thirds of the Company’s historical option grant measurement dates, representing approximately 140 grant dates, the Special Committee found no evidence establishing that the original measurement date used for accounting purposes was inappropriate. On other grant dates, the Special Committee found that there was an insufficient basis to rely on the Company’s original stated grant date to support recorded measurement dates used to account for certain stock options, which were granted primarily from August 1999 through October 2003. Approximately 97% of the total in-the-money value (market price on the actual measurement date minus exercise price) of the options found to have incorrect measurement dates was attributable to those options granted prior to April 30, 2002. In particular, with respect to such grants, the Special Committee determined that one or more of the following situations existed: the Company had made grants by means of unanimous written consents of the Board or the Compensation Committee, wherein all the signatures of the members were not received on the grant date specified in the consents; the Company made several company-wide grants pursuant to an approval of the Board or Compensation Committee or by the Company’s chief executive officer under delegated authority from the Board, but the list of grantees and number of options allocated to each grantee was not finalized as of the stated grant date; and during the period from August 1999 through October 2003, the Company followed a practice to set the grant date and exercise price for option grants for new hires as of the date of hire or the date of approval by the CEO, and, for some of these grants, related documentation suggested that the option granting process involved the determination of a grant date that preceded the actual approval date. The Special Committee’s inquiry also identified less frequent measurement date errors that we believe were not material, such as grants made to a small number of employees who had not formally commenced their employment as of the grant approval date.

and (3) the option’s exercise price. In addition, the “measurement date” cannot be earlier than the date on which the grant is approved. In instances where we determined we could not rely on the original grant date for an option, we determined corrected measurement dates based on our ability to establish or confirm, in our reasonable judgment, whether through other documentation, consistent or established Company practice or processes, or credible circumstantial information, that all requirements for the proper granting of the option had been satisfied under applicable accounting principles.

In addition to accounting adjustments due to measurement date changes, the Company found accounting errors relating to: unintentional “repricing” of grants due to duplicate grant dates; grants to non-employees for which an incorrect amount of stock compensation expense had been recognized; modifications of grants for which an incorrect amount of stock compensation expense had been recognized; and one grant of a discounted option for which no stock compensation expense had been recognized. The accounting adjustments resulting from these errors represent less than 2% of the total cumulative adjustment to stock compensation expense.

We have determined that the total cumulative stock compensation expense resulting from the errors described above, was $69.6 million. In this Form 10-K, we recorded stock compensation expense of $1.2 million and $2.8 million for the years ended April 30, 2005 and 2004, respectively, and $65.6 million prior to fiscal 2004. There was no impact on revenue or net cash provided by operating activities as a result of this additional stock compensation expense.

The cumulative effect of the restatement adjustments on our consolidated balance sheet at April 30, 2005 was an increase in additional paid-in capital, offset by a corresponding increase in the accumulated deficit and deferred compensation, which results in no net effect on stockholders’ equity. The adjustments increased previously reported net loss per share by $0.02 and $0.06 for the years ended April 30, 2005 and 2004, respectively.

The restatement resulted in a cumulative increase to our gross deferred tax assets of approximately $10.8 million as of April 30, 2005. However, in view of our history of operating losses, we have established a full valuation allowance on our deferred tax assets since inception. As a result, there is no material impact to net tax expense relating to the additional stock compensation expense recorded by us. Additionally, there is no material impact on our consolidated financial statements arising from the impact of Section 409A of the Internal Revenue Code (the “Code”) or the limitations on deduction of executive stock compensation expense in Section 162(m) of the Code. See “Prospective Impact of Section 409A” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 7 of this Form 10-K, for a discussion of the potential prospective impact of Section 409A on the Company’s future results of operations.

The Special Committee completed its review consistent with its original scope and work plan, and found no evidence of any intention to deceive or impede the Committee’s investigation or to destroy or alter documents. It noted that current management encouraged and fully cooperated in the review. The Special Committee found no evidence that any of the Company’s current officers, including its CEO, CFO, General Counsel, Senior Vice President of Human Resources or Vice President of Finance or its former CEO, engaged in any intentional mis-dating of options, self-dealing or manipulation of the Company’s financial results. The Special Committee also found that the evidence suggested an effort, in late 2003, by the then current management to improve and formalize the Company’s option grant practices by putting in place processes that substantially eliminated the risk of these issues recurring.

Beginning in November 2003, the Company’s practice for options granted by unanimous written consent of the Compensation Committee is to utilize as a measurement price the closing price of the day on which consent has been received from all members of the Compensation Committee. As such, draft unanimous written consents are not deemed dated until all members of the Compensation Committee have approved a proposed grant and written confirmation of that authorization has been received. Current practice for options granted by written consent of the CEO, under authority delegated by the Board, is to make grants on Fridays only and utilize as a

measurement date the closing price of the common stock on the Friday on which the grant was made. Additionally, along with records of all grants made by the CEO, records are kept for all weeks in which no such grants are made.

Review of Taiwan Sales Office Operations

In addition to the restatement described above as a result of our review of our historical stock option grant practices, our consolidated financial statements included in this Form 10-K reflect adjustments to our financial information previously reported in our press release, dated May 25, 2006, for the quarter and fiscal year ended April 30, 2006 (“Press Release”). The adjustments arose out of an investigation by our Audit Committee, as reported in our Form 8-K filed with the SEC on July 14, 2006, into certain transactions entered into by our Taiwan sales office. The investigation initially centered upon confirmation of the validity of a specific sale transaction. It was subsequently expanded to include a review of all material revenue transactions entered into by the Taiwan sales office during fiscal years 2004 through 2006 and our relationship with, and transactions entered into with and by, a reseller in Taiwan. The investigation involved interviews with key employees, resellers and customers, and review of documentation and computer files, including emails.

Upon the conclusion of this investigation we determined that approximately $632,000 of revenue that we had previously announced, in the Press Release, as revenue recognized for the fourth quarter of fiscal 2006, would be more appropriately recognized during the first quarter of fiscal 2007. Our consolidated financial statements included in this Form 10-K for fiscal 2006 reflect that change and the $632,000 of revenue is included in the revenue for the first quarter of fiscal 2007 and reflected in the Form 10-Q being filed concurrently with this Form 10-K. We determined that recognizing this revenue in the first quarter of fiscal 2007 was more appropriate than in the fourth quarter of fiscal 2006, based primarily on certain information uncovered during the investigation, but unknown to us at the time we first announced our results for the fourth quarter of fiscal 2006. This information includes (i) the fact that the reseller entity through which the sale occurred was partially owned by individuals who were, or who were related to, employees of our Taiwan sales office, and (ii) statements made during interviews of representatives of the end-user created uncertainty as to whether the end user placed the order for the software with the reseller during the fourth quarter of fiscal 2006 or the first quarter of fiscal 2007. Thus, although at the time we announced our preliminary financial results for the fourth quarter of fiscal 2006, we had evidence of sell-through from the reseller to the end-user consistent with our revenue recognition policy, upon receipt of this additional information we deferred recognizing this revenue until June 2006, when additional evidence of sell-through from the reseller to the end user was received. As a result of the investigation, the Company’s management identified and reported to our Audit Committee and independent registered public accounting firm material weaknesses in the Company’s internal control over financial reporting as of April 30, 2006, as discussed in Item 9A of this Form 10-K.

We discovered no evidence that any employee of the Company outside of the Taiwan sales office was involved in the matters that were the subject of the investigation, or that events similar to those under investigation had occurred in our operations outside Taiwan.

ITEM 1. BUSINESS

Overview

We develop and sell an integrated suite of product lifecycle management (“PLM”) software products and offer related business consulting and implementation services. Our solutions enable our customers to accelerate their time-to-market, reduce costs, improve product quality, manage regulatory compliance and drive innovation throughout the product lifecycle and across the product network. 3Com, Acer, Bayer, Bell Sports, Broadcom, CooperVision, Dell, Flextronics, GE Medical Systems, Harris Corporation, Herbalife, Johnson Diversey, Johnson & Johnson, Lockheed Martin, Micron, Philips, QUALCOMM, Sharp, Shell, Siemens, Tyco Healthcare, WL Gore and ZF are among the over 11,000 customers that have licensed Agile solutions.

We focus on providing comprehensive PLM solutions to companies in the electronics and high technology, life sciences, consumer packaged goods, automotive, aerospace and defense, industrial products and other industries. Our strategy is to deliver business-ready applications, which enable companies to manage the information, processes and decisions about their products across the global product network, that are cost-effective and quickly provide measurable results. Our strategy is industry-focused with product capabilities tailored to the requirements of our target industries. We sell our products through a direct sales channel and resellers.

Agile, Agile Software and the Agile logo are registered trademarks, and Agile On Demand, Agile Advantage, Agile Product Collaboration, Agile Product Cost Management, Agile Product Governance & Compliance, Agile Product Quality Management, Agile Product Portfolio Management, Agile Engineering Collaboration, Agile Product Interchange and AgileMD are trademarks, of Agile in the U.S. and/or other countries. All other brands, products or service names are or may be trademarks or service marks of, and are used to identify products or services of, their respective owners.

Industry Background

For product-oriented companies, delivering products to market is increasingly complex. As companies move to global design, manufacturing and service operations, often outsourced, and face increasing regulatory compliance concerns, the processes that people must follow to complete their work can no longer be handled with paper or inefficient information technology approaches. There are numerous business processes that companies struggle to modernize to remain competitive and drive product innovation, while addressing the growing regulatory compliance requirements of a global business. These include:

New Product Development and Introduction. The lifecycles of many products are very short. In order to compete effectively, companies need to be able to introduce new or enhanced products quickly and cost effectively. Products that are late to market, do not satisfy market requirements or have quality problems can severely impact the business, market share and financial results of companies.

Customer Needs Management. Understanding what the customer wants, whether for mass-produced products or small quantity, engineered-to-order products, is critical to gaining customer acceptance of a company’s products. Manufacturers that cannot manage customer needs can suffer market share erosion, costly project overruns and liability for contract non-compliance.

Direct Materials Sourcing. As manufacturers outsource more and more of their production requirements, including in many cases their engineering activities, to third-party suppliers, they no longer have direct control over the internal procedures used to design and build their products. To ensure high quality, cost effective and timely availability of products, product information and changes must be communicated effectively across a very complex, global supply chain.

Volume Production and Product Changes. As a product transitions during its lifecycle from proof-of-concept and prototype to volume production, it is critical to link the proper design and planning information with production systems used to build the products. Communication of pending changes and

quality trends across the enterprise is needed to ensure the right products are being built per customer, market and engineering requirements.

Product Serviceability. High quality customer service is an important differentiator for manufacturers. Not only is it important to capture and incorporate field service feedback in new product development and improvement of existing products, it is also important to communicate effectively product changes to service organizations about products that require repair or overhaul.

Compliance. Whether driven by regulatory agencies such as the Federal Drug Administration or Department of Defense, industry standards like Standard for the Exchange of Product Model Data (STEP), environmental compliance such as that required by the European Restriction of Hazardous Substance (RoHS) and Waste Electrical and Electronic Equipment (WEEE) directives or customer requirements or internal policies, companies need to comply with regulations and policies and be able to provide proof of compliance on demand. Clear, auditable records of product decisions are critical elements necessary to satisfy product compliance.

Recently, awareness of the impact that operational improvements in the business areas listed above can have on a company’s profitability, product innovation, market acceptance of products, compliance, and quality has increased. A market category called Product Lifecycle Management (PLM) has emerged over the past few years that describes the investments made by companies in the strategy, business process change and technology underlying their products as well as in the organizations responsible for manufacturing products in order to improve operational efficiency and drive innovation.

Companies, large and small, domestic or global, face similar challenges. Companies in industries such as electronics and high technology, life sciences, consumer packaged goods, automotive, aerospace and defense, industrial products and other industries have made investments in PLM solutions and strategies to drive innovation and improve product profitability.

Agile PLM Solutions

At the core of the Agile PLM solution is the enterprise product record, the comprehensive set of information that uniquely defines all aspects of a product at each stage of its lifecycle. The product record, including program plans, portfolio performance, design databases, configuration changes, customer requirements, planned and actual costs, decision documentation and problem reports, enables a single view of the product across the company’s global network. The product record is the key asset underlying a company’s products that, when well managed and leveraged globally, can significantly improve the productivity of a company, allowing it to get more innovative products to market faster, improve profitability, and ensure that products and processes comply with applicable regulations.

Agile PLM solutions leverage the product record across the company’s global network, automating and streamlining the processes by which companies drive their product operations, such as change control procedures, direct materials sourcing, new product development, corrective and preventive action and compliance auditing. Agile provides four PLM product lines to the market. These product lines are differentiated by target market, each focused on specific industries and/or market segments.

Agile^® 9. Agile 9 supports the product lifecycle business process, technology platform, and integration requirements of globally distributed companies and networks of companies in the high technology, life sciences, consumer packaged goods, automotive electronics, defense electronics, and industrial electronics industries.

Agile^® e6. Agile e6 is focused on organizing and managing product design assets to support globally distributed engineering teams. It is specifically designed for complex engineering organizations in the automotive, aerospace and defense, and industrial machinery industries to manage complex products throughout the product lifecycle.

Agile^® Advantage. Agile Advantage delivers the benefits of PLM quickly, with the flexibility, rapid implementation, fast time to benefit, and low total cost of ownership that is important to small and medium sized enterprises.

Cimmetry. Cimmetry is focused on enabling the use of two-dimensional (2D) and three-dimensional (3D) mechanical CAD (MCAD) and electronic CAD and design automation (EDA/ECAD) information across the extended enterprise. Cimmetry solutions make rich, highly specialized design information available to both technical and non-engineering users, including stakeholders such as customers, product definition groups, engineering, purchasing, planning, suppliers, marketing, sales and service without the need for highly specialized, expensive CAD tools.

Described below are the principal software products we offer within these product lines. Many of these products are tightly integrated and may be purchased and used as a combined solution set.

Agile Product Collaboration / Product Data Management. Agile Product Collaboration manages product information including bills of material, documentation, engineering and manufacturing changes, configurations, and mechanical, electrical and software design and analysis databases, providing visibility to this information throughout the extended enterprise and streamlining the product development and delivery process.

Agile Product Portfolio Management. Agile Product Portfolio Management manages program and project information across the product lifecycle. This enables organizations to optimize resource allocation, product investment and program execution decisions by assessing key performance indicators such as schedule, cost and past portfolio financial performance.

Agile Product Cost Management. Agile Product Cost Management provides product cost intelligence between internal design and sourcing functions on the one hand and external supplier and partners on the other, and is used to streamline the direct materials sourcing process. Using Agile Product Cost Management, customers can plan and manage critical cost, commercial terms and other key product information early and throughout the product lifecycle. This enables users to achieve total product cost goals by promoting the use of preferred suppliers, aggregating demand across multiple organizations for greater buying power, and sharing product information across the supply chain.

Agile Product Quality Management. Agile Product Quality Management integrates customer, product, quality and regulatory information with the product record in order to track and rapidly address quality issues. Using Agile Product Quality Management, customers are able to drive proactive product quality improvement and lower the costs (warranty and service expenses) associated with quality issues.

Agile Product Governance and Compliance. Agile Product Governance and Compliance enables organizations to manage product and program compliance against internal and external standards and regulatory requirements throughout the product lifecycle. Companies use Agile Product Governance and Compliance to enable environmental compliance by collecting, tracking, analyzing and reporting on hazardous material content in products (including pursuant to the RoHS directive), as well as to manage products and processes against industry standards and regulatory requirements, including ISO (9000, 14000, 13485), FDA (QSR) and environmental and safety.

Agile Engineering Collaboration. Agile Engineering Collaboration manages the complex design databases created by MCAD, EDA/ECAD, software configuration management, and document authoring tools within the context of the product record ensuring that the correct version of the product design is being used at all times across the organization. Moreover, rich product information is made available to people outside of engineering through the AutoVue collaborative visualization tools, eliminating the need for paper drawings and documentation.

AutoVue. AutoVue solutions enable users to view, markup and collaborate across hundreds of different document formats including 2D and 3D MCAD drawings, printed circuit boards and integrated circuit layouts

and schematics, scanned and raster documents, vector and graphics formats, and MS Office and Adobe PDF documents. AutoVue reads files natively—meaning no intermediate translation is required—ensuring that users are always accessing the right document. By using AutoVue, companies reduce or avoid altogether the cost of purchasing, installing, and maintaining the authoring applications as well as the end-user training that would be required to access these files in their native formats. AutoVue is available across all Agile PLM product lines. In addition, many other software companies resell AutoVue with their products.

Agile Product Catalog. Agile Product Catalog provides a central repository for storing and aggregating technical product information, including specifications, parts, documents and CAD files, and product attributes. Through components classification, information can be classified, making it easy to find and reuse for initiatives such as data exchange between customers and suppliers or developing marketing and sales programs and collateral.

Agile Requirements Management. Agile Requirements Management facilitates the requirements management and product planning processes by linking customers, sales, marketing, engineering, and manufacturing more closely, and providing a single, unified environment to capture and manage product requirements and data. Agile Requirements Management helps companies ensure that the actual product meets the specifications of the original product plan.

Agile Customer Needs Management. Agile Customer Needs Management connects marketing, product management, development and quality assurance with customer demands to assist customers with delivering a higher rate of success for new product introductions. Agile Customer Needs Management provides visibility beyond individual products, helping companies master the complexity of expanding product portfolios by managing product families and deriving individual product configurations in an engineered-to-order or assembled-to-order environment.

Agile Configuration Management. Agile Configuration Management extends core configuration management capabilities by providing configuration control, linked to serial numbers, that is integrated with the change identification and management process. Agile Configuration Management assists manufacturers of complex, heavily regulated or highly customizable products, such as Aerospace & Defense suppliers, with ensuring that the product delivered meets the customer’s exact specifications. It also assists with ensuring that each unique configuration can be tracked and identified.

Agile Maintenance Repair and Overhaul. Agile Maintenance Repair and Overhaul helps manufacturers to plan and execute maintenance, repair and overhaul activities, providing an electronic audit trail between the “as-delivered” product and the current in-service configuration. Integrated with Agile PLM solutions, Agile Maintenance Repair & Overhaul links change activities and facilitates feedback between engineering, production, sales/marketing and field service personnel.

The Agile Strategy

Key elements in our strategy for achieving success are:

Focus on Customer Success—Our top objective is to have our customers successfully implement and receive measurable financial benefits and operating improvements from their Agile PLM solutions. Agile has been frequently recognized for high levels of customer satisfaction in terms of product performance and capabilities, and service and support provided during the implementation and upgrading of our products.

Industry Expansion—Our success in PLM can be attributed to our focus on specific industry vertical markets, including our traditional focus on the electronics and high technology and life sciences industries, where we believe we are market leaders, and our movement into the automotive, aerospace and defense, and industrial products verticals. With our recent acquisition of Prodika (see Note 15—Subsequent Events of our consolidated financial statements), we continue our industry expansion by acquiring a premier provider of collaborative PLM

solutions for the consumer packaged goods (CPG) industry. With this acquisition, we continue to execute on our strategy of differentiation and market leadership by focusing on industry verticals, and increase our customer base in this vertical.

Solutions Focused, Resulting in Rapid Time to Benefit—We are focused on helping companies improve the efficiency of their product operations by providing targeted solutions, with built-in best practices. Rather than providing just technology, we focus on delivering solutions that measurably improve our customers’ product operations and facilitate efficient innovation practices, from strategy, planning, program and data management, to execution and end of life across the enterprise. Our employees have deep domain and industry knowledge, and our research and development activities and implementation methodologies are specifically aimed at creating solutions that quickly provide measurable results for our customers. Many of our customers have implemented our software solutions in 90 to 120 days, allowing them to quickly benefit from their implementation of our solutions and maximize the value of their investment.

Focused Acquisitions—We have expanded, and expect to continue to expand, our product footprint and our customer base through acquisition of companies and complementary technologies. Consistent with this strategy, since December 2002 we have acquired six companies or businesses, including our recent acquisition of Prodika, allowing us to increase our product functionality and capabilities and expand our presence in vertical markets, quickly and efficiently.

Enhance Sales and Implementation Services Through Increased Alliances—We intend to continue to expand our business by complementing our direct sales force and professional services organization with strategic partnerships and alliances with partners such as Deloitte Consulting, PRTM and Satyam. Through close relationships with select partners, we intend to leverage our existing business, increase our sales leads as well as our geographic and market reach, address new industry market segments and enhance our implementation services capabilities. This strategy provides us access to new customers, provides our existing customers with access to additional resources, and allows us to maximize our international operations.

Customers

To date, we have licensed our products to over 11,000 customers. No customer accounted for more than ten percent of our total revenues for fiscal 2006, 2005 or 2004.

Our sales efforts are primarily targeted to customers in six market categories:

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Electronics and High Technology. This category includes companies in the following businesses: computers and peripherals; consumer electronics; networking and telecommunications equipment; semiconductor and electronic components; semiconductor equipment; and contract manufacturing and design services.

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Life Sciences. This category includes companies in the following businesses: biotechnology; pharmaceutical; and medical devices.

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Consumer Packaged Goods. This category includes companies in the following businesses: food, beverage and tobacco; health and beauty aids; household goods; toys and sporting goods; and retail private label.

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Automotive. This category includes companies in the automotive supply chain, especially those that focus on supplying electronic components and systems to automotive original equipment manufacturers.

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Aerospace and Defense. This category includes companies that are suppliers to the aerospace and defense industry, especially those that focus on supplying electronic components and systems to the industry.

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Industrial Products. This category includes companies, both original equipment manufacturers and suppliers, in the machinery, heavy equipment and industrial process equipment industries.

The following is a list of sample customers in our targeted market categories that have purchased software licenses and/or services from us in the past three fiscal years:


Electronics and High Technology		Consumer Packaged Goods
3Com Acer Arima Communication Benchmark Electronics Broadcom Corporation Brocade Communications System Coherent, Inc. Conexant Systems, Inc. Dell Computer Products Elcoteq Network Corporation Flextronics International Freescale Semiconductor Fujitsu Limited Funai Electric Company Limited Hitachi Corporation Hon Hai Precision Industry Jabil Circuit, Inc. Juniper Networks, Inc. Linksys Lucent Technologies Marconi Corporation Plc Micron Microsoft Xbox NEC Corporation Netgear Network Appliance Philips QUALCOMM Corporation Quanta Computers Sanmina-SCI Systems Sharp Siemens Solectron Corporation Symbol Technologies Inc. Texas Instruments, Inc. Varian Semiconductor		Albertson’s Inc. Bayer Consumer Healthcare Bell Sports Herbalife Johnson Diversey Leapfrog Playtex, Inc. Rock-Tenn Alliance Group Automotive Alps Automotive, Inc. Harley Davidson/Buell Motorcycle Corporation Intier Knorr Bremse Magna Steyr Metaldyne, Inc. Saturn Electronics and Engineering, Inc. TRW Automotive ZF Industrial Products Ballard Power Systems Boeing Service Company Eastman Kodak Company ESCO, Inc. Ferag AG Hartzell Propeller International Paper—Evergreen Packaging Shell Shure Inc. Thyssenkrupp AG Aerospace and Defense Ball Aerospace & Technologies Corp BE Aerospace Business Jet Division Harris Corporation Intertechnique Lockheed Martin Missile and Fire Control Rheinmetall AG Viasat




Life Sciences
Advanced Medical Optics CooperVision Draeger Medical AG and Co GE Medical Systems GN Resound GlaxoSmithKline Plc. Hill-Rom Company, Inc. Hologic, Inc. Intuitive Surgical Inc. Invitrogen Corporation Johnson & Johnson Medtronic, Inc. SonoSite, Inc. Tyco Healthcare Welch Allyn, Inc. W.L. Gore

Sales and Marketing

We market and sell our products primarily through our direct sales force. Our sales force is based at our headquarters in San Jose, California, and at regional and local sales offices in the United States. Internationally, we maintain sales offices in Canada, China, France, Germany, Japan, Switzerland, Taiwan and the United Kingdom. We also complement our direct sales force through additional distribution channels, including non-exclusive distributors, systems integrators and consulting partners.

To support our direct sales efforts and to actively promote our Agile brand, we engage in a variety of marketing activities. These include co-marketing strategies with our existing business partners, targeting additional strategic relationships, managing and maintaining our web site content, advertising in industry and other publications, conducting public relations campaigns and establishing and maintaining relationships with recognized industry analysts. We also actively participate in trade shows and host Agility user conferences in the United States and abroad.

An element of our sales strategy is to establish marketing alliances to promote sales and marketing of our products, as well as to increase product interoperability. We also pursue services alliances with consulting and integration firms to implement our software, provide customer support services, create customized customer presentations and demonstrations and endorse our products during the evaluation stage of the sales cycle. We currently have relationships with BearingPoint, Deloitte Consulting, Domain Systems, Inc., Ernst & Young, Hewlett Packard, Hitachi Consulting, IBM Global Services, Kalypso, PRTM, Satyam and Sierra Atlantic, for the implementation of our solutions.

Customer Care

Customer Care is a collection of services where we offer assistance in planning, managing, implementing and supporting our solutions, as well as helping ensure the long-term success of our customer relationships. The services that we offer include solution delivery, customer support, and training.

Solution Delivery. We offer services, on a time and expense, not to exceed or fixed price basis, to assist in implementation planning, product installation, implementation assistance, legacy data loading and effectiveness audits. To facilitate and enhance the integration of our products with customers’ existing design, manufacturing, finance and supply chain systems, we have both developed internal capabilities and expertise and entered into alliances with integration providers. This dual approach allows us to focus on our core competencies and leverage our partners’ domain knowledge, which ultimately helps reduce time-to-benefit for our customers.

Customer Support. We believe that responsive technical support is a requirement for our continued growth. We provide technical support and unspecified product upgrades on a when-and-if available basis through our annual maintenance program. Customers generally purchase the first year of maintenance and support at the time they initially license one of our products. After the initial term of support is complete, the customer may renew support, generally for a term of one year. Customer support is offered by telephone, email and fax and we also offer Internet-based support that features frequently asked questions, technical alerts, product upgrades and updates, problem reporting and analysis, and self-help through our on-line knowledge base. In addition, in some cases our consulting and implementation partners provide customer support and maintenance.

Training. We offer a variety of classes and related materials to train our customers on system administration, upgrades and new releases. These classes are also available as part of our Train the Trainer program. Training classes are offered at our headquarters in San Jose, California, at our development center in Karlsruhe, Germany, at customer sites, and at other locations. To improve access to our explanatory materials, we offer on-line documentation contained on the compact discs for our products and from our web site for our products. We also offer on-line help for the majority of our products. Customers can purchase additional documentation via our web site.

Product Development

Our product development objectives are to:

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Develop innovative solutions focused on streamlining the flow of information and work processes across product operations of the extended manufacturing enterprise and supply chain;

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Develop solutions that deliver the highest return on investment to our customers; and

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Utilize industry and technology standards where appropriate.

Our software development staff is divided into teams consisting of software engineers, architects, software quality assurance engineers, technical writers, and product and program managers. Working closely with our marketing department, we determine product functionality based upon market requirements, customer feedback, technical support and business consulting. We also try to incorporate standard technologies where possible to minimize research and development costs and ensure interoperability with other business solutions employed by our customers.

We maintain global development operations and have development centers in San Jose, California, Dallas, Texas, Karlsruhe, Germany, Bangalore, India, Suzhou, China and Montreal, Canada.

We account for software development costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No 2, “Accounting for Research and Development Costs” and No. 86, “Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.” Refer to Note 1 “The Company and Summary of Significant Accounting Policies” to the consolidated financial statements included in this Form 10-K for a further description of our accounting for software development costs.

Product Technology and Architecture

Our PLM software is supported by a scalable technology platform that is designed for reliability and extensibility. The n-tier, standards-based architecture of the Agile platform uses technologies such as J2EE, XML and commercial components to manage the product record across Agile’s solutions, and integrates that information with other applications within the customer enterprise. The result is a cost-effective enterprise business application suite that minimizes the need for complex custom or in-house software development. Key features of our technology platform include:

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Support for commercial component technologies including Oracle RDBMS and Oracle Application Server, BEA WebLogic Application Server, and IBM Websphere Portal Server;

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End user client access via HTML through Microsoft Internet Explorer or Netscape Navigator, a Java client or a Windows client; and

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Integration with other systems of record in use by manufacturing enterprises, such as MRP, ERP, and CRM, as well as custom and internally developed business applications. Common commercial solutions that can be integrated with Agile PLM include SAP, Oracle Applications, and Infor Global Solutions.

In addition, many of the Agile solutions are enabled for both single-byte and double-byte localization, and have been localized for English, French, Chinese (Simplified and Traditional), Japanese and German languages. We intend to provide localization for additional languages as market needs dictate.

We have entered into platform alliances to ensure that our products are based on industry standards and to enable us to take advantage of current and emerging technologies, including alliances with BEA, Sun Microsystems, Oracle, Microsoft, IBM and SymphonyRPM. To promote development, definition, adoption, promotion and implementation of open standards that can be leveraged by our solutions, we work with several industry standards organizations, such as the National Institute of Standards and Technology, National Electronics Manufacturing Initiative, Institute for Interconnecting and Packaging Electronic Circuits, RosettaNet, and World Wide Web Consortium.

Competition

The market for PLM solutions is fragmented, rapidly changing and consolidating, and becoming increasingly competitive. Moreover, there has been significant consolidation of enterprise software companies, which can have the effect of rapidly and dramatically changing the competitive landscape in which we operate. We expect competition to persist and intensify—as a result of both further consolidation and other forces, which could result in price reductions, reduced gross margins and loss of market share, any one of which could seriously harm our business. Competitors vary in size and in the scope and breadth of the products and services offered.

Principally we compete with the following:

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In-house and out-sourced custom development efforts by potential customers;

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Vendors of product data management software, such as Dassault Systems S.A. and its subsidiary, Enovia MatrixOne, UGS, and Parametric Technology Corporation;

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Vendors offering related enterprise software (e.g. ERP) who seek to extend the functionality of their products, such as Oracle Corporation and SAP;

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Vendors of visualization software;

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Niche and new-to-the market vendors that provide partial PLM solutions, such as IDE and Arena Systems; and

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Vendors that are focused in regional markets.

We believe our solutions are differentiated from our competitors in the following respects:

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Our research and development and marketing resources are focused on delivering PLM solutions that solve very specific business problems for our customers in the industries we serve;

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Our sales and services organizations are focused on assisting customers achieve demonstrable and meaningful benefits from our solutions; and

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We provide cost-effective solutions designed to provide rapid time to benefit and substantial value for our customers over the lifetime of deployment.

We believe that our ability to compete depends on many factors both within and beyond our control, including:

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The performance, functionality, price, reliability and speed of implementation of our solutions;

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The timing and market acceptance of new products and product enhancements to our solutions;

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The quality of our customer service; and

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The effectiveness of our sales and marketing efforts.

Proprietary Rights

Our success and ability to compete depends in large part upon our proprietary technology. We rely on patent, copyright, trade secret and trademark laws to protect our proprietary information. As of December 31, 2006, we had five issued patents and 14 active patent applications pending in the United States. In certain cases we have filed corresponding patent applications in other jurisdictions. We also typically enter into agreements with our employees, non-employees and customers to control their access to and distribution of our software, documentation and other proprietary information. Nevertheless, a third party could copy or otherwise obtain our software or other proprietary information without authorization, or could develop software competitive to ours. Our means of protecting our proprietary rights may not be adequate and our competitors may independently

develop similar technology, duplicate our products or design around patents that may be issued to us or our other intellectual property. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States of America. Our ability to monitor and detect infringing activities outside of the United States is limited.

We utilize third-party technology that is integrated with our products. Some of these products are re-sold directly by Agile or may be procured directly from the third party. We attempt to negotiate favorable contracts and obtain product infringement indemnification protection in contracts when we integrate third-party products and technology into our products. Third-party software may not continue to be available on commercially reasonable terms. If we cannot maintain licenses to this third-party software at acceptable costs, distribution of our products could be delayed until equivalent software could be developed or licensed and integrated into our products. We do not believe that our business is substantially dependent on any one of these license agreements, and none of these licenses are responsible for a significant amount of our revenues.

There has been a substantial amount of litigation in the software industry regarding intellectual property rights. From time to time, we receive claims that our current or potential future products infringe the intellectual property rights of others, and we may, in the future, receive additional such claims. We expect that software product developers and providers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of PLM products begins to overlap with other software applications. Any such claims, with or without merit, could consume substantial amounts of management resources, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. If our products were found to infringe a third party’s proprietary rights, we could be required to enter into royalty or licensing agreements in order to continue to be able to sell our products. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could seriously harm our business.

Employees

As of April 30, 2006, we had a total of 689 employees. Of this total, 281 were in research and development, 173 were in sales and marketing, 158 were in professional services and maintenance, and 77 were in general and administration. At that date, we also had 46 independent contractors, primarily supporting our professional services and product development organizations. None of our employees are represented by a union, and we have never experienced a work stoppage. We consider our relations with our employees to be good.

Available Information

We make available, free of charge, by link from our website at www.agile.com under the heading “About Agile,” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after we have electronically filed or furnished such materials to the Securities and Exchange Commission. Information contained on our website is not part of this report. In addition, our filings with the Securities and Exchange Commission may be accessed through the Securities and Exchange Commission’s EDGAR system at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

Our Code of Conduct and Ethics (the “Code”) is applicable to our directors, officers and employees, and meets the Securities and Exchange Commission definition of a code of ethics. The Code also includes a section applicable to our principal executive, principal financial and principal accounting officers that contains specific standards applicable to these senior officers with responsibilities for disclosure to investors and financial reporting. As permitted by SEC rules, we have posted the Code on our website in lieu of filing the Code as an exhibit to this Form 10-K. The Code and other information concerning our Board and corporate governance are available on our website under the link “About Agile” and then “Corporate Governance.”

Under Nasdaq listing standards, we may grant waivers of the Code for directors and officers only if approved by the Board, and must make any such waivers, along with the reasons for the waivers, publicly available by filing a Form 8-K. Under SEC rules, the Company is required to file a Form 8-K to disclose any amendment of the Code (other than non-substantive amendments) or any explicit or implicit waiver of the Code (i.e., any material departure from the Code) granted to the chief executive officer, chief financial officer, principal accounting officer or controller, or persons performing similar functions, if the waiver relates to matters contained in the SEC’s definition of a code of ethics. As permitted by SEC rules, we intend to satisfy the requirement under SEC rules to disclose amendments and waivers of the Code by posting this information on our website under the Corporate Governance link indicated above. To the extent the Nasdaq rules do not permit this alternate means of disclosure allowed by SEC rules, the Company will file a Form 8-K to report waivers, if any.

All of the filings and governance documents available under the “About Agile” link on our website are free of charge.

ITEM 1A. RISK FACTORS

If any of the events described in the following risk factors occur, our business, financial condition and/or results of operations would likely suffer. In that event, the trading price of our common stock could decline. Any forward-looking statements set forth in this Report should be considered in light of the factors discussed below.

Risks Related to the Restatement of Our Prior Financial Results and Correction of Previously Reported Financial Information

On September 19, 2006, Agile announced that it had commenced a voluntary review of stock option grant practices through a Special Committee of one independent director appointed by the Audit Committee of the Board, with the assistance of independent legal council. The Special Committee concluded that the measurement dates for financial accounting purposes for a number of stock option grants differed from the recorded grant dates for such awards. Because the prices at the originally stated grant dates were lower than the prices on the revised measurement dates, we recognized material amounts of stock compensation expense in our previously issued financial statements. Accordingly, the Board of Directors and management concluded that our previously issued financial statements for fiscal years 2000 through 2005, including each of the quarters in fiscal 2005, should no longer be relied upon and should be restated.

The effects of the Special Committee review, the restatement of our consolidated financial statements, the derivative litigation filed against us, as discussed below, and related events could have a material adverse effect on us. As a result of the events described above, we have become subject to the following significant risks, each of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We Face Risks Related to Possible SEC and Regulatory Actions Regarding Our Historical Stock Option Grant Practices, Which Could Require Significant Management Time and Attention, and Could Require Us to Pay Fines or Other Penalties.

In connection with our review of our historical stock option grant practices, we have voluntarily continued to keep the Securities and Exchange Commission (SEC) advised of the issues identified during the review, its progress, and our conclusions. Although no formal inquiry has been made by any regulatory agency with respect to our review and the related restatement, we are unable to predict whether any such formal inquiry will be initiated or what consequences, if any, that any such further inquiry may have on us. Any regulatory inquiry could result in substantial legal and accounting expenses, divert management’s attention from other business concerns and harm our business. If a regulatory agency were to commence legal action, it is possible that we could be required to pay significant penalties and/or fines and could become subject to administrative orders. Any regulatory action could result in the filing of additional restatements of our prior financial statements or require that we take other actions.

Any Regulatory Action Against Us Could Cause Us to Incur Significant Expenses, and Result in Diversion of Management Resources.

We have incurred, to date, significant expenses relating to legal, accounting, tax and other professional services in connection with the review of our stock option grant practices and the related restatement, and may incur significant expenses in the future with respect to such matters, which may materially adversely affect our results of operations and cash flows. In addition, we have also incurred significant expenses relating to our review of our Taiwan sales office. Our senior management team, our Audit Committee and the Special Committee have devoted a significant amount of time on matters relating to these investigations, as well as to our possible delisting from Nasdaq and other regulatory inquiries, the restatement, and our outstanding periodic reports. Further management time may be required in connection with recently filed derivative litigation. If our senior management is unable to devote a significant amount of time in the future to developing and attaining our strategic business initiatives and running our ongoing business operations, our business, financial condition and results of operations may be materially adversely affected.

We Face Litigation Risks Relating to Our Stock Option Grant Practices That Could Have a Material Adverse Effect on the Company.

On December 5, 2006, a purported shareholder filed a shareholder derivative action in the Northern District of California, brought purportedly on our behalf. It names as defendants our directors and certain current and former officers. The complaint alleges that the individual defendants caused or allowed backdated stock options to be granted from 2000 to 2002, in violation of the federal securities laws and their fiduciary duties to us and our shareholders. Subsequently, three similar derivative actions, alleging the backdating of stock option grants from August 1999 through October 2003, were filed in the same court. It is expected that all of these derivative actions will be consolidated into one action. See Part I, Item 3, “Legal Proceedings,” for a further description of these proceedings.

The defense of these derivative lawsuits may result in significant expense and the continued diversion of management’s time and attention from the operation of our business, which could impede our ability to achieve our business objectives. The lawsuits are in the preliminary stage, but an unfavorable outcome in any of them could have a material adverse effect on our business, financial condition, results of operations and cash flows. Additionally, any amount that we may be required to pay to satisfy a judgment or settlement of these lawsuits may not be covered by insurance. Under our charter and the indemnification agreements that we have entered into with our officers and directors, we are required, subject to certain limited qualifications, to indemnify, and advance expenses to, our officers and directors in connection with their participation in proceedings arising out of their service to us. There can be no assurance that such payments in connection with the derivative actions will not be material. Additionally, in the future, we may be the subject of additional private or government actions related to our option grant practices. Litigation is time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation, as well as its costs, are difficult to predict and could have a material adverse effect on our business, and results of operations and cash flows.

Because of the Delayed Filing of Our Periodic Reports, We Face Delisting From Nasdaq. Delisting Would Adversely Affect the Trading Price of Our Common Stock.

Although we were unable to meet this condition by January 8, 2007, the Nasdaq Listing and Hearing Review Council (Listing Council), pursuant to its discretionary authority under Marketplace Rule 4807(b), has decided to review the decision of the Listing Panel, and has stayed the decision to suspend our securities from trading, pending further action by the Listing Council. Our stock will continue to be listed on the Nasdaq Global Market pending the decision by the Listing Council on our request for a further extension within which to comply with the listing rules. The Listing Council gave us until February 2, 2007, to submit to Nasdaq information we wish the Listing Council to consider in its review process. On that date, we provided such submission to Nasdaq.

If the Listing Council does not grant our request for an additional extension and continued listing, if the extension is not for the duration we requested, or if we are otherwise unable to meet or maintain compliance with all of the Nasdaq listing requirements, our securities will be delisted from the Nasdaq Global Market. If we are delisted, we may apply for listing on another exchange. However, there is no assurance that we will meet the requirements for initial listing or maintain compliance with the continued listing requirements of such an exchange. Delisting from the Nasdaq Global Market would adversely affect the trading price of our common stock and significantly limit the liquidity of our common stock.

Our Internal Control and Procedures for Financial Reporting May Not Ensure That Our Public Filings Include Timely and Reliable Financial Information.

In addition to our restatement of prior period financial statements as a result of our review of our historical stock option grant practices, our consolidated financial statements included in this Form 10-K reflect adjustments to the financial information previously reported in our press release, dated May 25, 2006, for the quarter and fiscal year ended April 30, 2006. The adjustments arose out of an investigation by our Audit Committee, commenced in June, 2006, as reported in our Form 8-K filed with the SEC on July 14, 2006, into certain transactions entered into by our Taiwan sales office. The review initially centered upon confirmation of the validity of a specific sale transaction. It was subsequently expanded to include a review of all material revenue transactions entered into by the Taiwan sales office during fiscal years 2004 through 2006 and our relationship with, and transactions entered into with and by, a reseller in Taiwan.

In connection with this investigation, we assessed the effectiveness of our internal control over financial reporting, as required under Section 404 of the Sarbanes-Oxley Act of 2002 and Item 308 of Regulation S-K. We identified and reported to our Audit Committee and independent registered public accounting firm two material weaknesses in our internal control over financial reporting, as of April 30, 2006. As a result of these material weaknesses, we determined that our internal control over financial reporting was not effective as of April 30, 2006.

The effectiveness of our controls and procedures is still limited by a variety of factors, and the remedial measures that we adopted in response to the weaknesses identified may not be successful to prevent similar events from recurring. These factors include the following:

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Faulty human judgment and simple error, omission or mistake

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Fraudulent action of an individual or collusion of two or more people

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Inappropriate override of procedures

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The possibility that our enhanced controls and procedures may still not be adequate to assure the timely and accurate preparation of information and the timely filing of our periodic reports with the SEC

A failure to successfully implement and maintain effective internal control over financial reporting, including any ineffectiveness of the remedial measures we have implemented to address the material weaknesses in internal control over financial reporting, could result in a material misstatement of our financial statements that would not be prevented or detected or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

Risks Related to Our Business

As Our Quarterly Operating Results Fluctuate and are Difficult to Predict, the Timing of Large Orders are Highly Unpredictable, and Our Expenses are Relatively Fixed in the Short Term, We May Incur Unpredicted Revenue Shortfalls that Could Disproportionately and Adversely Affect Operating Results.

Our quarterly operating results have varied significantly in the past and are likely to vary significantly in the future. Our products have a complex and unpredictable sales cycle. The timing of large orders, which can account for a significant percentage of our total license revenue, remains unpredictable as a result of the overall economic conditions, cautious capital spending by businesses and customer expenditure approval processes. In addition, due to the longer implementation cycles associated with our newer products, follow-on orders from existing customers may not follow original orders as quickly as they have done in the past, thus making the timing of such orders harder to predict. If any large order anticipated for a particular quarter is not received in that quarter, or the related license revenue is not recognizable in that quarter, we may experience an unplanned shortfall in revenues. In contrast, our expense levels are relatively fixed in the near term and are based in part on expectations of future revenues. As a result, a revenue shortfall from estimated levels can cause a disproportionately adverse impact on our operating results for the quarter in which the revenue shortfall occurs.

Due to these and other factors, we believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicators of our future performance. It is possible that in some future periods our results of operations may be below our guidance or the expectations of public market analysts and investors. If this were to occur, the price of our common stock would likely decline, potentially significantly.

Defects in Our Software Products Could Harm Our Reputation, Diminish Demand for Our Products, Be Costly to Remediate, Expose Us to Litigation and/or Cause Our Revenue to Decline.

Our software products are complex and may contain errors that may be detected at any point in the life of the product. This risk is more significant as it relates to new products, where there is limited experience with the product in customer environments, and increases with the complexity of the product in question.

We began shipping Agile 9 in January 2004 and released the latest update, Agile 9.2, during the third quarter of fiscal 2007. Agile 9 is a suite of products based on a newly developed architecture, and provides extensive new features and capabilities delivered on an enterprise technology platform. Agile 9 has also been developed to operate with a wider array of database, applications server and underlying technologies than were our prior products. Some of these underlying technologies are themselves relatively new and immature, both with respect to their stability and ability to integrate with other applications. In addition, more than was the case with our prior products, Agile 9 is being implemented to address a broader range of customer requirements. As can be expected with software as complex as Agile 9, in the course of customer implementation activities for Agile 9, we have encountered bugs and errors not identified during our pre-release testing. While we believe that these bugs or errors do not affect the functionality of Agile 9, in any material respect, and that Agile 9.2 has addressed many of such issues raised to date, these errors, and other errors we may find in Agile 9 or in any of the other products we sell, including Agile Advantage, Agile e6 or our Cimmetry product line, could result in (i) lost or delayed revenue and market acceptance, (ii) injury to our reputation, (iii) increased service and warranty costs, including the potential need to provide services at reduced fees or no charge at all in order to address related customer concerns, and (iv) claims or litigation for breach of contract or warranty. Any of these adverse consequences, either alone or in conjunction with others, could have a material negative impact on our business and results of operations.

If We Do Not Achieve a High Level of Customer Satisfaction, Our Customers May Not Purchase Additional Products from Us and Our Reputation in the Market Could Suffer, Adversely Impacting Our Ability to Attract New Customers.

The size of a new customer’s initial order is often relatively small and may include a limited number of user licenses. In subsequent orders, customers typically add user licenses and/or additional products. We depend, to a

significant extent, on sales of additional user licenses and products to our existing customers to grow our revenues. Therefore, it is important that our customers are satisfied with their initial product implementations and that they believe that expanded use of the product they purchased, or the purchase of additional products, will provide them with additional benefits.

Our products are generally integrated with many disparate systems operated by our customers. Through our professional services organization, we provide implementation services for our software on a fee-for-service basis. Implementations generally involve migrating data from existing systems, and configuring the Agile products to operate with the customers’ existing computer systems and software. Agile 9 and Agile e6 each provide new product modules and extensive new features and capabilities, and are designed to address a broader set of business objectives than were our prior products. Agile 9 and Agile e6 implementations may involve multiple products being deployed across multiple departments within the customers’ organizations and configuring the Agile software to operate with a broader range of existing systems and software. As a result, implementations of Agile 9 and Agile e6 will often take longer than was the case with our earlier products, where principally only one product was deployed across a typically narrower user base. Longer implementations may cause the customer to delay placing or fail to place orders for additional licenses or products. This is particularly true where delays in implementation cause delays in the deployment and initial production use of our products.

The added product modules, features and functionality of our newer products has also meant that our newer products sometimes require more user training than was the case with our prior products. In addition, as is often the case with major software upgrades, customers accustomed to the user interfaces and commands of prior versions of our software may experience dissatisfaction with the new user interfaces, and at having to learn new commands and navigation tools. Such user experiences can lead to dissatisfaction with our products as a whole and delays in, or the customers’ unwillingness to place, orders for additional licenses or products.

Failure to maintain customer satisfaction for any reason could mean that follow-on orders would be delayed or may not occur at all, either of which would have a materially adverse effect on our results of operations.

The Market For Our Products Is Still Developing, and There Is Significant Uncertainty as to How Rapidly It Will Grow, If at All, and How Large It Will Become.

The market for PLM software products is still developing. Our customers and potential customers have not traditionally automated product lifecycle management solutions like we offer throughout their supply chains. As this is a relatively new market, we cannot be certain that this market will continue to develop and grow.

Many customers and prospective customers have already invested substantial resources in other methods of sharing product information during the manufacturing and supply process, most notably internally developed applications. These customers and prospective customers may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems or methods. Moreover, customers and prospective customers have many competing demands placed on their available information technology budgets. There can be no assurance that PLM in general or Agile in particular will compete favorably against other potential uses of information technology spending.

We expect that we will continue to need to pursue intensive marketing and sales efforts to educate prospective customers about the uses and benefits of our products. Along with our direct efforts in these areas, we also rely upon relationships with consulting and integration partners to increase the market awareness of the existence and benefits of our PLM solutions. Currently, only a limited number of companies provide this type of market support for our products. These companies are not contractually obligated to promote our products, and they may have similar or more established relationships with our competitors. If these service providers reduce or discontinue their relationships with us, market acceptance of our products could be harmed.

As a result of these factors, demand for and market acceptance of our products is subject to a high level of uncertainty. If the PLM market fails to develop as we anticipate, or if our products do not receive wide acceptance, our ability to grow would be limited.

We Have Significant International Operations, Which Expose Us to Risks Inherent in Conducting Business Activities in Geographies Outside of the United States.

Since early in fiscal 2003, we have had research and development operations in India and China. In August 2003, through our acquisition of Eigner, we began significant operations in Germany, and in February 2005 we began significant operations in Canada through our acquisition of Cimmetry. We also have sales offices located in many additional locations. In addition to the increase in our international operations, we derive a significant portion of our revenues from customers located outside of the United States. For example, during fiscal 2006, revenues from customers located outside of North America represented approximately 29% of total revenues. We expect our operations and revenues from outside of North America to represent a significant portion of our overall operations and fiscal 2007 revenues, respectively.

Our recent and expected international expansion subjects us to a number of risks associated with conducting operations internationally, including:

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Difficulties in managing geographically disparate operations;

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Longer sales cycles associated with educating foreign customers on the benefits of using our products;

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Greater difficulty and longer time in collecting accounts receivable from foreign customers;

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Difficulty in providing customer support for our software in multiple time zones and languages;

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Requirements for, and costs of, developing our software in multiple foreign languages;

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Difficulties in enforcing agreements through foreign legal systems;

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Unexpected changes in regulatory requirements that may limit our ability to export our software or sell into particular jurisdictions that impose multiple conflicting tax laws and regulations;

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Political and economic instability, civil unrest or war;

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Terrorist activities that impact international commerce;

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Difficulties in protecting our intellectual property rights, particularly in countries where the laws and practices do not protect proprietary rights to as great an extent as do the laws and practices of the United States;

•

Changing laws and policies affecting economic liberalization, foreign investment, currency convertibility or exchange rates, taxation or employment; and

•

Nationalization of foreign owned assets, including intellectual property.

A significant portion of our revenue and expenses are denominated in local currencies. As a result, we are exposed to greater risks of currency fluctuations. We currently do not engage in foreign exchange hedging activities, and therefore our international revenues and expenses are currently subject to the risks of foreign currency fluctuations. For example, we assumed a Euro-denominated obligation in connection with our acquisition of Eigner. As a result of the Euro strengthening against the US Dollar during fiscal 2004, we recorded an unrealized loss from foreign currency translation of $639,000 related to this obligation. We may continue to experience losses resulting from foreign currency fluctuations in the future.

We believe that continued expansion of our international operations will be necessary for our future success, and a key aspect to our business strategy has been and is to expand our sales and support organizations internationally. Therefore, we believe that we will need to commit additional significant resources to expand our international operations. If we are unable to successfully expand further in international markets on a timely basis, or if this expansion is more difficult than expected, we may not be able to achieve desired levels of revenue growth. In addition, due to the time delay between hiring sales personnel and such personnel becoming fully productive, expansion of our international operations is likely to increase our operating costs in the near term without an immediate corresponding increase in revenues, thus adversely affecting our results of operations.

Competition Among Providers of Product Lifecycle Management Software May Increase, Particularly if Industry Consolidation Continues, Which May Cause Us to Reduce Prices, and Experience Resulting Reduced Gross Margins, or Lose Business to Competitors, Resulting in a Loss of Market Share.

We believe that the market for product lifecycle management solutions is becoming increasingly competitive due to a number of factors, including: (i) consolidation in the product lifecycle management software industry, which is expected to continue and increase, resulting in larger competitors, as shown by the acquisition of MatrixOne by Dassault Systemes and the recently announced acquisition of UGS by Siemens; (ii) alliances among existing competitors; (iii) alliances between our competitors and systems integrators; and (iv) entry of new competitors. In addition, as a result of the increasing availability of offshore software development resources, we have begun to face additional competition from customers’ and prospective customers’ custom development efforts.

We have occasionally experienced pricing pressure on sales of our products, in circumstances in which competitors have offered to sell licenses at much lower cost in exchange for customer purchases of maintenance or other products or services from the competitor. In some situations, we believe competitors may have offered initial licenses at no or very low cost in order to establish or expand a relationship with the customer or to prevent us from establishing an initial relationship with a prospect. We expect that these pressures will continue, particularly with the continued constraint in the capital budgets for purchases of enterprise software under which our customers are operating. In order to remain competitive, and retain or expand our market share, and to expand our sales into new industries, we may have to meet some of these demands for lower prices on our license fees, and offer initial licenses at low, or even no cost, to the customer.

There is a risk that, even as the economy improves overall, businesses may not increase their information technology spending commensurate with their business growth. Moreover, even in an environment of increasing information technology spending, we (and other PLM vendors) are not only competing for PLM opportunities, but also competing against unrelated internal projects and against vendors of unrelated products and services, all of whom are competing for the limited information technology spending by current and prospective customers. There can be no assurance that PLM in general or Agile in particular will compete favorably against other potential uses of information technology spending.

We may not be able to maintain our competitive position against current and potential competition, particularly competitors that have longer operating histories and significantly greater financial, technical, marketing, sales and other resources than we do and therefore may be able to respond more quickly than us to new or changing opportunities, technologies and customer requirements. Also, many current and potential competitors have greater name recognition and more extensive customer bases that could be leveraged to gain market share to our detriment. These competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies, and offer more attractive terms to purchasers than we can.

These and other competitive factors could result in price reductions, reduced revenues and gross margins and lost market share and an inability to expand into new markets and industries, any one of which could materially and adversely affect our results of operations.

If We Fail to Successfully Integrate the Businesses and Companies That We Have Recently Acquired or May Acquire in the Future, We May Not Achieve the Anticipated Benefits of the Acquisitions. If We Fail to Identify and Successfully Acquire Additional Products, Technologies and Companies, Our Long-Term Competitive Position May Be Adversely Affected.

We continue our strategy of acquiring complementary businesses and technologies with our acquisition of Prodika in June 2006, our acquisition of substantially all of the business assets of Cimmetry, Inc. in February 2005, and our acquisition of Eigner US Inc. in August 2003. While each of these acquisitions has resulted or is expected to result in benefits to us as a combined company, achieving the full benefits of each of these and any future acquisitions depends on many factors, including the successful and timely integration of the products, technologies, personnel, and operations of the acquired companies. These integration efforts are difficult and

time consuming, especially considering the highly technical and complex nature of each company’s products. We may encounter risks to our business as a result of such acquisitions, including:

•

Difficulties in integration of acquired personnel, operations, technologies or products;

•

Unanticipated acquisition costs, such as integration expenses and expenses associated with retiring excess facilities or other assets;

•

Diversion of management’s attention from other business concerns;

•

Adverse effects on our existing business relationships with our customers and business partners, and the risk of losing the customers of acquired companies, particularly where, as is the case with our recent Cimmetry acquisition, those customers may compete with us;

•

Inability to retain key employees of acquired companies; and

•

Difficulties and added expenses associated with bringing acquired companies into our internal control framework in a timely manner as may be required for on-going compliance with the Sarbanes-Oxley Act of 2002.

If we are unable to successfully and timely integrate acquired businesses, products or technologies, to train, retain and motivate personnel from acquired companies or to retain the acquired customer base, we may not receive the intended benefits of such acquisitions.

Going forward, we believe that acquiring additional products, technologies and/or companies will be important to remaining competitive in the PLM marketplace. However, we may not be able to identify complementary acquisition targets or, even once targets are identified, we may not be able to reach agreement on the terms of acquisitions or complete the acquisitions. Acquisitions could cause us to issue dilutive equity securities, incur debt or contingent liabilities, impair goodwill, amortize other intangibles, write off in-process research and development and other acquisition-related expenses, any of which could adversely affect our financial condition and operating results.

Our Success Depends Upon Attracting and Retaining Qualified Employees.

Our success as a company is dependent, in part, upon our ability to attract and retain qualified employees. If we are unable to attract the qualified people we seek, or if we are unable to retain our existing employees, our customer satisfaction and therefore our business could suffer. In addition, if we are unable to retain our key sales executives, our revenue could be materially and adversely affected. Finally, in connection with the adoption of SFAS 123R, we are issuing fewer stock options to our employees than we have in the past. These changes in approaches to employee compensation could adversely affect our ability to attract and retain the highly qualified personnel we need.

If Our Service Revenue Increases As a Percentage of Total Revenues, or if Demand for Our Services Exceeds Internal Capacity, or Our Reliance on Third-Party Subcontractors Increases, Our Gross Margin May be Negatively Impacted; We Currently Perform Some of Our Implementations on a Fixed-Price Basis, Which Could Cause Us to Incur More Costs Than We Expect.

We realize lower margins on service revenue, particularly with respect to professional services, than on license revenue. As a result, if service revenue increases as a percentage of total revenues, our gross margins may decrease.

The profitability of our professional services is critically dependent on our ability to maintain a minimum average billing rate and a fairly high utilization level of professional services personnel. If we are unable to maintain or improve our billing and utilization rates, the profitability of our professional services activities, our service revenue and our overall profitability will suffer.

If demand for our services exceeds the capacity of our internal services organization, we may have to engage third parties to perform all or a portion of each of the services engagements. The costs associated with using third parties generally are significantly higher than the costs associated with direct delivery of services. As a result, the use of third parties may adversely impact our services gross margins. We expect to continue to rely on third parties, which may adversely affect our gross margins, as well as to hire additional personnel for our professional services organization. Newly hired services personnel require up-front training and take some time before becoming fully productive. Accordingly, the addition of a significant number of new services personnel can adversely affect services margins in the short term.

We may at times charge customers a fixed-fee, or agree with customers to not exceed a specified amount of charges, for implementation services. If we underestimate the amount of time or resources required to implement our products in fixed-fee or such not-to-exceed engagements, our services gross margins could decline. Any decrease in our services gross margins will adversely impact our operating results.

We Have New Sales Representatives, Particularly in Our International Sales Force, Who Could Take Time to Reach Productivity, Which Could Result in Lost or Delayed Sales.

We sell our products primarily through our direct sales force. We have recently added and expect to continue to add sales personnel in the future, particularly internationally. In addition, our product offering has become significantly broader and more complex. Training existing and new sales personnel on the full range of products we now offer can be a substantial undertaking, and it generally takes six to twelve months for a new account executive to become fully productive. In addition, changes in account executives can also result in the need to reestablish relationships with existing customers. This can result in customer dissatisfaction, and lost or delayed sales, as customers become accustomed to their new account executives.

The ability of our entire sales force to effectively sell our full suite of products, including products acquired with our acquisition of Prodika, will be important to our growth. If new members of our sales team are unable to quickly become fully productive, or if we cannot successfully cross-train our expanded sales force in our full suite of products, it may be difficult for us to sell our products, and we may lose sales opportunities and market share, take longer to close anticipated sales, and experience a shortfall in revenues.

Software Product Development Is Inherently Complex, and We Could Experience Difficulties in Introducing New Products and Upgrades Which Could Result in Lost or Delayed Sales.

Our future financial performance depends on the successful and timely development, introduction, and market acceptance of new and enhanced products, including products that we may introduce using technology that we acquire from other companies. The lifecycles of our products are difficult to predict because the market for our products is characterized by rapid technological change, changing customer needs and evolving industry standards.

Although our software products can be used with a variety of popular industry standard technology platforms, there may be future or existing platforms that achieve popularity in the marketplace that may not be architecturally compatible with our software product design. It may be necessary for us to invest significant resources to adapt our software if new or different platforms or operating environments become widely adopted in our current and prospective customer base. In addition, we believe that our software must be sufficiently scalable to accommodate substantial numbers of users to achieve the level of market acceptance and customer satisfaction that we believe is critical to our success.

If we are unable to offer new and enhanced products as the market and technology evolve, if our products are not sufficiently scalable, or if we encounter development difficulties with new products we release, we may find it difficult to sell products to existing and prospective customers. Moreover, customers may delay purchasing decisions if they are aware that new or enhanced products are soon to be released. If we experience

difficulties or delays in releasing new and enhanced products that customers are expecting, we may experience lost or delayed sales. Delays in releasing new and enhanced products could have a material negative impact on our results of operations, particularly in the periods when the new or enhanced products were expected to become available.

Our Efforts to Expand Sales of Our Products to Other Industries May Not Succeed, Thereby Limiting Our Available Markets and Revenue Growth Potential.

We currently sell our products primarily to companies in the electronics and high technology, life sciences, consumer packaged goods, automotive, aerospace and defense, and industrial products industries. We also market products to customers in additional industries, including retail and government. Although we have targeted enterprises in these other industries as potential customers, these potential customers may not be as willing to purchase our products as our customers in the electronic and high technology, life sciences, consumer packaged goods, automotive, aerospace and defense, and industrial products industries have been. Targeting additional industries requires us to invest significant amounts in sales and marketing activities. If we are unable to expand our sales in such other industries, we may not recover this investment, or maintain or increase sales of our software.

If We Become Subject to Product Liability Litigation, It Could Be Time Consuming and Costly to Defend.

Since our products are used for mission critical applications in the supply chain, errors, defects or other performance problems could result in financial or other harm to our customers. For example, our products are designed to communicate information relating to changes in product specifications during the manufacturing process. If a supplier or other participant receives inaccurate or erroneous data, it is possible that it could claim it incurred damages based on its reliance on that data. Although our license agreements generally contain provisions designed to limit our exposure to product liability damages, existing or future laws or unfavorable judicial decisions could negate such limitation of liability provisions. While we carry product liability insurance, our insurance may not fully cover these claims. Product liability litigation, even if successfully defended, would be time-consuming and costly to defend and could harm our reputation and business.

Changes in Global Business Conditions Could Adversely Affect Demand for Our Products and Services, Thereby Negatively Impacting Our Revenues and Results of Operations.

Our operating results have been adversely affected over the past few years by reduced levels of capital spending, overall weak economic conditions affecting our current and potential customers and political uncertainties such as the ongoing threat of terrorist strikes. The economic environment that we face is uncertain. Companies have become much more cautious and deliberate in their evaluation of, and decisions to expand on, technology products and services. Because customers and potential customers are deferring and may continue to defer major infrastructure investments until general economic conditions improve, we may be especially prone to this weak economy, particularly as it relates to large license transactions.

If We Are Unable to Protect Our Intellectual Property We May Lose a Valuable Asset, Experience Reduced Market Share or Incur Costly Litigation to Protect Our Rights; We May Also Be Subject to Intellectual Property Infringement Claims That, Even Without Merit, Could Be Costly to Defend or Settle.

Our success and ability to compete depends upon our proprietary technology, particularly the technology underlying our products. We rely on patent, trademark, trade secret and copyright laws to protect our intellectual property. Despite our efforts to protect our intellectual property, a third party could copy or otherwise obtain our software or other proprietary information without authorization.

We may have to resort to litigation to enforce our intellectual property rights, to protect our patents, trade secrets or know-how or to determine their scope, validity or enforceability. Enforcing or defending intellectual

property rights is quite expensive, could cause the diversion of our resources, and may not prove successful. Our existing or future protective measures may prove inadequate to protect all of our proprietary rights, and any failure to enforce or protect such rights could cause us to lose a valuable asset. In addition, the laws of some countries do not protect our proprietary rights to as great an extent as do the laws of the United States, and we expect that it will become more difficult to monitor the use of our products or technologies as we increase our international presence.

We may, from time to time, be subject to claims of infringement of other parties’ proprietary rights or claims that our own intellectual property rights are invalid. There has been a substantial amount of litigation in the software industry regarding intellectual property rights. It is possible that, in the future, third parties may claim that our current or potential future products infringe their intellectual property. We expect that software product developers and providers of electronic commerce solutions will increasingly be subject to infringement claims as the number of products and competitors in our industry grows and the functionality of PLM products begins to overlap with other software applications. Infringement claims may also increase as a result of the increased mobility of employees from job to job, resulting in the possible misuse, whether or not intended at a new company, of the intellectual property of the company at which the employee was previously employed. Any infringement claims made against us, even without merit, could be time-consuming, result in costly litigation, or cause product shipment delays or negative publicity. In addition, if our products were found to infringe a third party’s proprietary rights, we could be required to enter into royalty or licensing agreements in order to continue to be able to sell our products. Royalty or licensing agreements, if required, may not be available on terms acceptable to us and, if entered into, are likely to adversely affect our operating results.

We Have a History of Losses and May Not Achieve or Maintain Profitability.

We have incurred annual losses in each of the years since we were formed. We incurred a loss of $8.4 million for fiscal 2006. As of April 30, 2006, we had an accumulated deficit of $369.7 million.

Due principally to the amortization of intangibles acquired in the Prodika and Cimmetry acquisitions and the adoption of SFAS 123R effective in our first quarter of fiscal 2006, we will likely not be profitable on a GAAP basis for the foreseeable future. In addition, we have incurred significant additional expenses, relating to legal, accounting, tax and other professional services in connection with the review of our stock option grant practices and the investigation of our Taiwan sales office in the first three quarters of fiscal 2007. We may incur significant expenses of the same nature through the remainder of fiscal 2007 in connection with these matters, which may adversely affect our results of operations and cash flows. Achieving and sustaining profitable results, even on a non-GAAP basis, will depend upon careful expense management coupled with higher revenue levels. Many of our expenses are relatively fixed in the short term, and there can be no assurance that we will be able to maintain expenses at target levels. There can also be no assurance that our revenues will increase. As a result, there can be no assurance that we will achieve or maintain profitable operations in the future.

We Depend on Third-Party Licensed Technology That, if Lost, Could Result in Increased Cost or Delays in Sales of Our Products.

We license technology on a non-exclusive basis from many companies for use with our products. We utilize database management and application server software from Oracle. Our customers can purchase this software directly from Oracle or from us. In addition, we integrate software into our products licensed from BEA for application server technology, from Actuate for reporting capabilities, Spicer for document viewing and Cognos for analytics, as well as products from several other providers. We anticipate that we will continue to license technology from third parties in the future. Some of the software we license from third parties would be difficult to replace and may not continue to be available on commercially reasonable terms, if at all. The loss or inability to maintain any of these technology licenses could result in delays in the licensing of our products until equivalent technology is identified, licensed, and integrated. The increased use of third-party software could result in higher royalty payments and a loss of product differentiation and lower product gross margins.

The Market Price of our Common Stock Has Been and May Continue to Be Volatile, Which Could Result in Substantial Losses for Individual Security Holders.

The market price for our common stock has been, and is likely to continue to be, volatile. During fiscal 2006, the high and low closing sales prices of our common stock were $7.73 and $5.88, respectively. Our stock price is subject to wide fluctuations in response to a number of factors, some of which are beyond our control.

In the past, following periods of volatility in the market price of their securities, many companies have been the subject of securities class action litigation. If we become a defendant in a securities class action suit, we could incur significant defense costs and damages and experience diversion of our management’s attention and resources, which could cause the price of our common stock to fall.

Legislative Action and Potential New Accounting Pronouncements Could Cause our General and Administrative Expenses to Increase.

In order to comply with the Sarbanes-Oxley Act of 2002, as well as recent changes to listing standards by NASDAQ, and rules implemented by the Securities and Exchange Commission, our outside legal, accounting and advisory services have increased, and may continue to increase. Moreover, in the rapidly changing regulatory environment in which we now operate, there is significant uncertainty as to what will be required to comply with many of the new rules and regulations. As a result, we may be required to spend substantially more than we currently estimate, and may need to divert resources from other activities, as we develop our compliance plans.

Provisions Contained in Our Charter Documents and in Certain Anti-Takeover Measures Adopted By Us May Delay or Prevent a Change in Our Control.

Provisions of our Delaware certificate of incorporation and bylaws and of Delaware law could make it more difficult for a third party to acquire us, even if a change in control would be beneficial to our stockholders. These provisions also may prevent changes in our management. We are subject to the provision of Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders. The combination of these provisions may inhibit a non-negotiated merger or other business combination.

In addition, our Board of Directors has the authority to issue up to 10 million shares of Preferred Stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of shares of Preferred Stock, while potentially providing desirable flexibility in connection with possible acquisitions and for other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. Further, in March 2001, our Board of Directors adopted a Preferred Stock purchase rights plan intended to guard against certain takeover tactics. The existence of this plan could also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our headquarters are currently located in an 82,000 square foot facility in San Jose, California, under a lease that expires in 2011. We lease offices for sales and service personnel in various locations in the United States of America, including Dallas, Texas, as well as in Montreal, Canada, Shanghai, China, Tokyo, Japan, Taipei, Taiwan and various locations in Germany. We also lease office space for our development centers in Bangalore, India, Suzhou, China and Karlsruhe, Germany. We own land (approximately 16,600 square feet) and an office building (approximately 5,400 square feet) for sales, services and administrative personnel in Egerkingen, Switzerland.

We believe our current facilities will be adequate to meet our needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Shareholder derivative lawsuits

On December 5, 2006, a purported shareholder filed a derivative action in the Federal District Court for the Northern District of California, titled Meek v. Stolle et al., No. C06-7343 RS. Subsequently, three additional derivative actions, with essentially the same allegations as the first, were filed in the same court. Each of the lawsuits is a shareholder derivative lawsuit, brought purportedly on our behalf. Each complaint names as defendants certain directors and current and former officers. The complaints, when read together, allege that the individual defendants caused or allowed backdated stock options to be granted from August 1999 through October 2003, in violation of the federal securities laws and their fiduciary duties to the company and its shareholders. No specific amounts of damages were alleged, although the complaints seek rescission of the options alleged to be backdated and the recovery of profits from the defendants’ sales of company stock. It is expected that all of these derivative actions will be consolidated into one action. The Company’s board of directors and management intend to review the allegations of the action(s) and will respond in a manner the Board considers to be in the best interests of the shareholders.

IPO securities class action litigation

On or around October 25, 2001, a class action lawsuit was filed on behalf of holders of Agile securities in the Southern District of New York against Agile Software Corporation, Bryan D. Stolle and Thomas P. Shanahan (collectively the “Agile Defendants”) and others, including underwriters Morgan Stanley and Deutsche Bank Securities. The case is now captioned In re Agile Software, Inc. Initial Public Offering Securities Litigation, 01 CIV 9413 (SAS), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS).

On or about April 19, 2002, plaintiffs electronically served an amended complaint. The amended complaint is brought purportedly on behalf of all persons who purchased the Company’s common stock from August 19, 1999 through December 6, 2000. It names as defendants the Agile Defendants and several investment banking firms that served as underwriters of the Company’s initial public offering and secondary offering. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst reports were issued. No specific damages are claimed.

The Company is aware that similar allegations have been made in other lawsuits filed in the Federal District Court in the Southern District of New York (the Court) challenging over 300 other initial public offerings and secondary offerings conducted in 1999 and 2000. Those cases have been consolidated for pretrial purposes before the Honorable Judge Shira A. Scheindlin. On July 15, 2002, the Agile Defendants (as well as all other issuer defendants) filed a motion to dismiss the complaint. On February 19, 2003, the Court ruled on the motions to dismiss. The Court denied the motions to dismiss claims under the Securities Act of 1933 in all but 10 of the cases. In the case involving the Company, these claims were dismissed as to the initial public offering, but not the secondary offering. The Court denied the motion to dismiss the claim under Section 10(a) of the Securities Exchange Act of 1934 against the Company and 184 other issuer defendants, on the basis that the amended complaints in these cases alleged that the respective issuers had acquired companies or conducted follow-on offerings after the initial public offerings. As a consequence, the Court denied the motion to dismiss the Section 20(a) claims against the individual defendants. The motion to dismiss the Section 10(a) claims was granted with prejudice as to the individual defendants.

The Company has decided to accept a settlement proposal presented to all issuer defendants. In this settlement, plaintiffs will dismiss and release all claims against the Agile Defendants, in exchange for a contingent payment by the insurance companies collectively responsible for insuring the issuers in all of the IPO

cases, and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The Agile Defendants will not be required to make any cash payments in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the limits of the insurance coverage, a circumstance which the Company does not believe will occur. The settlement will require approval of the Court, which cannot be assured, after class members are given the opportunity to object to the settlement.

The Court has granted preliminary approval of the settlement. It held a hearing on April 24, 2006 to consider final approval of the settlement, and will issue a ruling at some time in the future. On December 5, 2006, the Second Circuit Court of Appeals (which oversees the Court) issued a decision in In re Initial Public Offering Securities Litigation, WL 3499937 (2d Cir. Dec. 5, 2006), reversing the Court’s ruling certifying six of the cases in the consolidated proceedings as class actions. On December 14, 2006, the Court agreed to stay all proceedings, including consideration of the settlement, pending a decision from the Second Circuit on whether it will hear further argument on the class certification issue.

We are also subject to various other claims and legal actions arising in the ordinary course of business. In our opinion, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on our business, financial condition, results of operations, or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2006.

PART II

ITEM 5. MARKET FOR AGILE SOFTWARE CORPORATION’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Market under the symbol “AGIL.” Prior to July 1, 2006, this market was called the Nasdaq National Market.

As a result of the delayed filing of our periodic reports with the SEC, on August 1, 2006, we received a Nasdaq staff determination letter indicating that we had failed to comply with the filing requirement for continued listing set forth in Nasdaq Marketplace Rule 4310(c)(14), due to our failure to timely file our Annual Report on Form 10-K for fiscal 2006, and that our securities are, therefore, subject to delisting from the Nasdaq Global Market. We received and announced two additional Nasdaq staff determination letters with respect to our failure to timely file our Quarterly Reports on Form 10-Q for the first and second quarters of fiscal 2007. We requested and subsequently attended a hearing before the Nasdaq Listing Qualifications Panel (“Listing Panel”), which was held on September 14, 2006, to appeal the staff determination and presented a plan to cure both filing deficiencies and regain compliance. On October 11, 2006, Nasdaq notified us that the exception had been granted, and that it would continue to list our shares on the Nasdaq Global Market, provided that we file our Form 10-K for fiscal 2006, our Form 10-Q for the first quarter of fiscal 2007, and all required restatements on or before January 8, 2007. Although we were unable to meet this condition by January 8, 2007, the Nasdaq Listing and Hearing Review Council (“Listing Council”), pursuant to its discretionary authority under Marketplace Rule 4807(b), called for review the decision of the Listing Panel and stayed the decision to suspend our securities from trading, pending further action by the Listing Council. Our stock will continue to be listed on the Nasdaq Global Market, pending the decision by the Listing Council on our request for a further extension within which to comply with the listing rules. Upon the filing of this Form 10-K for fiscal 2006 and our Form 10-Q for our quarters ended July 31, 2006 and October 31, 2006, we will be current with our filing requirements under the Securities and Exchange Act of 1934 and, as a result, expect that we should no longer be subject to delisting from the Nasdaq Global Market.

The price range per share reflected in the table below represents the high and low closing sales prices for our stock for the periods set forth, as reported by the Nasdaq Global Market.


	High		Low
Fiscal 2006:
Quarter Ended April 30, 2006	$	7.73	$	6.26
Quarter Ended January 31, 2006	$	6.63	$	5.98
Quarter Ended October 31, 2005	$	7.25	$	5.88
Quarter Ended July 31, 2005	$	6.77	$	6.12

Fiscal 2005:
Quarter Ended April 30, 2005	$	7.93	$	6.55
Quarter Ended January 31, 2005	$	9.21	$	7.27
Quarter Ended October 31, 2004	$	8.80	$	6.67
Quarter Ended July 31, 2004	$	8.82	$	7.00

Fiscal 2004:
Quarter Ended April 30, 2004	$	10.82	$	7.55
Quarter Ended January 31, 2004	$	12.19	$	9.21
Quarter Ended October 31, 2003	$	11.30	$	8.18
Quarter Ended July 31, 2003	$	10.55	$	6.40

Approximate Number of Stockholders

At December 31, 2006, we had 359 stockholders of record. The number of beneficial stockholders of our shares is greater than the number of stockholders of record. The last reported sale price of our common stock on December 31, 2006 was $6.15.

Dividends

Our present policy is to retain earnings, if any, to finance future growth. We have never paid cash dividends and have no present intention to pay cash dividends.

Issuer Repurchases of Equity Securities

We did not repurchase any of our equity securities during the quarter ended April 30, 2006, nor issue any securities that were not registered under Securities Act of 1933.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following tables include selected consolidated summary financial data for each of our last five fiscal years. The selected consolidated financial data presented below as of and for the year ended April 30, 2006 is derived from our audited consolidated financial statements. The selected consolidated financial data presented below as of April 30, 2005 and for the years ended April 30, 2005 and 2004 is derived from our audited consolidated financial statements as adjusted for the matters described in Note 2 “Restatement of Consolidated Financial Statements” in the notes to the consolidated financial statements included elsewhere in this Form 10-K. The selected consolidated financial data as of April 30, 2004, 2003, and 2002 and for the years ended April 30, 2003 and 2002, and for each quarter of fiscal years 2006 and 2005 is derived from our historical consolidated financial statements and unaudited quarterly consolidated financial data, respectively, as restated for the matters described in Note 2. This selected consolidated financial data should be read in conjunction with the consolidated financial statements and related footnotes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement described in Note 2. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Annual Report on Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should not be relied upon.

The following table sets forth the effect of the restatement for each of the applicable fiscal years (in thousands):


	Total cumulative effect at April 30, 2005			April 30, 2005			April 30, 2004			Cumulative effect at May 1, 2003			April 30, 2003			April 30, 2002
Net loss, as reported				$	(7,194	)	$	(24,095	)				$	(36,131	)	$	(34,543	)
Additional compensation expense	$	(69,635	)		(1,199	)		(2,842	)	$	(65,594	)		(4,498	)		(11,614	)
Tax effect					—			—						—			—

Net loss, as restated				$	(8,393	)	$	(26,937	)				$	(40,629	)	$	(46,157	)

In addition to the stock compensation expense for fiscal years 2003 and 2002, the cumulative effect at May 1, 2003 of $65.6 million includes stock compensation expense for the fiscal years 2001 and 2000 of $47.1 million and $2.4 million, respectively.

In addition to the restatement of stock compensation expense, as described in Note 2, we have made adjustments in this Form 10-K to our previously filed consolidated statement of cash flows for fiscal 2005, and the consolidated statements of cash flows included within our unaudited quarterly financial data for each of the quarters in fiscal 2005 and for the first three quarters in fiscal 2006. These adjustments were primarily the result of errors in the calculation of the effect of exchange rate changes on cash balances, which principally resulted in reclassifications between cash provided by (used in) operating activities and the effect of exchange rate changes on cash. These adjustments had no impact on the total change in cash and cash equivalents within the consolidated statements of cash flows, the consolidated statement of operations or the consolidated balance sheets for the affected periods.

During fiscal 2005, we acquired Cimmetry Systems, Inc. (“Cimmetry”). During fiscal 2004, we acquired TRADEC, Inc. (“Tradec”) and Eigner US Inc. (“Eigner”). During fiscal 2003, we acquired ProductFactory, Inc. (“ProductFactory”). During fiscal 2002, we acquired oneRev, Inc. (“oneRev”). Each transaction was accounted for under the purchase method of accounting and, accordingly, the results of operations of each acquisition are included in the accompanying consolidated statements of operations since the respective acquisition date.


	Fiscal Year Ended April 30,
	2006			2005			2004			2003			2002
	(in thousands, except per share amounts)
				As Restated			As Restated			As Restated			As Restated
Consolidated Statement of Operations Data:
Revenues:
License	$	50,057		$	46,406		$	36,293		$	30,699		$	45,141
Service		82,012			70,581			60,012			39,810			32,630

Total revenues		132,069			116,987			96,305			70,509			77,771

Cost of revenues:
License		3,223			4,333			3,694			2,790			3,107
Service (1)		41,598			34,112			29,729			18,444			16,092
Acquisition-related expenses		—			—			595			—			—
Amortization of intangible assets		2,901			1,245			709			—			—
Impairment of prepaid software licenses		—			—			471			2,680			2,393

Total cost of revenues		47,722			39,690			35,198			23,914			21,592

Gross margin		84,347			77,297			61,107			46,595			56,179

Operating expenses:
Sales and marketing (1)		50,433			47,583			40,867			44,876			58,079
Research and development (1)		34,639			23,848			24,395			27,870			33,843
General and administrative (1)		13,125			11,727			11,529			9,215			14,999
Acquisition-related expenses (benefits)		745			—			1,091			—			(835	)
Amortization of intangible assets		2,482			2,055			2,092			—			756
Acquired in-process research and development		—			1,700			500			400			—
Restructuring charges		2,386			2,132			8,730			5,156			3,864

Total operating expenses		103,810			89,045			89,204			87,517			110,706

Loss from operations		(19,463	)		(11,747	)		(28,097	)		(40,922	)		(54,526	)

Other income (expense):
Interest and other income, net		5,428			4,068			3,093			4,900			10,158
Loss from foreign currency translation		—			—			(639	)		—			—
Gain on sale of investment		6,389			—			—			—			—
Impairment of investments		—			—			—			(3,673	)		(1,446	)

Loss before provision for income taxes		(7,646	)		(7,679	)		(25,643	)		(39,695	)		(45,814	)
Provision for income taxes		742			714			1,294			934			343

Net loss	$	(8,388	)	$	(8,393	)	$	(26,937	)	$	(40,629	)	$	(46,157	)

Net loss per share:
Basic and diluted	$	(0.15	)	$	(0.16	)	$	(0.54	)	$	(0.84	)	$	(0.97	)

Weighted average shares		54,269			52,914			50,191			48,495			47,451

(1) Effective May 1, 2005, Agile adopted SFAS 123(R), “Share-Based Payments,” using the modified prospective transition method. Accordingly, for the year ended April 30, 2006, stock compensation was accounted under SFAS 123(R), while, for the years ended April 30, 2005 and prior, stock compensation was accounted for under APB 25, “Accounting for Stock Issued to Employees.” The amounts in the lines above include stock compensation as follows:

Cost of service revenue	$	597		$	558		$	736		$	293		$	2,171
Sales and marketing		2,233			1,439			2,565			3,036			1,761
Research and development		508			(36	)		1,248			1,513			352
General and administrative		1,006			171			2,575			2,288			7,613


	As of April 30,
	2006			2005		2004			2003			2002
	(In thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and investments	$	203,299		$	198,380	$	238,221		$	256,967		$	285,549
Working capital		151,251			155,376		149,591			243,181			267,706
Total assets		318,307			321,023		316,175			290,950			319,064
Total non-current liabilities		5,547			7,643		6,710			—			—
Stockholders’ equity		258,289			260,881		261,494			256,246			286,631

	Fiscal Year Ended April 30,
	2006			2005		2004			2003			2002
	(In thousands)
				As Restated
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities		(1,573	)		2,543		(14,929	)		(23,218	)		(14,185	)
Net cash provided by (used in) investing activities		43,448			26,874		(5,660	)		(45,417	)		(9,288	)
Net cash provided by financing activities		3,483			6,606		9,239			3,113			6,930
Effect of exchange rate changes on cash		(368	)		400		(1,165	)		—			—

Adjustments to the Consolidated Financial Statements



	Fiscal Year Ended April 30,
	2006		2005			2004			2003			2002
		(In thousands, except per share amounts)
			Adjustments			Adjustments			Adjustments			Adjustments
Consolidated Statement of Operations Data:
Revenues:

Total revenues		—		—			—			—			—

Cost of revenues:
License		—		—			—			—			—
Service		—		313			496			256			2,218
Acquisition-related expenses (benefits)		—		—			—			—			—
Amortization of intangible assets		—		—			—			—			—
Impairment of prepaid software licenses		—		—			—			—			—

Total cost of revenues		—		313			496			256			2,218

Gross margin		—		(313	)		(496	)		(256	)		(2,218	)

Operating expenses:
Sales and marketing		—		999			(593	)		809			1,541
Research and development		—		(86	)		1,042			1,281			541
General and administrative		—		(26	)		1,897			2,152			7,315
Acquisition-related expenses		—		—			—			—			—
Amortization of intangible assets		—		—			—			—			—
Acquired in-process research and development		—		—			—			—			—
Restructuring charges		—		—			—			—			—

Total operating expenses		—		887			2,346			4,242			9,397

Loss from operations		—		(1,199	)		(2,842	)		(4,498	)		(11,614	)
Other income (expense)		—		—			—			—			—

Loss before provision for income taxes		—		(1,199	)		(2,842	)		(4,498	)		(11,614	)
Provision for income taxes		—		—			—			—			—

Net loss	$	—	$	(1,199	)	$	(2,842	)	$	(4,498	)	$	(11,614	)

Net loss per share:
Basic and diluted	$	—	$	(0.02	)	$	(0.06	)	$	(0.09	)	$	(0.24	)

Weighted average shares		—		—			—			—			—


	Fiscal Year Ended April 30,
	2006	2005
	(In thousands)
		Adjustments
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities	—	643
Net cash provided by (used in) investing activities	—	9
Net cash provided by financing activities	—	(2	)
Effect of exchange rate changes on cash	—	(650	)


	Fiscal Year Ended April 30,
	2006			2005			2004			2003			2002
	(in thousands, except per share amounts)
				As Previously Reported			As Previously Reported			As Previously Reported			As Previously Reported
Consolidated Statement of Operations Data:
Revenues:
License	$	50,057		$	46,406		$	36,293		$	30,699		$	45,141
Service		82,012			70,581			60,012			39,810			32,630

Total revenues		132,069			116,987			96,305			70,509			77,771

Cost of revenues:
License		3,223			4,333			3,694			2,790			3,107
Service (1)		41,598			33,799			29,233			18,188			13,874
Acquisition-related expenses		—			—			595			—			—
Amortization of intangible assets		2,901			1,245			709			—			—
Impairment of prepaid software licenses		—			—			471			2,680			2,393

Total cost of revenues		47,722			39,377			34,702			23,658			19,374

Gross margin		84,347			77,610			61,603			46,851			58,397

Operating expenses:
Sales and marketing (1)		50,433			46,584			41,460			44,067			56,538
Research and development (1)		34,639			23,934			23,353			26,589			33,302
General and administrative (1)		13,125			11,753			9,632			7,063			7,684
Acquisition-related expenses (benefits)		745			—			1,091			—			(835	)
Amortization of intangible assets		2,482			2,055			2,092			—			756
Acquired in-process research and development		—			1,700			500			400			—
Restructuring charges		2,386			2,132			8,730			5,156			3,864

Total operating expenses		103,810			88,158			86,858			83,275			101,309

Loss from operations		(19,463	)		(10,548	)		(25,255	)		(36,424	)		(42,912	)
Other income (expense):
Interest and other income, net		5,428			4,068			3,093			4,900			10,158
Loss from foreign currency translation		—			—			(639	)		—			—
Gain on sale of investment		6,389			—			—			—			—
Impairment of investments		—			—			—			(3,673	)		(1,446	)

Loss before provision for income taxes		(7,646	)		(6,480	)		(22,801	)		(35,197	)		(34,200	)
Provision for income taxes		742			714			1,294			934			343

Net loss	$	(8,388	)	$	(7,194	)	$	(24,095	)	$	(36,131	)	$	(34,543	)

Net loss per share:
Basic and diluted	$	(0.15	)	$	(0.14	)	$	(0.48	)	$	(0.75	)	$	(0.73	)

Weighted average shares		54,269			52,914			50,191			48,495			47,451

(1)

Effective May 1, 2005, Agile adopted SFAS 123(R), “Share-Based Payments,” using the modified prospective transition method. Accordingly, for the year ended April 30, 2006, stock compensation was accounted under SFAS 123(R), while, for the years ended April 30, 2005 and prior, stock compensation was accounted for under APB 25, “Accounting for Stock Issued to Employees.” The amounts in the lines above include stock compensation as follows:


Cost of service revenue	$	597	$	245	$	240	$	37	$	(47	)
Sales and marketing		2,233		440		3,158		2,227		220
Research and development		508		50		206		232		(189	)
General and administrative		1,006		197		678		136		298


	Fiscal Year Ended April 30,
	2006		2005
	(In thousands)
			As Previously Reported
Consolidated Statements of Cash Flow Data :
Net cash provided by (used in) operating activities	(1,573	)	1,900
Net cash provided by (used in) investing activities	43,448		26,865
Net cash provided by financing activities	3,483		6,608
Effect of exchange rate changes on cash	(368	)	1,050


	For the three months ended												For the three months ended
	April 30, 2006			January 31, 2006			October 31, 2005			July 31, 2005			April 30, 2005			January 31, 2005			October 31, 2004			July 31, 2004
	(In thousands, except per share amounts)
													As Restated			As Restated			As Restated			As Restated
Consolidated Statement of Operations Data:
Revenues:
License	$	13,175		$	13,405		$	10,076		$	13,401		$	12,431		$	12,455		$	11,206		$	10,314
Service		20,229			19,397			21,403			20,983			19,578			17,825			17,011			16,167

Total revenues		33,404			32,802			31,479			34,384			32,009			30,280			28,217			26,481

Cost of revenues:
License		774			842			835			772			849			1,243			1,164			1,077
Service (1)		9,345			9,840			10,731			11,682			9,793			8,518			8,114			7,688
Amortization of intangible assets		725			726			725			725			712			178			177			178

Total cost of revenues		10,844			11,408			12,291			13,179			11,354			9,939			9,455			8,943

Gross margin		22,560			21,394			19,188			21,205			20,655			20,341			18,762			17,538

Operating expenses:
Sales and marketing (1)		12,895			12,376			12,332			12,830			13,351			12,187			11,298			10,746
Research and development (1)		8,961			8,923			8,534			8,221			7,498			5,667			5,405			5,278
General and administrative (1)		3,572			3,239			2,868			3,446			3,371			2,963			2,796			2,597
Acquisition-related expenses		745			—			—			—			—			—			—			—
Amortization of intangible assets		626			627			627			602			652			357			390			656
Acquired in-process research and development		—			—			—			—			1,700			—			—			—
Restructuring charges		657			1,729			—			—			—			—			—			2,132

Total operating expenses		27,456			26,894			24,361			25,099			26,572			21,174			19,889			21,409

Loss from operations		(4,896	)		(5,500	)		(5,173	)		(3,894	)		(5,917	)		(833	)		(1,127	)		(3,871	)
Other income (expense):
Interest and other income, net		1,677			1,597			1,284			870			1,021			1,169			1,078			800
Gain on sale of investment		6,389			—			—			—			—			—			—			—

Loss before provision for income taxes		3,170			(3,903	)		(3,889	)		(3,024	)		(4,896	)		336			(49	)		(3,071	)
Provision for income taxes		98			237			111			296			(106	)		285			262			273

Net income (loss)	$	3,072		$	(4,140	)	$	(4,000	)	$	(3,320	)	$	(4,790	)	$	51		$	(311	)	$	(3,344	)

Net loss per share:
Basic and diluted	$	0.06		$	(0.08	)	$	(0.07	)	$	(0.06	)	$	(0.09	)	$	0.00		$	(0.01	)	$	(0.06	)

Weighted average shares		54,269			54,808			53,757			53,591			52,914			53,058			52,677			52,442

(1) Effective May 1, 2005, Agile adopted SFAS 123(R), “Share-Based Payments,” using the modified prospective transition method. Accordingly, for the year ended April 30, 2006, stock compensation was accounted under SFAS 123(R), while, for the years ended April 30, 2005 and prior, stock compensation was accounted for under APB 25, “Accounting for Stock Issued to Employees.” The amounts in the lines above include stock compensation as follows:

Cost of service revenue	$	180		$	144		$	181		$	92		$	102		$	94		$	154		$	209
Sales and marketing		880			462			478			413			377			231			261			569
Research and development		182			123			142			61			85			18			(102	)		(37	)
General and administrative		395			207			206			198			77			55			103			(64	)


	For the year ended												For the year ended
	April 30, 2006			January 31, 2006			October 31, 2005			July 31, 2005			April 30, 2005		January 31, 2005		October 31, 2004			July 31, 2004
	(In thousands)
				As Restated			As Restated			As Restated			As Restated		As Restated		As Restated			As Restated
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities	$	(1,573	)	$	1,787		$	1,900		$	604		$	2,543	$	1,938	$	(1,469	)	$	(1,651	)
Net cash provided by (used in) investing activities		43,448			17,473			12,142			(4,565	)		26,874		37,350		49,441			9,073
Net cash provided by financing activities		3,483			1,582			1,397			57			6,606		5,271		2,189			635
Effect of exchange rate changes on cash		(368	)		(524	)		(524	)		(500	)		400		425		(20	)		(50	)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this discussion contains forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended). Such statements are based upon current expectations that involve risks and uncertainties, and we undertake no obligation to publicly release any revisions to the forward-looking statements to reflect events or circumstances after the date of this report. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions identify forward-looking statements. Our actual results and the timing of certain events may differ materially from those reflected in or contemplated by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the Risk Factors section included in Item 1A in this Annual Report on Form 10-K. The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. Our fiscal year ends on April 30 of each year.

Restatement of Financial Statements

Past Stock Option Grant Activity

We delayed the filing of this Form 10-K, pending completion of a previously announced voluntary independent investigation into our past stock option grant practices being conducted by a Special Committee of our Board of Directors.

documentation suggested that the option granting process involved the determination of a grant date that preceded the actual approval date. The Special Committee’s inquiry also identified less frequent measurement date errors that we believe were not material, such as grants made to a small number of employees who had not formally commenced their employment as of the grant approval date.

To determine the correct measurement dates for these options under applicable accounting principles, we followed the guidance in Accounting Principles Board Opinion No. 25 (“APB No. 25”), which deems the “measurement date” as the first date on which all of the following are known: (1) the individual employee who is entitled to receive the option grant; (2) the number of options that an individual employee is entitled to receive; and (3) the option’s exercise price. In addition, the “measurement date” cannot be earlier than the date on which the grant is approved. In instances where we determined we could not rely on the original grant date for an option, we determined corrected measurement dates based on our ability to establish or confirm, in our reasonable judgment, whether through other documentation, consistent or established Company practice or processes, or credible circumstantial information, that all requirements for the proper granting of the option had been satisfied under applicable accounting principles.

We have determined that the total cumulative stock compensation expense resulting from the errors described above, was $69.6 million. In this Form 10-K, we recorded additional stock compensation expense of $1.2 million and $2.8 million for the years ended April 30, 2005 and 2004, respectively, and $65.6 million prior to fiscal 2004. There was no impact on revenue or net cash provided by operating activities as a result of this additional stock compensation expense.

The following table sets forth the effect of the restatement for each of the applicable fiscal years (in thousands):


	Total cumulative effect at April 30, 2005			April 30, 2005			April 30, 2004			Cumulative effect at May 1, 2003			April 30, 2003			April 30, 2002			April 30, 2001		April 30, 2000
Net loss, as reported				$	(7,194	)	$	(24,095	)
Additional compensation expense	$	(69,635	)		(1,199	)		(2,842	)	$	(65,594	)	$	(4,498	)	$	(11,614	)	(47,062	)	(2,420	)
Tax effect					—			—

Net loss, as restated				$	(8,393	)	$	(26,937	)

As part of our restatement, we assessed generally whether there were other matters which should have been corrected in our previously issued financial statements. Accordingly, Agile made certain adjustments in this Form 10-K to our previously filed consolidated statement of cash flows for fiscal year 2005, and the consolidated statements of cash flows included within our unaudited quarterly financial data for each of the quarters in fiscal 2005 and for the first three quarters of fiscal 2006. These adjustments were primarily the result of errors in the calculation of the effect of exchange rate changes on cash balances, which principally resulted in reclassifications between cash provided by (used in) operating activities and the effect of exchange rate changes on cash. These adjustments had no impact on the total change in cash and cash equivalents within the consolidated statements of cash flows, the consolidated statements of operations or the consolidated balance sheets for the affected periods.

Prospective Impact of Section 409A

Because no holders of options with incorrect measurement dates granted by the Company were involved in the selection, or were aware of such incorrect measurement dates at the time of grant, the Company may take certain actions to deal with the adverse tax consequences that may be incurred by the holders of those options. The adverse tax consequences are that inadvertently discounted stock options, resulting from incorrect measurement dates, vesting after December 31, 2004 (“409A Affected Options”) subject the option holder to a penalty tax under Section 409A of the Code (and, as applicable, similar penalty taxes under California and other state tax laws).

One such potential action by the Company is to offer to amend each 409A Affected Option to increase its exercise price to the market price on the actual grant date or, if lower, the market price at the time of amendment. The amended options would not be subject to taxation under the Code. Under IRS regulations, such option amendments had to be completed by December 31, 2006 for anyone who was an executive officer when he or she received the related 409A Affected Option; the amendments for non-officers cannot be offered until after this Form 10K is filed and do not need to be completed until December 31, 2007.

Another potential related action is to approve bonuses payable to holders of the amended options to compensate them for the resulting increase in their option exercise price. The amount of these bonuses would be effectively repaid to the Company if and when the options are exercised and the increased exercise price is paid, but there is no assurance that the options will be, in fact, exercised. Finally, the Company may compensate certain option holders who have already exercised 409A Affected Options for the additional taxes they incur under Section 409A of the Code (and, as applicable, similar state tax laws).

The Company presently estimates that the total cash payments needed to deal with the adverse tax consequences of all 409A Affected Options is approximately $1.5 million, approximately $1.1 million of which is with respect to 409A Affected Options held by two present executive officers. The Company presently expects to pay at least approximately $300,000 in bonuses to 15 employees, two of whom are senior vice presidents, but none of whom are executive officers of the Company, as compensation for such employees agreeing to increase the option exercise price for their 409A Affected Options.

Cost of Restatement and Legal Activities

The option grant practices review, and related restatement, and investigation of our Taiwan sales office discussed below were time-consuming, required us to incur significant additional expenses, relating to legal, accounting, tax and other professional services in connection with these matters, estimated to be approximately $4.0 million over the first three quarters of fiscal 2007, and required significant management attention and resources during that period. We expect to incur significant expenses of the same nature in the future in connection with the review and restatement, which would adversely affect our results of operations and cash flows in the period incurred.

In addition, in connection with the review of our stock option grant practices, we have voluntarily continued to keep the SEC advised of the issues identified by the review, its progress and our conclusions. Although no formal inquiry has been made by the SEC or any other regulatory agency, we are unable to predict whether any such formal inquiry will be initiated or the consequences, if any, that any such further inquiry by either agency may have on us. Any SEC or other regulatory agency inquiry could result in substantial legal and accounting expenses, divert management’s attention from other business concerns and harm our business. If the SEC or other regulatory agency were to commence legal action, it is possible that we could be required to pay significant penalties and/or fines and could become subject to administrative orders. Any regulatory action could result in the filing of additional restatements of our prior financial statements or require that we take other actions.

Our senior management team and the Special Committee has devoted a significant amount of time on matters relating to the review, our possible delisting from Nasdaq, regulatory inquiries, the restatement, our outstanding periodic reports, and related litigation, and may continue to devote substantial resources on such matters. If our senior management is unable to devote a significant amount of time in the future to developing and attaining our strategic business initiatives and running ongoing business operations, there may be a material adverse effect on our business, financial condition and results of operations.

Taiwan Sales Office Investigation

transaction. It was subsequently expanded to include a review of all material revenue transactions entered into by the Taiwan sales office during fiscal years 2004 through 2006 and our relationship with, and transactions entered into with and by, a reseller in Taiwan. The investigation involved interviews with key employees, resellers and customers, and review of documentation and computer files, including emails.

Upon the conclusion of this investigation we determined that approximately $632,000 of revenue that we had previously announced, in the Press Release, as revenue recognized for the fourth quarter of fiscal 2006, would be more appropriately recognized during the first quarter of fiscal 2007. Our consolidated financial statements included in this Form 10-K reflect that change and the $632,000 of revenue is included in the revenue for the first quarter of fiscal 2007 and reflected in our Quarterly Report of Form 10-Q for the first quarter of fiscal 2007 being filed concurrently with this Form 10-K. We determined that recognizing this revenue in the first quarter of fiscal 2007 was more appropriate than in the fourth quarter of fiscal 2006, based primarily on certain information uncovered during the investigation, but unknown to us at the time we first announced our results for the fourth quarter of fiscal 2006. This information includes (i) the fact that the reseller entity through which the sale occurred was partially owned by individuals who were, or who were related to, employees of our Taiwan sales office, and (ii) statements made during interviews of representatives of the end-user created uncertainty as to whether the end user placed the order for the software with the reseller during the fourth quarter of fiscal 2006 or the first quarter of fiscal 2007. Thus, although at the time we announced our preliminary financial results for the fourth quarter of fiscal 2006, we had evidence of sell-through from the reseller to the end-user consistent with our revenue recognition policy, upon receipt of this additional information we deferred recognizing this revenue until June 2006, when additional evidence of sell-through from the reseller to the end user was received. As a result of the investigation, the Company’s management identified and reported to our Audit Committee and independent registered public accounting firm material weaknesses in the Company’s internal control over financial reporting as of April 30, 2006, as discussed in Item 9A of this Form 10-K.

Business Overview

We develop and sell an integrated suite of product lifecycle management (“PLM”) software products and offer related business consulting and implementation services. Substantially all of our revenues are derived from the license of software products under software license agreements and from the delivery of associated professional and maintenance services. Our solutions enable our customers to accelerate their products’ time-to-market, reduce costs, improve product quality, manage regulatory compliance and drive innovation throughout the product lifecycle.

We believe that understanding the following key developments is helpful to an understanding of our operating results for fiscal 2006.

Increased Product Breadth

Over time, we have been able to expand the capability and functionality of our solutions and expand into additional vertical markets. Our initial offering consisted of a single product focused on the electronics and high technology vertical market. Over time, we have added new products and features and functionality to our existing products, both through internal development and acquisition, and expanded into additional vertical markets. With our acquisitions, we increased our program planning and execution capabilities, expanded our focus on additional vertical markets, such as the automotive supply chain, aerospace and defense, and industrial machinery markets, acquired direct materials cost and performance management technology to fill out the Agile Product Cost Management solution, and acquired collaborative visualization software that has become an increasingly important solution in the PLM market. We currently focus on providing PLM solutions to companies in the electronics and high technology, life sciences, consumer packaged goods, automotive, aerospace and defense,

industrial products and other industries. Our Agile 9 suite of products, including the recently released Agile 9.2, is our most comprehensive PLM product offering to date, and provides extensive new features and capabilities, as well as an enterprise technology platform providing customers a broader, deeper PLM solution. Agile e6 is focused on organizing and managing product design assets to support globally distributed engineering teams in the automotive, aerospace and defense, and industrial product industries. Agile Advantage is designed to provide the benefits important to small and medium sized enterprises. Cimmetry product is focused on enabling the use of two-dimensional and three-dimensional mechanical CAD and electronic CAD and design automation information across the extended enterprise.

Expanded Industry Focus

Our strategy is industry-focused with product capabilities tailored to the requirements of our target industries. We were initially focused on solutions targeted principally for customers operating in the electronics and high technology and, to a lesser extent, medical device industries. As we have grown our business and expanded our product suite, we have also expanded our industry focus, including into the automotive supply chain, aerospace and defense, and industrial product markets. In June 2006, we acquired Prodika, a premier provider of collaborative PLM solutions for consumer packaged goods. With this acquisition, we continue to execute on our strategy of differentiation and market leadership through industry verticals. We believe that consumer packaged goods is one of the largest untapped PLM markets, with little penetration by packaged PLM solutions. While the electronics and high technology industry still represents the single largest industry for us, we now have significant customers in all of the following industries:

•

Electronics and High Technology;

•

Life Sciences;

•

Consumer Packaged Goods;

•

Automotive;

•

Aerospace and Defense; and

•

Industrial Products.

Acquisitions

Our strategy has been, and continues to be, to expand our business both organically and through acquisitions of complementary products, technologies and companies. We have recently made the following acquisitions:

•

Eigner US Inc. (“Eigner”), acquired in August 2003;

•

TRADEC, Inc. (“TRADEC”), acquired in September 2003;

•

Cimmetry Systems, Inc. (“Cimmetry”), acquired in February 2005; and

•

Prodika, Inc. (“Prodika”), acquired in June 2006.

Through the acquisition of Eigner we acquired what is now our Product Catalog, Requirements Management, Configuration Management, Engineering Collaboration and Maintenance, Repair and Overhaul products. Eigner also provided us with a stronger presence in the automotive supply chain, industrial equipment, aerospace and defense industries, as well as in certain geographic markets, such as the Central European region. Through the acquisition of TRADEC, we acquired additional functionality to our existing products, as well as new customers. Through the acquisition of Cimmetry, we acquired visual collaboration software that has become an increasingly important element of PLM solutions. Through the acquisition of Prodika, we have acquired product lifecycle management solutions for the consumer packaged goods industry, particularly the food and beverage sector.

The results of all of these acquisitions are included in our statements of operations, beginning as of the respective acquisition date. Consequently, our consolidated results of operations for fiscal 2004 includes the revenues and expenses related to Eigner for the eight months following its acquisition and the revenues and expenses for TRADEC for the seven months following its acquisition. For fiscal 2005, our consolidated results of

operations include the full year of revenues and expenses for Eigner and TRADEC, and approximately three months of revenues and expenses associated with Cimmetry. Fiscal 2006 includes a full year of the associated revenues and expenses for all three of these companies.

Restructurings

We have taken a number of actions to reduce our expenses to better align our operations and cost structure with current and anticipated market conditions, as follows:

•

In fiscal 2003, we evaluated economic conditions and initiated a restructuring of our operations. During the second quarter of fiscal 2003, we recorded a restructuring charge of $5.2 million, primarily related to the consolidation of excess facilities and the abandonment of excess property and equipment;

•

During the second quarter of fiscal 2004, in connection with our move to our new headquarters in San Jose, California, we recorded a restructuring charge of $7.5 million, primarily related to our outstanding lease commitments for properties that we vacated in September 2003 and the abandonment of certain long-lived assets;

•

During the second quarter of fiscal 2004, in connection with our acquisition of Eigner, we recorded an additional restructuring charge of $1.2 million, primarily related to a reduction of 33 employees to eliminate duplicative activities and reduce the cost structure of the combined company;

•

During the first quarter of fiscal 2005, we terminated approximately 15% of our worldwide workforce and consolidated our China-based development centers into a single location. In connection with these actions, we recorded a restructuring charge of $2.1 million; and

•

During the third and fourth quarters of fiscal 2006, we terminated 40 employees and consolidated excess facilities in Massachusetts and the United Kingdom. In connection with these actions, we incurred a restructuring charge of $2.4 million.

The significant activity within and components of the restructuring charges as of April 30, 2006, 2005 and 2004 are as follows (in thousands):


	Employee Termination Costs			Facility- Related Costs			Asset Abandonment Costs			Other Charges			Total
Restructuring obligations at May 1, 2003	$	—		$	4,251		$	—		$	—		$	4,251
2004 Restructuring charges		1,092			5,485			2,001			152			8,730
Cash payments		(1,092	)		(3,731	)		—			—			(4,823	)
Non-cash charges		—			581			(2,001	)		(152	)		(1,572	)

Restructuring obligations at April 30, 2004	$	—		$	6,586		$	—		$	—		$	6,586
2005 Restructuring charges		1,643			366			10			113			2,132
Cash payments		(1,132	)		(4,838	)		—			(84	)		(6,054	)
Non-cash charges		(91	)		91			(10	)		(29	)		(39	)

Restructuring obligations at April 30, 2005	$	420		$	2,205		$	—		$	—		$	2,625
2006 Restructuring charges		2,060			241			84			—			2,385
Cash payments		(951	)		(1,702	)		—			—			(2,653	)
Non-cash charges		—			—			(84	)		—			(84	)

Restructuring obligations at April 30, 2006 (1)	$	1,529		$	744		$	—		$	—		$	2,273

Accrued restructuring—current													$	2,067
Accrued restructuring—non current														206

													$	2,273

(1)

The remaining employee termination and facility-related obligations are expected to be paid through the quarter ending October 31, 2007.

Overview of Our Fiscal 2006 Financial Results

We derive revenues from the license of software products under software license agreements and from the delivery of associated professional and maintenance services. Our license revenue is comprised of fees charged for the use of our products licensed under perpetual arrangements. Our service revenue is comprised of fees charged for implementation services and fees charged for post-contract customer support (i.e., technical support and product updates). Our implementation services are typically provided over a period of three to six months subsequent to the signing of a software license arrangement. Post-contract customer support, or maintenance, is generally purchased at the time of initial license purchase, and renewed annually thereafter. Post-contract customer support revenue is recognized ratably over the support period, generally 12 months.

Our year-over-year revenues increased due to full inclusion of Cimmetry’s operating results in our fiscal 2006 financial statements as a result of the acquisition of Cimmetry in late fiscal 2005, as well as the increase in our service revenue from North America. Additionally, we were able to achieve the following results in fiscal 2006:

•

We maintained a cash and investments balance as of April 30, 2006 of $203.3 million, which represents an increase of $4.9 million compared to the balance as of the end of the prior fiscal year. Additionally, although we had negative operating cash flows for fiscal 2006 of $1.6 million, our uses of cash included the payment of $2.7 million of employee withholding taxes in our third quarter of fiscal 2006 in connection with the exercise of certain employee stock options, against which we withheld shares of our common stock with a market value of $2.7 million (see Note 12—Employee Benefit Plans).

•

We recorded fiscal 2006 total revenues of $132.1 million, which represents a historic high for us and a 13% increase from total revenues of $117.0 million in the prior fiscal year.

•

Our license revenue for fiscal 2006 was $50.1 million, a 8% increase from license revenue of $46.4 million in the prior fiscal period year. This represents a decrease of $632,000 to the license revenue reported in our press release dated May 25, 2006, as a result of conclusions reached in our investigation of our Taiwan sales office referenced above.

•

We released Agile 9.2 in December 2005 and its localized version in additional languages during April 2006. Agile 9.2 is our most up-to-date and comprehensive offering of a PLM product.

Due principally to the amortization of the intangible assets acquired in the Prodika and Cimmetry acquisitions and the adoption of SFAS No. 123R effective in our first quarter of fiscal 2006, we will likely not be profitable on a GAAP basis for the foreseeable future. In addition, we have incurred significant additional expenses, relating to legal, accounting, tax and other professional services in connection with the review of our stock option grant practices and the investigation of our Taiwan sales office in the first three quarters of fiscal 2007. We may incur significant expenses of the same nature through the remainder of fiscal 2007 in connection with these matters, which may adversely affect our results of operations and cash flows. Achieving and sustaining profitable results will depend upon a combination of careful expense management coupled with higher revenue levels. Many of our expenses are relatively fixed in the short term, and there can be no assurance that we will be able to maintain expenses at target levels, or that our revenues will increase. As a result, there can be no assurance that we will achieve or maintain profitable operations in the future.

Use of Estimates and Critical Accounting Policies

We have prepared our condensed consolidated financial statements in accordance with accounting principals generally accepted in the United States of America. In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our reported revenues, loss from operations, and net loss, as well as on the value of certain assets and liabilities on our balance sheet. These estimates, assumptions and judgments about future events and their effects on our results cannot be determined with certainty, and are made based upon our historical experience and on other assumptions that are believed to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. The discussion and analysis of our financial

condition and results of operations are based upon these statements. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include revenue recognition, allowance for doubtful accounts and sales returns, stock compensation, and business combinations and acquired intangible assets, which are described below. In addition, please refer to Note 1 of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion of our significant accounting policies.

We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payments,” effective May 1, 2005. SFAS 123R is a new and very complex accounting standard, the application of which requires significant judgment and the use of estimates, particularly surrounding Black-Scholes assumptions such as stock price volatility and expected option lives, as well as expected option forfeiture rates, to value equity-based compensation. Refer to Note 12—Employee Benefit Plans of our consolidated financial statements for more discussion of our adoption of SFAS 123R.

Revenue Recognition

We recognize our software license revenue in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-9 “Software Revenue Recognition with Respect to Certain Arrangements.” We recognize license revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the related receivables is probable, delivery of the product has occurred and the customer has accepted the product (including the expiration of any acceptance period set forth in the contract), if the terms of the contract include an acceptance requirement. In general, collectibility for certain regions, including Taiwan, is not considered probable until collection of the associated receivable has occurred. With respect to sales to original equipment manufacturers (“OEMs”) and value-added resellers (“VARs”), delivery is considered to have occurred based on sell-through by the OEMs and VARs.

We consider a non-cancelable agreement signed by the customer and us to be evidence of an arrangement. We consider the fee to be fixed or determinable if the fee is not subject to refund or adjustment. To date, none of our arrangements with our customers grant a right of refund or adjustment to the customer. Reasonable assurance of collection is based upon our assessment of the customer’s financial condition through review of their current financial statements or credit reports. For follow-on sales to existing customers, prior payment history is also used to evaluate probability of collection. If we determine that collection is not reasonably assured, we defer the revenue and recognize the revenue upon cash collection. Delivery is considered to occur when media containing the licensed programs is provided to a common carrier, or the customer is given electronic access to the licensed software. Our typical end user license agreements do not contain acceptance clauses.

In the event that we grant a customer the right to specified upgrades and vendor-specific objective evidence (“VSOE”) of fair value exists for such upgrades, we defer license revenue in an amount equal to this fair value until we have delivered the specified upgrade (or until VSOE of fair value is established, if earlier). If VSOE of fair value does not exist, then we defer recognition of the entire license fee until we deliver the specified upgrade. If professional services are essential to the functionality of the other elements of the arrangement, we defer recognition of revenue until we have satisfied our professional services obligations.

When our software licenses contain multiple elements, we allocate revenue to each element based on the relative fair values of the elements. Multiple-element arrangements generally include post-contract support (PCS or maintenance), software products, and in some cases, other professional services. Revenue from multiple-element arrangements is allocated to undelivered elements of the arrangement, such as PCS, based on the relative fair values of the elements specific to us, and we must analyze each license arrangement carefully to ensure that all of the individual elements have been identified, along with the fair value of each element. Our determination of fair value of each element in multiple-element arrangements is based on VSOE, which is determined by sales of the individual element to third parties or by reference to a renewal rate specified in the related arrangement.

Where VSOE of fair-value exists for all undelivered elements, but evidence does not exist for one or more delivered elements, we account for the delivered elements in accordance with the Residual Method prescribed by

SOP 98-9. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. In most cases, the bundled multiple elements include PCS and the software product. In such cases, when VSOE of fair value exists for all of the undelivered elements (most commonly PCS), the residual or remaining amount is recognized as revenue and the undelivered elements are recognized when they were delivered or rendered. PCS is recognized ratably over the PCS term, which is typically 12 months.

Revenues from professional services consist of implementation services and training. Training revenues are recognized as the services are performed. Professional services are not considered essential to the functionality of the other elements of the arrangement and are accounted for as a separate element. Professional services are recognized as the services are performed for time and materials contracts or upon achievement of milestones on fixed-price contracts. A provision for estimated losses on fixed-price professional services contracts is recognized in the period in which the loss becomes probable and can be reasonably estimated.

Contract accounting is generally utilized for contracts: (1) where services include significant software modifications, developments, or customization; (2) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees; or (3) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted. In such instances, the entire arrangement fee, including both software licenses and services, is accounted for in accordance with SOP, 81-1, “Accounting for Performance of Construction Type and Certain Production Type Contracts,” whereby license and consulting services revenue is recognized, generally using the percentage-of-completion method measured on labor hours. The percentage-of-completion for each contract is determined based on the ratio of direct labor hours incurred to total estimated direct labor hours. Amounts billed in advance of services being performed or licenses being accepted are recorded as deferred revenue. Adjustments to cost and labor estimates are made in the periods in which the facts requiring such revisions become known. Estimated losses, if any, are recorded in the period in which current estimates of total contract revenue and contract costs indicate a loss.

Customers typically prepay maintenance fees for the first 12 months and the related maintenance revenues are recognized ratably monthly over the term of the maintenance contract. Maintenance contracts include the right to unspecified upgrades on a when-and-if available basis, and ongoing support.

Deferred revenues include amounts received from customers for which revenue has not yet been recognized that generally results from deferred maintenance, consulting or training services not yet rendered and license revenue deferred until all requirements under SOP 97-2 or SOP 81-1, as appropriate, are met. Deferred revenue is recognized upon delivery of our products, as services are rendered, or as other requirements requiring deferral under SOP 97-2 or SOP 81-1 are satisfied.

Allowance for Doubtful Accounts and Sales Returns

We maintain an allowance for doubtful accounts to reduce amounts to their estimated realizable value. A considerable amount of judgment is required when we assess the realization of accounts receivables, including assessing the probability of collection and the current credit-worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance for doubtful accounts may be required. We initially record an allowance for doubtful accounts based on our historical experience, and then adjust this allowance at the end of each reporting period based on a detailed assessment of our accounts receivable and allowance for doubtful accounts. In estimating the allowance for doubtful accounts, we consider: (i) the aging of the accounts receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging categories and the nature of the receivable, such as whether it derives from license, professional services or maintenance revenue; (iv) our historical allowance for doubtful accounts; (v) the credit-worthiness of the customer; and (vi) the economic conditions of the customer’s industry as well as general economic conditions, among other factors.

Should any of these factors change, the estimates that we make may also change, which could impact our future allowance for doubtful accounts. For example, if the financial condition of our customers were to deteriorate, affecting their ability to make payments, an additional allowance for doubtful accounts could be required.

Our license agreements do not offer our customers the unilateral right to terminate or cancel the contract and receive a cash refund. However, we provide for sales returns through an allowance that is based upon estimates of potential future credits related to current period revenues. We analyze historical credits, current economic trends, average deal size, changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns reserve. Revenue for the period is adjusted to reflect the allowance of our reserve for sales returns.

Stock Options

We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payments,” as interpreted by SEC Staff Accounting Bulletin (“SAB”) No. 107, effective May 1, 2005. SFAS 123R requires the recognition of the fair value of stock compensation in net income (loss). We recognize the stock compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. All of our stock compensation is accounted for as an equity instrument. Prior to May 1, 2005, we followed Accounting Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for our stock compensation.

We elected the modified prospective method in adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted or modified after the date of adoption. The unrecognized expense of awards not yet vested at the date of adoption is recognized in net income (loss) in the periods after the date of adoption, using the same valuation method (i.e. Black-Scholes) and assumptions determined under the original provisions of SFAS 123, “Accounting for Stock-Based Compensation,” as disclosed in our previous filings. The cumulative effect of the change in accounting principle from APB 25 to SFAS 123R was not material. Additionally, our unearned stock compensation balance of $10.1 million as of April 30, 2005, which was accounted for under APB 25, was reclassified into our additional paid-in-capital upon the adoption of SFAS 123R on May 1, 2005.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted after the adoption of SFAS 123R, with the following weighted-average assumptions (fiscal 2005 and 2004 assumptions were utilized for the purpose of calculating the pro forma information under SFAS 123):


	Stock Option Plans						Stock Purchase Plan
	Fiscal Year Ended April 30,						Fiscal Year Ended April 30,
	2006		2005		2004		2006		2005		2004
Dividend yield	—		—		—		—		—		—
Expected volatility	60	%	64	%	54	%	34	%	41	%	48	%
Average risk-free interest rate	4.40	%	3.69	%	3.79	%	4.00	%	2.35	%	1.21	%
Expected life (in years)	5		5		5		0.5		0.5		0.5

The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expected volatility is based on the combination of historical volatility of our common stock over the period commensurate with the expected life of the options and the mean historical implied volatility from traded options on our common stock with a term of 180 days or greater measured over one year. The risk-free interest rate is derived from the average U.S. Treasury Strips rate during the period, which approximates the rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to post-vesting exercise and forfeitures of option by our employees.

Based on our historical experience of pre-vesting option cancellations, we have assumed an annualized forfeiture rate of 15% for our options. Under the true-up provisions of SFAS 123R, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Stock compensation expense under SFAS 123R starting on May 1, 2005, and under APB 25 or SFAS 123 (pro forma disclosure) for the prior periods, were recognized using the accelerated method in accordance with Financial Accounting Standard Board (“FASB”) Interpretation (“FIN”) No. 28.

In connection with our restatement of stock compensation expense for periods prior to fiscal 2006, we applied significant judgment in choosing whether to revise measurement dates for prior option grants, and in choosing the methodology for applying these revised measurement dates. See the “Explanatory Note” immediately preceding Item 1 of Part I of this Form 10-K for further information.

Business Combinations and Acquired Intangible Assets

We account for our purchases of acquired companies in accordance with SFAS No. 141, “Business Combinations,” and account for the related acquired intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” In accordance with SFAS No. 141, we allocate the cost of the acquired companies to the identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount being classified as goodwill. Certain intangible assets, such as “developed technologies,” are amortized to expense over time, while in-process research and development costs (“IPR&D”), if any, are immediately expensed in the period the acquisition is completed. Identifiable intangible assets are currently amortized over one to five years using the straight-line method.

The majority of entities we acquire do not have significant tangible assets and, as a result, a significant portion of the purchase price is typically allocated to intangible assets and goodwill. Our future operating performance will be impacted by the future amortization of intangible assets, potential charges related to IPR&D for future acquisitions, and potential impairment charges related to goodwill. Accordingly, the allocation of the purchase price to intangible assets and goodwill has a significant impact on our future operating results. The allocation of the purchase price of the acquired companies to intangible assets and goodwill requires us to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate for these cash flows. Should different conditions prevail or these estimates or assumptions prove wrong, material write-downs of intangible assets and/or goodwill could occur.

Under SFAS No. 142, goodwill is no longer subject to amortization. Rather, we evaluate goodwill for impairment at least annually or more frequently if events and changes in circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying value, including goodwill, to the fair value of the reporting unit. The fair values of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and we then compare the “implied fair value” of the goodwill to its carrying amount to determine the impairment loss, if any. Annual goodwill impairment testing will be performed, at a minimum, during the fourth quarter of each fiscal year.

Accounting for income taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax expense in each of the jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure and assess temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance for the entire portion of the net operating losses related to the income tax benefits arising from the exercise of employees’ stock options. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust our valuation allowance as well.

Our accounting for income taxes also requires us to exercise judgment for issues relating to known matters under discussion with tax authorities and transactions yet to be settled. As a result, we maintain a tax liability for

contingencies and regularly assess the adequacy of this tax liability. We record liabilities for known tax contingencies when, in our judgment, it is probable that a liability has been incurred. It is reasonably possible that actual amounts payable resulting from audits by tax authorities could be materially different from the liabilities we have recorded due to the complex nature of the tax legislation that affects us.

Results of Operations

The following table sets forth selected consolidated financial data for the periods indicated, expressed as a percentage of total revenues.


	Fiscal Year Ended April 30,
	2006		2005		2004
			As Restated		As Restated
Revenues:
License	38	%	40	%	38	%
Service	62		60		62

Total revenues	100		100		100

Cost of revenues (2):
License	3		4		4
Service (1)	32		29		31
Acquisition-related expenses	—		—		1
Amortization of intangible assets	2		1		1
Impairment of prepaid software licenses	—		—		—

Total cost of revenues	37		34		37

Gross margin	63		66		63

Operating expenses (2):
Sales and marketing (1)	38		41		42
Research and development (1)	26		20		25
General and administrative (1)	10		10		12
Acquisition-related expenses	1		—		1
Amortization of intangible assets	2		2		2
Acquired in-process research and development	—		1		1
Restructuring charges	2		2		9

Total operating expenses	79		76		92

Loss from operations	(16	)	(10	)	(29	)
Other income (expense):
Interest and other income, net	4		3		3
Loss from foreign currency translation	—		—		(1	)
Gain on sale of investment	5		—		—

Loss before provision for income taxes	(7	)	(7	)	(27	)
Provision for income taxes	—		1		1

Net loss	(7	)%	(8	)%	(28	)%

(1) Effective May 1, 2005, Agile adopted SFAS 123(R), “Share-Based Payments,” using the modified prospective transition method. Accordingly, for the year ended April 30, 2006, stock compensation was accounted under SFAS 123(R), while, for the years ended April 30, 2005 and prior, stock compensation was accounted for under APB 25, “Accounting for Stock Issued to Employees.” The amounts in the lines above include stock compensation as follows:
Cost of service revenue	—	%	—	%	1	%
Sales and marketing	2		1		3
Research and development	—		—		1
General and administrative	1		—		3

Comparison of Fiscal Years Ended April 30, 2006, 2005 and 2004

Revenues

Total revenues increased by 13% from fiscal 2005 to fiscal 2006. This increase was primarily attributable to the full inclusion of Cimmetry’s fiscal 2006 operating results as a result of the acquisition, as well as the increase in our service revenue from North America.

Total revenues increased by 21% from fiscal 2004 to fiscal 2005. This increase was primarily attributable to increases in both license and service revenue from both existing and new customers in North America and, to a lesser extent, an increase in our revenue from Europe.

Our quarterly operating results have varied significantly in the past and are likely to vary significantly in the future. Our products have an unpredictable sales cycle. The timing of large orders, which can account for a significant percentage of our total license revenue, remains unpredictable as a result of the overall economic conditions and cautious capital spending by businesses. During fiscal 2006, 2005, and 2004, no one customer accounted for 10% or more of total revenues.

Our revenues by geographic region for fiscal 2006, 2005 and 2004 are as follows:


	Fiscal 2006		% Change		Fiscal 2005		% Change		Fiscal 2004
	(in thousands, except percentages)
North America	$	94,186	17	%	$	80,380	33	%	$	60,327
Europe		31,392	7	%		29,388	22	%		24,167
Asia-Pacific		6,491	(10	)%		7,219	(39	)%		11,811

Total revenues	$	132,069	13	%	$	116,987	21	%	$	96,305

During fiscal 2006, 2005, and 2004, revenues from customers located outside of North America were approximately 29%, 31% and 37% of total revenues, respectively. Revenues from customers located outside of North America were derived primarily from sales to customers in Europe and, to a lesser extent, the Asia-Pacific region. The slight increase in sales to customers located outside of North America during fiscal 2006 was primarily related to increases in both license and service revenue from Europe. The increase in sales to customers located outside of North America during fiscal 2005 was primarily related to our acquisition of Eigner, whose customer base was largely located in Europe, as well as the benefit derived from the strengthening of the Euro compared to the US dollar during fiscal 2005. Sales to customers located in Asia-Pacific decreased in fiscal 2005, and again slightly in fiscal 2006, primarily related to weak sales in Japan.

License Revenue

The following table sets forth a summary of our license revenue in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
License revenue	$	50,057		8	%	$	46,406		28	%	$	36,293
As a percentage of total revenues		38	%				40	%				38	%

The increase in license revenue in absolute dollars from fiscal 2005 to 2006 was primarily due to the full inclusion of Cimmetry’s fiscal 2006 operating results as a result of the acquisition. The decrease in license revenue as a percentage of total revenues during fiscal 2006 was due to a more significant increase in service revenue than in license revenue.

The increase in license revenue in absolute dollars from fiscal 2004 to 2005 was primarily due to increases in sales of newer products to new and existing customers in North America of $11.7 million, slightly offset by the decrease in international sales, in particular sales to customers in Japan. The increase in license revenue as a percentage of total revenues during fiscal 2005 was due to a more significant increase in license revenue than in service revenue.

Service Revenue

The following table sets forth a summary of our service revenue in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
Professional Service	$	30,048		11	%	$	26,999		26	%	$	21,481
Maintenance		51,964		19	%		43,582		13	%		38,531

Total service revenue	$	82,012		16	%	$	70,581		18	%	$	60,012

As a percentage of total revenues		62	%				60	%				62	%

Service revenue includes fees earned, and to a lesser extent reimbursable expenses incurred, in connection with consulting, software implementation and training services we provide to our customers, as well as fees from software maintenance agreements we offer. Service revenue inherently lags behind the related license revenue as the service engagements and maintenance (and the related revenue) commence after the initial license sale. As a result, the positive impact of increasing license revenue on service revenue tends to be delayed by one to two quarters. Additionally, as our maintenance revenue has a larger customer base than our license revenue, the percentage of increase in maintenance revenue (and thus service revenue) may be smaller than any percentage of increase in license revenue.

The increase in service revenue in absolute dollars from fiscal 2005 to 2006 was primarily due to the $8.4 million increase in maintenance revenue. Approximately half of the increase in maintenance revenue was due to the full inclusion of Cimmetry’s fiscal 2006 operating result, and the other half was primarily due to the increase in our North American maintenance revenue driven by new license revenue growth in fiscal 2006. Professional service revenue grew by $3.0 million in fiscal 2006 primarily due to the increase in professional service revenue in North America, driven by our growth in license revenue in the previous fiscal year. The increase in service revenue as a percentage of total revenues during fiscal 2006 was due to a more significant increase in service revenue than in license revenue.

The increase in service revenue in absolute dollars from fiscal 2004 to 2005 was primarily due to an $8.3 million increase in professional service and maintenance revenue in North America, driven by our growth in license revenue. The decrease in service revenue as a percentage of total revenues during fiscal 2005 was due to a more significant increase in license revenue than in service revenue.

Our maintenance revenue depends upon both our software license revenue and renewals of maintenance agreements by our existing customers. Our maintenance revenue has increased on a year-over-year basis in each of fiscal 2006, 2005 and 2004, as a result of both new licenses and a high maintenance renewal rate. We expect that service revenue will increase or decrease somewhat in relation to our license revenue.

Cost of Revenues

Cost of License Revenue

The following table sets forth a summary of our cost of license revenue in absolute dollars and expressed as a percentage of license revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
Cost of license revenue	$	3,223		(26	)%	$	4,333		17	%	$	3,694
As a percentage of license revenue		6	%				9	%				10	%

Our cost of license revenue includes license fees due to third parties for technology integrated into or sold with our products, and the cost of order fulfillment such as shipping and packaging.

The decrease in cost of license revenue in absolute dollars and as a percentage of revenue from fiscal 2005 to 2006 was primarily due to the acquisition of Cimmetry, which lowers the cost of embedded third-party software, as we had formerly licensed Cimmetry software to include in our products.

The increase in cost of license revenue in absolute dollars from fiscal 2004 to 2005 was primarily due to our overall increase in license revenue. With the introduction of Agile 9 in late fiscal 2004 and acquisition of Cimmetry in late fiscal 2005, cost of license revenue as a percentage of license revenue in fiscal 2005 decreased, as Agile 9 has relatively lower embedded third-party software costs.

For fiscal 2007, we expect cost of license revenue in absolute dollars to increase or decrease in direct relation to overall license revenue. Actual results, however, may fluctuate depending upon the amount of non-embedded third-party software sold in any particular period.

Cost of Service Revenue

The following table sets forth a summary of our cost of service revenue in absolute dollars and expressed as a percentage of service revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
						As Restated (1)					As Restated (1)

Cost of service revenue	$	41,001		22	%	$	33,554		16	%	$	28,993
Stock compensation		597		—			558		—			736

Total cost of service revenue including stock compensation	$	41,598		22	%	$	34,112		15	%	$	29,729

As a percentage of service revenue		51	%				48	%				50	%

(1)

See Note 2, “Restatement of Consolidated Financial Statements,” of the Notes to the Consolidated Financial Statements.

Our cost of service revenue includes salaries and related expenses for the implementation, training services, and customer support organizations, costs of third parties contracted to provide implementation services to customers and an allocation of overhead expenses, including rent, information technology and other overhead expenses. In addition, cost of service revenue includes support and upgrade fees paid to third parties with respect to the third-party software integrated into or sold with our products for which our customers have purchased support from us.

The increase in cost of service revenue in absolute dollars from fiscal 2005 to 2006 and fiscal 2004 to 2005 was primarily due to our overall increase in service revenue. As a percentage of service revenue, cost of service revenue increased in fiscal 2006, compared to the prior period, due to increased investments in our customer support organization related to the release of Agile 9, investments in our maintenance renewal team and, to a lesser extent, a decrease in our European professional services margin.

As of May 1, 2005, Agile adopted SFAS 123(R), “Share-Based Payments,” using the modified prospective transition method. Accordingly, for the year ended April 30, 2006, stock compensation was accounted under SFAS 123(R), while, for the years ended April 30, 2005 and prior, stock compensation was accounted for under APB 25, “Accounting for Stock Issued to Employees.”

Impairment of Prepaid Software Licenses

Cost of revenues for fiscal 2004 includes charges of $471,000, for the impairment of non-refundable prepaid software licenses fees. We determined that the carrying value of these prepaid software licenses exceeded their net realizable value as a result of our decision to discontinue selling some of our products in which such third party licensed software was embedded.

Operating Expenses

We classify all charges to operating expense categories based on the nature of the expenditures. Although each category includes expenses that are unique to the category type, there are common recurring expenditures that are typically included in all operating expense categories, such as salaries, employee benefits, incentive compensation, travel costs, communication, rent and other allocated facilities costs, information technology, and professional fees. Also included in our operating expenses is stock compensation, which is included in each of the sales and marketing, research and development, and general and administrative categories.

As a result of our prior period restructuring efforts, as discussed further under “Restructuring Charges” below, we have realized significant costs savings to our operating expenses, especially during fiscal 2005 and 2004. For the restructuring efforts in fiscal 2006, we expect to realize the full impact of such cost savings in future fiscal periods as the restructuring was done late in fiscal 2006. During fiscal 2005 and 2004, our aggregate facilities and depreciation expenses decreased $1.3 million and $3.2 million, respectively, when compared to our facilities and depreciation expenses during the respective prior periods. Significant portions of these costs savings, therefore, are reflected in the sales and marketing, research and development and general and administrative operating expenses through decreased facilities and depreciation expenses.

Sales and Marketing

The following table sets forth a summary of our sales and marketing expenses in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
						As Restated (1)					As Restated (1)
Sales and marketing	$	48,200		4	%	$	46,144		20	%	$	38,302
Stock compensation		2,233		—			1,439		—			2,565

Total sales and marketing including stock compensation	$	50,433		6	%	$	47,583		16	%	$	40,867

As a percentage of total revenues		38	%				41	%				42	%

(1)

See Note 2, “Restatement of Consolidated Financial Statements,” of the Notes to the Consolidated Financial Statements.

In addition to the common recurring expenditures mentioned above, our sales and marketing expenses include expenditures specific to the sales group, such as sales related commissions, and expenditures specific to the marketing group, such as public relations and advertising, trade shows, marketing collateral and materials, and customer user group meetings, net of fees assessed for attendance.

The increase in sales and marketing in absolute dollars from fiscal 2005 to 2006 and from fiscal 2004 to 2005 was primarily related to increased personnel-related costs, due primarily to sales incentive compensation associated with higher revenues. As a percentage of total revenues, sales and marketing expenses decreased in fiscal 2006, compared to the prior period, due to a different mix of products, with a lower average commission rate, being sold during fiscal 2006.

As of May 1, 2005, Agile adopted SFAS 123(R), “Share-Based Payments,” using the modified prospective transition method. Accordingly, for the year ended April 30, 2006, stock compensation was accounted under SFAS 123(R), while, for the years ended April 30, 2005 and prior, stock compensation was accounted for under APB 25, “Accounting for Stock Issued to Employees.”

The decrease in stock compensation from fiscal 2004 to 2005 was primarily due to lower amortization associated with options granted in prior periods and fewer options granted to our employees with an exercise price below fair market value. We amortize stock compensation expense using the accelerated method as described in FIN 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option Award Plans” (“FIN 28”).

Research and Development

The following table sets forth a summary of our research and development expenses in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
						As Restated (1)					As Restated (1)
Research and development	$	34,131		43	%	$	23,884		3	%	$	23,147
Stock compensation		508		—			(36	)	—			1,248

Total R&D including stock compensation	$	34,639		45	%	$	23,848		(2	)%	$	24,395

As a percentage of total revenues		26	%				20	%				25	%

(1)

See Note 2, “Restatement of Consolidated Financial Statements,” of the Notes to the Consolidated Financial Statements.

In addition to the common recurring expenditures mentioned above, our research and development expenses consist of costs associated with the development of new products, enhancements to existing products, and quality assurance procedures. These costs primarily consist of employee salaries, benefits, consulting costs and the cost of software development tools and equipment.

The increase in research and development expenses in absolute dollars and as a percentage of revenue from fiscal 2005 to 2006, was primarily related to (a) $4.5 million in increased outside consulting fees related to work being performed on the next releases of our products, primarily our Agile 9 suite of products, and (b) $3.8 million in increased compensation and benefits, primarily resulting from the full inclusion of the Cimmetry workforce in fiscal 2006 as a result of the acquisition.

The increase in research and development expenses in absolute dollars from fiscal 2004 to 2005 was primarily due to the addition of Cimmetry’s research and development activities. As a percentage of revenue, research and development expenses decreased due to a more significant increase in total revenues compared to research and development expenses.

The decrease in stock compensation from fiscal 2004 to 2005 was primarily due to lower amortization associated with options granted in prior periods and fewer options granted to our employees with an exercise price below fair market value. We amortize the stock compensation using the accelerated method as described in FIN 28. Additionally, we recovered previously recognized stock compensation expenses for unexercised options forfeited by terminated employees.

General and Administrative

The following table sets forth a summary of our general and administrative expenses in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005, and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
						As Restated (1)					As Restated (1)
General and administrative	$	12,119		5	%	$	11,556		29	%	$	8,954
Stock compensation		1,006		—			171		—			2,575

Total G&A including stock compensation	$	13,125		12	%	$	11,727		2	%	$	11,529

As a percentage of total revenues		10	%				10	%				12	%

(1)

See Note 2, “Restatement of Consolidated Financial Statements,” of the Notes to the Consolidated Financial Statements.

In addition to the common recurring expenditures mentioned above, our general and administrative expenses consist primarily of compensation and benefits costs for executive, finance, human resources, legal and administrative personnel, director compensation, bad debt expense, and other costs associated with being a publicly held company, including periodic reporting under the rules and regulations of the Securities and Exchange Commission and compliance with the Sarbanes-Oxley Act of 2002.

The slight increase in general and administrative expenses in absolute dollars from fiscal 2005 to 2006 was primarily due to the full inclusion of Cimmetry in fiscal 2006 as a result of the acquisition.

The increase in general and administrative expenses in absolute dollars from fiscal 2004 to 2005 was due to increased audit fees, personnel costs and outside consultant fees of $1.3 million to comply with increased regulatory requirements, including the regulations implemented in response to the Sarbanes-Oxley Act of 2002. In addition, we incurred general and administrative expenses of $1.0 million in fiscal 2005 as a result of including a full twelve months of operations for Eigner, compared to less than nine months during fiscal 2004, and almost three months of operations for Cimmetry.

The decrease in stock compensation expense from fiscal 2004 to 2005 was primarily due to lower amortization associated with options granted in prior periods and fewer options granted to our employees with an exercise price below fair market value. We amortize stock compensation expense using the accelerated method as described in FIN 28.

Acquisition-Related Expenses

The following table sets forth a summary of our acquisition-related expenses in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006		% Change		Fiscal 2005		% Change		Fiscal 2004
	(in thousands, except percentages)
Acquisition-related expenses
Cost of revenues	$	—	—		$	—	(100	)%	$	595
Operating expenses		745	100	%		—	(100	)%		1,091

Total acquisition-related expenses	$	745	100	%	$	—	—		$	1,686

As a percentage of total revenues		—				—				2	%

In the fourth quarter of fiscal 2006, we terminated our plan to acquire a target company and recorded $745,000 of previously capitalized costs related to that acquisition.

In connection with our acquisition of Eigner in fiscal 2004, we agreed to pay $1.7 million in retention bonuses to certain persons who were employees of Eigner at the date of the acquisition and who remained employees of Agile for six months following the acquisition. The retention bonuses were recorded as acquisition-related compensation expense in the consolidated statements of operations.

Amortization of Intangible Assets

The following table sets forth a summary of our amortization of intangible assets in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
Amortization of intangible assets:
Cost of revenues	$	2,901		133	%	$	1,245		76	%	$	709
Operating expenses		2,482		21	%		2,055		(2	)%		2,092

Total amortization of intangible assets	$	5,383		63	%	$	3,300		18	%	$	2,801

As a percentage of total revenues		4	%				3	%				3	%

We have made selective acquisitions of assets and businesses, including certain intangible assets. Intangible assets consist of developed technologies, customer relationships, trademark and non-compete agreements acquired as part of our acquisitions described above. Intangible assets are subject to amortization and have original estimated weighted-average useful lives ranging from one to five years. No significant residual value is estimated for the intangible assets.

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


	As of April 30, 2006							As of April 30, 2005
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Intangible Assets:
Developed technologies	$	9,200	$	(4,866	)	$	4,334	$	9,200	$	(1,965	)	$	7,235
Customer relationships		6,882		(5,094	)		1,788		7,182		(2,892	)		4,290
Trademark		1,200		(300	)		900		1,200		(60	)		1,140
Non-compete agreements		1,280		(1,250	)		30		1,280		(1,210	)		70

	$	18,562	$	(11,510	)	$	7,052	$	18,862	$	(6,127	)	$	12,735

As of April 30, 2006, the estimated future amortization expense of acquired intangible assets is as follows (in thousands):


Fiscal Years:
2007	$	4,037
2008		2,595
2009		240
2010		180

	$	7,052

We may continue purchasing assets or businesses to accelerate industry or geographic expansion, or increase the features and functions of our products available to our customers. For example, we acquired Prodika in June 2006. These purchase transactions may result in the creation of additional intangible assets that leads to a corresponding increase in our amortization expense in future periods. Our future operating performance will be impacted by the future amortization of intangible assets.

Acquired In-Process Research and Development

The following table sets forth a summary of our acquired in-process research and development in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006		% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
Acquired in-process research and development	$	—	(100	)%	$	1,700		240	%	$	500
As a percentage of total revenues		—				1	%				1	%

In connection with various acquisitions we made during fiscal 2005 and 2004, we allocated a portion of the purchase price to acquired in-process research and development (“IPR&D”). Specifically, we recorded $1.7 million and $500,000 of IPR&D related to our acquisition of Cimmetry and Eigner, respectively. The amounts allocated to the acquired IPR&D were immediately expensed in the period each acquisition was completed because the projects associated with the acquired IPR&D efforts had not yet reached technological feasibility and no future alternative uses existed for the technology. In calculating the value of the acquired IPR&D, we, with the assistance of an independent appraiser, used established valuation techniques accepted in the technology and software industries. This calculation gave consideration to relevant market size and growth factors, expected industry trends, the anticipated nature and timing of new product introductions by us and our competitors, individual product sales cycles, and the estimated lives of each of the products derived from the underlying technology. The value of the acquired IPR&D reflects the relative value and contribution of the acquired research and development. Consideration was given to the stage of completion, the complexity of the work completed to date, the difficulty of completing the remaining development, costs already incurred, and the expected cost to complete the project in determining the value assigned to the acquired IPR&D. The projects have been subsequently completed within our estimates.

Restructuring Charges

The following table sets forth a summary of our restructuring charges in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
Restructuring charges	$	2,386		12	%	$	2,132		(76	)%	$	8,730
As a percentage of total revenues		2	%				2	%				9	%

Please see the discussion under “Business Overview—Restructurings” under this Item 7 above, and in Note 9—Restructuring Charges of our consolidated financial statements, for further information relating to our restructurings.

Interest and Other Income (Expense), Net

The following table sets forth a summary of our interest and other income, net, in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
	(in thousands, except percentages)
Interest and other income, net	$	5,428		33	%	$	4,068		32	%	$	3,093
As a percentage of total revenues		4	%				4	%				3	%

Interest and other income, net, consists of interest earned on cash, cash equivalents, and investments, as well as other miscellaneous non-operating transactions.

The increase in interest and other income, net from fiscal 2005 to 2006 and from fiscal 2004 to 2005, was due principally to higher interest rates, partially offset by lower average cash and investment balances principally due to the purchase price paid for the acquisition of Cimmetry in the fourth quarter of fiscal 2005.

For fiscal 2007, we expect interest and other income, net in absolute dollars to slightly increase compared to our results for fiscal 2006, as we expect the average interest rate to be higher.

Loss from Foreign Currency Translation

The following table sets forth a summary of our loss from foreign currency translation in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006		% Change	Fiscal 2005		% Change		Fiscal 2004
	(in thousands, except percentages)
(Gain) loss from foreign currency translation	$	—	—	$	—	(100	)%	$	639
As a percentage of total revenues		—			—				1	%

In connection with our acquisition of Eigner, we assumed an obligation with a vendor to Eigner, providing for quarterly payments denominated in Euros through fiscal 2007. As the obligation was denominated in Euros, and the functional currency of the subsidiary holding the obligation was the U.S. Dollar, we were required to remeasure the value of the obligation at the end of each period. As a result of the Euro strengthening against the U.S. Dollar during the second and third quarter of fiscal 2004, a remeasurement of the obligation at the end of such period to the functional currency, net of payments made, resulted in an unrealized loss from foreign currency translation of $639,000. In fiscal 2005, the obligation was assigned to a subsidiary that has the same functional currency as the obligation.

Gain on Sale of Investment

The following table sets forth a summary of our gain on sale of investment in absolute dollars and expressed as a percentage of total revenues for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005		% Change	Fiscal 2004
	(in thousands, except percentages)
Gain on sale of investment	$	6,389		100	%	$	—	—	$	—
As a percentage of total revenues		5	%				—			—

In the fourth quarter of fiscal 2006, we sold our minority stake in a company and recorded a related gain of $6.4 million.

Provision for Income Taxes

The following table sets forth a summary of our provision for income taxes in absolute dollars for fiscal 2006, 2005 and 2004.


	Fiscal 2006			% Change		Fiscal 2005			% Change		Fiscal 2004
						As Restated (1)					As Restated (1)
	(in thousands, except percentages)
Provision for income taxes	$	742		4	%	$	714		(45	)%	$	1,294
Effective income tax rates		(10	)%				(9	)%				(5	)%

(1)

See Note 2, “Restatement of Consolidated Financial Statements,” of the Notes to the Consolidated Financial Statements.

The Company has incurred overall net losses in all fiscal years presented. Our provision for income taxes primarily reflects actual taxes associated with our international operations and deferred tax liabilities related to purchase price accounting allocations. As a result, our effective income tax rates have fluctuated and have not correlated to our operating income or loss. Other than the provision for foreign taxes and the deferred tax liability, no provision for income taxes has been recorded since our inception because we have incurred net losses in all periods. We have recorded a valuation allowance for the full amount of our net deferred tax assets, including our net operating loss carryforwards and tax credits, as sufficient uncertainty exists regarding our ability to realize the deferred tax asset balance.

Liquidity and Capital Resources

Overview

Our principal source of liquidity consists of cash, cash equivalents and investments, as follows (in thousands):


	As of April 30,
	2006		2005
Cash and cash equivalents	$	126,749	$	81,760
Short-term and long-term investments		76,550		116,620

	$	203,299	$	198,380

Our cash, cash equivalents, and investments are placed with high credit quality financial institutions, commercial companies and government agencies in order to limit the amount of credit exposure. Our liquidity could be negatively impacted by a decrease in demand for our products, which are subject to rapid technological changes, or a reduction of capital expenditures by our customers as a result of a downturn in the global economy, among other factors. As of April 30, 2006 and 2005, our working capital was $151.3 million and $155.4 million, respectively, and our days sales outstanding (“DSO”) was 73 days and 77 days, respectively.

Cash Flows

In summary, our cash flows were as follows (in thousands):


	Fiscal Year Ended April 30,
	2006			2005		2004
				As Restated (1)
Net cash provided by (used in) operating activities	$	(1,573	)	$	2,543	$	(14,929	)
Net cash provided by (used in) investing activities		43,448			26,874		(5,660	)
Net cash provided by financing activities		3,483			6,606		9,239

(1)

See Note 2, “Restatement of Consolidated Financial Statements,” of the Notes to the Consolidated Financial Statements.

Cash used in operating activities during fiscal 2006 primarily consists of our net loss for the period of $8.4 million, realized gain on sale of investments in the fourth quarter of fiscal 2006 of $6.4 million and shares withheld in payment of employee tax withholding (see Note 12—Employee Benefit Plans of our consolidated financial statements) of $2.7 million, offset by non-cash items of $14.2 million (primarily depreciation and amortization and stock compensation). Cash provided by operating activities during fiscal 2005 consists of our net loss for the period of $8.4 million and a net decrease of $1.8 million in other operating assets and liabilities, offset by non-cash items of $12.7 million (primarily depreciation and amortization). Cash used in operating activities during fiscal 2004 was primarily due to our net loss for the period of $26.9 million, offset by non-cash items of $19.4 million, and a net decrease of $7.3 million in working capital.

Cash provided by investing activities during fiscal 2006 resulted principally from $47.0 million of net maturities of short-term and long-term investments, offset by $3.5 million of purchases of property and equipment. Cash provided by investing activities during fiscal 2005 resulted from $75.7 million of net maturities of short-term and long-term investments, offset by $44.8 million cash paid in business combinations and $4.0 million of purchases of property and equipment. Cash used in investing activities during fiscal 2004 resulted from $8.4 million of purchases of property and equipment, primarily related to the build-out of our corporate headquarters in San Jose, California, and $3.1 million of net cash paid in business combinations, offset by $5.8 million of net maturities of short-term and long-term investments.

Cash provided by financing activities in fiscal 2006, 2005 and 2004 was primarily due to the issuance of common stock associated with the exercise of stock options and our employee stock purchase plan totaling $3.5 million, $6.6 million and $9.9 million, respectively. During fiscal 2004, cash provided from financing activities was offset slightly by the settlement of certain capital lease obligations acquired totaling $718,000. We expect cash provided by financing activities to decrease in future periods as we continue to grant fewer stock options at lower average exercise prices to our employees.

We anticipate that our operating expenses will constitute a material use of our cash resources over the next fiscal year, partially offset by anticipated collections of accounts receivable. We may also utilize cash resources to fund acquisitions of investments in complementary businesses, technologies or product lines. For example, in June 2006, we acquired Prodika, Inc. for $15.0 million in cash and earnout payments of up to an additional $12.5 million. In addition, we will withhold shares to cover the minimum potential statutory withholding requirements on each of the vesting date of our option exchange (during the quarter ending October 31, 2006) and annual performance grants (during the quarter ending April 30, 2007), and pay cash to the tax authorities for such requirements. We believe that our existing cash, cash equivalents and investments, together with our anticipated cash flows from operations, will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next twelve months.

Selected Unaudited Quarterly Consolidated Financial Data

The following tables set forth a summary of our unaudited consolidated balance sheets and consolidated statements of cash flows for each of the first three quarters of our fiscal years ended April 30, 2006 and April 30, 2005 and our unaudited consolidated statements of operation for the first three quarters of our fiscal year ended April 30, 2005. The information has been derived from our unaudited consolidated financial statements that, in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements contained elsewhere in this Form 10K, and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information when read in conjunction with our audited consolidated financial statements and notes thereto. The operating results for any quarter are not necessarily indicative of results to be expected for any future period.

This selected quarterly information has been restated for all quarters presented from previously reported information filed on Form 10-Q, as a result of the restatements of our stock compensation expense and our consolidated statements of cash flows discussed in this Form 10-K.

UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)


	January 31, 2006						October 31, 2005						July 31, 2005
	As Previously Reported		Adjustments		As Restated		As Previously Reported		Adjustments		As Restated		As Previously Reported		Adjustments		As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	102,078	$	—	$	102,078	$	96,675	$	—	$	96,675	$	77,356	$	—	$	77,356
Short-term investments		84,216		—		84,216		86,023		—		86,023		99,106		—		99,106
Accounts receivable, net of allowance for doubtful accounts of		22,836		—		22,836		20,472		—		20,472		27,024		—		27,024
Other current assets		4,784		—		4,784		4,241		—		4,241		5,327		—		5,327

Total current assets		213,914		—		213,914		207,411		—		207,411		208,813		—		208,813
Long-term investments		14,101		—		14,101		17,945		—		17,945		21,921		—		21,921
Property and equipment, net		9,112		—		9,112		9,770		—		9,770		10,087		—		10,087
Intangible assets, net		8,404		—		8,404		9,756		—		9,756		11,108		—		11,108
Other assets		1,038		—		1,038		1,026		—		1,026		1,056		—		1,056
Goodwill		66,713		—