The following information should be read in conjunction with the historical financial information and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, the consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission on March 12, 2009.

The statements contained in this Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including statements regarding Actuate's expectations, beliefs, hopes, intentions, plans or strategies regarding the future. All forward-looking statements in this Form 10-Q are based upon information available to Actuate as of the date hereof, and Actuate assumes no obligation to update any such forward-looking statements. Actual results could differ materially from Actuate's current expectations. Factors that could cause or contribute to such differences include, but are not limited to, the risks discussed in Part II, Item 1A-Risk Factors of this Form 10-Q, Part I, Item 1A-Risk Factors in our Annual Report for the year ended December 31, 2008 and in other filings made by the Company with the Securities and Exchange Commission.

Overview

Actuate Corporation ("We", "Actuate" or the "Company") was incorporated in November 1993 in the State of California and reincorporated in the State of Delaware in July 1998. Actuate provides software and services to develop and deploy Rich Internet Applications ("RIAs") Without Limits™. These RIAs deliver rich interactive content that improve customer loyalty and corporate performance. Applications built on Actuate's open source-based platform provide all stakeholders inside and outside the firewall, including employees, customers, partners and citizens, with information that they can easily access and understand to maximize revenue, cut costs, improve customer satisfaction, streamline operations, create competitive advantage and make better decisions. Our goal is to ensure that all users can use decision-making information in their day-to-day activities, opening up completely new avenues for improving corporate performance. Actuate's telephone number is 650-645-3000. Actuate maintains a Web site at www.actuate.com. The information posted on our Web site is not incorporated into this Annual Report.

We began shipping our first product in January 1996. We sell software products through two primary means: (i) directly to end-user customers through our direct sales force and (ii) through indirect channel partners such as OEMs, resellers and system integrators. OEMs generally integrate our products with their applications and either provide hosting services or resell them with their products. Our other indirect channel partners resell our software products to end-user customers. Our total revenues are derived from license fees for software products and fees for services relating to such products, including software maintenance and support, professional services and training.

The software industry is currently experiencing significant challenges, primarily due to a deteriorating macroeconomic environment, which is primarily characterized by diminished product demand. As a result of this downturn, some of our customers may face financial challenges in fiscal 2009. It is unclear when the macroeconomic environment may improve. We are seeing increasing pressures on our customers' Information Technology budgets, and therefore our customers are looking for more flexibility in the timing of such purchases.

Facing uncertainty and cost pressures in their own businesses, some of our customers are waiting to purchase our products and are increasingly seeking purchasing terms and conditions that are less favorable to us. This trend partially contributed to lower license revenues for fiscal 2008 and this trend may continue for the remainder of fiscal 2009. We have also seen a similar impact on our consulting business in the recent quarters.

Our customers may also experience adverse changes in their business and, as a result, may delay or default on their payment obligations, file for bankruptcy or modify or cancel plans to license our products. If our customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us, although these obligations are generally not cancelable. Additionally, our customers may seek to renegotiate existing contractual commitments. Though we have not yet experienced any unusual levels of defaults, any material payment default by our customers or significant reductions in existing contractual commitments could have a material adverse effect on our financial condition and operating results.

Our total revenues for the first quarter of fiscal year 2009 were relatively flat at $29.3 million compared to $29.5 million reported in the first quarter of fiscal 2008. Despite the challenging macro economic environment, we managed to grow our license revenues by approximately 15% or $1.1 million over the same period last year. This growth was mostly attributed to repeat business from some of our blue chip customers across a variety of verticals mainly in North America. We also experienced a 4% increase in our maintenance and support revenues as we continue to experience a steady growth in our installed base of customers under maintenance plans. These increases were more than offset by approximately 49% or a $2.0 million decrease in professional services revenues. The decrease in professional services revenues was mainly due to a weak macro economic environment which is causing some customers to either delay their projects or cancel their engagements. We believe some customers are opting to use in-house resources to complete previously outsourced projects. Another factor contributing to the decrease in the professional services revenues is the increase in the adoption of BIRT-based projects by our customers which do not require professional service to the same extent as the Company's traditional designer products.

Despite some of the positive trends experienced in our license sales during the first quarter of fiscal 2009, we maintain our cautious stance for the reminder of fiscal 2009 as we continue to see a volatile macro economic environment and weak corporate spending on information technology.

During the second half of fiscal 2008 and in response to the weak macro economic conditions, we implemented a restructuring plan which resulted in the elimination of 46 positions held by Actuate employees primarily in North America, the consolidation of facilities, and the write-off of fixed assets located at facilities that had been vacated. These cost cutting measures have primarily been the force behind the 15% or $4.5 million decrease in operating expenses in the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008. Consequently, our operating margins have improved from a negative 3% or $949,000 loss in the first quarter of fiscal 2008 to a positive 11% or $3.3 million income in the first quarter of fiscal 2009. As a result of fluctuations in foreign currency exchange rates, our revenues were negatively impacted by approximately $940,000 while our operating expenses were positively impacted by approximately $930,000 for fiscal year 2009.

A significant portion of our revenues have historically been derived from customers in the financial services industry. The Company expects that it will continue to derive a significant portion of its revenues from these financial services customers for the foreseeable future. Unfavorable economic conditions have adversely impacted the financial services industry throughout fiscal 2008 and the first quarter of fiscal 2009. If this trend continues further into 2009, it will likely have a material adverse effect on the Company's business, financial condition and results of operations.

For the remainder of fiscal year 2009, we expect three additional trends to continue that would have a significant impact on the results of our operations. We currently believe that corporate IT budgets will grow only modestly if at all for the remainder of fiscal year 2009, particularly among financial services companies in the United States and Europe. Second, corporations are reluctant to buy software from new vendors and we continue to witness corporations consolidating their Business Intelligence, RIA and Performance Management software purchases into fewer suppliers. Finally, we expect to experience vigorous competition in the RIA market. Several of our competitors have released products that are marketed to be directly competitive with our RIA offerings. The existence of these competitive products may require additional sales and marketing efforts to differentiate our products, which could result in extended sales cycles. We believe that competition in the RIA market will be vigorous in the near future.

For remainder of fiscal year 2009, we will continue to pursue the strategic initiatives to improve revenue growth that we began introducing in fiscal year 2004 as well as an initiative related to Performance Management, which we introduced in fiscal 2007. These initiatives are as follows:

• Selling to IT Management-We are re-focusing our sales efforts on selling our products to IT managers who we believe generally recognize the technical advantages of our products. We hope this initiative will result in increased license revenue in the short term.

• Solution Selling to Line-of-Business Management-We are creating Performance Management applications and software solutions to market to line-of-business managers. These offerings are in the areas of performance management and customer self service reporting. We hope these initiatives will result in increased license revenue over the medium-to-long term.

• Investing in BIRT-We are continuing to make a significant investment in creating a new open source business intelligence and reporting tool, known as BIRT. We hope that BIRT will eventually become widely adopted by Java developers and will create demand for our other commercially available products. The BIRT project is a long-term initiative.

• Selling to Global 9000 Corporations in the Financial Services Sector-We are continuing to focus on selling our products to Global 9000 financial services companies in an effort to increase our substantive market share in this sector. We anticipate a negative impact of the ongoing credit crunch on the Financial Services sector in 2009. However, we believe that once the short term issues in Financial Services are resolved, the industry will once again lead in the adoption of RIA both inside and outside the firewall.

• Delivering a Highly Differentiated Performance Management Offering-We have integrated Actuate Performancesoft Performance Management applications, BIRT and Actuate's RIA-ready information platform to provide capabilities for distributing accountability throughout the enterprise.

We have a limited ability to forecast future revenues and expenses, thus the prediction of future operating results is difficult. In addition, historical growth rates in our revenues and earnings should not be considered indicative of future revenue or earnings growth rates or operating results. There can be no assurance that any of our business strategies will be successful or that we will be able to achieve and maintain profitability on a quarterly or annual basis. It is possible that in some future quarter our operating results will be below the expectations of public market analysts and investors, and in such event the price of our common stock could decline.

At March 31, 2009, we held $16.5 million (par value) of investments comprised of ARS, which are variable-rate debt securities and have a long-term maturity with the interest rate being reset through Dutch auctions that are typically held every 28 days. Prior to February 2008, the securities had historically traded at par and are callable at par at the option of the issuer. Interest is typically paid at the end of each auction period or semiannually. At March 31, 2009, all of the ARS we held were AAA/Aaa rated, with most collateralized by student loans guaranteed by the U.S. government under the Federal Family Education Loan Program.

In November 2008, we elected to participate in a rights offering by UBS, our investment broker, which provides us with rights (the "Put Option") to sell UBS $16.5 million of our ARS portfolio at par value, at any time during a two-year sale period beginning June 30, 2010. By electing to participate in the rights offering, we granted UBS the right, exercisable at any time prior to June 30, 2010 or during the two-year sale period, to purchase or cause the sale of our ARS (the "Call Right"). UBS has stated that it will only exercise the Call Right for the purpose of restructurings, dispositions or other solutions that will provide their clients with par value for their ARS. UBS has agreed to pay their clients the par value of their ARS within one day of settlement of any Call Right transaction. Notwithstanding the Call Right, we are permitted to sell ARS to parties other than UBS, in which case the Put Option attached to the ARS that are sold would be extinguished. We classified the Put Option as a non-current security and valued the Put Option at the present value of the difference between the fair market value and the par value of the ARS.

We have no reason to believe that any of the underlying issuers of our ARS are presently at risk of default. Through March 31, 2009, we have continued to receive interest payments on the ARS in accordance with their terms. We believe we will ultimately be able to liquidate our ARS related investments without significant loss primarily due to the collateral securing ARS and the legal settlements we have entered into with UBS. However, it could take until final maturity of the ARS (up to 39 years) to realize our investments' par value. Due to the changes and uncertainty in the ARS market, we believe the recovery period for these investments is likely to be longer than 12 months and as a result, we have classified these investments as long-term as of March 31, 2009.

Since February 2008, most ARS auctions have failed for these securities and there is no assurance that future auctions will succeed and, as a result, our ability to liquidate our investment and fully recover the par value in the near term may be limited. In the event the Company needs to access these funds, it will not be able to do so without a loss of principal, unless a future auction on these investments is successful. In the first quarter of fiscal 2009, the Company increased the carrying value of these ARS investments through a $718,000 increase to other income. This benefit was offset by a $718,000 (or "equal") decrease in the value of the Put Option related to our settlement agreement with UBS. The Company will evaluate these investments on a quarterly basis. For additional discussion please refer to the Note 4 of our Consolidated Financial Statements.

Actuate was incorporated in November 1993 in the State of California and reincorporated in the State of Delaware in July 1998. Actuate's principal executive offices are located at 2207 Bridgepointe Parkway, San Mateo, California. Actuate's telephone number is 650-645-3000. Actuate maintains a Web site at www.actuate.com.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

For further information about our significant accounting policies, see the discussion under Item 7 to the annual consolidated financial statements as of and for the year ended December 31, 2008, as filed with the SEC on Form 10-K on March 12, 2009.

Results of Operations

The following table sets forth certain consolidated statement of operations data
as a percentage of total revenues for the periods indicated.



                                                       Three Months Ended
                                                            March 31,
                                                       2009           2008
       Revenues:
       License fees                                        30 %           26 %
       Maintenance                                         63             60
       Professional services and training                   7             14

       Total revenues                                     100            100

       Costs and expenses:
       Cost of license fees                                 1              1
       Cost of services                                    16             21
       Sales and marketing                                 37             44
       Research and development                            17             19
       General and administrative                          17             16
       Amortization of other purchased intangibles          1              1
       Restructuring charges                               -               1

       Total costs and expenses                            89            103

       Income (loss) from operations                       11             (3 )
       Interest and other income (loss), net                2             (1 )
       Interest expense                                    (1 )           -

       Income (loss) before income taxes                   12             (4 )
       Provision (benefit) for income taxes                 2            (14 )

       Net income                                          10 %           10 %

Revenues

Our revenues are derived from license fees and services, which include software maintenance and support, professional consulting and training. Our total revenues decreased slightly from $29.5 million for the quarter ended March 31, 2008 to $29.3 million for the quarter ended March 31, 2009. We experienced increases in our license and maintenance revenues totaling approximately $1.8 million. These increases were more than offset by a sharp decline of approximately $2.0 million in our professional services revenues. Our professional services revenues continue to decline mostly due to the weak macro economic environment where we are seeing more of our customers cancelling professional services engagements and instead using in-house resources for completing previously outsourced services projects. Another factor contributing to the decrease in the professional services revenues is the increase in the adoption of BIRT-based projects by our customers which do not require professional service to the same extent as the Company's traditional designer products.

Sales outside of North America were $6.6 million or 23% of total revenues for the first quarter of fiscal year 2009, compared to $9.9 million, or 34% of total revenues for the first quarter of fiscal year 2008. The decrease in international revenues was primarily due to weakness in the global economy which has resulted in sharp decreases in both license and service revenues overseas.

Approximately $940,000 of the decrease in international revenues was due to the unfavorable impact of exchange rate fluctuations on revenue transactions denominated in foreign currencies.

                                                       Three Months Ended
                                                         (in thousands)
                                              March 31,           Variance      Variance
                                          2009         2008          $'s           %
   Revenues
   License fees                         $  8,753     $  7,610     $   1,143           15 %
   Maintenance                            18,371       17,738           633            4 %
   Professional services and training      2,132        4,173        (2,041 )        (49 )%

   Total revenues                       $ 29,256     $ 29,521     $    (265 )         (1 )%

   % of revenue
   License fees                               30 %         26 %
   Maintenance                                63 %         60 %
   Professional services and training          7 %         14 %

   Total revenues                            100 %        100 %

License fees. License revenues increased in the first quarter of fiscal year 2009 compared to the same period last year as we experienced an increase in repeat business from some of our blue chip customers across a variety of verticals. This growth was primarily seen in North America, while our European and Asian regions showed significant decreases. During the first quarter of fiscal year 2009, we completed two license transactions greater than $1.0 million and closed transactions greater than $100,000 with 62 customers. During the same period last year we completed one license transaction greater than $1.0 million and closed transactions greater than $100,000 with 68 customers.

The following table represents our license revenues by region (in thousands):

                                    Q1' 2009       Q1' 2008       $ Change      % Change
    North America                  $    6,942     $    4,618     $    2,324           50 %
    Europe                              1,689          1,958           (269 )        (14 )%
    APAC                                  122          1,034           (912 )        (88 )%

    Total license revenue          $    8,753     $    7,610     $    1,143           15 %

    Percentage of total revenue:           30 %           26 %

Services. Services revenue is comprised of maintenance and support, professional services, and training. The 6% decrease in services revenues was driven primarily by a 49% decrease in our professional services and consulting revenues. Our professional services revenues continue to decline mostly due to a weak macro economic environment which is causing some customers to either delay their projects or cancel their engagements. We believe some customers are opting to use in-house resources to complete previously outsourced projects. Another factor contributing to the decrease in the professional services revenues is the increase in the adoption of BIRT-based projects by our customers which do not require professional service to the same extent as the Company's traditional designer products. This decrease was offset by a 4% growth in our maintenance and support revenues evidenced by the fact that in fiscal year 2009 we are supporting a large percentage of the $39.9 million in licenses sold in fiscal year 2008. Meanwhile, our maintenance declination rate has remained consistent as we continue to experience high renewal rates from our existing customers.

Services margins improved from 71% in the first quarter of fiscal year 2008, to 77% for the first quarter of fiscal year 2009. This improvement was mostly the result of cost reductions that were implemented in the second half of fiscal 2008.

The following table represents a breakdown of our service revenues by type of revenue (in thousands):

                                       Q1' 2009      Q1' 2008      $ Change      % Change
  Maintenance                          $  18,371     $  17,738     $     633            4 %
  Professional services and training       2,132         4,173        (2,041 )        (49 )%

  Total services revenue               $  20,503     $  21,911     $  (1,408 )         (6 )%

  Percentage of total revenue:                70 %          74 %

By region, North America accounted for approximately 77% of the total services revenue in the first quarter of fiscal 2009 while the Europe and Asia Pacific regions accounted for 20% and 3% of the total services revenues, respectively. For the same period last year, North America accounted for approximately 68% of the total services revenue while the Europe and Asia Pacific regions accounted for 29% and 3% of the total services revenues, respectively.

The following table represents our total services revenues by region (in thousands):

                                    Q1' 2009      Q1' 2008      $ Change      % Change
     North America                  $  15,672     $  14,945     $     727            5 %
     Europe                             4,168         6,322        (2,154 )        (34 )%
     APAC                                 663           644            19            3 %

     Total services revenue         $  20,503     $  21,911     $  (1,408 )         (6 )%

     Percentage of total revenue:          70 %          74 %

Costs and Expenses

Cost of license fees



                                                Three Months Ended
                                                  (In thousands)
                                       March 31,         Variance      Variance
                                    2009      2008         $'s            %
             Cost of license fees   $ 200     $ 326     $     (126 )        (39 )%
             % of license revenue       2 %       4 %

Cost of license fees consists primarily of product packaging, documentation, production costs and the amortization of purchased technology. The decrease in cost of license fees in absolute dollars for the first quarter of fiscal year 2009, compared to the corresponding period in the prior year, was due primarily to the full amortization of purchased technologies in the third quarter of fiscal 2008 associated with our December 2005 purchase of third party source code. We expect our cost of license fees, as a percentage of revenues from license fees, to remain between 2% and 4% of revenues from license fees for the remainder of fiscal year 2009.

Cost of services

                                                 Three Months Ended
                                                   (In thousands)
                                        March 31,          Variance      Variance
                                    2009        2008          $'s           %
           Cost of services        $ 4,740     $ 6,275     $  (1,535 )        (25 )%
           % of services revenue        23 %        29 %

Cost of services consists primarily of personnel and related costs, share-based compensation, facilities costs incurred in providing software maintenance and support, training and consulting services, as well as third-party costs incurred in providing training and consulting services. The change in cost of services for the first quarter of fiscal year 2009, compared to the corresponding period . . .