10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2008

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

Commission file number 000-12230

BAKBONE SOFTWARE INCORPORATED

(Exact name of Registrant as specified in its charter)

Canada	Not applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9540 Towne Centre Drive, Suite 100 San Diego, California	92121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 450-9009

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨	Accelerated filer  ¨	Non-accelerated filer  ¨	Smaller reporting company  x
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of January 23, 2009 there were approximately 64,632,793 shares of the registrant’s common stock outstanding.

BAKBONE SOFTWARE INCORPORATED

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2008

PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of December 31, 2008 (unaudited) and March 31, 2008	3
	Unaudited Consolidated Statements of Operations for the three and nine months ended December 31, 2008 and 2007	4
	Unaudited Consolidated Statements of Cash Flows for the nine months ended December 31, 2008 and 2007	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION		24
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signatures	34
	Exhibit 3.2
	Exhibit 10.1
	Exhibit 10.2
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	Exhibit 32.2

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31, 2008			March 31, 2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	7,504		$	9,496
Restricted cash		269			598
Accounts receivable, less allowances for doubtful accounts and sales returns of $145 at December 31, 2008 and $77 at March 31, 2008		10,721			12,449
Prepaid expenses		1,082			1,366
Other assets		328			414
Total current assets		19,904			24,323
Property and equipment, at cost		7,291			6,970
Less accumulated depreciation		(4,236	)		(3,412	)
Property and equipment, net		3,055			3,558
Intangible assets, net		900			1,177
Goodwill		7,615			7,615
Other assets		1,053			1,167
Total assets	$	32,527		$	37,840
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,829		$	3,118
Accrued liabilities, including an allowance for sales returns of $48 at March 31, 2008		6,798			6,833
Current portion of deferred revenue		44,188			44,890
Total current liabilities		52,815			54,841
Deferred revenue, excluding current portion		51,308			51,810
Other liabilities		966			1,418
Total liabilities		105,089			108,069
Commitments and contingencies (Note 4)
Shareholders’ deficit:
Series A convertible preferred stock, no par value, 22,000,000 shares authorized at December 31, 2008 and March 31, 2008, 18,000,000 shares issued and outstanding at December 31, 2008 and March 31, 2008, liquidation preference of $22,094 and $26,388, respectively		11,160			11,160
Share capital, no par value, unlimited shares authorized, 64,632,793 and 64,542,358 shares issued and outstanding at December 31, 2008 and March 31, 2008, respectively		152,336			152,047
Employee benefit trust		5			—
Accumulated deficit		(230,837	)		(226,509	)
Accumulated other comprehensive loss		(5,226	)		(6,927	)
Total shareholders’ deficit		(72,562	)		(70,229	)
Total liabilities and shareholders’ deficit	$	32,527		$	37,840

See accompanying notes to consolidated financial statements.

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BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share and share data)

(Unaudited)

	Three months ended December 31,						Nine months ended December 31,
	2008			2007			2008			2007
Revenues, net	$	14,348		$	13,049		$	41,606		$	37,146
Cost of revenues		1,831			1,542			5,376			4,455
Gross profit		12,517			11,507			36,230			32,691
Operating expenses:
Sales and marketing		6,421			6,948			20,603			21,453
Research and development		2,647			2,396			8,425			7,403
General and administrative		4,485			3,418			12,732			11,301
Total operating expenses		13,553			12,762			41,760			40,157
Operating loss		(1,036	)		(1,255	)		(5,530	)		(7,466	)
Interest income		7			36			63			114
Interest expense		(33	)		(51	)		(103	)		(162	)
Realized gain on sale of marketable securities		—			229			—			655
Foreign exchange gain, net		1,822			472			1,471			344
Other expense, net		(5	)		(1	)		—			(12	)
Income (loss) before income taxes		755			(570	)		(4,099	)		(6,527	)
Provision for income taxes		94			38			229			93
Net income (loss)	$	661		$	(608	)	$	(4,328	)	$	(6,620	)
Net income (loss) per common share:
Basic	$	0.01		$	(0.01	)	$	(0.07	)	$	(0.10	)
Diluted	$	0.01		$	(0.01	)	$	(0.07	)	$	(0.10	)
Weighted-average common shares outstanding:
Basic		64,610,293			64,542,358			64,616,387			64,542,358
Diluted		82,646,972			64,542,358			64,616,387			64,542,358

See accompanying notes to consolidated financial statements.

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BAKBONE SOFTWARE INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine months ended December 31,
	2008			2007
Cash flows from operating activities:
Net loss	$	(4,328	)	$	(6,620	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,252			1,263
Loss on disposal of capital assets		19			11
Stock-based compensation		229			1,663
Operating expenses funded by financing arrangement		59			88
Gain on sale of available-for-sale securities		—			(655	)
Changes in assets and liabilities:
Accounts receivable		2,356			(1,777	)
Prepaid expenses and other assets		1,172			151
Accounts payable		(541	)		(1,528	)
Accrued and other liabilities		(20	)		(662	)
Deferred revenue		(609	)		5,412
Net cash used in operating activities		(411	)		(2,654	)
Cash flows from investing activities:
Proceeds from sale of available-for-sale securities		—			709
Capital expenditures		(946	)		(618	)
Release of restricted cash		227			—
Net cash (used in) provided by investing activities		(719	)		91
Cash flows from financing activities:
Payments on capital lease obligations		(186	)		(270	)
Payments on long term debt obligations		(419	)		(309	)
Net cash used in financing activities		(605	)		(579	)
Effect of exchange rate changes on cash and cash equivalents		(257	)		182
Net decrease in cash and cash equivalents		(1,992	)		(2,960	)
Cash and cash equivalents, beginning of period		9,496			10,679
Cash and cash equivalents, end of period	$	7,504		$	7,719
Cash paid during the period for:
Interest	$	64		$	121
Income taxes	$	217		$	83
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Equipment acquired under capital leases	$	90		$	4
Capital expenditures included in accounts payable at end of period	$	15		$	70

See accompanying notes to consolidated financial statements.

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BAKBONE SOFTWARE INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. The Company

BakBone Software Incorporated (“BakBone” or the “Company”), a Canadian federal company, provides software-based, data protection solutions that enable the backup, recovery and overall availability of business data and information. The Company primarily markets and sells software through an indirect sales channel comprised of storage-focused resellers, distributors and original equipment manufacturers (“OEMs”). The Company’s end users consist of domestic and international businesses and organizations of all sizes and industries, as well as foreign and domestic government agencies and educational institutions. BakBone operates in a single business segment, which is the NetVault product line, and has operations in three primary geographic regions: North America; Asia-Pacific; and Europe, Middle East and Africa, or EMEA, through three of its respective wholly-owned subsidiaries: BakBone Software, Inc., BakBone Software KK, and BakBone Software Ltd.

2. Basis of Presentation

The accompanying consolidated balance sheets at December 31, 2008, the consolidated statements of operations for the three and nine months ended December 31, 2008 and 2007, and the consolidated statements of cash flows for the nine months ended December 31, 2008 and 2007, have been prepared by the Company and have not been audited. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended March 31, 2008 included in the Company’s Annual Report on Form 10-K.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, in accordance with the instructions to Form 10-Q and the guidance in Article 10 of Regulation S-X. Accordingly, since they are interim financial statements, the accompanying unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods presented. Interim operating results are not necessarily indicative of operating results for the full year.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company operates and reports using a fiscal year end of March 31.

3. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared on the basis of the most current and best available information and actual results could differ from those estimates.

Revenue Recognition

The Company recognizes software license revenue in accordance with American Institute of Certified Public Accountants, Statements of Position 97-2, Software Revenue Recognition. The Company derives revenues from licensing software and maintenance services as well as professional services from two distinct groups of customers: resellers and OEMs.

The Company licenses its software to its reseller customers under multiple-element arrangements involving a combination of software, post-contract support and/or professional services. Post-contract support includes rights to unspecified upgrades and enhancements and telephone support. Professional services include services related to implementation of the Company’s software as well as training. Software license arrangements with resellers include implicit platform transfer rights (“PTRs”), which allow end users to exchange an original product for a different product or to exchange an original product on one platform for the same product operating on a different platform. The new product and/or different platform is not specified in the arrangement nor is the period of time in which the customer has to exercise this right. As no contract period exists under these arrangements, software-related revenue is recognized ratably over the estimated economic useful life of the software product of four years.

The economic useful life of the software product is estimated to be four years based upon the Company’s version release and end of life data as well as Company practice with respect to supporting the product. The Company weighted the product useful life and its years of sustaining support following the end of life to determine the estimated economic useful life of the software product.

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The Company commences recognizing revenue under these arrangements when all of the following are met:

• Persuasive Evidence of an Arrangement Exists. It is the Company’s practice to require a purchase order from the reseller for arrangements involving resellers. For arrangements involving OEMs, the Company requires a contract signed by both the OEM partner and BakBone and a customer issued purchase order.

• Delivery Has Occurred. The Company delivers software by both physical and electronic means. Both means of delivery transfer title and risk to the customer. Physical delivery terms are generally FOB shipping point. For electronic delivery of the software, delivery is complete when the customer has been provided electronic access to the software. The Company’s arrangements do not generally contain customer acceptance provisions.

• The Vendor’s Fee is Fixed or Determinable. Fees are generally considered fixed and determinable when payment terms are within the Company’s standard credit terms, generally 30 to 60 days.

• Collectability is Probable. Customers must meet collectability requirements pursuant to the Company’s credit policy. For contracts that do not meet the Company’s collectability criteria, fees earned are deferred initially and recognized in accordance with its revenue policy once payment is received from the customer.

In Asia-Pacific, the Company sells certain licenses to value-added reseller (“VAR”) partners who hold the licenses in inventory. For these transactions, the Company commences the ratable recognition of revenue only after it has received evidence of product sell-through from the applicable VAR partner.

Maintenance renewal fees are recognized ratably over the arrangement period, which is typically one year. Professional services may also be sold separately and all fees generated from stand-alone sales of professional services are recognized when the service is complete.

The Company has multiple-element arrangements with OEM customers and one large direct customer under which, in addition to providing software licenses and maintenance services, the Company has a commitment to provide unspecified future software products. As vendor specific objective evidence of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are deferred and recognized ratably over the arrangement period.

The Company’s resellers are not contractually permitted to return products, but the Company accepts returns under certain circumstances. One of the Company’s OEM customers has a specific right of return, whereby the customer is contractually permitted to return products. The Company accounts for potential returns from its resellers and this OEM customer in accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists (“SFAS 48”). The Company uses historical returns experience with these customers to determine potential returns and to establish the appropriate sales returns allowance.

Sales incentives or other consideration given by the Company to its customers are accounted for in accordance with EITF Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) (“EITF 01-9”). In accordance with EITF 01-9, sales incentives and other consideration that are considered adjustments of the selling price of the Company’s products, such as rebates, are generally reflected as reductions to revenue. During the nine months ended December 31, 2007, the Company issued warrant consideration to a reseller of its products, a portion of which vested during the same period. In accordance with EITF 01-9, the fair value of the vested warrants was classified as an expense based on the specific facts and circumstances. This fair value of the vested warrants is included in sales and marketing expense in the consolidated statement of operations for the nine months ended December 31, 2007.

Deferred Revenue

Deferred revenue represents software license, maintenance contract and professional services bookings on sales through both the VAR and OEM channels, net of recognized revenue amounts. A majority of the Company’s sales transactions are deferred and recognized over the applicable period, generally three to five years. The following table provides detail of the change in deferred revenue balances for nine months ended December 31, 2008 (in thousands):

Deferred revenue balance at March 31, 2008	$	96,700
Current period bookings deferred into subsequent periods		35,466
Current period revenue from prior period bookings		(33,228	)
Foreign exchange impact		(3,442	)
Deferred revenue balance at December 31, 2008	$	95,496

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Comprehensive Loss

Comprehensive loss is the total of net loss and all other non-owner changes in shareholders’ deficit. The Company’s comprehensive loss combines net loss, unrealized gain on available-for-sale securities and foreign currency translation adjustment. Comprehensive loss for the three and nine months ended December 31, 2008 and 2007 is as follows:

	Three months ended December 31,						Nine months ended December 31,
	2008			2007			2008			2007
Net income (loss)	$	661		$	(608	)	$	(4,328	)	$	(6,620	)
Unrealized gain on available-for-sale securities		—			35			—			408
Reclassification of unrealized gain on sale of available-for-sale securities		—			(229	)		—			(655	)
Foreign currency translation adjustment		(2,184	)		(729	)		1,701			(1,727	)
Total comprehensive loss	$	(1,523	)	$	(1,531	)	$	(2,627	)	$	(8,594	)

The foreign currency translation adjustment each period represents the effect of the translation of assets and liabilities that are denominated in the functional currencies of foreign subsidiaries to the Company’s reporting currency. During the three months ended December 31, 2008, the foreign currency translation decrease of $2.2 million was related primarily to the translation of the Company’s assets and liabilities in its EMEA subsidiary. During the three months ended December 31, 2008, the balance sheet value of the Company’s EMEA subsidiary decreased as a result of the strengthening of the U.S. dollar against the British pound during the period. During the nine months ended December 31, 2008, the foreign currency translation increase of $1.7 million was primarily related to the translation of the Company’s assets and liabilities in its EMEA and Asia-Pacific subsidiaries. During the nine months ended December 31, 2008, the balance sheet value of the Company’s EMEA subsidiary decreased as a result of the strengthening of the U.S. dollar against the British pound. This decrease in value was partially off-set by an increase in the balance sheet value of the Company’s Asia-Pacific subsidiary as a result of the U.S. dollar weakening against the Japanese Yen.

Net Loss Per Share

In accordance with SFAS No. 128, Earnings Per Share (“SFAS 128”), basic net loss per common share is computed by dividing the net loss attributable to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing the net loss attributable to common shareholders for the period by the weighted average number of common shares and potential common shares outstanding during the period, except where the effect of including potential common shares would be anti-dilutive.

The following table summarizes potential common shares that are not included in the denominator used in the diluted net income (loss) per share calculation because to do so would be anti-dilutive (in thousands):

	Three months ended December 31,		Nine months ended December 31,
	2008	2007	2008	2007
Stock options	5,737	5,738	5,737	5,739
Restricted stock units	105	300	162	300
Warrants	4,505	4,505	4,505	4,199
Series A convertible preferred stock	—	18,000	18,000	18,000
Total anti-dilutive instruments	10,347	28,543	28,404	28,238

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). This new standard provides guidance for using fair value to measure assets and liabilities and information about the extent to which companies’ measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. The provisions of SFAS 157 are effective for financial statements issued for the Company’s fiscal 2009. In February 2008, the FASB issued FSP FAS No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), which amends SFAS 157 to delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, FSP 157-2 defers the effective date of SFAS 157 to the Company’s fiscal 2010. The Company adopted this standard for financial assets and liabilities in the current year without any material impact to its consolidated financial statements. The Company is currently evaluating the impact that SFAS 157-2 will have on its consolidated financial statements and disclosures when it is applied to non-financial assets and non-financial liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of fiscal year 2010.

8

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which replaces FASB Statement No. 141, Business Combinations (“SFAS 141”). SFAS 141R expands the definition of a business combination and requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. SFAS 141R also requires that all assets, liabilities, contingent considerations, and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, SFAS 141R requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. SFAS 141R is effective for all business combinations consummated on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (our fiscal 2010). SFAS 141R could have a material impact on any business combinations entered into in fiscal 2010 or future periods.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. In addition, SFAS 160 provides reporting requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008 (or the Company’s fiscal year 2010). SFAS 160 could have a material impact on any noncontrolling interests transactions consummated in fiscal 2010 or future periods.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. This change is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and U.S. GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, which will be the Company’s fiscal year 2010. The requirements for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 could have a material impact on the useful life determination of any intangible asset acquisitions completed in fiscal 2010 or future periods.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). This statement identifies the sources of accounting principles and framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 was effective November 15, 2008. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

4. Commitments and Contingencies

In the normal course of business, the Company may be involved in various claims, negotiations and legal actions; however, as of December 31, 2008, the Company is not party to any litigation that is expected to have a material effect on the Company’s financial position, results of operations or cash flows.

5. Shareholders’ Deficit

Amendment to Restricted Stock Unit Agreement

In April 2006, the Company granted 300,000 restricted stock units to an executive officer. The restricted stock units vest over a four year period, with 50% vesting on the second anniversary of the grant date and 25% vesting on each of the third and fourth anniversaries of the grant date. The restricted stock unit award contains a cash settlement feature which obligates the Company to settle the award in cash in the event that certain specified criteria are not met on the vest dates.

In April 2008, the Company entered into an amendment to the restricted stock unit award agreement. The amendment provides for the settlement of the first vesting tranche of the restricted stock unit award in a cash amount sufficient to satisfy the expected tax obligation of the grantee, with the residual value of the award to be settled in shares. Further, under the amendment, if the contingent cash-settlement conditions contained in the restricted stock unit award are not met on the vest dates of the second and third tranches of the award, these tranches will be settled in an amount of cash sufficient to satisfy the expected tax obligation of the grantee, with the residual value of the award to be settled in shares. Otherwise, the second and third tranches will be settled entirely in shares. The Company accounted for the amendment to the original award on the date of the modification by reclassifying the portion of the award that no longer contained a contingent cash-settlement feature from liability to equity.

9

During the nine months ended December 31, 2008, 150,000 restricted stock units vested pursuant to the vesting conditions of the amended award. In connection with the vesting of the restricted stock units, the Company issued 90,435 shares. The remaining 59,565 restricted stock units were settled in cash pursuant to the contingent cash-settlement conditions of the amended award. A summary of the change in restricted stock unit awards during the nine months ended December 31, 2008 is as follows:

	Number of shares
Unvested at March 31, 2008	300,000
Awarded	—
Vested	(150,000	)
Forfeited	—
Unvested at December 31, 2008	150,000

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note About Forward-Looking Statements

This Quarterly Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. We use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” variations of such words, and similar expressions to identify forward-looking statements. In addition, statements that refer to projections of earnings, revenue, costs or other financial items; anticipated growth and trends in our business or key markets; future growth and revenues from our products; anticipated performance of products or services; plans, objectives and strategies for future operations; and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Form 10-Q. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including, without limitation, the disclosures, made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and the audited consolidated financial statements and related notes included in our Form 10-K for the fiscal year ended March 31, 2008. Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to: the success of our efforts to have the cease trade orders currently in effect in certain Canadian jurisdictions lifted; the deteriorating economic and market conditions that lead to reduced spending on information technology products; competition in our target markets; potential capital needs; management of future growth and expansion; the development, implementation and execution of our Integrated Data Protection strategic vision; risk of third-party claims of infringement; protection of proprietary information; customer acceptance of our existing and newly introduced products and fee structures; the success of our brand development efforts; risks associated with strategic alliances; reliance on distribution channels; product concentration; the need to develop new and enhanced products; potential product defects; our ability to hire and retain qualified employees and key management personnel; risks associated with changes in domestic and international market conditions and the entry into and development of international markets for our products; and other factors identified elsewhere in this Quarterly Report and in our most recent reports on Forms 10-K and 8-K. We undertake no obligation to revise or update any forward-looking statements for any reason.

Overview

We are a global provider of software-based, data protection solutions that enable the effective backup, recovery and overall availability of business critical data and information. Our NetVault portfolio of products allows organizations to efficiently and cost-effectively protect data within heterogeneous computing and storage environments. Our products are designed to be flexible and easy to install, use, maintain and support, while providing our end users with what we believe is a substantially lower overall total cost of ownership than competitive products. We have also designed our products to be modular and to work within an open standards environment, allowing the NetVault product portfolio to integrate easily with our end users’ information technology infrastructure and scales as our end users’ data protection requirements evolve. We believe the NetVault solutions are well positioned to satisfy the needs of organizations seeking affordable enterprise, multi-platform data protection and availability solutions.

We primarily market and sell the complete NetVault product portfolio through an indirect global sales channel comprised of storage-focused resellers, distributors (collectively referred to as “VARs”) and original equipment manufacturers, or OEMs. Our sales teams engage in the selling of solutions with end user customers and provide them with multiple channels to most efficiently facilitate purchase of the required solution. Our end users consist of domestic and international businesses and organizations of all sizes and across numerous industries, as well as foreign and domestic government agencies and educational institutions. We currently operate in a single business segment, which is the NetVault product line, and have operations in three primary geographic regions: North America, Asia-Pacific, and EMEA, through three of our respective wholly-owned subsidiaries: BakBone Software, Inc., BakBone Software KK, and BakBone Software Ltd.

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The following table summarizes consolidated revenues and revenues of each region on an absolute dollar basis and as a percentage of total consolidated revenues (in thousands):

	Three months ended December 31,						Nine months ended December 31,
	2008			2007			2008			2007
Consolidated revenues, net	$	14,348		$	13,049		$	41,606		$	37,146
North America		5,518			5,019			16,025			14,824
As a percentage of consolidated revenues		39	%		38	%		39	%		40	%
Asia-Pacific		5,364			4,280			14,754			11,670
As a percentage of consolidated revenues		37	%		33	%		35	%		31	%
EMEA		3,466			3,750			10,827			10,652
As a percentage of consolidated revenues		24	%		29	%		26	%		29	%

In addition, we had consolidated deferred revenue balances as follows (in thousands):

	As of December 31, 2008		As of March 31, 2008
Consolidated deferred revenue	$	95,496	$	96,700

We generate revenues primarily through a combination of software licenses and related maintenance contracts. We generally offer non-exclusive, perpetual software licenses through our channel partners to end users and do not offer term-based software licenses. Maintenance contracts generally cover a period of one year, and after contract expiration, our customers have the right to purchase maintenance contract renewals, which generally cover a period of one year.

We license our software to customers through our channel partners in arrangements under which they purchase a combination of software, post-contract support and/or professional services, which we refer to as multiple-element arrangements. Post-contract support includes rights to unspecified upgrades and enhancements and telephone support. Professional services include services related to implementation of our software as well as training. While not provided for in our licensing arrangements, we have historically provided our end customers with platform transfer rights (“PTRs”), which allow the customer to exchange an original product for a different product or to exchange an original product operating on one platform for the same product operating on a different platform. Accordingly, for all multiple-element arrangements, we defer the arrangement fees and recognize the fees ratably over the estimated economic useful life of the software product, which has been determined to be four years. We also provide maintenance contract renewals and professional services on a separate, stand-alone basis. Under these arrangements, maintenance contract renewal fees are recognized ratably over the maintenance period, which is generally one year, and professional services fees are recognized at the time the service is rendered.

We have also entered into multiple-element arrangements with certain OEM customers under which, in addition to providing software licenses and maintenance services, we make a commitment to the customer to provide unspecified future software products. As vendor specific objective evidence (“VSOE”) of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are initially deferred and subsequently recognized ratably over the arrangement period.

Although generally our resellers are not permitted to return our products, one of our OEM customers has a contractually permitted right of return. Also, under certain other limited circumstances we do accept returns. We use historical returns experience with these customers to determine potential returns and to establish the appropriate sales returns allowance.

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Portions of our Asia-Pacific revenues are currently denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our product more expensive and, therefore, potentially less competitive in those markets. A majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses. Due to the volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results and we could experience currency losses in the future. We have not previously undertaken hedging transactions to cover currency exposure, and we do not currently intend to engage in hedging activities.

Cost of revenues consists of the direct cost of providing customer support, including payroll and other benefits of staff working in our customer support departments, as well as associated costs of computer equipment, telephone and other general costs necessary to maintain support for our end users. Also included in cost of revenues are third party software license royalties, third party professional service costs and the direct costs of products delivered to customers.

Sales and marketing expenses consist primarily of employee payroll and other benefits, commissions, trade show costs, web advertising and travel costs for our worldwide sales and marketing staff. Commissions are part of our sales personnel compensation package, which is based on the procurement of sales orders and subsequent collection of customer receivables. As we expand our sales and marketing force, we expect sales and marketing expenses to increase.

Research and development expenses consist primarily of salary and related costs for our worldwide engineering staff. We have engineering personnel in our Poole, United Kingdom and San Diego, California offices that are responsible for the development effort of NetVault products and our application plug-in modules.

General and administrative expenses include salaries and benefits for our corporate personnel and other expenses, such as facilities costs and professional services.

As part of the process of preparing our consolidated financial statements, we are required to estimate our provision for income taxes in each of the tax jurisdictions in which we do business. This process involves estimating our actual current tax expense in conjunction with the evaluation and measurement of temporary differences resulting from differing treatment of certain items for tax and financial accounting purposes. These temporary differences result in the establishment of deferred tax assets and liabilities, which are presented on a net basis. We assess on a periodic basis the probability that our net deferred tax assets will be recovered. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, our ability to deduct tax loss carryforwards against future taxable income, and tax planning strategies among the various tax jurisdictions that we do business in when making this assessment. To the extent we believe that recovery is not probable, a valuation allowance is established to reduce deferred tax assets to the amount expected to be realized.

Our provision for income taxes is comprised of federal, state, and foreign income taxes. Our federal, state and foreign income taxes relate to income generated in the various tax jurisdictions in which we do business. We also recognize estimated tax liabilities for any tax positions we have taken which are not more likely than not to be sustained upon examination by the applicable taxing authority. The final payment of the amounts related to these uncertainties may ultimately prove to be less than or greater than our estimate. If this occurs we would record either a benefit or a charge to our income tax provision.

Application of Critical Accounting Policies

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, valuation allowance for deferred tax assets, valuation of goodwill and stock-based compensation expense. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe there are several accounting policies that are critical to understanding our historical and future performance. These policies affect the reported amounts of revenue and other significant areas that involve management’s judgments and estimates. These significant accounting policies are:

• revenue recognition;

• valuation allowance for deferred tax assets;

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• valuation of goodwill; and

• stock-based compensation expense.

These policies, and our procedures related to these policies, are described below.

Revenue Recognition

We recognize software license revenue in accordance with American Institute of Certified Public Accountants, Statements of Position 97-2, Software Revenue Recognition (“SOP 97-2”), and 98-9, Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions (“SOP 98-9”). Our revenue recognition policy is based on complex rules that require us to make significant judgments and estimates. We must determine which portions of our revenue are recognized currently and which portions must be deferred and recognized in future periods. We derive revenues from licensing software and maintenance services, as well as professional services from two distinct groups of customers: resellers and OEMs.

We license our software to our reseller customers under multiple-element arrangements involving a combination of software, post-contract support and/or professional services. Post-contract support includes rights to unspecified upgrades and enhancements and telephone support. Professional services include services related to implementation of our software as well as training. Our software license arrangements with resellers include implicit unspecified platform transform rights (“PTRs”), which allow end users to exchange an original product for a different product or to exchange an original product on one platform for the same product operating on a different platform. The new product and/or different platform is not specified in the arrangement nor is the period of time in which the customer has to exercise this right. As no contract period exists under these sales arrangements, all software-related revenue is recognized ratably over the estimated economic useful life of the software product. The estimated economic useful life of the software product is four years. This useful life was established by reviewing general industry-wide technology life cycle periods, our version release and end of life data, as well as published company policies with respect to sustaining support.

We commence recognizing revenue under these arrangements when all of the following are met:

• Persuasive Evidence of an Arrangement Exists. It is our practice to require a purchase order signed by the reseller customer for arrangements involving resellers. For arrangements involving OEMs, we require a contract signed by both the OEM customer and BakBone and a customer issued purchase order.

• Delivery Has Occurred. We deliver software by both physical and electronic means. Both means of delivery transfer title and risk to the customer. Physical delivery terms are generally FOB shipping point. For electronic delivery of the software, delivery is complete when the customer has been provided electronic access to the software. Our arrangements do not generally contain customer acceptance provisions.

• The Vendor’s Fee is Fixed or Determinable. Fees are generally considered fixed and determinable when payment terms are within our standard credit terms, generally 30 to 60 days.

• Collectability is Probable. Customers must meet collectability requirements pursuant to our credit policy. For contracts that do not meet our collectability criteria, fees earned are deferred initially and recognized in accordance with our revenue policy once payment is received from the customer.

In Asia-Pacific, we sell licenses to certain reseller partners who hold the licenses in inventory. For these sales, we commence the recognition of revenue only after we have received evidence of product sell-through from the applicable reseller partner.

Maintenance renewals are sold separately and we recognize maintenance renewal fees ratably over the arrangement period, which is typically one year. Professional services may also be sold separately and all fees generated from stand-alone sales of professional services are recognized when the service is completed.

We have also entered into multiple-element arrangements with OEM customers and one large direct customer under which, in addition to providing software licenses and maintenance services, we make a commitment to the customer to provide unspecified future software products. As VSOE of fair value cannot be determined for the unspecified future software products, all sales amounts procured under these arrangements are initially deferred and subsequently recognized ratably over the arrangement period.

Our resellers are not contractually permitted to return our product, but we accept returns under certain circumstances. One of our OEM customers has a specific right of return, whereby the customer is contractually permitted to return products. We account for potential returns from our resellers and this OEM customer in accordance with SFAS 48. We use historical returns experience with these customers to determine potential returns and to establish the appropriate sales returns allowance.

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Valuation Allowance for Deferred Tax Assets

In preparing our consolidated financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. These differences result in deferred tax assets and liabilities. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in each tax jurisdiction during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to reduce our valuation allowance, which could materially impact our financial position and results of operations.

Valuation of Goodwill

We have recorded goodwill in connection with the acquisitions we have completed in prior periods. In accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), we review our goodwill for impairment as of April 1^st of each fiscal year or when an event or a change in facts and circumstances indicates the fair value of a reporting unit may be below its carrying amount. Significant management judgment is required in assessing the impairment of our goodwill. For segment reporting, we report our results of operations based on a single business segment which consists of our NetVault product line. SFAS 142 defines a reporting unit as an operating segment, or one unit below. For purposes of our annual goodwill impairment analysis, we divide our operating segment into reporting units, which are based on our geographic reporting entities: North America, Asia-Pacific, and EMEA. Events or changes in facts and circumstances that we consider as impairment indicators include but are not limited to the following:

• significant underperformance of our business relative to expected operating results;

• significant adverse economic and industry trends;

• significant decline in our market capitalization for an extended period of time relative to net book value; and

• expectations that a reporting unit will be sold or otherwise disposed.

The annual goodwill impairment test consists of a two-step process as follows:

Step 1. We compare the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying value of each reporting unit is determined by specifically identifying and allocating the assets and liabilities of BakBone to each reporting unit based on headcount, relative revenues, or other methods as deemed appropriate by management. If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and we then perform the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required.

Step 2. If further analysis is required, we compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and its liabilities in a manner similar to a purchase price allocation, to its carrying amount. If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess.

Stock-Based Compensation Expense

Under the provisions of SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”), stock-based compensation cost is estimated at the grant date based upon the fair-value of the award and is recognized as expense using the straight-line amortization method over the requisite service period of the award, which is normally the vesting period. For awards containing liability features, SFAS 123(R) requires that these awards be remeasured at each reporting date to fair-value. We estimate the fair value of stock options and warrants issued to a reseller using the Black-Scholes option pricing model, which requires the input of certain highly subjective assumptions, including expected stock price volatility, expected term and expected forfeiture rates. A small change in the estimates used can result in a relatively large change in the estimated fair-value. We established the assumption for expected stock price volatility based on our historical stock price volatility. The expected term assumption for stock options was developed based on historical experience and projected exercise behavior, while the expected term assumption for the warrant issued to a reseller was based upon the contractual term of the warrant. We estimate forward-looking forfeiture rates based upon our historical forfeiture experience.

For a performance-based stock award, the expense is dependent on the probability of the performance measure being achieved. We utilize forecasts of future performance to assess these probabilities and this assessment requires considerable judgment.

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In December 2004, our common shares were subject to cease trade orders in the Canadian jurisdictions of Alberta, Ontario and British Columbia due to delays in the filing of our financial statements. As a result of these cease trade orders, our Board of Directors has prohibited equity award holders from exercising their awards. Consequently, employees who have left the Company since December 2004 have been prohibited from exercising stock options and non-employees have been prohibited from exercising equity instruments. Therefore, we have entered into exercise extension agreements with certain terminating employees and certain non-employees, whereby the exercise periods of equity awards were extended to a predetermined number of days post-resumption of trading of our stock on an established exchange. Incremental stock-based compensation expense associated with the modifications was calculated using the Black-Scholes option pricing model, as the difference between the pre-modification and post-modification fair values of the equity instruments. These calculations involved the use of significant management judgments, as described above. Compensation expense was recorded in the period of modification for any value measured on the modification date.

Results of Operations

Comparison of Results for the Three Months Ended December 31, 2008 and 2007

Revenues

We define bookings as the gross dollars invoiced through the sale of software licenses, maintenance contracts and professional services. We utilize bookings information as an operations measure, but it is not intended to replace U.S. GAAP accounting. Under the ratable revenue recognition method, license bookings are recognized as revenue over the appropriate period (generally three to five years). In general, variations in revenues period-over-period are affected by the amortization of current and prior period license bookings. Accordingly, we believe that trends in current and historical bookings are key factors in analyzing our operating results.

On a worldwide basis, we sell our NetVault products through two different sales channels: value-added resellers (“VAR”) and original equipment manufacturers and direct customers (“OEM”). VAR revenues are sourced from the sale of software licenses, related maintenance contracts and professional services through the reseller channel. Software licenses sold through the reseller channel do not generally involve customer-specific customization. OEM revenues are sourced from the sale of software licenses, related maintenance contracts and professional services sold through our OEM partners and to direct customers. Software licenses sold through the OEM channel generally involve customer-specific customization and are governed by specifically-negotiated contracts.

The following summarizes consolidated revenues and their percentage changes over the same period of the prior year (dollars in thousands):

	Three months ended December 31,
	2008			2007
Consolidated revenues, net	$	14,348		$	13,049
Increase over same period of prior year		10	%
VAR revenues	$	11,696		$	10,627
Increase over same period of prior year		10	%
OEM revenues	$	2,652		$	2,422
Increase over same period of prior year		10	%

VAR revenues. The following table summarizes VAR revenues by geographic region and their percentage changes over the same period of the prior year (dollars in thousands):

	Three months ended December 31,
	2008			2007
North America	$	3,894		$	3,494
Increase over same period of prior year		11	%
Asia-Pacific	$	4,941		$	3,803
Increase over same period of prior year		30	%
EMEA	$	2,861		$	3,330
(Decrease) over same period of prior year		(14	%)
Consolidated	$	11,696		$	10,627
Increase over same period of prior year		10	%

In North America, VAR revenues increased by $0.4 million during the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increase in revenues was primarily due to increased license and maintenance bookings in prior periods and to increased maintenance renewals in the current period.

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In Asia-Pacific, VAR revenues increased $1.1 million during the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. The increase in revenues was due to increased license and maintenance bookings in prior periods and to increased maintenance bookings in the current period as a result of increase market penetration in Japan, China and Korea.

In EMEA, VAR revenues decreased $0.5 million during the three months ended December 31, 2008 as compared to the three months ended December 31, 2007. During both the current and prior periods, license and maintenance bookings increased. However, during the three months ended December 31, 2008, the British pound weakened significantly against the U.S. dollar causing a decrease in revenue as a result of the translation of revenue amounts from British pounds to U.S. dollars.

OEM revenues. The following table summarizes OEM revenues by geographic region and their percentage changes over the same period of the prior year (dollars in thousands):

	Three months ended December 31,
	2008			2007
North America	$	1,624		$	1,525
Increase over same period of prior year		6	%
Asia-Pacific	$	423		$	477
(Decrease) over same period of prior year		(11	%)
EMEA	$	605		$	420
Increase over same period of prior year		44	%
Consolidated	$	2,652		$	2,422
Increase over same period of prior year		10	%

OEM revenues in North America increased primarily due to an increase in prior period bookings from one of our OEM customers. Excluding this one OEM customer, OEM bookings in North America have remained relatively flat over the past three fiscal years. OEM revenues in EMEA increased primarily due to an increase in both prior and current period bookings related to another one of our OEM customers. OEM revenue in Asia-Pacific decreased as a result of a decrease in prior period OEM bookings over the last several fiscal years.

Bookings. Included below is an informational table summarizing VAR and OEM bookings by geographic region, as well as the percentage changes over the same period of the prior year (dollars in thousands):

	Three months ended December 31,
	2008			2007
North America	$	4,844		$	6,036
(Decrease) over same period of prior year		(20	%)
Asia-Pacific	$	5,570		$	4,831
Increase over same period of prior year		15	%
EMEA	$	5,127		$	4,557
Increase over same period of prior year		13	%
Consolidated	$	15,541		$	15,424
Increase over same period of prior year		1	%

Cost of revenues

Cost of revenues for the three months ended December 31, 2008 and 2007 totaled $1.8 million and $1.5 million, respectively. The increase in cost of revenues during the three months December 31, 2008 was due primarily to increases in payroll expenses and third-party royalties. During the three months ended December 31, 2008, we incurred severance expenses related to a reduction in headcount affected in November 2008 which caused payroll related expenses to increase during the period despite a decrease in headcount.

Sales and marketing expenses

Sales and marketing expenses decreased $0.5 million, or 8%, to $6.4 million for the three months ended December 31, 2008, from $6.9 million for the three months ended December 31, 2007. The decrease was primarily due to a $0.3 million decrease in travel related expenses and a $0.2 million decrease in payroll expenses as a result of a decrease in headcount.

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Research and development expenses

Research and development expenses increased $0.3 million, or 10%, to $2.6 million for the three months ended December 31, 2008, from $2.4 million for the three months ended December 31, 2007. The increase was primarily attributable to a $0.2 million increase in payroll expenses as a result of increased headcount.

General and administrative expenses

General and administrative expenses increased $1.1 million, or 31%, to $4.5 million for the three months ended December 31, 2008, from $3.4 million for the three months ended December 31, 2007. The increase was primarily attributable to a $0.9 million increase in accounting and professional service fees and a $0.3 million increase in payroll expenses. During the three months ended December 31, 2008 we incurred significant accounting and professional service fees related to the audits of our financial statements and the preparation of our fiscal 2008 Annual Report. In addition, during the three months ended December 31, 2008, we incurred severance expenses related to a reduction in headcount affected in November 2008 which caused payroll expenses to increase during the period despite a decrease in headcount.

Realized gain on sale of available-for-sale securities

During the three months ended December 31, 2007, we sold marketable securities which were classified as available-for-sale investments, generating a realized gain of $0.2 million.

Foreign exchange gain (loss), net

During the three months ended December 31, 2008 and 2007, we recorded net foreign exchange gains of $1.8 million and $0.5 million, respectively, related to foreign exchange rate changes that impacted or are expected to impact cash flows. During the three months ended December 31, 2008, we recorded significant foreign exchange gains, primarily related to the impact of the strengthening of the U.S. dollar and Japanese Yen against the British pound on intercompany balances. During the three months ended December 31, 2007, we recorded significant foreign exchange gains, primarily related to the impact of the strengthening of the Japanese Yen against the U.S. dollar and the British pound on intercompany balances.

Provision for income taxes

During the three months ended December 31, 2008 and 2007, we recorded provisions for income taxes of $94,000 and $38,000, respectively. During both periods we recorded tax expense related to income generated in certain tax jurisdictions in which we do business. The increase in the provision for income tax during the three months ended December 31, 2008 was due primarily to the growth of our business in the EMEA and Asia-Pacific regions, where an increase in sales activity lead to income tax obligations in certain jurisdictions.

We have incurred consolidated operating losses during the three month periods ended December 31, 2008 and 2007, and have incurred operating losses in all periods prior to fiscal 2008. Management has determined that it is more likely than not that a tax benefit from such losses will not be realized. Accordingly, we did not record a benefit for income taxes during these periods.

Comparison of Results for the Nine Months Ended December 31, 2008 and 2007

Revenues

The following summarizes consolidated revenues and their percentage changes over the same period of the prior year (dollars in thousands):

	Nine months ended December 31,
	2008			2007
Consolidated revenues, net	$	41,606		$	37,146
Increase over same period of prior year		12	%
VAR revenues	$	34,334		$	29,999
Increase over same period of prior year		14	%
OEM revenues	$	7,272		$	7,147
Increase over same period of prior year		2	%

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VAR revenues. The following table summarizes VAR revenues by geographic region and their percentage changes over the same period of the prior year (dollars in thousands):

	Nine months ended December 31,
	2008			2007
North America	$	11,359		$	10,149
Increase over same period of prior year		12	%
Asia-Pacific	$	13,557		$	10,311
Increase over same period of prior year		31	%
EMEA	$	9,418		$	9,539
(Decrease) over same period of prior year		(1	%)
Consolidated	$	34,334		$	29,999
Increase over same period of prior year		14	%

In North America, VAR revenues increased by $1.2 million during the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007. The increase in revenues was primarily due to increased license and maintenance bookings in prior periods and to increased maintenance bookings in the current period. License bookings decreased during the nine months ended December 31, 2008.

In Asia-Pacific, VAR revenues increased $3.2 million during the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007. The increase in revenues was due to increased license and maintenance bookings in prior periods and to an increase in maintenance bookings in the current period.

In EMEA, VAR revenues decreased by $0.1 million during the nine months ended December 31, 2008 as compared to the nine months ended December 31, 2007. During both the current and prior periods, both license and maintenance bookings increased. However, during the nine months ended December 31, 2008, the British pound weakened significantly against the U.S. dollar causing a decrease in revenue as a result of the translation of revenue amounts from British pounds to U.S. dollars.

OEM revenues. The following table summarizes OEM revenues by geographic region and their percentage changes over the same period of the prior year (dollars in thousands):

	Nine months ended December 31,
	2008			2007
North America	$	4,666		$	4,675
Increase over same period of prior year		—	%
Asia-Pacific	$	1,197		$	1,359
(Decrease) over same period of prior year		(12	%)
EMEA	$	1,409		$	1,113
Increase over same period of prior year		27	%
Consolidated	$	7,272		$	7,147
Increase over same period of prior year		2	%

OEM revenues in North America were flat period over period as bookings in North America have remained relatively flat over the past three fiscal years. OEM revenue in Asia-Pacific decreased as a result of a decrease in prior period bookings over the last several fiscal years. OEM revenues in EMEA increased primarily due to an increase in both prior and current period bookings related to one of our OEM customers.

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Bookings. Included below is an informational table summarizing VAR and OEM bookings by geographic region, as well as the percentage changes over the same period of the prior year (dollars in thousands):

	Nine months ended December 31,
	2008			2007
North America	$	14,727		$	16,586
(Decrease) over same period of prior year		(11	%)
Asia-Pacific	$	15,058		$	12,968
Increase over same period of prior year		16	%
EMEA	$	14,059		$	12,474
Increase over same period of prior year		13	%
Consolidated	$	43,844		$	42,028
Increase over same period of prior year		4	%

Cost of revenues

Cost of revenues for the nine months ended December 31, 2008 and 2007 totaled $5.4 million and $4.5 million, respectively. The increase in cost of revenues during the nine months December 31, 2008 was due primarily to increases in payroll expenses, third-party professional service expenses and third-party royalties. During the nine months ended December 31, 2008, we incurred severance expenses related to a reduction in headcount affected in November 2008 which caused payroll related expenses to increase during the period despite a decrease in headcount.

Sales and marketing expenses

Sales and marketing expenses decreased $0.9 million, or 4%, to $20.6 million for the nine months ended December 31, 2008, from $21.5 million for the nine months ended December 31, 2007. During the nine months ended December 31, 2007, we recorded stock-based compensation expense of $1.3 million related to a one-time charge for a warrant that was issued to a reseller in connection with a development and licensing arrangement. During the nine months ended December 31, 2008, we also experienced a decrease of $0.3 million in travel related expenses. Partially off-setting these decreases were a $0.6 million increase in payroll expenses and a $0.3 million increase in marketing program activities.

Research and development expenses

Research and development expenses increased $1.0 million, or 14%, to $8.4 million for the nine months ended December 31, 2008, from $7.4 million for the nine months ended December 31, 2007. The increase was primarily attributable to a $1.1 million increase in payroll expenses as a result of increased headcount, which was partially offset by a $0.3 million decrease in expense related to outsourced research and development activities.

General and administrative expenses

General and administrative expenses increased $1.4 million, or 13%, to $12.7 million for the nine months ended December 31, 2008, from $11.3 million for the nine months ended December 31, 2007. The increase was primarily attributable to $1.1 million increase in accounting and professional services fees and a $0.6 million increase in payroll expenses and other employee-related costs. During both the nine months ended December 31, 2008 and 2007 we incurred significant accounting and professional service fees. During the nine months ended December 31, 2008, we incurred accounting and professional service fees related to the preparation of both the fiscal 2006 and 2008 Annual Reports, whereas during the nine months ended December 31, 2007 we only incurred accounting and professional service fees related to the preparation of the fiscal 2006 Annual Report. In addition, during the nine months ended December 31, 2008, we incurred severance expenses related to a reduction in headcount affected in November 2008, which caused payroll expenses to increase during the period despite a decrease in headcount.

Realized gain on sale of available-for-sale securities

During the nine months ended December 31, 2007, we sold marketable securities which were classified as available-for-sale investments, generating a realized gain of $0.7 million.

Foreign exchange (loss) gain, net

During the nine months ended December 31, 2008 and 2007, we recorded net foreign exchange gains of $1.5 million and $0.3 million, respectively, related to foreign exchange rate changes that impacted or are expected to impact cash flows. During the nine months ended December 31, 2008, we recorded foreign exchange gains, primarily related to the impact of the strengthening of the

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U.S. dollar and the Japanese Yen against the British pound on intercompany balances. The Japanese Yen weakened against the U.S. dollar and the British pound in the first quarter of fiscal 2008 and recovered against the same currencies in the second and third quarters of fiscal 2008, resulting in a net foreign exchange gain for the nine months ended December 31, 2007.

Provision for income taxes

During the nine months ended December 31, 2008 and 2007, we recorded provisions for income taxes of $0.2 million and $0.1 million, respectively. During both periods we recorded tax expense related to income generated in certain tax jurisdictions in which we do business. The increase in the provision for income tax during the nine months ended December 31, 2008 was due primarily to the growth of our business in the EMEA and Asia-Pacific regions, where an increase in sales activity lead to income tax obligations in certain jurisdictions.

We have incurred consolidated pre-tax losses during the nine month periods ended December 31, 2008 and 2007, and have incurred operating losses in all periods prior to fiscal 2008. Management has determined that it is more likely than not that a tax benefit from such losses will not be realized. Accordingly, we did not record a benefit for income taxes during these periods.

Liquidity and Capital Resources

As of December 31, 2008, we had $7.5 million of cash and cash equivalents and $32.9 million in negative working capital, or $11.3 million in positive working capital after excluding the current portion of deferred revenue, as compared to $9.5 million of cash and cash equivalents and $30.5 million in negative working capital, or $14.4 million in positive working capital after excluding the current portion of deferred revenue, as of March 31, 2008. Working capital, defined as current assets minus current liabilities, is intended to measure our short-term liquidity, or our ability to pay off short-term liabilities with current assets. Because short-term deferred revenue does not require the future use of current assets, management has excluded the current portion of deferred revenue from the calculation of working capital as an indicator of short-term liquidity. Our cash, combined with our cash flow from operating activities, have been our principal sources of liquidity.

Operating Activities

We generate cash from operations primarily from cash collected on software license and software maintenance contract sales. Net cash used in operating activities was $0.4 million during the nine months ended December 31, 2008, compared to $2.7 million for the nine months ended December 31, 2007. The decrease in net cash used in operating activities during the nine months ended December 31, 2008 was the result of a decrease in net loss as well as an increase in cash collections. During fiscal 2008, we experienced a higher percentage of bookings during the fiscal fourth quarter, which were subsequently collected during the nine months ended December 31, 2008.

Investing Activities

Net cash used in investing activities was $0.7 million for the nine months ended December 31, 2008 as compared to net cash provided by investing activities of $0.1 million for the nine months ended December 31, 2007. Capital expenditures were $0.9 million during the nine months ended December 31, 2008 compared to $0.6 million during the nine months ended December 31, 2007. During the nine months ended December 31, 2008, $0.2 million of our restricted cash balance was released from the related pledged deposit account. During the nine months ended December 31, 2007, we received cash of $0.7 million upon the sale of available-for-sale securities.

Financing Activities

During the nine months ended December 31, 2008 and 2007, net cash used in financing activities of $0.6 million consisted of payments on capital lease and long term debt obligations.

Factors That May Affect Future Financial Condition and Liquidity

Currently our cash commitments include normal recurring trade payables, expense accruals, minimum royalty obligations, debt and operating and capital leases, all of which are currently expected to be funded through existing working capital. Aside from these recurring operating expenses, we expect to incur approximately $0.3 million in capital expenditures through the remainder of fiscal 2009.

During the first three quarters of fiscal 2009, we have experienced slower bookings growth, as compared to prior years, as a result of the deteriorating economic and industry conditions as well as other financial and business factors, many of which are beyond our control. As a result, in November 2008, we implemented cost reduction initiatives including a reduction in headcount, which are expected to reduce our annual operating costs by approximately $5.5 million. We believe that our current cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from the date of the

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filing of this Quarterly Report. We believe that we will have sufficient liquidity to fund our business and meet our contractual obligations over a period beyond the next 12 months. However, we may be required to obtain additional financing in order to fund our continued operations. Due to the tightening of the credit markets, general economic conditions, the cease trade orders currently in effect in certain Canadian jurisdictions, our SEC filing delinquencies and other economic and business factors, such financing may not be available to us on acceptable terms or at all.

Off-Balance Sheet Arrangements

At December 31, 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed elsewhere in this Quarterly Report and in our most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). This new standard provides guidance for using fair value to measure assets and liabilities and information about the extent to which companies’ measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. The provisions of SFAS 157 are effective for financial statements issued for the Company’s fiscal 2009. In February 2008, the FASB issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”), which amends SFAS 157 to delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). For items within its scope, FSP 157-2 defers the effective date of SFAS 157 to the Company’s fiscal 2010. The Company adopted this standard for financial assets and liabilities in the current year without any material impact to its consolidated financial statements. The Company is currently evaluating the impact that SFAS 157-2 will have on its consolidated financial statements and disclosures when it is applied to non-financial assets and non-financial liabilities that are not measured at fair value on a recurring basis beginning in the first quarter of fiscal year 2010.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which replaces FASB Statement No. 141, Business Combinations (“SFAS 141”). SFAS 141R expands the definition of a business combination and requires the fair value of the purchase price of an acquisition, including the issuance of equity securities, to be determined on the acquisition date. SFAS 141R also requires that all assets, liabilities, contingent considerations, and contingencies of an acquired business be recorded at fair value at the acquisition date. In addition, SFAS 141R requires that acquisition costs generally be expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. SFAS 141R is effective for all business combinations consummated on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (or fiscal 2010). SFAS 141R could have a material impact on any business combinations entered into in fiscal 2010 or future periods.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. In addition, SFAS 160 provides reporting requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008 (or the Company’s fiscal year 2010). SFAS 160 could have a material impact on any noncontrolling interests transactions consummated in fiscal 2010 or future periods.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. This change is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and U.S. GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, which will be the Company’s fiscal year 2010. The requirements for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP 142-3 could have a material impact on the useful life determination of any intangible asset acquisitions completed in fiscal 2010 or future periods.

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In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). This statement identifies the sources of accounting principles and framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 was effective November 15, 2008. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our consolidated financial statements through adverse changes in financial market prices and rates. Our market risk exposure results primarily from fluctuations in foreign exchange rates. We do not have a significant market risk exposure to fluctuations in interest rates. International revenues represented 62% of our total revenue for each of the three months ended December 31, 2008 and 2007, and 61% and 60% of our total revenues for the nine months ended December 31, 2008 and 2007, respectively. Portions of our Asia-Pacific revenues are currently denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and, therefore, potentially less competitive in those markets. A majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the substantial volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results. We could experience currency losses in the future. We have not previously undertaken hedging transactions to cover currency exposure.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2008. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2008, our disclosure controls and procedures were not effective because of the existence of material weaknesses, as described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

Changes in Internal Control over Financial Reporting

During fiscal 2007 and 2008 and the first three quarters of fiscal 2009 we implemented several remediation measures in response to the material weaknesses described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008. These remediation measures are described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008. Due to the demands on our personnel related to the restatement process and the process of preparing our delinquent filings we have been unable to monitor these remediation measures to ensure that they were in place for a sufficient period of time and operating effectively. As of the date of this Quarterly Report, our remediation efforts continue related to each of these material weaknesses. Significant resources continue to be required in order to fully address these material weaknesses. These material weaknesses will not be considered remediated until (1) the new processes are designed, appropriately controlled and implemented for a sufficient period of time and (2) we have sufficient evidence that the new processes and related controls are operating effectively.

Other than our ongoing remediation efforts described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2008, there have been no changes in our internal control over financial reporting that occurred during the third quarter of fiscal year 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance of achieving the desired control objectives. As a result, any controls and procedures, no matter how well designed and operated, may not prevent or detect misstatements. Internal control over financial reporting also can be circumvented by collusion or improper management override of controls. Projections of any evaluation of control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in litigation and claims which arise from time to time in the normal course of business. In the opinion of management, any liability that may arise from such contingencies would not have a significant adverse effect on our consolidated financial position, results of operations or liquidity.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors described below, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Risks Related to Our SEC Filing Delinquencies

We experienced, significant delays in the filing of our periodic reports with the SEC, which have had and could have a material adverse effect on us.

We experienced significant delays in filing our restated financial statements for fiscal 2004 and our financial statements for subsequent fiscal periods through the filing of our Quarterly Report for the period ended September 30, 2008. As a result of the delays in the filing of our periodic reports, we have been subject to restrictions regarding the registration and issuance of our securities under U.S. federal, state, and Canadian securities laws. In addition, our ability to raise capital through debt and equity offerings is subject to our timely filing of periodic reports with the SEC, and our filing delinquencies have effectively precluded us from raising capital through debt and equity offerings. Our failure to file certain historic periodic reports could also result in the SEC bringing an enforcement action against us. Further, we continue to be restricted under state and Canadian laws from issuing equity awards to our employees or allowing them to exercise their outstanding stock options, which could impact our ability to attract and retain employees.

We have identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

As described in Item 4 of Part I of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended March 31, 2008, we have in the past identified material weaknesses in our internal controls and procedures, including in connection with the preparation of our financial statements for the period ended December 31, 2008. As a result, we have concluded that our disclosure controls and procedures were not effective as of the end of the period. We have implemented, and continue to implement, actions to address these weaknesses and to enhance the reliability and effectiveness of our internal controls and operations; however, the measures we have taken to date or any future measures may not remediate the material weaknesses discussed in this Quarterly Report as we expect.

In addition, we may not be able to maintain adequate controls over our financial processes and reporting in the future. We may discover additional material weaknesses, which we may not successfully remediate on a timely basis or at all. Any failure to remediate any material weaknesses identified by us or to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock. Moreover, we will be required to expend significant resources to design, implement and maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. The costs associated with external consultants, as well as internal resources are significant and difficult to predict. As a result of these matters, our business, results of operations, financial condition and cash flows could be adversely affected.

The restatement of our historical financial statements and the independent investigation of our historical business practices surrounding revenue recognition have had, and could continue to have, an adverse effect on us.

In December 2004, we determined that our fiscal 2004 and prior period consolidated financial statements required restatement. From January 2005 through May 2006, we performed an extensive review of our business processes in connection with the restatement and in April 2006, our board of directors determined that an independent investigation with respect to our historical business practices surrounding revenue recognition should be directed by a special committee of the board of directors. The internal investigation concluded that we improperly recognized revenue in previous periods. The internal investigation was completed in September 2006. The independent investigation and restatement activities required us to expend significant management time and incur significant accounting and other expenses. We may in the future identify similar adjustments to prior period financial information. Adjustments that may be identified in the future could require further restatement of our financial statements. We could continue to incur additional costs in the future, which would adversely affect our business, results of operations, financial condition and cash flows.

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Risks Related to Our Business and Industry

Our business could be harmed by the deteriorating general economic and market conditions that lead to reduced spending on information technology products.

As our business has expanded globally, we have become increasingly subject to the risks arising from adverse changes in domestic and global economic and political conditions. Economic growth in the United States and other countries has slowed during the second half of calendar year 2008, which has caused our customers to delay or reduce information technology purchases. If economic growth in the United States and other countries continues to slow, customers may continue to delay or further reduce information technology purchases. This could result in additional reductions in sales of our products, longer sales cycles, slower adoption of new technologies and increased price competition. In addition, weakness in the end user market could negatively affect the cash flow of our resellers and customers who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure and cause a decrease in operating cash flows. Also, if our resellers experience excessive financial difficulties and/or insolvency, and we are unable to successfully transition end users to purchase our product from other resellers or directly from us, our sales could decline significantly. Any of these events would likely harm our business, results of operations and financial condition.

Our future capital needs are uncertain and our ability to access additional financing may be negatively impacted by the volatility and disruption of the capital and credit markets and adverse changes in the global economy.

Our capital requirements in the future will depend on many factors, including:

• acceptance of and demand for our NetVault products;

• the extent to which we invest in new technology and product development;

• the costs of developing new products, services or technologies;

• the number and timing of acquisitions and other strategic transactions; and

• the costs associated with the growth of our business, if any.

We intend to finance our operations and any growth of our business with existing cash and any cash flow from operations and we believe that our existing cash and anticipated cash flows from operations will be sufficient to meet our operating and capital requirements through at least the next 12 months from the date of the filing of this Quarterly Report. However, if adverse global economic conditions persist or worsen, we could experience a decrease in cash from operations attributable to reduced demand for our products and services and as a result, we may be required to obtain additional financing in order to fund our continued operations. Due to the existing uncertainty in the equity markets including debt, private equity and venture capital and traditional bank lending markets, as well as our failure to file our SEC reports on a timely basis, access to additional debt or equity may not be available to us on acceptable terms or at all. If we cannot raise funds on acceptable terms when necessary, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. Furthermore, if we issue equity or convertible debt securities to raise additional funds, our existing shareholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing shareholders. If we incur additional debt, it would increase our leverage relative to our earnings or to our equity capitalization.

We have incurred substantial net losses since inception, and we may not be able to achieve or maintain profitability or positive cash flow.

We have incurred operating and net losses since the inception of our operations in March 2000. Our net losses were $13.0 million and $7.7 million for the fiscal years ended March 31, 2007 and 2008, respectively. As of March 31, 2008, our accumulated deficit was $226.5 million. We may not able to achieve positive cash flow from operations in future periods. If we cannot achieve and sustain operating profitability, we may not be able to meet our working capital requirements, which would have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our short operating history makes it difficult to evaluate our business and prospects.

We began our business with the acquisition of NetVault Holdings, Ltd. in March 2000, and expanded our product offering with the acquisition of Constant Data Inc. in November 2005. As a company with a relatively short operating history, we face risks and uncertainties frequently encountered by companies in new and rapidly evolving markets, including risks related to:

• the implementation and successful execution of our business strategy and our sales and marketing initiatives;

• our ability to successfully integrate newly acquired technologies;

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• retention of current value-added resellers, distributors and OEMs and attraction of new value-added resellers, distributors and OEMs;

• our ability to respond effectively to competitive and technological developments related to our product and technologies;

• our ability to attract, retain and motivate qualified personnel; and

• our ability to effectively achieve or manage our anticipated growth.

If we fail to address any of these risks and uncertainties successfully, our business, results of operations, financial condition, and cash flows may be materially adversely affected.

Competition in our target markets could reduce our sales.

We operate in a segment of the intensely competitive storage management software market. This market is characterized by rapidly changing technology and evolving standards. We have a number of competitors that vary in size and scope and breadth of products offered. Many of our competitors have greater financial resources than we do in the areas of sales, marketing, branding and product development, and we expect to face additional competition from these competitors in the future. Our current competitors include, among others, Symantec Corporation, EMC Corporation, IBM’s Tivoli division, CA Inc. and CommVault Systems, Inc. Some of these companies compete against us by offering a full suite of storage management tools, including software that addresses data protection. We also face competition from a number of smaller companies who, like us, focus solely or primarily on the data protection software market. Furthermore, our OEM partners, who do not currently compete with us, could decide to compete with us by offering their own data protection solutions that exclude our software, and other storage equipment vendors may enter our market either through acquisition of competing technologies or products, or through development of their own data protection software solutions.

Our existing and future competitors could introduce products with superior features, scalability and functionality at lower prices than our product. Most of our competitors provide broad suites of storage management software solutions and thus could gain market share by bundling existing or new data protection products with other more established storage products or by acquiring or forming strategic alliances with our other competitors. If our competitors are successful in gaining market share, our business, results of operations, financial condition and cash flows could be adversely affected.

Our future revenues depend upon continued market acceptance of our NetVault product portfolio.

We derive substantially all of our revenues from our NetVault product portfolio, and we expect this will continue for the foreseeable future. If the market does not continue to accept these products, our revenues will decline significantly, and this would negatively affect our results of operations, financial condition and cash flows. Factors that may affect the market acceptance of our NetVault products include the performance, price and total cost of ownership of our products, and the availability, functionality and price of competing products and technologies. Many of these factors are beyond our control.

We are dependent on certain key customers.

We have derived, and may continue to derive, a significant portion of our revenues from a limited number of OEM customers. If any of our largest OEM customers were to reduce purchases from us or we are unable to attract new OEM customers, our business would be adversely affected. In addition, we do not have contracts with our key customers that require such customers to make any minimum purchases from us. Therefore, we cannot be sure that these customers will continue to purchase our product at current levels, or at all. As a result, a significant customer in one period may decide not to purchase our product in a subsequent period, which would have an adverse impact on our revenues, results of operations, financial condition and cash flows. During the periods ended December 31, 2007 and 2008, we had no customers that comprised more than 10% of our consolidated revenues.

We rely on indirect sales channels such as value-added resellers, distributors and OEMs, and this makes it difficult for us to predict our revenues.

We rely, and will continue to rely, on our indirect sales channel for the marketing and distribution of our products. Our agreements with value-added resellers and distributors do not contain exclusivity provisions and in most cases may be terminated by either party without cause and with limited or no notice. Many of our resellers also carry other product lines that are competitive with ours. These resellers may not give a high priority to the marketing of our products. They may give a higher priority to other products, including the products of competitors, or may decide not to continue to carry our products. In addition, we may not be able to retain our current resellers or successfully recruit new resellers. Any such changes in our distribution channels could seriously harm our business, operating results and financial condition.

Our strategy also involves developing significant partnerships with key hardware and software providers to integrate NetVault products into their offerings to support more robust data protection solutions. We may fail to implement this strategy successfully. We are currently investing, and will continue to invest, resources to develop this channel. Such investments, if not successful, could seriously harm our operating margins. Before we can sell our products to an OEM, generally we must engage in a lengthy sales cycle

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and develop a version of our software customized for and integrated with the hardware or software product of the OEM. This process, which can take up to 12 months or more, requires the commitment of OEM personnel and resources, and we compete with other suppliers for these resources. Any delays in completing this process or any failure to timely develop a customized and integrated version of our software for an OEM would adversely affect our ability to sell our products.

Sales of our products through our OEMs depend on the success of our OEMs in developing and effectively marketing new products, applications and product enhancements on a timely and cost-effective basis that meet changing customer needs and respond to emerging industry standards and other technological changes. Our reliance on OEMs exposes us to additional risks. If our OEMs do not meet these challenges our revenues may suffer. The OEMs we partner with may incorporate the technologies of other companies in addition to, or to the exclusion of, our technologies, and are not obligated to purchase our product from us, and they may not continue to include our products with their products. In addition, we have no control over the shipping dates or volumes of products the OEMs ship. Our OEM customers may compete with one another. If one of our OEM customers views the products we have developed for another OEM as competing with its products, it might decide to stop doing business with us, which could adversely affect our business, results of operations, financial condition and cash flows. The inability to recruit, or the loss of, important OEMs could seriously harm our business, operating results and financial condition. Finally, should one of our OEM partners create or acquire competitive products to ours, our OEM revenues would likely decline.

We may make acquisitions or investments that are not successful and that adversely affect our ongoing operations.

We have in the past and may in the future acquire and make investments in companies, products or technologies that we believe complement or expand our existing business and assist us in quickly bringing new products to market. However, we have limited experience in making acquisitions and investments. As a result, our ability to identify and evaluate prospects, complete acquisitions and properly manage the integration of businesses is relatively unproven. Failure to properly evaluate and execute acquisitions or investments may have a material adverse effect on our business, results of operations, financial condition and cash flows.

In making or attempting to make acquisitions or investments, we face a number of risks, including risks related to:

• identifying suitable candidates, performing appropriate due diligence, identifying potential liabilities and negotiating acceptable terms;

• reducing our working capital and hindering our ability to expand or maintain our business, if we make acquisitions using cash;

• the potential distraction of our management, diversion of our resources and disruption of our business;

• retaining and motivating key employees of the acquired companies;

• managing operations that are distant from our current headquarters and operation locations;

• entering into geographic markets in which we have little or no prior experience;

• competing for acquisition opportunities with competitors that are larger than we are or have greater financial and other resources than we have;

• accurately forecasting the financial impact of a transaction;

• assuming liabilities of acquired companies, including existing or potential litigation related to the operation of the business prior to the acquisition;

• maintaining good relations with the customers and suppliers of the acquired company; and

• effectively integrating acquired companies and achieving expected synergies.

In addition, any acquired businesses, products or technologies may not generate sufficient revenue and net income to offset the associated costs of such acquisitions, and such acquisitions could result in other adverse effects. Moreover, from time to time, we may enter into negotiations for the acquisition of businesses, products or technologies but be unable or unwilling to consummate the acquisitions under consideration. This could cause significant diversion of managerial attention and resources.

Failure to manage our growth could adversely affect our business.

We expect to continue to expand our operations domestically and internationally. If we fail to manage our expansion effectively, our business and operating results could be adversely affected, which could cause the market price of our stock to fall. Any expansion in our operations and staff could place a significant strain on our management systems and resources. If we fail to manage any future expansion, we may experience higher operating expenses. To manage this expansion effectively we must continue to:

• improve our financial and management controls, reporting systems and procedures;

• hire and integrate new employees;

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• manage our relationship with our resellers, distributors and OEMs;

• control expenses; and

• expand geographically dispersed operations.

We may need to commit a significant amount of funds to obtain additional systems and facilities to accommodate any current and future anticipated expansion. To the extent any expansion does not occur or occurs more slowly than we expect, we may not be able to reduce expenses to the same degree. Any failure to manage our expansion effectively could adversely affect our business, results of operations, financial condition and cash flows.

Because our intellectual property is critical to the success of our business, our results of operations may suffer if we are unable to adequately protect or enforce our intellectual property rights.

Our proprietary technologies are crucial to our success and ability to compete. We rely primarily on a combination of copyrights, trade secret laws, contractual provisions and trademarks to establish and protect our intellectual property rights in our proprietary technologies. Sometimes our products are licensed under “shrink wrap” license agreements that do not require a physical signature by the end user licensee and therefore may be unenforceable under the laws of some jurisdictions. We presently have two patents issued and we continually invest resources to gain additional patent protection for our proprietary technology. We may not be issued additional patents in the future, and the benefit we may derive from any patents, if and when issued, may equal or exceed the costs of obtaining such patents.

Our general practice is to enter into confidentiality or license agreements with employees, consultants and customers and seek to control access to and distribution of our source code, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our product or to obtain and use information that we regard as proprietary. Policing unauthorized use of our proprietary information is difficult. Other parties also may independently develop or otherwise acquire equivalent or superior technology. In addition, the laws in some countries in which our product is or may be developed, manufactured or sold may not protect our intellectual property rights to the same extent as the laws of the United States, or at all. Our failure to protect our intellectual property rights could result in increased competition and therefore reduce our market share, which would have a material adverse effect on our business, results of operations, financial condition and cash flows.

We may become involved in costly and lengthy patent infringement or intellectual property litigation which could seriously harm our business.

In recent years, there has been significant litigation in the United States and in foreign countries involving patents and other intellectual property rights. We may become party to litigation in the future as a result of an alleged infringement of others’ intellectual property. From time to time, we receive inquiries from other companies concerning whether we used their proprietary information or technology. It also is possible that patent holders will assert patent rights which apply broadly to our industry, and that such patent rights, if valid, may apply to our product or technology. Any claims that we improperly use another party’s proprietary information or technology or that we infringe another party’s intellectual property, with or without merit, could adversely affect or delay sales of our product, result in costly and time-consuming litigation, divert our technical and management personnel, or require us to develop non-infringing technology or enter into royalty or licensing arrangements, any of which could adversely affect our business. We cannot be certain that the necessary licenses will be available or that they can be obtained on commercially reasonable terms. If we were to fail to obtain such royalty or licensing agreements in a timely manner or on reasonable terms, our business, results of operations, financial condition and cash flows could be materially adversely affected.

Our foreign operations create special challenges that could adversely affect our results of operations.

We have significant operations outside of the United States, including a significant portion of our engineering and sales operations, and we generate a significant portion of our revenues from sales outside the United States. It is our intention to expand our international operations in order to increase our revenues from sales outside the United States and to continue to take advantage of lower costs associated with software development outside the United States. As of January 23, 3009, we had 77 employees in EMEA and 68 employees in the Asia-Pacific region out of 264 total employees. Our foreign operations and revenues are subject to a number of risks, including:

• potential loss of proprietary information due to piracy, misappropriation, or weaker intellectual property protection laws or weaker enforcement of such laws;

• imposition of foreign laws and other governmental controls, including trade restrictions, as well as the burdens of complying with a wide variety of multiple local, country and regional laws;

• unexpected domestic and international political or regulatory changes;

• fluctuations in currency exchange rates and general economic instability;

• lack of acceptance of localized products, if any, in foreign countries;

• longer negotiation and accounts receivable payment cycles;

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• potentially adverse tax consequences, including restrictions on the repatriation of earnings;

• difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations; and

• difficulties in ensuring that our subsidiaries maintain sufficient internal control over financial reporting in order to produce financial statements in compliance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Our continued growth will require further expansion of our international operations. To expand international operations successfully, we must establish additional foreign operations, hire and retain additional personnel and recruit additional international resellers, all of which will require significant management attention and financial resources. If we fail to further expand our international operations and revenues, we may not achieve our anticipated growth.

A majority of our international business is presently conducted in currencies other than the U.S. dollar. Foreign currency transaction gains and losses arising from normal business operations are credited to or charged against earnings in the period incurred. As a result, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause currency transaction gains and losses, which we have experienced in the past and continue to experience. Due to the substantial volatility of currency exchange rates, among other factors, we cannot predict the effect of exchange rate fluctuations upon future operating results and we may experience currency losses. Portions of our Asia-Pacific revenues are currently denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and, therefore, potentially less competitive in those markets. We have not previously undertaken hedging transactions to cover currency exposure, and we do not currently intend to engage in hedging activities. As a result, our results of operations, financial condition and cash flows could be adversely affected by such exchange rate fluctuations.

Our success depends on our ability to keep pace with rapid technological developments in the storage industry.

Our future success depends, in part, on our ability to address the rapidly changing needs of organizations by developing and introducing new product updates and features on a timely basis. To achieve this objective we must extend the operation of our products to new platforms and keep pace with technological developments and emerging industry standards. To achieve broad acceptance of our software, we must obtain certifications from hardware vendors approving our software for use as a data protection solution on their platforms. This process requires continual testing and development, and we must invest significant technical resources in adapting our products to the changing hardware specifications. If we are unsuccessful in obtaining new certifications, the market for our software may be limited. Moreover, software products typically have a limited life cycle, and it is difficult to estimate when they will become obsolete. We must therefore continually develop and introduce innovative products and/or upgraded versions of our existing products before the current software has completed its life cycle. Our failure to do so may result in our inability to achieve and maintain profitability.

Our products may contain significant defects, which may result in liability and/or decreased sales.

Software products frequently contain errors or failures, especially when first introduced or when new versions are released. Despite our best efforts to test our products, we may experience significant errors or failures in our products, or software may not work with other hardware or software as expected, which could delay the development or release of new products or new versions of our products and adversely affect market acceptance of our products. End user customers use our products for applications that are critical to their businesses, and they have a greater sensitivity to product defects than the market for other software products generally. Our end users and distribution partners may claim that we are responsible for damages to the extent they are harmed by any failure of our products.

If we were to experience significant delays in the release of new products or new versions of our products, or if customers were dissatisfied with product functionality or performance, we could lose revenue or be subject to liability for service or warranty costs, and our business, results of operations, financial condition and cash flows could be adversely affected.

Our success depends on retaining key personnel, including our executive officers, and hiring and retaining other qualified employees.

Our future growth and success depends on the continued contributions of our senior management, as well as our ability to hire and retain other key engineering, sales and marketing and operations personnel as needed. If we are unable to hire and retain qualified employees, our business and operating results may be adversely affected. We need to hire and retain qualified personnel to support the planned expansion of our business and to meet the anticipated increase in customer demand for our products and services, and we may not be able to do so. All of our employees are free to terminate their employment with us at any time. Competition for people with the skills we require is intense, particularly in the San Diego area where our headquarters are located, and the high cost of living in this area makes our recruiting and compensation costs higher. As a result, we expect to continue to experience increases in compensation costs.

As a result of our delinquency in filing our periodic reports with the SEC and the cease trade orders currently in effect in certain Canadian jurisdictions, our board of directors has prohibited option holders from exercising stock options and has limited our ability to grant stock options to our employees. These circumstances could make it difficult to attract, retain and motivate employees, which could adversely affect our business, results of operations, financial condition and cash flows.

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We rely upon software licensed from third parties, and if it became unavailable to us, we could be required to modify our software or to acquire a license or right to use alternative technology.

We license and use software owned by third parties in our business, some of which is incorporated into our products. These third party software licenses may not continue to be available to us on acceptable terms. Also, these third parties may from time to time receive claims that they have infringed the intellectual property rights of others, including patent and copyright infringement claims, which may affect our ability to continue licensing this software. Our inability to use any of this third party software could result in shipment delays or other disruptions in our business, which could adversely affect our business, results of operations, financial condition and cash flows.

Because we are a Canadian corporation, certain civil liabilities and judgments against us or our directors by U.S. investors may be unenforceable.

We are incorporated under the laws of Canada and some of our directors are residents of Canada. As a result, it may be difficult for our U.S.-based shareholders to initiate a lawsuit within the United States. It may also be difficult for shareholders to enforce a U.S. judgment in Canada or elsewhere or to succeed in a lawsuit in Canada or elsewhere based only on violations of U.S. securities laws.

Litigation may harm our business or otherwise distract our management.

Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management. For example, we may in the future be subject to class actions, other securities litigation or other proceedings or actions arising in relation to the restatement of our prior period financial statements. Litigation and any potential regulatory proceeding or action may be time consuming, expensive and distracting from the conduct of our business, and the outcome of litigation and any potential regulatory proceeding or action is difficult to predict. The adverse resolution of any specific lawsuit or any potential regulatory proceeding or action could have a material adverse effect on our business, results of operations and financial condition. To the extent expenses incurred in connection with litigation or any potential regulatory proceeding or action (which may include substantial fees of attorneys and other professional advisers and potential obligations to indemnify officers and directors who may be parties to such actions) are not covered by available insurance, such expenses could adversely affect our business, results of operations, financial condition and cash flows.

Risks Related to Ownership of our Common Stock

Our common stock was delisted from the Over-the-Counter Bulletin Board (“OTCBB”) and Toronto Stock Exchange (“TSX”), and as a result, trading of our common stock has become more difficult.

Our common stock was delisted from the OTCBB in February 2005 because of our failure to keep current in filing our periodic reports with the SEC. In addition, our common stock has not traded on the TSX since December 2004, when the Canadian jurisdictions of Ontario, Alberta and British Columbia issued cease trade orders due to delays in the filing of our financial statements. Our common shares were subsequently de-listed from the TSX in May 2006. Since February 2005, trading in our common stock has been conducted on the “Pink Sheets.” Consequently, selling our common stock is more difficult because smaller quantities of shares can be bought and sold, transactions can be delayed and security analyst and news media coverage of us may be unfavorable. These factors could result in lower prices and larger spreads in the bid and ask prices for shares of our common stock as well as lower trading volume. We have submitted an application requesting the revocation of the cease trade orders, but we cannot provide any assurance with regard to when, or if, such application will be approved.

In addition, our stock may be defined as a “penny stock” under Rule 3a51-1 under the Exchange Act. “Penny stocks” are subject to Rule 15g-9, which imposes additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell our common stock and affect the ability of holders to sell their shares of our common stock in the secondary market. To the extent our common stock is subject to the penny stock regulations, the market liquidity for the shares will be adversely affected.

Notwithstanding the filing of this Quarterly Report, we are not fully compliant with our filing requirements with the SEC, and we could be subject to sanctions by the SEC.

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Our bookings, revenues and operating results may fluctuate significantly, which could cause the market price of our stock to fall.

Our operating results have fluctuated in the past and can be expected to fluctuate from time to time in the future. We may experience a shortfall in bookings or revenues in any given quarter in relation to our plans or investor expectations. In addition, if we have a shortfall in bookings or revenues, our efforts to reduce operating expenses in response will likely lag behind such shortfall. Our revenues and bookings, and our licensing revenues and bookings in particular, are difficult to forecast and are likely to fluctuate significantly from quarter-to-quarter due to a number of factors, many of which are outside of our control. Factors that may cause fluctuations in our revenues and bookings include the following:

• timing and magnitude of sales;

• historical sales patterns in the IT industry which often involve customer purchase decisions being made at or near the end of each calendar quarter;

• timing of large enterprise transactions which are typified by long solicitation and decision periods and often remain highly uncertain until the sale is actually completed;

• introduction, timing and market acceptance of new products by us and our competitors;

• rate of growth of Network Attached Storage and Storage Area Network technology deployment;

• rate of adoption and associated growth of the Linux operating system;

• changes in our pricing policies and distribution terms;

• possibility that our customers may defer purchases in anticipation of new products or product updates by us or by our competitors; and

• changes in market demand for IT products in general.

Any deterioration in our operating results, including fluctuations based on any shortfalls in bookings or revenues, could cause the market price of our stock to fall substantially. If our operating results are below the expectations of securities analysts or investors, the market price of our common stock may fall abruptly and significantly.

Our stock price is volatile and your investment could decline in value.

Our stock price has fluctuated significantly in the past and is likely to continue to fluctuate significantly, making it difficult to resell shares when investors want to at prices they find attractive. Factors affecting the trading price of our common stock could include:

• variations in our financial results;

• our restatement of previously reported financial information and delayed filings for subsequent years;

• announcements of innovations, new solutions, strategic alliances or significant agreements by us or by our competitors;

• recruitment or departure of key personnel;

• changes in estimates of our financial results;

• changes in the recommendations of any securities analysts that elect to follow our common stock;

• market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;

• any significant litigation brought against us;

• market conditions in our industry, the industries of our customers and the economy as a whole; and

• sales of substantial amounts of our common stock, or the perception that substantial amounts of our common stock will be sold, by our existing stockholders in the public.

General economic, political and stock market conditions may affect the market price of our common shares, and may cause our stock price to fluctuate in ways unrelated or disproportionate to our operating performance. The stock market is subject to price and volume fluctuations that affect the market prices for companies in general, and small-capitalization, high technology companies in particular, which are often unrelated to the operating performance of these companies. In addition, in the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities, and we may be subject to a heightened risk of securities class action litigation and our restatement of previously published financial information.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

On February 1, 2009, Robert Wright was appointed as our General Counsel and Senior Vice President, effective immediately. In connection with his appointment, on February 9, 2009, we executed an offer letter (the “Offer Letter”), Change in Control Agreement (the “Change in Control Agreement”) and Indemnification Agreement (the “Indemnification Agreement”) with Mr. Wright. The Offer Letter provides, among other things, for the following: (a) a base annual salary of $230,000; (b) eligibility to receive an annual bonus of up to 30% of his base salary based on the achievement of goals and objectives in accordance with our current bonus program, beginning with the 2010 fiscal year; (c) eligibility to participate in our stock incentive program upon approval of our board of directors; (d) if Mr. Wright is terminated other than for cause, death or disability, or if he terminates his employment with us for good reason, other than in connection with a change in control, Mr. Wright is entitled to receive severance payments equal to six months of his base salary conditioned on his execution of a release. If Mr. Wright is terminated without cause or terminates his employment with good reason in connection with a change in control, the terms of the Change in Control Agreement will govern.

Under the terms of Mr. Wright’s Change in Control Agreement, if within 12 months of a change in control of the Company, Mr. Wright is either terminated by us without cause or voluntarily terminates his employment with good reason, Mr. Wright would be entitled to receive: (a) severance payments equal to nine months of his base salary in effect as of the date of termination, payable either in a lump sum or over nine months in accordance with the Company’s regular payroll practices; (b) continuation of healthcare benefits for nine months if the severance payment is payable over nine months in accordance with the Company’s regular payroll practices; and (c) acceleration of vesting of any unvested stock options outstanding at the time of termination. The term “good reason” is defined to mean termination by Mr. Wright following the occurrence of any of the following events without Mr. Wright’s consent: (i) a material and substantial diminution in his responsibilities; (ii) a material reduction in base salary to a level below that in effect at any time within the six months preceding the change in control, provided that an across-the-board reduction in salary of substantially all other individuals in similar positions does not constitute a salary reduction; or (iii) requiring that Mr. Wright be based at any place outside of a 50 mile radius of the location of his employment or his residence prior to the change in control.

The Company has also entered into the Indemnification Agreement with Mr. Wright. The Indemnification Agreement provides that the Company will indemnify Mr. Wright from and against any expenses incurred by him as an officer of the Company to the fullest extent permitted by the Canada Business Corporations Act.

Robert Wright, age 57, joined BakBone on February 1, 2009 as senior vice president and general counsel. From October 2006 through August 2008, Mr. Wright served as senior vice president and general counsel for Skyware Software LLC, a diversified software company specializing in insurance, financial services, utilities, healthcare and enterprise services management. Skyware Software was sold to Oracle, Inc. in July 2008. From November 2002 through September 2006, Mr. Wright held various positions, including general counsel and chief counsel, with SoftBrands, Inc. a publicly traded software company on the American Stock Exchange. Prior to joining SoftBrands, Inc., Mr. Wright spent several years serving in various positions within the software industry. Mr. Wright received his Masters of Business Administration with an emphasis in finance from Texas Tech University, College of Business Administration and holds a J.D. from Texas Tech University, School of Law.

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Item 6. Exhibits

Exhibit Number	Description of Document
3.1(1)	Restated Articles of Continuance of the registrant
3.2	Bylaws, as amended, of the registrant
10.1	Offer Letter, dated February 9, 2009, by and between the registrant and Robert Wright
10.2	Change in Control Letter Agreement, dated February 9, 2009, by and between the registrant and Robert Wright
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Previously filed with the SEC as an exhibit to and incorporated herein by reference from our Annual Report on Form 10-K filed on June 30, 2004.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

	BAKBONE SOFTWARE INCORPORATED
DATE: February 9, 2009	/s/ JAMES R. JOHNSON
	James R. Johnson President and Chief Executive Officer (Principal Executive Officer)
DATE: February 9, 2009	/s/ STEVEN R. MARTIN
	Steven R. Martin Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-3.2

EXHIBIT 3.2

GENERAL BY-LAW

BY-LAW NO. 1

A BY-LAW RELATING GENERALLY TO THE CONDUCT OF THE AFFAIRS OF

BAKBONE SOFTWARE INCORPORATED

(hereinafter called the “Corporation”)

IT IS HEREBY ENACTED as a by-law of the Corporation as follows:

DIVISION ONE

INTERPRETATION

1.01 In the by-laws of the Corporation, unless the context otherwise specifies or requires:

a. “Act” means the Canada Business Corporations Act, as from time to time amended and every statute that may be substituted therefore and, in the case of such substitution, any references in the by-laws of the Corporation to provisions of the Act shall be read as references to the substituted provisions therefore in the new statute or statutes;

b. “appoint” includes “elect” and vice versa;

c. “board” means the board of directors of the Corporation;

d. “by-laws” means this by-law and all other by-laws of the Corporation from time to time in force and effect;

e. “meeting of shareholders” includes an annual or other general meeting of shareholders and a special meeting of shareholders;

f. “Regulations” means the regulations under the Act as published or from time to time amended and every regulation that may be substituted therefore and, in the case of such substitution, any references in the by-laws of the Corporation to provisions of the Regulations shall be read as references to the substituted provisions therefore in the new regulations;

g. “signing officer” means, in relation to any instrument, any person authorized to sign the same on behalf of the Corporation by virtue of section 3.01 of this by-law or by a resolution passed pursuant thereto; and

h. “special meeting of shareholders” means a meeting of any particular class or classes of shareholders and a meeting of all shareholders entitled to vote at any annual meeting of shareholders at which special business is to be transacted.

Save as aforesaid, all terms which are contained in the by-laws of the Corporation and which are defined in the Act or the Regulations shall, unless the context otherwise specifies or requires, have the meanings given to such terms in the Act or the Regulations. Words importing the singular number include the plural and vice versa; the masculine shall include the feminine; and the word “person” shall include an individual, partnership, association, body corporate, body politic, trustee, executor, administrator and legal representative.

Headings used in the by-laws are inserted for reference purposes only and are not to be considered or taken into account in construing the terms or provisions thereof or to be deemed in any way to clarify, modify or explain the effect of any such terms or provisions.

DIVISION TWO

BANKING AND SECURITIES

2.01 Banking Arrangements

The banking business of the Corporation including, without limitation, the borrowing of money and the giving of security therefore, shall be transacted with such banks, trust companies or other bodies corporate or organizations or any other persons as may from time to time be designated by or under the authority of the board. Such banking business or any part thereof shall be transacted under such agreements, instructions and delegations of power as the board may from time to time prescribe or authorize.

2.02 Voting Rights in Other Bodies Corporate

The signing officers of the Corporation may execute and deliver instruments of proxy and arrange for the issuance of voting certificates or other evidence of the right to exercise the voting rights attaching to any securities held by the Corporation. Such instruments, certificates or other evidence shall be in favour of such person or persons as may be determined by the person signing or arranging for them. In addition, the board may direct the manner in which and the person or persons by whom any particular voting rights or class of voting rights may or shall be exercised.

DIVISION THREE

EXECUTION OF INSTRUMENTS

3.01 Authorized Signing Officers

Unless otherwise authorized by the directors, deeds, transfers, assignments, contracts, obligations, certificates and other instruments may be signed on behalf of the Corporation by any two of the president, chairman of the board, managing director, any vice-president, any director, secretary, treasurer, any assistant secretary or any assistant treasurer or any other office created by by-law or by the board. In addition, the board may from time to time direct the manner in which the person or persons by whom any particular instrument or class of instruments may or shall be signed. Any signing officer may affix the corporate seal to any instrument requiring the same, but no instrument is invalid merely because the corporate seal is not affixed thereto.

3.02 Cheques, Drafts and Notes

All cheques, drafts or orders for the payment of money and all notes and acceptances and bills of exchange shall be signed by such officer or person or persons, whether or not officers of the Corporation, and in such manner as the board may from time to time designated by resolution.

DIVISION FOUR

DIRECTORS

4.01 Number and Residency of Directors

The board shall consist of such number of directors as is fixed by the articles, or where the articles specify a variable number, shall consist of such number of directors as is not less than the minimum nor more than the maximum number of directors provided in the articles and as shall be fixed from time to time by resolution of the shareholders. No less than twenty-five percent (25%) of the directors of the Corporation must be resident Canadians.

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4.02 Election and Term

Subject to the articles or a unanimous shareholder agreement, the election of directors shall take place at each annual meeting of shareholders and all of the directors then in office, unless elected for a longer period of time (not to exceed the close of the third (3rd) annual meeting of shareholders following election), shall retire but, if qualified, shall be eligible for re-election. The number of directors to be elected at any such meeting shall, subject to the articles or a unanimous shareholder agreement, be the number of directors then in office, or the number of directors whose terms of office expire at the meeting, as the case may be, except that, if cumulative voting is not required by the articles and the articles otherwise permit, the shareholders may resolve to elect some other number of directors. Where the shareholders adopt an amendment to the articles to increase the number or minimum number of directors, the shareholders may, at the meeting at which they adopt the amendment, elect the additional number of directors authorized by the amendment. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected. If the articles provide for cumulative voting, each director elected by shareholders (but not directors elected or appointed by creditors or employees) ceases to hold office at the annual meeting and each shareholder entitled to vote at an election of directors has the right to cast a number of votes equal to the number of votes attached to the shares held by him multiplied by the number of directors he is entitled to vote for, and he may cast all such votes in favour of one candidate or distribute them among the candidates in any manner. If he has voted for more than one candidate without specifying the distribution among such candidate, he shall be deemed to have divided his votes equally among the candidates for whom he voted.

4.03 Removal of Directors

Subject to the Act and the articles, the shareholders may by ordinary resolution passed at a special meeting remove any director from office, except a director elected by employees or creditors pursuant to the articles or a unanimous shareholder agreement, and the vacancy created by such removal may be filled at the same meeting, failing which it may be filled by the board. However, if the articles provide for cumulative voting, no director shall be removed pursuant to this section where the votes cast against the resolution for his removal would, if cumulatively voted at an election of the full board, be sufficient to elect one or more directors.

4.04 Consent

A person who is elected or appointed a director is not a director unless:

a. he was present at the meeting when he was elected or appointed and did not refuse to act as a director, or

b. if he was not present at the meeting when he was elected or appointed:

i. he consented in writing to act as a director before his election or appointment or within ten (10) days after it, or

ii. he has acted as a director pursuant to the election or appointment.

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4.05 Vacation of Office

A director of the Corporation ceases to hold office when:

a. he dies or resigns;

b. he is removed in accordance with section 109 of the Act; or

c. he becomes disqualified under subsection 105(1) of the Act.

4.06 Committee of Directors

The directors may appoint from among their number a managing director, who must be a resident Canadian, or a committee of directors, however designated, and subject to section 115 of the Act may delegate to the managing director or such committee any of the powers of the directors. A committee may be comprised of one director.

4.07 Transaction of Business of Committee

Subject to the provisions of this by-law with respect to participation by telephone, the powers of a committee of directors may be exercised by a meeting at which a quorum is present or by resolution in writing signed by all of the members of such committee who would have been entitled to vote on that resolution at a meeting of the committee. Meetings of such committee may be held at any place in or outside Canada and may be called by any one member of the committee giving notice in accordance with the by-laws governing the calling of directors’ meetings.

4.08 Procedure

Unless otherwise determined herein or by the board, each committee shall have the power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedure.

4.09 Remuneration and Expenses

Subject to any unanimous shareholder agreement, the directors shall be paid such remuneration for their services as the board may from time to time determine. The directors shall also be entitled to be reimbursed for travelling and other expenses properly incurred by them in attending meetings of the board or any committee thereof. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor.

4.10 Vacancies

Subject to the Act, a quorum of the board may fill a vacancy among the directors, except a vacancy resulting from an increase in the number or minimum number of directors or from a failure to elect the number or minimum number of directors required by the articles. If there is not a quorum of directors, or if there has been a failure to elect the number or minimum number of directors required by the articles, the directors then in office shall forthwith call a special meeting of shareholders to fill the vacancy and, if they fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder.

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4.11 Action by the Board

Subject to any unanimous shareholder agreement, the board shall manage or supervise the management of the business and affairs of the Corporation. Notwithstanding a vacancy among the directors, a quorum of directors may exercise all the powers of the directors. If the Corporation has only one director, that director may constitute a meeting.

DIVISION FIVE

MEETING OF DIRECTORS

5.01 Place of Meeting

Meetings of the board may be held at any place within or outside Canada.

5.02 Notice of Meeting

Unless the directors have made regulations otherwise, meetings of the board may be summoned on twenty-four (24) hours’ notice, verbally or in writing, and whether by means of telephone or telegraph, or any other means of communication. A notice of a meeting of directors need not specify the purpose of or the business to be transacted at the meeting except any proposal to:

a. submit to the shareholders any question or matter requiring approval of the shareholders;

b. fill a vacancy among the directors or in the office of auditor;

c. issue securities, except in the manner and on the terms authorized by the directors;

d. declare dividends;

e. purchase, redeem or otherwise acquire shares issued by the Corporation, except in the manner and on the terms authorized by the directors;

f. pay a commission for the sale of shares;

g. approve a management proxy circular: approve a take-over bid circular or directors’ circulars;

h. approve any financial statements to be placed before the shareholders at an annual meeting; or

i. adopt, amend or repeal by-laws.

Provided, however, that a director may in any manner waive notice of a meeting and attendance of a director at a meeting of directors shall constitute a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

For the first meeting of the board of directors to be held immediately following an election of directors or for a meeting of the board at which a director is to be appointed to fill a vacancy in the board, no notice of such meeting shall be necessary to the newly elected or appointed director or directors in order to legally constitute the meeting, provided that a quorum of the directors is present.

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5.03 Adjourned Meeting

Notice of an adjourned meeting of the board is not required if the time and place of the adjourned meeting is announced at the original meeting.

5.04 Calling of the Meetings

Meetings of the board shall be held from time to time at such time and at such place as the board, the chairman of the board, the managing director, the president or any two directors may determine. Should more than one of the above-named call a meeting at or for substantially the same time, there shall be held only one meeting and such meeting shall occur at the time and place determined by, in order of priority, the board, the chairman, or the president.

5.05 Regular Meetings

The board may appoint a day or days in any month or months for regular meetings of the board at a place and hour to be named. A copy of any resolution of the board fixing the place and time of such regular meetings shall be sent to each director forthwith after being passed, and forthwith to each director subsequently elected or appointed, but no other notice shall be required for any such regular meeting except where the Act or this by-law requires the purpose thereof or the business to be transacted thereat to be specified.

5.06 Chairman

The chairman of any meeting of the board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting: chairman of the board, managing director or president. If no such officer is present, the directors present shall choose one of their number to be chairman.

5.07 Quorum

Subject to section 5.08, the quorum for the transaction of business at any meeting of the board shall consist of a majority of the directors holding office or such greater number of directors as the board may from time to time determine.

5.08 Canadian Representation at Meetings

Directors shall not transact business at a meeting of directors unless no less than twenty-five percent (25%) of the directors present are resident Canadians. Notwithstanding the foregoing, directors may transact business at a meeting of directors when less than twenty-five percent (25%) of the directors present are resident Canadians if:

a. a resident Canadian director who is unable to be present approves in writing, or by telephonic, electronic or other communication facility, the business transacted at the meeting; and

b. the required number of resident Canadian directors would have been present at the meeting had that director who gives his approval under paragraph (a) been present at the meeting.

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5.09 Voting

Questions arising at any meeting of the board shall be decided by a majority of votes, the chairman of the meeting shall be entitled to vote and the chairman shall not have a second or casting vote in the event of an equality of votes.

5.10 Meeting by Telephone

A director, if all the directors of the Corporation consent, may participate in a meeting of the board or a committee of the board by means of such telephone or other communication facilities which permits all persons participating in the meeting to hear each other and a director participating in such meeting by such means is deemed to be present at the meeting. Any such consent shall be effective whether given before or after the meeting to which it relates and may be given with respect to all meetings of the board and of committees of directors held while a director holds office.

5.11 Resolution in Lieu of Meeting

Notwithstanding any of the foregoing provisions of this by-law, a resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the directors or a committee of directors is as valid as if it had been passed at a meeting of the directors or committee of directors. A copy of every such resolution shall be kept with the minutes of the proceedings of the directors or committee of directors. Any such resolution in writing is effective for all purposes at such time as the resolution states regardless of when the resolution is signed.

5.12 Amendments to the Act

It is hereby affirmed that the intention of sections 4.01, 4.06, 5.08 and 7.03 as they relate to Canadian representation is to comply with the minimum requirements of the Act and in the event that such minimum requirements shall be amended, deleted or replaced such that no, or lesser, requirements with respect to Canadian representation are then in force, such sections shall be correspondingly amended, deleted or replaced.

DIVISION SIX

PROTECTION OF DIRECTORS, OFFICERS AND OTHERS

6.01 Conflict of Interest

A director or officer shall not be disqualified by his office, or be required to vacate his office, by reason only that he

a. is a party to;

b. is a director or officer, or an individual acting in a similar capacity, of a party to; or

c. has a material interest in a party to

a material contract or material transaction, whether made or proposed, with the Corporation. Such a director or officer shall, however, disclose to the Corporation the nature and extent of his interest in the contract or transaction at the time and in the manner provided by the Act. Subject to the provisions of the Act, a director shall not by reason only of his office be accountable to the Corporation or to its shareholders for any profit or gain realized from such a contract or transaction, and such contract or transaction shall not be void or voidable by reason only of the director’s interest therein, provided that the required declaration and disclosure of interest is properly

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made, the contract or transaction is approved by the directors or shareholders, if necessary, and the contract or transaction was fair and reasonable to the Corporation at the time it was approved and, if required by the Act, the director refrains from voting as a director on the contract or transaction.

6.02 Limitation of Liability

Every director and officer of the Corporation in exercising his powers and discharging his duties shall act honestly and in good faith with a view to the best interests of the Corporation and shall exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Subject to the foregoing, the Act and the Regulations, no director or officer for the time being of the Corporation shall be liable for the acts, neglects or defaults of any other director or officer or employee or for joining in any act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by the Corporation or for or on behalf of the Corporation or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Corporation shall be placed out or invested or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Corporation or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of the moneys, securities or effects of the Corporation shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto; provided that nothing herein shall relieve any director or officer from the duty to act in accordance with the Act and the Regulations thereunder or from liability for any breach thereof. The directors for the time being of the Corporation shall not be under any duty or responsibility in respect of any contract, act or transaction whether or not made, done or entered into in the name or on behalf of the Corporation, except such as shall have been submitted to and authorized or approved by the board of directors.

No act or proceeding of any director or officer or the board shall be deemed invalid or ineffective by reason of the subsequent ascertainment of any irregularity in regard to such act or proceeding or the election, appointment or qualification of such director or officer or board.

6.03 Indemnity

Subject to section 124 of the Act, the Corporation may indemnify a director or officer of the Corporation, a former director or officer of the Corporation or another individual who acts or acted at the Corporation’s request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal, administrative, investigative or other proceeding to which he is made a party by reason of that association with the Corporation or other entity, if:

a. he acted honestly and in good faith with a view to the best interests of the Corporation, or, as the case may be, to the best interests of the other entity for which he acted as director or officer or in a similar capacity at the Corporation’s request; and

b. in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

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The Corporation may also indemnify such persons in such other circumstances as the Act permits or requires. Nothing herein contained shall limit the right of any person entitled to indemnity to claim indemnity apart from the provisions of this section 6.03.

6.04 Insurance

The Corporation may purchase and maintain insurance for the benefit of any person referred to in section 6.03 against any liability incurred by him:

a. in his capacity as a director or officer of the Corporation, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the Corporation; or

b. in his capacity as a director or officer of the another body corporate where he acts or acted in that capacity at the Corporation’s request, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the body corporate.

DIVISION SEVEN

OFFICERS

7.01 Election or Appointment

Subject to any unanimous shareholder agreement, the board may, from time to time, appoint a chairman of the board, a president, one or more vice-presidents, a secretary, a treasurer and such other officers as the board may determine, including one or more assistants to any of the officers so appointed. The board may specify the duties of and, in accordance with this by-law and subject to the provisions of the Act, delegate to such officers powers to manage the business and affairs of the Corporation. Except for a managing director and a chairman of the board who must be directors, an officer may, but need not be, a director and one person may hold more than one office.

7.02 Chairman of the Board

The chairman of the board shall, when present, preside at all meetings of the board, committees of directors and at all meetings of shareholders.

If no managing director is appointed, the board may assign to the chairman of the board any of the powers and duties that, by any provision of this by-law, are assigned to the managing director; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. During the absence or disability of the chairman of the board, his duties shall be performed and his powers exercised by the managing director, if any, or by the president.

7.03 Managing Director

The managing director, if any, shall be a resident Canadian and shall have, subject to the authority of the board, general supervision of the business and affairs of the Corporation; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify.

7.04 President

The president shall, subject to the authority of the board and the managing director, if any, have such powers and duties as the board may specify. During the absence or disability of the managing director, or if no managing director has been appointed, the president shall also have the powers and duties of that office; provided, however, that unless he is a director he shall not preside as chairman at any meeting of the board or of a committee of directors.

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7.05 Vice-President

During the absence or disability of the president, his duties shall be performed and his powers exercised by the vice-president or, if there is more than one, by the vice-president designated from time to time by the board or the president; provided, however, that a vice-president who is not a director shall not preside as chairman at any meeting of the board or of a committee of directors. A vice-president shall have such other powers and duties as the board or the president may prescribe.

7.06 Secretary

The secretary shall attend and be the secretary of all meetings of the board, shareholders and committees of the board and shall enter or cause to be entered in records kept for that purpose minutes of all proceedings thereat; he shall give or cause to be given, as and when instructed, all notices to shareholders, directors, officers, auditors and members of committees of the board; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and of all books, papers, records, documents and instruments belonging to the Corporation, except when some other officer or agent has been appointed for that purpose; and he shall have such other powers and duties as the board or the chief executive officer may specify.

7.07 Treasurer

The treasurer shall keep proper accounting records in compliance with the Act and shall be responsible for the deposit of money, the safekeeping of securities and the disbursement of the funds of the Corporation; he shall render to the board whenever required an account of all his transactions and he shall have such other powers and duties as the board or chief executive officer, if any, or the president may specify.

7.08 General Manager or Manager

If elected or appointed, the general manager shall have, subject to the authority of the board, the managing director, if any, the chief executive officer, if any, and the president, full power to manage and direct the business and affairs of the Corporation (except such matters and duties as by law must be transacted or performed by the board and/or by the shareholders) and to employ and discharge agents and employees of the Corporation and may delegate to him or them any lesser authority. A general manager or manager shall conform to all lawful orders given to him by the board and shall at all reasonable times give to the directors or any of them all information they may require regarding the affairs of the Corporation. Any agent or employee appointed by a general manager or manager shall be subject to discharge by the board.

7.09 Powers and Duties of Other Officers

The powers and duties of all other officers shall be such as the terms of their engagement call for or as the board, the managing director, if any, or the chief executive officer, if any, or the president may specify. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board or the chief executive officer, if any, or the president otherwise directs.

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7.10 Variation of Powers and Duties

The board may from time to time and subject to the provisions of the Act, vary, add to or limit the powers and duties of any officer.

7.11 Vacancies

If the office of any officer of the Corporation shall be or become vacant by reason of death, resignation, disqualification or otherwise, the directors by resolution shall, in the case of the president or the secretary, and may, in the case of any other office, appoint a person to fill such vacancy.

7.12 Remuneration and Removal

The remuneration of all officers appointed by the board of directors shall be determined from time to time by resolution of the board of directors. The fact that any officer or employee is a director or shareholder of the Corporation shall not disqualify him from receiving such remuneration as may be determined. All officers, in the absence of agreement to the contrary, shall be subject to removal by resolution of the board of directors at any time, with or without cause.

7.13 Agents and Attorneys

The Corporation, by or under the authority of the board, shall have power from time to time to appoint agents or attorneys for the Corporation in or outside Canada with such powers (including the power to sub-delegate) of management, administration or otherwise as may be thought fit.

7.14 Conflict of Interest

An officer shall disclose his interest in any material contract or proposed material contract with the Corporation in accordance with section 6.01.

7.15 Fidelity Bonds

The board may require such officers, employees and agents of the Corporation as the board deems advisable to furnish bonds for the faithful discharge of their powers and duties, in such forms and with such surety as the board may from time to time determine.

DIVISION EIGHT

SHAREHOLDERS’ MEETINGS

8.01 Annual Meetings

Subject to the Act, the annual meeting of shareholders shall be held at such time and on such day in each year and, subject to section 8.03, at such place or places as the board, the chairman of the board, the managing director or the president may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing auditors if required by the Act or the articles, and for the transaction of such other business as may properly be brought before the meeting.

8.02 Special Meetings

The board shall have the power to call a special meeting of shareholders at any time.

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8.03 Place of Meetings

Meetings of shareholders shall be held at any place within Canada or the United States as the directors so determine or, if all the shareholders entitled to vote at the meeting so agree or if the articles so provide, outside Canada or the United States.

8.04 Participation in Meeting by Electronic Means

Any person entitled to attend a meeting of shareholders may participate in the meeting, in accordance with the Regulation to the Act, if any, by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting, if the Corporation makes available such a communication facility. A person participating in a meeting by such means is deemed to be present at the meeting.

8.05 Meeting Held by Electronic Means

If the directors or shareholders call a meeting of shareholders pursuant to the Act, those directors or shareholders, as the case may be, may determine that the meeting shall be held, in accordance with the Regulations to the Act, if any, entirely by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the meeting.

8.06 Record Date for Notice

The board may fix in advance a date, preceding the date of any meeting of shareholders by not more than sixty (60) days and not less than twenty-one (21) days, as a record date for the determination of shareholders entitled to notice of the meeting. If no record date is fixed, the record date for the determination of the shareholders entitled to receive notice of the meeting shall be the close of business on the date immediately preceding the day on which the notice is given or, if no notice is given, the day on which the meeting is held.

8.07 Notice of Meeting

Notice of the time and place of each meeting of shareholders shall be sent not less than twenty-one (21) days and not more than sixty (60) days before the meeting to each shareholder entitled to vote at the meeting, each director and the auditor of the Corporation. A notice of meeting need not be sent to shareholders who are not registered on the records of the Corporation or its transfer agent on the record date as determined according to section 8.06 hereof. Notice of a meeting of shareholders at which special business is to be transacted shall state the nature of such business in sufficient detail to permit the shareholder to form a reasoned judgment thereon and shall state the text of any special resolution to be submitted to the meeting.

8.08 Right to Vote

Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in section 8.09 hereof, every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name except to the extent that such person has transferred any of his shares after the record date set pursuant to section 8.06 hereof, or, if no record date is fixed, after the date on which the list referred to in section 8.09 is prepared, and the transferee, upon producing properly endorsed certificates evidencing such shares or otherwise establishing that he owns such shares, demands not later than ten (10) days before the meeting that his name be included to vote the transferred shares at the meeting In the absence of a list prepared as aforesaid in respect of a meeting of shareholders, every person

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shall be entitled to vote at the meeting who at the close of business on the record date, or if no record date is set, at the close of business on the date preceding the date notice is sent, is entered in the securities register as the holder of one or more shares carrying the right to vote at such meeting.

8.09 List of Shareholders Entitled to Notice

For every meeting of shareholders the Corporation shall prepare an alphabetical list of its shareholders entitled to receive notice of the meeting, showing the number of shares held by each shareholder. If a record date for the meeting is fixed pursuant to section 8.06 hereof, the shareholders listed shall be those registered at the close of business on the record date. If no record date is fixed, the shareholders listed shall be those listed at the close of business on the day immediately preceding the day on which notice of a meeting is given, or where no such notice is given, the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the Corporation or at the place where its central securities register is maintained and at the meeting of shareholders for which the list was prepared.

8.10 Meetings Without Notice

A meeting of shareholders may be held without notice at any time and place permitted by the Act:

a. if all the shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held; and

b. if the auditors and the directors are present or waive notice of or otherwise consent to such meeting being held.

At such meetings any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or represented by proxy, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to a meeting being held at such place.

8.11 Waiver of Notice

A shareholder and any other person entitled to attend a meeting of shareholders may in any manner waive notice of a meeting of shareholders and attendance of any such person at a meeting of shareholders shall constitute a waiver of notice of the meeting except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.

8.12 Chairman, Secretary and Scrutineers

The chairman of the board or, in his absence, the president, if such an officer has been elected or appointed and is present, or otherwise a vice-president who is a shareholder of the Corporation shall be chairman of any meeting of shareholders. If no such officer is present within fifteen (15) minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their number to be chairman. If the secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting.

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8.13 Persons Entitled to be Present

The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditors of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting.

8.14 Quorum

A quorum at any meeting of shareholders (unless a greater number of persons are required to be present or a greater number of shares are required to be represented by the Act or by the articles or by any other by-law) shall be persons present or represented by proxy not being less than two (2) in number and holding or representing not less than thirty-three and one-third percent (33 1/3%) of the shares entitled to be voted at the meeting, provided that at least thirty-three and one-third percent (33 1/3%) of the common shares entitled to vote at the Meeting are present and represented in person or by proxy. If a quorum is present at the opening of any meeting of shareholders, the shareholders present or represented may proceed with the business of the meeting notwithstanding that a quorum is not present throughout the meeting. If a quorum is not present at the opening of the meeting of shareholders, the shareholders present or represented may adjourn the meeting to a fixed time and place but may not transact any other business.

8.15 Proxyholders and Representatives

Votes at meetings of the shareholders may be given either personally or by proxy; or, in the case of a shareholder who is a body corporate or association, by an individual authorized by a resolution of the board or governing body of the body corporate or association to represent it at a meeting of shareholders of the Corporation, upon producing a certified copy of such resolution or otherwise establishing his authority to vote to the satisfaction of the secretary or the chairman.

A proxy shall be executed by the shareholder or his attorney authorized in writing and is valid only at the meeting in respect of which it is given or any adjournment thereof. A person appointed by proxy need not be a shareholder.

8.16 Time for Deposit of Proxies

The board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than forty-eight (48) hours exclusive of Saturdays and holidays, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time having been specified in such notice, it has been received by the secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting.

8.17 Joint Shareholders

If two or more persons hold shares jointly, any one of them present in person or duly represented at a meeting of shareholder may, in the absence of the other or others, vote the shares; but if two or more of those persons are present in person or represented and vote, they shall vote as one the shares jointly held by them.

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8.18 Votes to Govern

Except as otherwise required by the Act, all questions proposed for the consideration of shareholders at a meeting of shareholders shall be determined by a majority of the votes cast and in the event of an equality of votes at any meeting of shareholders, either upon a show of hands or upon a ballot, the chairman shall not have a second or casting vote.

8.19 Show of Hands

Subject to the Act, any question at a meeting of shareholders shall be decided by a show of hands, unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of shareholders upon the said question.

8.20 Ballots

On any question proposed for consideration at a meeting of shareholders, a shareholder, proxyholder or other person entitled to vote may demand and the chairman may require that a ballot be taken either before or upon the declaration of the result of any vote by show of hands. If a ballot is demanded on the election of a chairman or on the question of an adjournment it shall be taken forthwith without an adjournment. A ballot demanded or required on any other question shall be taken in such manner as the chairman shall direct. A demand or requirement for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares that he is entitled to vote at the meeting upon the question, to the number of votes as provided for by the articles or, in the absence of such provision in the articles, to one vote for each share he is entitled to vote. The result of the ballot so taken shall be the decision of the shareholders upon the question.

8.21 Adjournment

The chairman at a meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn the meeting from time to time and from place to place. If a meeting of shareholders is adjourned for less than thirty (30) days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the time of the adjournment. Subject to the Act, if a meeting of shareholders is adjourned by one or more adjournments for an aggregate of thirty (30) days or more, notice of the adjourned meeting shall be given in the same manner as notice for an original meeting but, unless the meeting is adjourned by one or more adjournments for an aggregate of more than ninety (90) day, subsection 149(1) of the Act does not apply.

8.22 Resolution in Lieu of a Meeting

Except where not permitted in the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders; and a resolution in writing dealing with all matters required to be dealt with at a meeting of shareholders and signed by all the shareholders entitled to vote at such meeting, satisfies all the requirements of the Act relating to meetings of shareholders. A copy of every such resolution in writing shall be kept with minutes of the meetings of shareholders. Any such resolution in writing is effective for all purposes at such time as the resolution states regardless of when the resolution is signed.

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8.23 Only One Shareholder

Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or duly represented constitutes a meeting.

DIVISION NINE

SHARES

9.01 Non-Recognition of Trusts

Subject to the Act, the Corporation may treat the registered holder of any share as the person exclusively entitled to vote, to receive notices, to receive any dividend or other payment in respect of the share, and otherwise to exercise all the rights and powers of an owner of the share.

9.02 Certificates

The shareholder is entitled at his option to a share certificate that complies with the Act or a nontransferable written acknowledgement of his right to obtain a share certificate from the Corporation in respect of the securities of the Corporation held by him. Share certificates and acknowledgements of a shareholder’s right to a share certificate, respectively, shall be in such form as described by the Act and as the Board shall from time to time approve. A share certificate shall be signed manually by at least one director or officer of the Corporation or by or on behalf of a registrar, transfer agent or branch transfer agent of the Corporation, or by a trustee who certifies it in accordance with a trust indenture, and any additional signatures required on the share certificate may be printed or otherwise mechanically reproduced on it.

9.03 Replacement of Share Certificates

The board or any officer or agent designated by the board may in its or his discretion direct the issuance of a new share certificate or other such certificate in lieu of and upon cancellation of a certificate that has been mutilated or in substitution for a certificate claimed to have been lost, destroyed or wrongfully taken on payment of such reasonable fee and on such terms as to indemnity, reimbursement of expenses and evidence of loss and of title as the board may from time to time prescribe, whether generally or in any particular case.

9.04 Joint Holders

The Corporation is not required to issue more than one share certificate in respect of shares held jointly by several persons, and delivery of a certificate to one of several joint holders is sufficient delivery to all. Any one of such holders may give effectual receipts for the certificate issued in respect thereof or for any dividend, bonus, return of capital or other money payable or warrant issuable in respect of such certificate.

DIVISION TEN

TRANSFER OF SECURITIES

10.01 Registration of Transfer

If a share in registered form is presented for registration of transfer, the Corporation shall register the transfer if:

a. the share is endorsed by an appropriate person, as defined in section 65 of the Act;

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b. reasonable assurance is given that the endorsement is genuine and effective;

c. the Corporation has no duty to enquire into adverse claims or has discharged any such duty;

d. any applicable law relating to the collection of taxes has been complied with;

e. the transfer is rightful or is to a bona fide purchaser; and

f. the transfer fee, if any, has been paid.

10.02 Transfer Agents and Registrar

The board may from time to time by resolution appoint or remove one or more agents to maintain a central securities’ register or registers and a branch securities’ register or registers. Agents so appointed may be designated as transfer agent or registrar according to their functions, and a person may be appointed and designated with functions as both registrar and transfer or branch transfer agent. Registration of the issuance or transfer of a security in the central securities’ register or in a branch securities’ register is complete and valid registration for all purposes.

10.03 Securities’ Registers

A central securities’ register of the Corporation shall be kept at its registered office or at any other place in Canada designated by the directors to record the shares and other securities issued by the Corporation in registered form, showing with respect to each class or series of shares and other securities:

a. the names, alphabetically arranged, and the latest known address of each person who is or has been a holder;

b. the number of shares or other securities held by each holder; and

c. the date and particulars of the issuance and transfer of each share or other security.

A branch securities’ register or registers may be kept either in or outside Alberta at such place or places as the board may determine. A branch securities’ register shall only contain particulars of securities issued or transferred at that branch. Particulars of each issue or transfer of a security registered in a branch securities’ register shall also be kept in the corresponding central securities’ register.

10.04 Deceased Shareholders

In the event of the death of a holder, or of one of the joint holders, of any share, the Corporation shall not be required to make any entry’ in the securities’ register in respect thereof or to make any dividend or other payments in respect thereof except upon production of all such documents as may be required by law and upon compliance with the reasonable requirements of the Corporation and its transfer agents.

DIVISION ELEVEN

DIVIDENDS AND RIGHTS

11.01 Dividends

Subject to the Act, the board may from time to time declare dividends payable to the shareholders according to their respective rights and interest in the Corporation. Dividends may be paid in money or property or by issuing fully-paid shares of the Corporation.

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11.02 Dividend Cheques

A dividend payable in money shall be paid by cheque to the order of each registered holder of shares of the class or series in respect of which it has been declared and shall be mailed by prepaid ordinary mail to such registered holder at his address recorded in the Corporation’s securities’ register or registers unless such holder otherwise directs. In the case of joint holders the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all such joint holders and mailed to them at their recorded address. The mailing of such cheque as aforesaid, unless the same is not paid on due presentation, shall satisfy and discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold.

11.03 Non-Receipt of Cheques

In the event of non-receipt of any dividend cheque by the person to whom it is sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in any particular case.

11.04 Unclaimed Dividends

Any dividend unclaimed after a period of six (6) years from the date on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation.

11.05 Record Date for Dividends and Rights

The board may fix in advance a date, preceding by not more than fifty (50) days the date for the payment of any dividend, as a record date for the determination of the persons entitled to receive payment of such dividend, provided that, unless waived as provided for in the Act, notice of any such record date is given, not less than seven (7) days before such record date, by newspaper advertisement in the manner provided in the Act and by written notice to each stock exchange in Canada, if any, on which the Corporation’s shares are listed for trading. Where no record date is fixed in advance as aforesaid, the record date for the determination of the persons entitled to receive payment of any dividend shall be at the close of business on the day on which the resolution relating to such dividend is passed by the board.

DIVISION TWELVE

INFORMATION AVAILABLE TO SHAREHOLDERS

12.01 Confidential Information

Except as provided by the Act, no shareholders shall be entitled to obtain information respecting any details or conduct of the Corporation’s business which in the opinion of the directors would not be expedient to the interests of the Corporation to communicate to the public.

12.02 Conditions of Access to Information

The directors may from time to time, subject to rights conferred by the Act, determine whether and to what extent and at what time and place and under what conditions or regulations the documents, books and registers and accounting records of the Corporation or any of them shall be open to the inspection of shareholders and no shareholders shall have any right to inspect any document or book or register or account record of the Corporation except as conferred by statute or authorized by the board of directors or by a resolution of the shareholders.

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12.03 Registered Office and Records Office

The registered office of the Corporation shall be located within the province in Canada specified in the Corporation’s articles. The records office shall be located within Canada.

DIVISION THIRTEEN

NOTICES

13.01 Method of Giving Notices

A requirement under the Act, the Regulations, the articles or the by-laws of the Corporation that a notice, document or other information be created or provided, including a notice, document or other information required to be created or provided in writing, is satisfied by the creation or provision of an electronic document if the Act and Regulations, if any, have been complied with. A notice or document required by the Act, the Regulations, the articles or the by-laws to be sent to a shareholder or director of the Corporation may be sent by prepaid mail addressed to, or may be delivered personally to:

a. the shareholder at his latest address as shown in the records of the Corporation or its transfer agent; and

b. the director at his latest address as shown in the records of the Corporation or in the last notice filed under section 106 or 113.

A notice or document sent by prepaid mail in accordance with the foregoing to a shareholder or director of the Corporation is deemed to be received at the time it would be delivered in the ordinary course of mail unless there are reasonable grounds for believing that the shareholder or director did not receive the notice or document at the time or at all.

13.02 Notice to Joint Shareholders

If two or more persons are registered as joint holders of any share, any notice may be addressed to all of such joint holders but notice addressed to one of such persons shall be sufficient notice to all of them.

13.03 Persons Entitled by Death or Operation of Law

Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholders from whom he derives his title to such share prior to his name and address being entered on the securities’ register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act.

13.04 Non-Receipt of Notices

If a notice or document is sent to a shareholder in accordance with section 13.01 and the notice or document is returned on three (3) consecutive occasions because the shareholder cannot be found, the Corporation is not required to send any further notice or documents to the shareholder until he informs the Corporation in writing of his new address; provided always, that in the event of the return of a notice of a shareholders’ meeting mailed to a shareholder in accordance with section 13.01 of this by-law the notice shall be deemed to be received by the shareholder on the date deposited in the mail notwithstanding its return.

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13.05 Omissions and Errors

Subject to the Act, the accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon.

13.06 Signature on Notices

Unless otherwise specifically provided, the signature of any director or officer of the Corporation to any notice or document to be given by the Corporation may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed.

A requirement under the Act or Regulations for a signature or for a document to be executed by a director or officer of the Corporation is satisfied if, in relation to an electronic document, the requirements of the Act or Regulations are met and if the signature results from the application by the director or officer of a technology or a process that permits the following to be proven:

a. the signature resulting from the use by the director or officer of the technology or process is unique to the director or officer;

b. the technology or process is used by the director or officer to incorporate, attach or associate the director’s or officer’s signature to the electronic document; and

c. the technology or process can be used to identify the director or officer using the technology or process.

13.07 Waiver of Notice

If a notice or document is required by the Act or the Regulations, the articles, the by-laws or otherwise to be sent, the sending of the notice or document may be waived or the time for the notice or document may be waived or abridged at any time with the consent in writing of the person entitled to receive it.

DIVISION FOURTEEN

MISCELLANEOUS

14.01 Directors to Require Surrender of Share Certificates

The directors in office when a Certificate of Continuance is issued under the Act are hereby authorized to require the shareholders of the Corporation to surrender their share certificate, or such of their share certificates as the directors may determine, for the purpose of cancelling the share certificates and replacing them with new share certificates that comply with section 49 of the Act, in particular, replacing existing share certificate with share certificates that are not negotiable securities under the Act. The directors in office shall act by resolution under this section 14.01 and shall in their discretion decide the manner in which they shall require the surrender of existing share certificates and the time within which the shareholders must comply with the requirement and the form or forms of the share certificates to be issued in place of the existing share certificates. The directors may take such proceedings as they deem necessary to compel any shareholder to comply with a requirement to surrender his share certificate or certificates pursuant to this section. Notwithstanding any other provision of this by-law, but subject to the Act, the director may refuse to register the transfer of shares represented by a share certificate that has not been surrendered pursuant to a requirement under this section.

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14.02 Severability

The invalidity or unenforceability of any provision of this by-law shall not affect the validity or enforceability of the remaining provisions of this by-law.

ADOPTED by the board effective the 11^th day of August, 2003.

Director

RATIFIED by the Shareholders in accordance with the Canada Business Corporations Act, effective the 17^th day of May, 2004.

President

Chief Financial Officer

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TITLE	SECTION	PAGE
BANKING AND SECURITIES
Banking Arrangements	2.01	2
Voting Rights in Other Bodies Corporate	2.02	2
DIRECTORS
Number	4.01	2
Election and Term	4.02	3
Removal of Directors	4.03	3
Consent	4.04	3
Vacation of Office	4.05	4
Committee of Directors	4.06	4
Transaction of Business of Committee	4.07	4
Procedure	4.08	4
Remuneration and Expenses	4.09	4
Vacancies	4.10	4
Action by the Board	4.11	5
DIVIDENDS AND RIGHTS
Dividends	11.01	17
Dividend Cheques	11.02	18
Non-Receipt of Cheques	11.03	18
Unclaimed Dividends	11.04	18
Record Date for Dividends and Rights	11.05	18
EXECUTION OF INSTRUMENTS
Authorized Signing Officers	3.01	2
Cheques, Drafts and Notes	3.02	2
INFORMATION AVAILABLE TO SHAREHOLDERS
Confidential Information	12.01	18
Conditions of Access to Information	12.02	18
Registered Office and Separate Records Office	12.03	19
INTERPRETATION	1.01	1
MEETING OF DIRECTORS
Place of Meeting	5.01	5
Notice of Meeting	5.02	5
Adjourned Meeting	5.03	6
Calling of the Meeting	5.04	6
Regular Meetings	5.05	6
Chairman	5.06	6
Quorum	5.07	6
Half Canadian Representation at Meetings	5.08	6
Voting	5.09	7
Meeting by Telephone	5.10	7
Resolution in Lieu of Meeting	5.11	7
Amendments to the Act	5.12	7

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MISCELLANEOUS
Directors to Require Surrender of Share Certificates	14.01	20
Financial Assistance to Shareholders, Employees and Others	14.02	21
Severability	14.03	21
NOTICES
Method of Giving Notices	13.01	19
Notice to Joint Shareholders	13.02	19
Persons Entitled by Death or Operation of Law	13.03	19
Non-Receipt of Notices	13.04	19
Omissions and Errors	13.05	20
Signature on Notices	13.06	20
Waiver of Notice	13.07	20
OFFICERS
Election or Appointment	7.01	9
Chairman of the Board	7.02	9
Managing Director	7.03	9
President	7.04	9
Vice-President	7.05	10
Secretary	7.06	10
Treasurer	7.07	10
General Manager or Manager	7.08	10
Powers and Duties of Other Officers	7.09	10
Variation of Powers and Duties	7.10	11
Vacancies	7.11	11
Remuneration and Removal	7.12	11
Agents and Attorneys	7.13	11
Conflict of Interest	7.14	11
Fidelity Bonds	7.15	11
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
Conflict of Interest	6.01	7
Limitation of Liability	6.02	8
Indemnity	6.03	8
Insurance	6.04	9
SHARES
Non-Recognition of Trusts	9.01	16
Certificates	9.02	16
Replacement of Share Certificates	9.03	16
Joint Holders	9.04	16
SHAREHOLDERS’ MEETINGS
Annual Meetings	8.01	11
Special Meetings	8.02	11
Place of Meetings	8.03	12
Participation in Meeting Electronic Means	8.04	12
Meeting Held by Electronic Means	8.05	12
Record Date for Notice	8.06	12
Notice of Meeting	8.07	12
Right to Vote	8.08	12

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List of Shareholders Entitled to Notice	8.09	12
Meetings Without Notice	8.10	12
Waiver of Notice	8.11	13
Chairman, Secretary and Scrutineers	8.12	13
Persons Entitled to be Present	8.13	13
Quorum	8.14	13
Proxyholders and Representatives	8.15	14
Time for Deposit of Proxies	8.16	14
Joint Shareholders	8.17	14
Votes to Govern	8.18	14
Show of Hands	8.19	15
Ballots	8.20	15
Adjournment	8.21	15
Resolution in Lieu of a Meeting	8.22	15
Only One Shareholder	8.23	16
TRANSFER OF SECURITIES
Registration of Transfer	10.01	16
Transfer Agents and Registrar	10.02	17
Securities’ Registers	10.03	17
Deceased Shareholders	10.04	17

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EX-10.1

Exhibit 10.1

February 9, 2009

Mr. Robert Wright

RE: Offer of Employment from BakBone Software, Inc.

Dear Bob:

On behalf of Bakbone Software Incorporated, a Canadian corporation (“Parent”), and BakBone Software, Inc., a California corporation and a wholly-owned subsidiary of Parent (“BakBone”), we would like to extend an offer of employment (“Agreement”) to you for the position of Senior Vice President-General Counsel of Parent and of BakBone reporting to Steve Martin, Senior Vice President and CFO. Your employment commencement date will be February 1, 2009.

Compensation and Benefits

As the Senior Vice President–General Counsel your total compensation package will consist of a base salary of $9,853.33 per pay period, that is, $230,000 per annum, subject to applicable withholdings and deductions, and payable as earned in accordance with BakBone’s normal payroll policies (the 15th and last working day of the month). In addition, you will be eligible to achieve a bonus in the amount of 30% of base salary, based on Company performance and paid quarterly per the current bonus program for achievement of corporate goals and objectives and your individual performance to the extent agreed to by you and the Company. You will be eligible to participate in this bonus plan effective at the start of Fiscal Year 2010, April 1, 2009 per the plan document. The Company will consider your performance and contributions from your start of employment through the period ending March 31, 2009 for a judgmentally determined performance bonus.

In addition to the above, you will be eligible to participate in Parent’s equity incentive plan upon approval of the Parent’s Board of Directors.

Further, you will be entitled to earn up to 160 hours paid time off (“PTO”), that is, four weeks, as defined in the revised Paid Time Off policy dated April 1, 2006, during your initial period of employment. You will also be entitled to one month paid sabbatical leave after five years of employment.

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You will be entitled to participate in our employee health and dental benefits programs. Your coverage will begin on February 1, 2009. Additionally, BakBone will carry a $100,000.00 life insurance policy on you under which you will name the beneficiary(ies). Details of all benefit plans including 401K, Flex Spending and Short Term Disability will be provided to you upon commencement of your employment.

Termination Provisions

The following provisions shall apply to your employment: If, at any time during your employment with BakBone, you are terminated for reasons other than cause, you will be entitled to six (6) months’ severance pay of your base salary conditional upon a signed settlement and release agreement,

“Cause” shall mean (i) failure to substantially perform your material duties as reasonably directed by BakBone or at a level and in a fashion commensurate with your position, (ii) refusal to comply with any material direction from BakBone’s President and CEO which is reasonable and consistent with your duties and which would not require you to violate any applicable legal requirements or ethical standards, (iii) any material breach by you of your other agreements with BakBone or BakBone’s then current employee policies, (iv) conduct which brings BakBone into any material public disgrace or disrepute; (v) commission of a felony or crime involving moral turpitude or the commission of any other act involving dishonesty, material disloyalty or fraud with respect to BakBone; or (vi) conviction by a court of competent jurisdiction of, or plea of guilty or nolo contendere to any felony.

“Good Reason” shall mean the termination of your employment by you following the occurrence of any of the following events or conditions (unless otherwise consented to by you, provided that you shall be deemed to have consented to any such event or condition unless you provide written notice of your non-acquiescence within thirty (30) days of the effective time of such event or condition) (i) the material reduction by BakBone of your base salary; (ii) the failure by BakBone to pay your base salary or any bonus payments, if, as and when due; (iii) the failure of BakBone to provide you any of the perquisites or benefits specified in this Agreement; (iv) any other failure of BakBone to perform under this Agreement, which failure continues uncured for a period of thirty (30) days following BakBone’s receipt of written notice of your non-acquiescence (as described above); (v) BakBone’s reduction of your position below that of Senior Vice President–General Counsel, reduction of your duties below that which are commensurate with the position of Senior Vice President–General Counsel, or assigning to you duties which are adversely inconsistent with the position of Senior Vice President – General Counsel; or (vi) any requirement by BakBone that you move your residence by more than twenty-five miles from its current location in Dallas, Texas.

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BakBone is entitled to terminate this Agreement for Cause or without Cause at any time with no less than two (2) days notice. If terminated for Cause, BakBone shall only be responsible to pay to you any and all base salary and accrued PTO, less all applicable withholdings and deductions, that has been earned prior to the effective date of termination, and, if applicable, payment in lieu of such notice (“Notice Payment”) of the base salary and accrued PTO amounts entitled to for such two (2) day period.

If employment is terminated without Cause by BakBone and provided that you enter into a settlement and release agreement with BakBone within thirty (30) days following the date of your termination, which agreement shall be negotiated in good faith by both parties, BakBone shall only be responsible to pay to you (a) any and all base salary and accrued PTO, less all applicable withholdings and deductions, that has been earned prior to the effective date of termination, and (b) six (6) month’s base pay as severance pay, less all applicable withholdings and deductions. This amount shall be paid in a lump sum no later than the date that is 2  ¹/2 months following the end of the calendar year in which you are terminated.

You are entitled to terminate this Agreement for Good Reason or without Good Reason at any time with no less than two (2) days notice, (provided, that BakBone has thirty (30) days following your notice of non-acquiescence to cure its failure to perform under this Agreement). If employment is terminated for Good Reason by you, and provided that you enter into a settlement and release agreement with BakBone within thirty (30) days following the date your termination of employment, which agreement shall be negotiated in good faith by both parties, BakBone shall only be responsible to pay to you (a) any and all base salary and accrued PTO, less all applicable withholdings and deductions, that has been earned prior to the effective date of termination, and (b) six (6) month’s base pay as severance pay, less all applicable withholdings and deductions. If employment is terminated without Good Reason by you, BakBone shall only be responsible to pay to you any and all base salary and accrued PTO, less all applicable withholdings and deductions. Amounts in this paragraph shall be paid in a lump sum no later than the date that is 2  ¹/2 months following the end of the calendar year in which you terminate your employment.

Upon any termination of employment, you will also remain entitled to reimbursement of all appropriate expenses incurred during the performance of your employment duties for BakBone. The following provisions shall be in effect for any reimbursements to which you are entitled to under this Agreement, in order to assure that such reimbursements do not create a deferred compensation arrangement subject to Section 409A of the Internal Revenue Code of 1986, as amended (“Code”):

(a) The amount of reimbursements to which you may become entitled in any one calendar year shall not affect the amount of expenses eligible for reimbursement hereunder in any other calendar year.

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(b) Each reimbursement to which you become entitled shall be made by BakBone as soon as administratively practicable following your submission of the supporting documentation, but in no event later than the close of business of the calendar year following the calendar year in which the reimbursable expense is incurred.

(c) Your right to reimbursement cannot be liquidated or exchanged for any other benefit or payment.

Notwithstanding any inconsistent provision of this Agreement, if you are a “specified employee” within the meaning of Code Section 409A at the time of your termination, then the portion of your severance pay, together with any other severance payments or benefits that, in each case, may be considered deferred compensation under Code Section 409A, that would otherwise be payable within the six (6) month period following your termination will be paid in a lump sum on the date six (6) months and one (1) day following the date of your termination (or the next business day if such date is not a business day) or, if earlier, the date of death, provided you have complied with the requirements for such payment. Notwithstanding anything herein to the contrary, no actions taken pursuant to this paragraph shall reduce the total amount of payments and benefits owed to you and to be paid to you under this offer of employment.

Notwithstanding any of the above in this Termination Provisions section, if your employment is terminated as described in the Change in Control Letter Agreement that accompanies this Agreement, then this Termination Provisions section is of no force or effect and does not apply and the terms and conditions stated in the Change of Control Letter Agreement shall be controlling.

Arbitration

We each agree that, to the extent permitted by law, all claims or disputes between you and BakBone, or its officers, employees or affiliates, will be resolved by final, binding arbitration, in accordance with the employment dispute resolution rules of American Arbitration Association. This Agreement includes disputes of any nature, including, without limitation, all claims for any alleged unlawful employment practice, discrimination, harassment, termination of employment, or any other disputes which may hereafter advise. The arbitration provision does not apply, however, to actions to obtain injunctive relief with respect to the accompanying Terms of Employment agreement or to unemployment compensation or worker’s compensation. You will cooperate with BakBone in selecting a neutral arbitrator. The arbitrator shall apply California law without reference to conflicts of law principles. The arbitration shall be held in San Diego, California. You and BakBone will be permitted to conduct discovery as would otherwise be permitted pursuant to the California Code of Civil Procedure. BakBone will pay the administrative costs and arbitrator’s fees associated with the

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arbitration, provided however, that, unless the arbitrator rules otherwise under the provision below entitled “Attorney’s Fees”, you and BakBone will each bear your own attorneys’ fees and costs associated with the arbitration. The arbitrator may not modify or change this Agreement in any way unless any provision is found to be unenforceable, in which case the arbitrator may sever it. You understand and agree that the arbitrator’s decision shall be in writing with sufficient explanation to allow for such meaningful judicial review as may be permitted by law. Any award issued as a result of such arbitration shall be final and binding and shall be enforceable by any court having jurisdiction over the party against whom enforcement is sought, provided, however, that no action to enforce an arbitration award shall be filed with the court until thirty (30) days has passed after issuance of an award and the award has remained unpaid. You and BakBone acknowledge and understand that by signing this offer letter and by initialing the arbitration provision, each has read and understood the arbitration provision; each agrees to be bound by it; and each is waiving their respective rights to have a dispute between them adjudicated by a court or by a jury.

RW (initials of Employee) SM (initials of BakBone representative)

Attorney’s Fees

In the event any legal action is instituted to construe or enforce this Agreement or any provision hereof, the prevailing party shall be entitled to recover reasonable attorneys’ fees, costs and expenses.

At-Will Employment

At BakBone, employment is at-will. This means that BakBone or you may terminate your employment at any time, with or without cause or notice. This at-will employment relationship exists regardless of any written statements or policies contained in the employee handbook or any other Company documents, or any verbal statement to the contrary. This at-will provision cannot be modified except in a written agreement, signed by a Company officer and the employee, specifying a clear intent to alter the at-will nature of the employment relationship.

Other Provisions

By accepting this offer of employment you will be required to sign BakBone’s standard corporate personnel acknowledgements, including, but not limited to BakBone’s Terms of Employment agreement as well as Parent’s Insider Trading Compliance Policy, Code of Business Conduct and Ethics Policy and Bakbone’s Employee Resource Manual that are required of all employees and management. This offer of employment is also conditional in all respects to verification, as is acceptable to BakBone, including, but not limited to your authorization to work in the United States. BakBone is an equal opportunity employer and does not discriminate based on any category protected by California or Federal law. All salary, bonuses, and allowances referred to in this Agreement will be considered normal income and will be subject to applicable state and federal income taxes.

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This Agreement, the Change in Control Letter Agreement and the Indemnification Agreement constitute our complete offer package to recognize your responsibilities, with the understanding that each such agreement is deemed as a separate and distinct agreement, and thereby exclusive of each other. Any promises or representations, either oral or written, which are not contained in this Agreement and the documents referred to herein, are not valid and are not binding on BakBone or Parent. This Agreement and the documents referred to herein supersede all prior agreements, express and oral, and negotiations regarding the subject matter stated in this Agreement and the documents referred to herein.

If these terms are agreeable to you, please sign below and return it to BakBone’s Human Resources department. When accepted, you may fax this Offer Letter to Kimberly Stout, Human Resources Manager (858) 795-7688, but we will still appreciate it if you would also submit the original signed copy to us as well. This offer expires on February 9, 2009 if not signed and returned to BakBone by the expiration date.

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We are very happy to make this offer and look forward to working with you!

BakBone Software, Inc. and BakBone Software Incorporated

/s/ Steven R. Martin             this 9^th day of February, 2009.

Steven R. Martin

Senior Vice President and Chief Financial Officer

BakBone Software, Inc. and BakBone Software Incorporated

Acknowledged, Agreed and Accepted by:

/s/ Robert Wright             this 9^th day of February, 2009.

Robert Wright

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EX-10.2

Exhibit 10.2

February 9, 2009

Mr. Robert G Wright

Re: Change in Control Letter Agreement

Dear Robert:

BakBone Software, Incorporated, a Canadian corporation (the “Company”), desires, for its continued success, to have the benefit of experienced management personnel. The Board of Directors of the Company therefore believes that it is in the best interests of the organization that, in the event of any prospective Change in Control (as hereinafter defined) of the Company, you be reasonably secure in your employment and position with the Company. In addition, in the event of a Change in Control, the Board of Directors also wants to enable you to exercise independent judgment as to the best interests of the Company and its stockholders without the distraction of any personal uncertainties or risks regarding your continued employment with the Company. In consideration of the foregoing, we are offering you the additional benefits outlined below:

Definition of “Change in Control.”

For purposes of this Change in Control Letter Agreement (“Letter Agreement”), a Change in Control shall consist of any one or more of the following events (whether in a single transaction or a series of related transactions): (i) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than fifty percent (50%) of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (ii) the sale, transfer or other disposition of all or substantially all of the Company’s assets; (iii) any transaction as a result of which any person or related group of persons becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing at least fifty percent (50%) of the total voting power represented by the Company’s then outstanding voting securities (other than as a result of the new issuance of securities by the Company in any transaction or series of related transactions determined by the Board of Directors to be for the primary purpose of raising capital); or (iv) a liquidation or dissolution of the Company.

Notwithstanding the foregoing, a transaction shall not constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation: (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction; or (iii) following the consummation of the transaction or series of related transactions, members of the Board of Directors of the Company prior to such transaction constitute a majority of the members of the Board of Directors of the continuing or surviving entity.

Change of Control Benefits.

If, within twelve (12) months following the consummation of the Change in Control, you are either terminated by the Company (which term shall hereinafter also refer to and include any successor entity) without Cause (as hereinafter defined) or you voluntarily terminate your employment with the Company for “Good Reason” (as hereinafter defined), and provided you execute a general release in a form provided by the Company within thirty (30) days following the date of termination, you will be entitled to receive the following benefits:

Severance Benefits.

You will be entitled to receive a severance payment in an amount equal to nine (9) months of your then-current base salary in effect as of the date of such termination (less applicable withholding). At the Company’s discretion, the severance payment may be paid to you in a lump sum or on a periodic basis in accordance with the Company’s regular payroll practices, provided, however, that all amounts must be paid no later that the 15^th day of the third month following the end of the calendar year in which your termination of employment occurred.

Continuation of Benefits.

In addition, the Company will provide for the continuation of your healthcare benefits in effect at the time of the termination (including medical, dental and vision) pursuant to COBRA for a nine (9) month period in the event your severance payment is paid on a periodic basis. If the severance payment is paid in a lump sum, you would be responsible for the conversion and payment of premiums under COBRA. Your receipt of these benefits is conditioned on your completing all necessary documentation on a timely basis necessary to obtain or maintain such coverage under COBRA. In addition, the Company shall delay the provision of any benefits until six (6) months after the date of your termination to the extent required by Section 409A (or regulations or rulings thereunder) of the Internal Revenue Code of 1986, as amended (the “Code”), as reasonably determined by the Company, and you will be reimbursed for any premiums or other expenses which you were required to pay during the six (6) month period following the date of termination in order to maintain such benefits in a lump sum on the day that is six (6) months and one (1) day after the date of the termination of your employment (or the next business day if such date is not a business day) or, if earlier, the date of death. In no event will the Company be obligated by this Letter Agreement to provide more than nine (9) months of continued healthcare benefits at its own expense.

Acceleration of Option Vesting.

Finally, any future grant to you of options to purchase shares of the Company’s capital stock will include the appropriate language providing that any of the related unvested options outstanding at the time you are terminated by the Company without Cause or voluntarily terminate your employment with the Company for “Good Reason” as the result of a Change in Control as herein defined will become fully vested and exercisable pursuant to the terms and conditions of the related Stock Option Agreement.

Definition of “Cause.”

As used in this Letter Agreement, the term “Cause” shall have the meaning, with respect to the termination of your employment by the Company, expressly set forth in any then-effective written agreement regarding your employment between you and the Company, or in the absence of such then- effective written agreement and definition, shall mean termination of your employment as a result

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of your: (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company; (ii) dishonesty, intentional misconduct or material breach of any agreement with the Company; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.

Definition of “Good Reason.”

As used in this Letter Agreement, the term “Good Reason” shall mean the termination of your employment by you following the occurrence of any of the following events or conditions (unless otherwise consented to by you, provided that you shall be deemed to have consented to any such event or condition unless you provide written notice of your non-acquiescence within thirty (30) days of the effective time of such event or condition): (i) a change in your responsibilities or duties which represents a material and substantial diminution in your responsibilities or duties as in effect immediately preceding the consummation of the Change in Control; (ii) a reduction in your base salary to a level materially below that in effect at any time within six (6) months preceding the consummation of a Change in Control or at any time thereafter; provided that an across-the-board reduction in the salary level of substantially all other individuals in positions similar to yours by the same percentage amount shall not constitute such a salary reduction; or (iii) requiring you to be based at any place outside a fifty (50) mile radius from your job location or residence prior to the Change in Control, except for reasonably required travel on business which is not materially greater than such travel requirements prior to the Change in Control.

Notwithstanding anything herein to the contrary, nothing contained in this Letter Agreement shall provide you with any right to be continuously employed by the Company for any specific period and your employment shall continue to be terminable “at will” for any reason or no reason, with or without Cause or prior notice.

Notwithstanding any other provision of this Letter Agreement whatsoever, the Company, in its sole discretion, shall have the right to provide for the application and effects of Section 409A of the Code (relating to deferred compensation arrangements) and any related administrative guidance issued by the Internal Revenue Service. The Company shall delay the payment of any amounts under this Letter Agreement to the extent it deems necessary or appropriate to comply with Section 409A(a)(2)(B)(i) of the Code (relating to payments made to certain “key employees” of certain publicly-traded companies); in such event, the payment(s) at issue will be paid in a lump sum payment on the day that is six (6) months and one (1) day after the date of the termination of your employment (or the next business day if such date is not a business day) or, if earlier, the date of death.

The Company shall deduct and withhold from any amounts payable to you hereunder any amounts required to be deducted or withheld by the Company under the provisions of any applicable federal, state or local statute, law, regulation, ordinance or order (including, without limitation, any applicable exercise tax pursuant to Section 4999 of the Code).

Miscellaneous.

The rights and obligations of the parties hereunder shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of California without regard to its or any other jurisdiction’s conflict of laws principles. None of your rights or benefits, or obligations or duties of the Company to you, may be assigned or transferred by you without the consent of the Company. Any provision herein may be modified, terminated or waived only by a written agreement executed by the party against whom enforcement is sought. If any provision of this Letter Agreement shall be held invalid, the remainder of this Letter Agreement shall

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not be affected thereby. Each party shall execute and deliver all instruments and documents and take all actions as may be reasonably required or appropriate to carry out the purposes of this Letter Agreement. This Letter Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all together of which shall constitute one and the same instrument. This Letter Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof and supersedes any outstanding agreements pertaining to the subject matter hereof.

We ask that you acknowledge your receipt of this Letter Agreement and your agreement to its terms and conditions by signing and dating this Letter Agreement within seven days of receipt and return an executed copy to Kimberly Stout, Human Resources Manager, BakBone Software, Inc., 9540 Towne Center Drive, San Diego, CA 92121. Fax number 858 795-7688.

BakBone Software, Inc.	Acknowledge, agreed and accepted by:
/s/ James R. Johnson	/s/ Robert G. Wright
James R. Johnson	Robert G. Wright
President and Chief Executive Officer
Date February 9, 2009	Date February 9, 2009

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, James R. Johnson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BakBone Software Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2009

/s/ JAMES R. JOHNSON

James R. Johnson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Steven R. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BakBone Software Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within these entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2009

/s/ STEVEN R. MARTIN

Steven R. Martin

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of BakBone Software, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(a) the accompanying quarterly report on Form 10-Q of the Company for the quarterly period ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2009

/s/ JAMES R. JOHNSON

James R. Johnson

President and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of BakBone Software, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(a) the accompanying quarterly report on Form 10-Q of the Company for the quarterly period ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2009

/s/ STEVEN R. MARTIN

Steven R. Martin

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)