6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2009

Commission File Number: 000-29970

THE DESCARTES SYSTEMS GROUP INC.

(Translation of registrant’s name into English)

120 Randall Drive

Waterloo, Ontario

Canada N2V 1C6

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F o Form 40-F x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

82-_______________.

             The attached adjusted fiscal year 2009 Management Information Circular is being filed by the registrant and is furnished herewith as Exhibit 99.1.  

The attached adjusted fiscal year 2009 Annual Report is being filed by the registrant and is furnished herewith as Exhibit 99.2.

The attached adjusted fiscal year 2009 Consolidated Financial Statements is being filed by the registrant and is furnished herewith as Exhibit 99.3.

The attached adjusted fiscal year 2009 Management Discussion & Analysis is being filed with the registrant and is furnished herewith as Exhibit 99.4.

The attached adjusted fiscal year 2009 Renewal Annual Information Form is being filed by the registrant and is furnished herewith as Exhibit 99.5.

The attached adjusted fiscal year 2010 first quarter Management Discussion & Analysis is being filed by the registrant and is furnished herewith as Exhibit 99.6.

The attached adjusted fiscal year 2010 second quarter Management Discussion & Analysis is being filed by the registrant and is furnished herewith as Exhibit 99.7.

SIGNATURES

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

THE DESCARTES SYSTEMS GROUP INC.
(Registrant)
By:	/s/ J. Scott Pagan
Name:	J. Scott Pagan
Title:	Executive Vice President of Corporate Development, General Counsel and Corporate Secretary

Date: October 2, 2009

EXHIBITS

Exhibit No.	Description
99.1	Adjusted Fiscal Year 2009 Management Information Circular
99.2	Adjusted Fiscal Year 2009 Annual Report
99.3	Adjusted Fiscal Year 2009 Consolidated Financial Statements
99.4	Adjusted Fiscal Year 2009 Management Discussion & Analysis
99.5	Adjusted Fiscal Year 2009 Renewal Annual Information Form
99.6	Adjusted Fiscal Year 2010 First Quarter Management Discussion & Analysis
99.7	Adjusted Fiscal Year 2010 Second Quarter Management Discussion & Analysis

EX-99.1

NOTICE TO READERS

This Management Information Circular prepared in connection with the May 28, 2009 Annual Meeting of Shareholders of the Company (“Management Information Circular”) dated April 29, 2009 reflects amendments to the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on May 1, 2009.

This Management Information Circular has been amended to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). Our consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (the “fiscal 2009 consolidated financial statements”) have been adjusted to reflect this retrospective adoption of SFAS 141R (the “adjusted fiscal 2009 statements”) and the adjusted fiscal 2009 statements have been filed on SEDAR on the date hereof.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to our adjusted fiscal 2009 statements. We have made corresponding changes in this Management Information Circular to reflect the effect of retrospectively adopting SFAS 141R.

This Management Information Circular does not otherwise reflect events or developments subsequent to April 29, 2009.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

The Descartes Systems Group Inc.

Annual Meeting of Shareholders

to be held on

May 28, 2009

THE DESCARTES SYSTEMS GROUP INC.

Notice of Annual Meeting of Shareholders (“Notice of Meeting”)

Thursday, May 28, 2009

NOTICE IS HEREBY GIVEN THAT the Annual Meeting (the “Meeting”) of holders of common shares (“Common Shares”) of The Descartes Systems Group Inc. (the “Corporation”) will be held on Thursday, May 28, 2009, at the offices of Blake, Cassels & Graydon LLP, 199 Bay Street, Suite 2300, Commerce Court West, Toronto, Ontario, Canada at 11:00 a.m. (Toronto time) for the following purposes:

1. to receive the consolidated financial statements of the Corporation for the fiscal year ended January 31, 2009, together with the auditors’ report thereon;

2. to elect directors;

3. to re-appoint auditors and to authorize the directors to fix the remuneration of the auditors;

4. to transact such further and other business as may properly come before the Meeting or any adjournment thereof.

The specific details of the foregoing matters to be put before the Meeting are set forth in the Management Information Circular accompanying this Notice of Meeting. All shareholders are invited to attend the Meeting. A shareholder of record at the close of business on April 28, 2009 will be eligible to vote at the Meeting unless the shareholder has transferred any Common Shares after that date and the transferee properly establishes ownership of such Common Shares and demands, prior to the commencement of the Meeting, that the transferee’s name be included in the list of shareholders eligible to vote at the Meeting.

Registered shareholders who are unable to attend the meeting in person are requested to complete, date and sign the enclosed form of proxy and send it in the enclosed envelope or otherwise to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 9^th Floor, Toronto, Ontario, Canada, M5J 2Y1, facsimile number (866) 249-7775. To be effective, a proxy must be received by Computershare Investor Services Inc. not later than 11:00 a.m. (Toronto time) on May 27, 2009 or, in the case of any adjournment of the Meeting, not less than 24 hours, Saturdays, Sundays and holidays excepted, prior to the time of the adjournment.The return of the form of proxy will not affect your right to vote in person if you attend the Meeting.

Non-registered shareholders who receive these materials through their broker or other intermediary are requested to follow the instructions for voting provided by their broker or intermediary, which may include the completion and delivery of a voting instruction form.

Dated at Waterloo, Ontario, Canada on April 29, 2009.

BY ORDER OF THE BOARD OF DIRECTORS

J. Scott Pagan

EVP, Corporate Development, General Counsel & Corporate Secretary

THE DESCARTES SYSTEMS GROUP INC.

Management Information Circular

for the

Annual Meeting of Shareholders

Thursday, May 28, 2009

SOLICITATION OF PROXIES

This management information circular (this “Circular”) is furnished in connection with the solicitation by and on behalf of management (the “Management”) of The Descartes Systems Group Inc. (the “Corporation”) of proxies to be used at the Corporation’s annual meeting (the “Meeting”) of holders of common shares of the Corporation (the “Common Shares”) to be held on Thursday, May 28, 2009 at 11:00 a.m. (Toronto time) or at any adjournment(s) thereof. It is expected that the solicitation will be primarily by mail, but proxies may also be solicited personally, by advertisement, by telephone by employees of the Corporation without special compensation, or by the Corporation’s transfer agent, Computershare Investor Services Inc. at a nominal cost. The cost of solicitation will be borne by the Corporation.

APPOINTMENT OF PROXYHOLDER

The persons specified in the enclosed form of proxy are officers of the Corporation. A shareholder has the right to appoint as a proxyholder a person or company (who need not be a shareholder of the Corporation) other than the persons designated by Management of the Corporation in the enclosed form of proxy to attend and act on the shareholder’s behalf at the Meeting or at any adjournment(s) thereof. Such right may be exercised by inserting the name of the person or company in the blank space provided in the enclosed form of proxy or by completing another form of proxy.

A person or company whose name appears on the books and records of the Corporation as a holder of Common Shares is a registered shareholder. A non-registered shareholder is a beneficial owner of Common Shares whose shares are registered in the name of an intermediary (such as a bank, trust company, securities dealer or broker, or a clearing agency in which an intermediary participates).

To be effective, a proxy must be received by Computershare Investor Services Inc. not later than 11:00 a.m. (Toronto time) on May 27, 2009 or, in the case of any adjournment of the Meeting, not less than 24 hours, Saturdays, Sundays and holidays excepted, prior to the time of the adjournment.

Registered Shareholders

A registered shareholder can vote Common Shares owned by it at the Meeting in one of two ways – either in person at the Meeting or by proxy. A registered shareholder who wishes to vote in person at the Meeting should not complete or return the form of proxy included with this Circular. Those registered shareholders choosing to attend the Meeting will have their votes taken and counted at the Meeting. A registered shareholder who does not wish to attend the Meeting or does not wish to vote in person should properly complete and deliver the enclosed form of proxy, and the Common

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Shares represented by the shareholder’s proxy will be voted or withheld from voting in accordance with the instructions indicated on the form of proxy, or any ballot that may be called at the Meeting or any adjournment(s) thereof.

A registered shareholder may submit his or her proxy by mail or by facsimile in accordance with the instructions below.

Voting by Mail. A registered shareholder may vote by mail by completing, dating and signing the enclosed form of proxy and returning it using the envelope provided or otherwise to the attention of the Corporation’s transfer agent at the Proxy Department of Computershare Investor Services Inc., 100 University Avenue, 9^th Floor, Toronto, Ontario, Canada, M5J 2Y1.

Voting by Facsimile. A registered shareholder may vote by facsimile by completing, dating and signing the enclosed form of proxy and returning it by facsimile to Computershare Investor Services Inc. at (866) 249-7775.

Non-Registered Shareholders

The Corporation has distributed copies of this Circular and accompanying Notice of Meeting to intermediaries for distribution to non-registered shareholders. Unless the non-registered shareholder has waived his or her rights to receive these materials, an intermediary is required to deliver them to the non-registered shareholder and to seek instructions on how to vote the Common Shares beneficially owned by the non-registered shareholder. In many cases, intermediaries will have used a service company to forward these Meeting materials to non-registered shareholders.

Non-registered shareholders who receive these Meeting materials will typically be given the ability to provide voting instructions in one of the following two ways.

Usually a non-registered shareholder will be given a voting instruction form which must be completed and signed by the non-registered shareholder in accordance with the instructions provided by the intermediary. In this case, a non-registered shareholder cannot use the mechanisms described above for registered shareholders and must follow the instructions provided by the intermediary (which in some cases may allow the completion of the voting instruction form by telephone or the internet).

Occasionally, however, a non-registered shareholder may be given a proxy that has already been signed by the intermediary. This form of proxy is restricted to the number of Common Shares beneficially owned by the non-registered shareholder but is otherwise not completed. This form of proxy does not need to be signed by the non-registered shareholder. In this case, the non-registered shareholder can complete the proxy and vote by mail or facsimile only, as described above for registered shareholders.

These procedures are designed to enable non-registered shareholders to direct the voting of their Common Shares. Any non-registered shareholder receiving either a form of proxy or a voting instruction form who wishes to attend and vote at the Meeting in person (or to have another person attend and vote on their behalf) should, in the case of a form of proxy, strike out the names of the persons identified in the form of proxy as the proxyholder and insert the non-registered shareholder’s (or such other person’s) name in the blank space provided or, in the case of a voting instruction form, follow the corresponding instructions provided by the intermediary. In either case, the non-registered shareholder should carefully follow the instructions provided by the intermediary.

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REVOCATION OF PROXIES

A shareholder who has given a proxy may revoke it by depositing an instrument in writing signed by the shareholder or by the shareholder’s attorney, who is authorized in writing, or by transmitting, by telephonic or electronic means, a revocation signed by electronic signature by the shareholder or by the shareholder’s attorney, who is authorized in writing, to the attention of the Corporate Secretary of the Corporation at 120 Randall Drive, Waterloo, Ontario, Canada, N2V 1C6, or facsimile number (519) 883-4442, at any time up to 11:00 a.m. (Toronto time) on May 27, 2009, or in the case of any adjournment of the Meeting, 11:00 a.m. (Toronto time) on the last business day preceding the date of the adjournment, or with the Chair of the Meeting on the day of, and prior to the start of, the Meeting or any adjournment thereof. A shareholder may also revoke a proxy in any other manner permitted by law.

VOTING OF PROXIES

On any ballot that may be called for, Common Shares represented by properly executed proxies in favour of the persons specified in the enclosed form of proxy will be voted for or withheld from voting in accordance with the instructions given thereon. If the shareholder specifies a choice with respect to any matter to be acted upon, the Common Shares will be voted accordingly. If no choice is specified in the proxy with respect to a particular matter, the Common Shares represented by the proxy will be voted FOR such matter.

The enclosed form of proxy confers discretionary authority upon the persons specified in the proxy to decide how to vote on any amendment(s) or variation(s) to matters identified in the accompanying Notice of Meeting and on any other matters which may properly come before the Meeting or any adjournment(s) thereof. As of the date of this Circular, Management is not aware of any such amendment, variation or other matters. However, if any amendments or variations to matters identified in the accompanying Notice of Meeting, or any other matters that are not now known to Management, should properly come before the Meeting or any adjournment thereof, the Common Shares represented by proxies given in favour of the persons designated by Management in the enclosed form of proxy will be voted by those persons pursuant to such discretionary authority.

VOTING OF SHARES

As at April 28, 2009,the Corporation had 53,036,527 Common Shares issued and outstanding, each entitling the holder to one vote. The board of directors (the “Board” or the “Board of Directors”) has fixed April 28, 2009 as the record date for the Meeting. Shareholders of record at the close of business on April 28, 2009 are entitled to vote the Common Shares registered in their name at that date on each matter to be acted upon at the Meeting.

Under normal conditions, confidentiality of voting is maintained by virtue of the fact that proxies and votes are tabulated by the Corporation’s transfer agent. However, such confidentiality may be lost as to any proxy or ballot if a question arises as to its validity or revocation or any other like matter. Loss of confidentiality may also occur if the Board of Directors decides that disclosure is in the interest of the Corporation or its shareholders.

At least two people present at the Meeting, in person or by proxy, holding or representing by proxy not less than 20% of the Common Shares entitled to vote at the Meeting shall constitute a quorum at the Meeting. A quorum is required only at the opening of the Meeting. Each Common Share is entitled to one vote, without cumulation, on each matter to be voted on at the Meeting. A simple majority of votes cast at the Meeting, whether in person or by proxy, will constitute approval of any matter submitted to a vote.

The Corporation has been granted an exemption from the NASDAQ Marketplace Rules requiring a quorum at any meeting of the holders of Common Shares of no less than 33 1/3% of the outstanding Common Shares. This exemption was granted because the requirements of the NASDAQ Stock Market (“NASDAQ”) regarding the quorum required for meetings of the holders of Common

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Shares are not consistent with generally accepted business practices in Canada. In particular, Section 139(1) of the Canada Business Corporations Act provides that a company’s by-laws may set the quorum requirements for a meeting of shareholders.

PRINCIPAL HOLDERS OF VOTING SHARES

To the knowledge of the directors and executive officers of the Corporation, as at April 28, 2009, no person or company beneficially owned or controlled or directed, directly or indirectly, more than 10% of the votes attached to the outstanding Common Shares except for the following:

PRIMECAP Management Company, which reported on December 31, 2008 that it beneficially owned or controlled or directed, directly or indirectly, 5,316,290 Common Shares, representing 10.02% of the Common Shares outstanding as at April 28, 2009.

CURRENCY

In this Circular, unless otherwise specified or the context otherwise requires, all references to “$” and “US$” are to U.S. dollars and all references to “Cdn.$” are to Canadian dollars. All currency amounts, except where otherwise indicated, have been converted into U.S. dollars at the closing foreign exchange rate on January 30, 2009. At that date, the exchange rate, as reported by the Bank of Canada, was US$1.00 = Cdn.$1.2265.

MATTERS TO BE ACTED UPON AT THE MEETING

1. Presentation of Financial Statements

The audited consolidated financial statements of the Corporation for the fiscal year ended January 31, 2009 and the report of the auditors thereon accompany this Circular or have been mailed to shareholders separately and will be submitted to the Meeting. No vote will be taken on the financial statements.

2. Election of Directors

The number of directors to be elected at the Meeting is six. Under the Corporation’s current by-laws, directors of the Corporation are elected annually. Each director will hold office until the next annual meeting or until the successor of such director is duly elected or appointed, unless such office is earlier vacated in accordance with the by-laws.

The nominees proposed for election as directors, who were recommended to the Board of Directors by the Nominating Committee, are listed under the heading “Director Nominees” in the table below. All nominees are currently directors of the Corporation.

The Board of Directors has adopted a policy (the “Majority Voting Policy”) whereby any nominee in an uncontested election who receives, from the Common Shares voted at the Meeting in person or by proxy, a greater number of Common Shares withheld from voting than Common Shares voted in favour of his or her election, must promptly tender his or her resignation to the Chairman of the Board, to take effect on acceptance by the Board. The Corporate Governance Committee will expeditiously consider the director’s offer to resign and make a recommendation to the Board as to whether to accept it. The Board will have 90 days to make a final decision and announce it by way of press release. The director will not participate in any committee or Board deliberations on the resignation offer.

In the absence of a contrary instruction, the persons designated in the enclosed form of proxy intend to vote FOR the nominees listed under the heading “Director Nominees”.

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Management does not contemplate that any of the nominees will be unable to serve as a director, but if that should occur for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another nominee in their discretion.

The following table sets forth information regarding each person proposed to be nominated for election as a director, including the number of Common Shares beneficially owned, or controlled or directed, directly or indirectly, by such person or the person’s associates or affiliates as at the date of this Circular. In the table, information as to Common Shares beneficially owned, or controlled or directed, directly or indirectly, not being within the knowledge of the Corporation, has been furnished by the respective proposed nominees individually.

Director Nominees	Director Since	Common Shares	Deferred Share Units	Restricted Share Units	Stock Options
David I. Beatson Hillsborough, California, U.S.A. Member of the Audit Committee Chair of the Compensation Committee	2006	0	8,297	6,811	60,000
Since December 2006, Mr. Beatson has been CEO of GlobalWare Solutions, a full-service provider of supply chain management solutions with operations in North America, Europe and Asia. Since August 2001, Mr. Beatson has been head of Ascent Advisors, LLC, a San Francisco Bay Area consulting firm focusing on strategic planning and mergers and acquisitions. From June 2003 to April 2005, Mr. Beatson was President and Chief Executive Officer of North America for Panalpina, Inc., a world-leading global transportation and logistics supplier based in Basel, Switzerland. Previously, Mr. Beatson served as Chairman, President and CEO of Circle International Group, Inc., a global transportation and logistics company, and as President and CEO of US-based air-freight forwarder Emery Worldwide. Mr. Beatson serves as an industry representative member of the Executive Advisory Committee to the National Industrial Transportation League, on the board of directors of PFSweb, Inc. (NASDAQ: PFSW) and on several other corporate and industry boards.
Michael Cardiff Toronto, Ontario, Canada	2007	0	5,922	15,535	0
Mr. Cardiff is the Chief Executive Officer of Accelerents Inc., a strategic consulting company focusing on mergers, acquisitions, sales and marketing. Accelerents' clients include private equity and venture capital firms, as well as public and private corporations. Prior to his role with Accelerents, from 2005 to 2006, Mr. Cardiff was President and CEO at Inea Corporation, a provider of business performance management software for financial institutions, and led its sale to Cartesis Corp. Prior to his role at Inea, from 2003 to 2005, Mr. Cardiff was President and CEO of Fincentric Corporation, a software provider for global financial institutions. Prior to his role at Fincentric, from 1999 to 2003, Mr. Cardiff was Executive Vice President of business and technology solution provider EDS Canada Inc. Mr. Cardiff serves on the boards of directors of public and private companies, including Burntsand Inc. (TSX:BRT), Hydrogenics Corp (TSX:HYG; NASDAQ:HYGS) and Software Growth Company (CDNX:SGW-P.V).
J. Ian Giffen, C.A. Toronto, Ontario, Canada Chairman of the Board Chair of the Audit Committee Member of the Corp. Governance Committee Member of the Nominating Committee	2004	10,000	10,683	10,294	118,500
Mr. Giffen is a chartered accountant with an extensive technology background. Since 1996 he has acted as a senior advisor and board member to software companies and technology investment funds. From 1992 to 1996, Mr. Giffen was Vice President and Chief Financial Officer at Alias Research Inc., a developer of 3D software, which was sold to Silicon Graphics Inc. Mr. Giffen is currently a director of publicly-traded Absolute Software Corporation (TSX:ABT), MKS Inc. (TSX:MKX) and Ruggedcom Inc. (TSX:RCM), as well as a director/advisor to several private companies.
Chris Hewat, LL.B., M.B.A. Toronto, Ontario, Canada Member of the Corp. Governance Committee	2000	1,000	14,199	6,811	118,500

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Mr. Hewat is a partner in the law firm of Blake, Cassels & Graydon LLP, having joined the firm in 1987. Mr. Hewat's practice consists of advising companies and investment dealers with respect to securities and business law matters, with particular focus on private and public offerings of securities, mergers and acquisitions, and securities regulatory requirements. Mr. Hewat has served as a director of a number of private and public companies, and is a director of The Arthritis Society, Ontario Division.
Arthur Mesher Waterloo, Ontario, Canada Chief Executive Officer	2005	17,800	0	282,865	1,417,106
Mr. Mesher is the Chief Executive Officer of the Corporation. Mr. Mesher first joined the Corporation in 1998 as Executive Vice-President, Strategic Development. Before joining the Corporation, Mr. Mesher launched Integrated Logistics Strategies Services for the Gartner Group, building the practice into a leading advisor to major global corporations. Prior to Gartner, Mr. Mesher was president of Advanced Logistics Research, where he helped numerous multinational companies develop and deploy emerging technology-based supply chain strategies.
Dr. Stephen Watt, B.Sc., M.Math, Ph.D. London, Ontario, Canada Member of the Compensation Committee Chair of the Corp. Governance Committee Chair of the Nominating Committee	2001	0	26,330	6,811	203,296
Dr. Watt is professor of Computer Science at the University of Western Ontario and served as Chair of the Computer Science department from 1997-2002. There, he directs the Ontario Research Centre for Computer Algebra. Prior to joining the faculty at the University of Western Ontario, Dr. Watt was a member of the research staff at the IBM T.J. Watson Research Center and professor at the University of Nice. Dr. Watt's areas of research include computer algebra, programming languages, compiler implementation and XML technologies. Dr. Watt has received several research awards, including the 1999 Ontario Premier's Research Excellence Award and the 2002 Distinguished Research Professorship from the University of Western Ontario. Dr. Watt also serves as a director of Waterloo Maple Inc. and as a director of The Fields Institute for Research in Mathematical Sciences. Dr. Watt served as Chairman of the Board of the Corporation from September 2003 to May 2007.

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3. Re-appointment of Auditors and Authorization of Board of Directors to fix the Remuneration of the Auditors

At the Meeting, the holders of Common Shares will be requested to vote on the re-appointment of Deloitte & Touche LLP, Independent Registered Chartered Accountants and Licensed Public Accountants, as auditors of the Corporation to hold office until the next annual meeting of shareholders or until a successor is appointed, and to authorize the Board of Directors to fix the auditors’ remuneration. Deloitte & Touche LLP have been the auditors of the Corporation since the fiscal year ended January 31, 1997. For the fiscal year ended January 31, 2009 (“fiscal 2009”) and the fiscal year ended January 31, 2008 (“fiscal 2008”), the Corporation incurred the fees set out below for the services of Deloitte & Touche LLP. Fees billed in Canadian dollars are presented in U.S. dollars using the Bank of Canada closing foreign exchange rate on the last day of the applicable fiscal period.

Audit Fees

Audit fees were approximately $299,984 for fiscal 2009 as compared to $551,071 for fiscal 2008. Audit fees consist of fees for professional services rendered for the audit of the Corporation’s consolidated annual financial statements and the accompanying attestation report regarding the Corporation’s internal control over financial reporting contained in the Corporation’s Annual Report on Form 40-F, the review of financial information included in the Corporation’s interim financial reports, and services provided in connection with statutory and regulatory filings or engagements including fees for statutory audit of the Corporation’s foreign subsidiaries.

Audit-Related Fees

Audit-related fees were approximately $105,954 for fiscal 2009 as compared to $212,369 for fiscal 2008. Such fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Corporation’s financial statements and are not reported as “Audit Fees”, and include accounting research concerning financial accounting and reporting standards.

Tax Fees

There were no fees for tax services for fiscal 2009 as compared to $7,103 for fiscal 2008. Tax fees for fiscal 2008 consisted of fees for professional services rendered for tax compliance, tax advice and tax planning. These services included the preparation of tax returns and assistance and advisory services regarding income, capital and indirect tax compliance matters.

All Other Fees

There were no fees for other services for fiscal 2009 or fiscal 2008.

In the absence of a contrary instruction, the persons designated by Management of the Corporation in the enclosed form of proxy intend to vote FOR the re-appointment of Deloitte & Touche LLP, Independent Registered Chartered Accountants, as auditors of the Corporation to hold office until the next annual meeting of shareholders or until a successor is appointed and to authorize the Board of Directors to fix the auditors’ remuneration.

4. Other Matters

The Corporation knows of no other matters to be submitted to the shareholders at the Meeting. If any other matters properly come before the Meeting, it is the intention of the persons named in the enclosed form of proxy to vote the Common Shares they represent in accordance with their judgment on such matters.

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SHARE-BASED COMPENSATION PLANS

Common Shares Authorized for Issuance Under Equity Compensation Plans

The following table sets out, as of January 31, 2009 and April 28, 2009, the number and price of Common Shares to be issued under equity compensation plans to employees, directors and others. The percentages in parentheses in the table are the number of options as a percentage of the Corporation’s Common Shares outstanding as of each of January 31, 2009 (53,013,227) and April 28, 2009 (53,036,527).

Plan Category		(A) Number of Common Shares to be issued upon exercise of outstanding options, warrants and rights (#)	(B) Weighted-average exercise price of outstanding options, warrants and rights ($)	(C) Number of Common Shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A)) (#)
Equity compensation plans approved by shareholders (1)	As of January 31, 2009	5,172,908 (9.8%)	Cdn.$3.46	229,757 (0.4%)
	As of April 28, 2009	5,136,658 (9.7%)	Cdn.$3.45	242,707 (0.5%)
Equity compensation plans not approved by shareholders(2)	As of January 31, 2009	121,737 (0.2%)	Cdn.$8.77	0
	As of April 28, 2009	161,437 (0.3%)	Cdn.$7.46	0
TOTAL	As of January 31, 2009	5,294,645 (10.0%)	Cdn.$3.58	229,757 (0.4%)
	As of April 28, 2009	5,298,095 (10.0%)	Cdn.$3.57	242,707 (0.5%)

Notes:

(1) The Corporation’s 1998 Stock Option Plan, described in more detail below, is the only equity compensation plan that has been approved by shareholders.

(2) The equity compensation plans not approved by shareholders, described in more detail below, consist of three plans and other options grants which the Corporation assumed or granted in connection with acquisitions in prior fiscal periods.   The Corporation has agreed to issue Common Shares upon the exercise of options under such plans and grants, but no post-acquisition grants under such plans have been made or will be made.

1998 Shareholder Approved Stock Option Plan

The Corporation’s 1998 Stock Option Plan is the only equity compensation plan that has been approved by shareholders. Eligible participants (“Participants”) under the plan are directors, officers, key employees and service providers of the Corporation. Participants under the plan are eligible to be granted options to purchase Common Shares at an established exercise price upon approval of the grant by the Board of Directors. The table above identifies, as at each of January 31, 2009 and April 28, 2009, the aggregate number of options outstanding pursuant to the 1998 Stock Option Plan and the aggregate number of options remaining available for future issuance. The aggregate number of Common Shares reserved for issuance under the 1998 Stock Option Plan and any other option

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arrangement at any time to any one individual must not exceed 5% of the issued and outstanding Common Shares (on a non-diluted basis). No options may be granted to any non-executive director if such grant would, at the time of the grant, result in the aggregate number of Common Shares reserved for issuance pursuant to all of the Corporation’s share compensation arrangements to non-executive directors exceeding 0.75% of the issued and outstanding Common Shares.

When options are granted, the exercise price is determined as the highest of the closing sale prices for board lots of Common Shares on the stock exchanges on which the Common Shares are listed on the first business day immediately preceding the day on which the grant was made. The 1998 Stock Option Plan does not authorize grants of options with an exercise price below this market price. Vesting rules for stock option grants are determined by the Board of Directors and set out in the option grant agreement between the Participant and the Corporation. The typical vesting rules for employee grants are annual vesting over five years, and the typical vesting rules for directors and executive officers are quarterly vesting over five years. The term of the options is also set by the Board of Directors and set out in the option grant agreement; provided that, pursuant to the terms of the 1998 Stock Option Plan, the term of the option may not exceed 10 years from the date of the grant. All options that have been granted pursuant to the 1998 Stock Option Plan to-date have terms of seven years, other than a single grant in 2001 for 109,091 options that had a ten-year term. Options that would expire within, or within the 10 business days that follow, a trading black-out may be exercised within 10 business days following such trading black-out.

The 1998 Stock Option Plan addresses the implications for option exercise rights in the case of the termination of a Participant’s employment, the removal or non re-election of a Participant who is a director, and the death of a Participant, all of which are subject to the discretion of the Board of Directors to establish alternate treatment on a case-by-case basis. In the event of the termination of the Participant’s employment with the Corporation for cause or the removal of a Participant who is a director of the Corporation prior to the end of his or her term, each vested and unvested option granted to that Participant immediately terminates. In the event of the death of a Participant, all options that have vested may be exercised by the Participant’s estate at any time within six months from the date of death. If a Participant’s employment with the Corporation is terminated other than for cause or a director is not re-elected to the Board of Directors, each option granted to the Participant that has not vested will immediately terminate and each option that has vested may be exercised by the Participant at any time within six months of the date of termination or non re-election, as the case may be.

Except as specified above, options granted under the 1998 Stock Option Plan may only be exercised by a Participant personally and no assignment or transfer of options, other than to a personal retirement savings plan, is permitted.

While the 1998 Stock Option Plan permits low-interest or interest-free full recourse loans to Participants to finance the purchase of Common Shares pursuant to options granted, the Corporation has not granted any such financial assistance in the past and has no current intention to do so in the future.

The following types of amendments to the 1998 Stock Option Plan require shareholder approval: (i) any increase in the maximum number of Common Shares in respect of which the options may be granted under the 1998 Stock Option Plan; (ii) any amendment that would reduce the option exercise price at which options may be granted below the minimum price currently provided for in the 1998 Stock Option Plan; (iii) any amendment that would increase the limits on the total number of Common Shares issuable to any one individual under the 1998 Stock Option Plan or to any one insider of the Corporation and the insider’s associates; (iv) any amendment that would increase the limits on the total number of Common Shares reserved for issuance pursuant to options granted to insiders of the Corporation or for issuance to insiders within a one-year period; (v) any amendment that would increase the maximum term of an option granted under the 1998 Stock Option Plan; (vi) any amendment that would extend the expiry date of any outstanding option, except in the case of termination of an employee in which case no option shall be extended beyond the expiry date specified

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at the time of grant; (vii) any amendment that would reduce the exercise price of an outstanding option (other than as may result from general anti-dilution adjustments provided for in the 1998 Stock Option Plan); (viii) any amendment that would allow an option to be cancelled and re-issued to the same person at a lower exercise price; (vii) any amendment that would reduce the exercise price of an outstanding option; (viii) any amendment that would permit assignments to persons not currently permitted under the 1998 Stock Option Plan; (ix) any amendment that would expand the scope of those persons eligible to participate in the 1998 Stock Option Plan; and (x) any amendment that would require shareholder approval under applicable law (including, without limitation, the rules, regulations and policies of the Toronto Stock Exchange (the “TSX”) and NASDAQ).

Any amendment to the 1998 Stock Option Plan other than those listed above may be made by the Board of Directors without shareholder approval, including, without limitation, amendments relating to (i) the vesting provisions of the 1998 Stock Option Plan or any option granted under the 1998 Stock Option Plan; (ii) the early termination provisions of the 1998 Stock Option Plan or any option granted under the 1998 Stock Option Plan; (iii) the addition of any form of financial assistance by the Corporation for the acquisition by all or certain categories of participants, and the subsequent amendment of any such provision which is more favourable to such participants; (iv) the suspension or termination of the 1998 Stock Option Plan; (v) any other amendment, whether fundamental or otherwise, not requiring shareholder approval under applicable law (including, without limitation, the rules, regulations and policies of the TSX and NASDAQ). Any such amendments remain subject to any approval required by the rules of any stock exchange on which the Common Shares are listed and other requirements of applicable law.

As of April 28, 2009, an aggregate of 3,275,422 options granted pursuant to the 1998 Stock Option Plan have been exercised for Common Shares since the 1998 Stock Option Plan’s inception, representing 6.2% of the 53,036,527 Common Shares outstanding as of April 28, 2009 (without adjustment in respect of the Corporation’s acquisition of 11,578,000 of its Common Shares on July 17, 2003).

Non-Shareholder Approved Stock Option Plans

The Corporation has three employee stock option plans and one employee stock option grant not approved by shareholders, which plans and grant are substantially similar to the 1998 Stock Option Plan described above except as specifically identified in this section. Under these plans and grant the Corporation assumed obligations in connection with acquisitions in prior fiscal periods. The Corporation has agreed to issue Common Shares upon the exercise of options under such plans, but no post-acquisition grants under such plans or grant have been, or will be, made.

The Corporation assumed the E-Transport 1997 Stock Option Plan in connection with its acquisition of E-Transport Incorporated (formerly known as D.X.I. Incorporated) in February 2000. No grants have been made pursuant to this plan subsequent to the completion of the acquisition. Options that were granted pursuant to this plan may qualify as incentive stock options for U.S. tax purposes. Incentive stock options are non-transferable under the plan. Options may only be exercised by the holder, his or her guardian or legal representative. On death, options may be transferred to and exercised by a designated beneficiary or in accordance with applicable succession law. Options expire 10 years from the grant date.

The Corporation assumed the Centricity Stock Incentive Plan in connection with its acquisition of Centricity, Inc. (formerly known as GlobalTran, Inc.) in July 2001. No grants have been made pursuant to this plan subsequent to the completion of the acquisition. Options that were granted pursuant to this plan may qualify as incentive stock options for U.S. tax purposes. Incentive stock options are non-transferable under the plan. Options may only be exercised by the holder, his or her guardian, legal representative or other representative approved by the Board of Directors. On death, options may be transferred to and exercised by a designated beneficiary or in accordance with applicable succession law. Options expire 10 years from the grant date. Options expire 90 days after employment termination; provided that options expire immediately if employment is terminated for

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cause as defined in the plan. Vesting of options ceases on employment termination, regardless of the manner of such termination.

The Corporation assumed the ViaSafe Amended and Restated Stock Option Plan in connection with its acquisition of ViaSafe Inc. in April 2006. No grants have been made pursuant to this plan subsequent to the completion of the acquisition.

On February 5, 2009, in connection with the Corporation’s acquisition of the US and Canadian logistics businesses of Oceanwide Inc. (“Oceanwide”), the Corporation granted an option to purchase 40,000 Common Shares with an exercise price of Cdn.$3.44 to Jonathan Wasserman, former chief operating officer of Oceanwide and current Senior Vice President, Compliance Solutions of the Corporation. The option is granted on terms substantially similar to the 1998 Stock Option Plan, vests in equal installments over a period of five years from the date of the grant, and expires seven years from the date of the grant.

Directors’ DSU Plan

The Corporation adopted a deferred share unit plan (the “DSU Plan”) effective June 28, 2004. Pursuant to the DSU Plan, non-employee directors are entitled to elect to receive deferred stock units (“DSUs”) in full or partial satisfaction of their annual retainers, with each DSU having a value equal to the market price of the Common Shares, which under the DSU Plan is equal to the weighted-average closing price of the Common Shares in the period of five trading days preceding the date of grant. Each director is required to hold DSUs received until the director resigns or is not re-elected, following which the DSU will be redeemed for cash during a prescribed period at a value equal to the market price of the Common Shares prevailing at the date of redemption. No Common Shares are issuable pursuant to the DSU Plan. There are no restrictions on a director assigning his or her entitlement to payment pursuant to the DSU Plan. The Corporation may amend the DSU Plan as it deems necessary or appropriate, but no such amendment may adversely affect the rights of an eligible director in DSUs granted prior to the date of amendment without the consent of the eligible director.

RSU Plan

The Corporation adopted a restricted share unit plan (the “RSU Plan”) effective May 23, 2007. Pursuant to the RSU Plan, full-time employees and outside directors are eligible to receive restricted share units (“RSUs”) in respect of services rendered in a fiscal year. A participant is entitled to receive a payout in respect of each vested RSU, with each RSU having a value equal to the market price of the Common Shares, which under the RSU Plan is equal to the weighted-average closing price of the Common Shares in the period of five trading days preceding the date of the payout. Vesting terms and conditions for the RSUs may be set out in a separate grant agreement, provided that all RSUs automatically vest on December 1^st of the third calendar year following the end of the calendar year that includes the last day of the fiscal year in which services to which the grant of RSUs relates were rendered. Vested RSUs must be paid out by the Corporation by the end of the calendar year in which they vest. No Common Shares are issuable pursuant to the RSU Plan. There are no restrictions on a participant assigning his or her entitlement to payment pursuant to the RSU Plan. The Corporation may amend the RSU Plan as it deems necessary or appropriate, but no such amendment may adversely affect the rights of a participant in RSUs granted prior to the date of amendment without the consent of the participant.

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EXECUTIVE COMPENSATION

Compensation Committee Report

Our Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis. Based on this review and discussion, our Compensation Committee has recommended to the Board that the following Compensation Discussion and Analysis be included in this Circular. This report is provided by the following independent directors, who comprise our Compensation Committee:

David Beatson (Chair), Michael Cardiff and Dr. Stephen Watt

Compensation Discussion and Analysis

Overview of Compensation Program

The Compensation Committee of the Board of Directors (the “Compensation Committee”) is responsible for making recommendations to the Board with respect to the compensation of our principal executive officer, principal financial officer and our three most highly compensated executives, other than our principal executive officer and principal financial officer (collectively, the “Named Executive Officers”). Our Compensation Committee ensures that total compensation paid to our Named Executive Officers is fair and reasonable and consistent with our compensation philosophy. The Named Executive Officers who are the subject of this Compensation Discussion and Analysis are:

• Arthur Mesher — Chief Executive Officer;

• Stephanie Ratza — Chief Financial Officer;

• Edward Ryan — EVP, Global Field Operations;

• J. Scott Pagan — EVP Corporate Development, General Counsel & Corporate Secretary; and

• Chris Jones — EVP Solutions and Services.

Compensation Oversight Process and Use of Compensation Consultants

Our Compensation Committee has responsibility for the oversight of executive compensation and makes compensation recommendations to the Board for final approval. We seek the advice of outside compensation consultants to provide assistance and guidance on compensation issues. Consultants are screened and chosen by our Compensation Committee in discussion with our management. The consultants provide our Compensation Committee with relevant information pertaining to market compensation levels, alternative compensation plan designs, market trends and best practices. The consultants assist our Compensation Committee with respect to determining the appropriate benchmarks for each Named Executive Officer’s compensation.

During fiscal 2009, the Compensation Committee engaged Towers Perrin Inc. (“Towers Perrin”), a human resources consulting services provider, to provide compensation analysis and advice. Our Compensation Committee instructed Towers Perrin to provide the Compensation Committee with analysis and advice regarding current executive compensation practices. Such analysis and advice included:

Executive Compensation – Towers Perrin benchmarked our compensation practices and policies with respect to our five most senior positions against two competitive samples in order to allow us to place our compensation practices for these positions in a market context. The first sample was a survey sample of general industry organizations with revenues less than Cdn.$500 million. The second sample was derived from a proxy statement review of a group of 10 similarly-sized, publicly-traded industry companies. The companies in these sample sets are set forth below in this circular. This benchmarking included a review of base salary, short-term incentives, total cash compensation levels, long-term incentives and total direct compensation.

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Long-Term Equity Incentives – Towers Perrin reviewed our existing long-term equity incentive alternatives, including their respective advantages, disadvantages, and their US and Canadian tax and accounting implications.

Director Compensation– Towers Perrin benchmarked our director compensation practices and policies against a peer group consisting of approximately ten similarly-sized, publicly traded industry comparators in order to allow us to place our compensation practices for the Board of Directors and its committees in a market context. This benchmarking included annual cash retainers, stock retainers and/or equity incentives, board and committee meeting fees, committee retainers, committee chair retainers and Chairman of the Board compensation.

In reaching its conclusions, the Compensation Committee considered Towers Perrin’s analysis and advice, as well as any other factors the Compensation Committee considered appropriate. Decisions made by the Compensation Committee, however, are the responsibility of the Compensation Committee and reflect factors and considerations in addition to the information and recommendations provided by Towers Perrin.

Our Compensation Committee considers the impact of tax and accounting treatment for the different types of compensation programs it approves and aims to ensure that our compensation programs comply with tax, regulatory and accounting requirements in both the United States and in Canada, as well as with applicable securities laws in the United States and in Canada.

Our Compensation Committee met fifteen times during fiscal 2009; Towers Perrin attended six of those fifteen meetings. Management assists in the coordination and preparation of the meeting agenda and materials for each meeting, which are reviewed and approved by the chairman of our Compensation Committee. Following the approval of the chairman of our Compensation Committee, meeting materials are generally delivered to the other Compensation Committee members and invitees, if any, for review in advance of each meeting.

Role of Executive Officers in the Compensation Process

Our Compensation Committee recommends all compensation decisions with respect to our executive officers to the Board for the Board’s approval. While our Compensation Committee alone makes all recommendations with respect to Mr. Mesher’s compensation, our Compensation Committee considers the recommendations of Mr. Mesher when making compensation decisions regarding all other Named Executive Officers. Our Board conducts the initial discussions and makes the initial decisions with respect to the compensation of Mr. Mesher in a special session from which management (including Mr. Mesher) is absent. Then, our Chairman of the Board communicates its decisions and provides further discussion respecting compensation of executives, including Named Executive Officers, in an executive session in which management is allowed to attend.

Management works with the outside compensation consultants by providing internal information as necessary to facilitate comparisons of our compensation programs to those programs of our peers and competitors.

Compensation Philosophy

We believe that compensation plays an important role in achieving the Corporation’s short- and long-term business objectives that ultimately drive business success in alignment with long-term shareholder goals. Our compensation philosophy is based on three fundamental principles:

Strong link to business strategy— Descartes’ short and long-term goals should be reflected in our overall compensation program;

Performance sensitive— compensation should be linked to operating performance of our organization and fluctuate with performance; and

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Market relevant— our compensation program should provide market competitive pay in terms of value and structure in order to retain existing employees who are performing according to their objectives and to attract new recruits.

Since our organization’s philosophy is to act as one networked enterprise and we operate in one business segment, our compensation package is based primarily on results achieved by the Corporation as a whole. In addition, the Named Executive Officers also have a minority element of their reward package determined by their performance against individual goals that are considered by the Compensation Committee and, in the case of Named Executive Officers other than the CEO, the CEO, in making compensation recommendations.

Compensation Objectives

The objectives of our executive compensation program are as follows:

1. To attract and retain highly-qualified executive officers;

2. To align the interests of executive officers with our shareholders’ interests and with the execution of our business strategy;

3. To evaluate executive performance on the basis of key financial measurements which we believe closely measure the performance of our business, such as revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”). A description and definition of EBITDA used by the Corporation, as well as a reconciliation of EBITDA to net income for fiscal 2009, is included at Schedule “A” to this Circular; and

4. To tie compensation directly to those measurements based on achieving and overachieving predetermined objectives.

1. Attracting and Retaining Highly Qualified Executive Officers

We seek to attract and retain high performing executives by offering (a) competitive compensation; and (b) an appropriate mix and level of short-term and long-term financial incentives.

a. Competitive Compensation

Aggregate compensation for each Named Executive Officer is designed to be competitive. We research and refer to the compensation practices of similarly situated companies in determining our compensation policy. Although we review each element of compensation for market competitiveness, and weight each particular element based on the Named Executive Officer’s role within the Corporation, we are primarily focused on remaining competitive in the market with respect to total compensation.

Our Compensation Committee reviews data related to compensation levels and programs of companies that are similar in size to Descartes and/or operate within our market in the technology industry as one aspect of its assessment of executive compensation. As indicated above, in fiscal 2009, the consultant hired by our Compensation Committee performed an assessment of the compensation of our Named Executive Officers. The consultant used a benchmarking process that compares material elements of our compensation programs to a peer group with similar revenues and business characteristics. The purpose of this process was to:

• Understand the competitiveness of current pay levels for each executive position within the Corporation relative to this peer group;

• Identify and understand any significant differences that may exist between existing compensation levels for the Corporation’s executives and market compensation levels; and

• Serve as a basis for developing salary adjustments and short- and long-term incentive awards for our Compensation Committee’s consideration.

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In this research, the Compensation Committee worked with the consultant to perform a benchmark analysis with respect to all material elements of compensation. During fiscal 2009, the benchmarking was against two sample groups. The first sample was a survey sample of general industry organizations with revenues of less than Cdn.$500 million. The second sample was a group of 10 similarly-sized, publicly-traded technology industry companies whose public executive compensation disclosure was reviewed. The two competitive samples were as follows:

Survey Sample

Cryptologic Inc.	Emergis Inc.
Gentry Resources Ltd.	Great Canadian Gaming Corporation
Grey Wolf Exploration Inc.	Mavrix Fund Management Inc.
Niko Resources Ltd.	Novatel Inc.
Open Text Corporation	QLT Inc.
Saxon Financial Inc.	Sierra Wireless
TeraGo Networks Inc.	Tesco Corporation
TransGlobe Energy Corporation	Vero Energy Inc.

Proxy Sample

20-20 Technologies Inc.	Axia NetMedia Corp.
EasyLink Services International Corp.	I2 Technologies Inc.
Kewill Systems Corp.	Logility Inc.
Manhattan Associates Inc.	MKS Inc.
Versatile Systems Inc.	XATA Corp.

b. Appropriate Mix of Short- and Long-Term Financial Incentives

To motivate our executives to achieve our short-term corporate goals, all of our Named Executive Officers are eligible for our variable short-term incentive plan. Awards made under the short-term incentive plan are made by way of cash payments or, at the election of the Named Executive Officer, in RSUs that vest over a future period of time.

Our practice in the past has been to provide long-term incentive compensation to our Named Executive Officers in the form of (i) periodic grants of stock options which generally vest over a service period of five years, and (ii) RSU grants which generally vest and are paid over a period of three- to five-years. These grants are in addition to any grants made upon the hiring of the Named Executive Officer. These grants are generally not subject to performance or other conditions attached to them. However, as described in more detail below, in fiscal 2009 certain Named Executive Officers (including the CEO) received additional long-term incentive compensation grants in the form of stock options and RSUs that were conditional on the continued employment of the Named Executive Officer.

We attempt to provide a mix of variable short- and long-term financial incentives to Named Executive Officers each year, with greater emphasis on long-term incentives as part of the total compensation package than short-term incentives. We believe that the appropriate mix of short- and long-term incentives will vary depending on the role of the Named Executive Officer and the corporate goals we wish to incentivize that Named Executive Officer to achieve.

Further information regarding the determination and the mechanics of our short-term and long-term incentives is detailed in the following section which discusses the alignment of the Named Executive Officer’s interests with the interests of Descartes’ shareholders.

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2. Aligning the Interests of the Named Executive Officers with the Interests of Descartes’ Shareholders and the Execution of our Business Strategy

We believe that transparent, objective and easily verified corporate goals, combined with individual performance goals, play an important role in creating and maintaining an effective compensation strategy for our Named Executive Officers. Our objective is to facilitate an increase in shareholder value through the achievement of these corporate goals under the leadership of the Named Executive Officers working in conjunction with all of our valued employees.

We use a combination of fixed and variable compensation to motivate our executives to achieve our corporate goals because we believe that achieving these goals contributes to increases in shareholder value. We believe that our focus on this compensation principle and our corporate goals during the period of Mr. Mesher’s leadership has contributed to the Corporation’s Common Share price outperforming the market indices set out below over that same period. Included below is a graph which compares the cumulative total shareholder return on the Common Shares to the cumulative total return of the S&P/TSX Composite Index, NASDAQ Composite Index and the “Software & Services” industry group of the S&P/TSX Composite Index for the Corporation’s last four fiscal years, being the four fiscal years since Mr. Mesher was appointed CEO.

	Jan 31, 2005	Jan 31, 2006	Jan 31, 2007	Jan 31, 2008	Jan 31, 2009
Actual Data (Cdn.$)
Descartes (DSG)	2.23	3.85	4.61	3.77	3.32
S&P/TSX Composite Index	9204.00	11945.64	13034.12	13155.10	8694.90
NASDAQ Composite Index	2062.41	2305.82	2463.93	2389.86	1476.42
Software & Services Industry Subgroup	612.28	600.89	685.29	754.91	728.56
Nominal Data (Cdn.$)
Descartes (DSG)	100	173	207	169	149
S&P/TSX Composite Index	100	130	142	143	94
NASDAQ Composite Index	100	112	119	116	72
Software & Services Industry Subgroup	100	98	112	123	119

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For fiscal 2009, the three basic components of our executive officer compensation program were as follows: (a) fixed salary and benefits; (b) variable short-term incentives; and (c) variable long-term incentives.

a. Fixed Salary and Benefits

Fixed salary and benefits comprise a portion of the total cash-based compensation; however, variable short-term incentives and long-term incentives represent a significant component of total cash-based compensation. Compensation that is “at risk” means compensation that may or may not be paid to the respective executive officer depending on whether the individual is able to meet or exceed his or her applicable performance targets (including corporate performance targets). Although long-term incentives is compensation that is “at risk”, it is an additional incentive used to promote long-term value, and does not represent compensation that is “at risk” in the short-term. The greater the Named Executive Officer’s impact is upon driving the business results, the higher the risk/reward portion of the compensation. The chart below provides the approximate composition of the total short-term cash-based compensation provided to each Named Executive Officer for fiscal 2009:

Named Executive Officer	Fixed Salary and Benefits % (“Not at Risk”)	Short-Term Incentive % (“At Risk”)(1)
Arthur Mesher	68	32
Stephanie Ratza	79	21
Edward Ryan	60	40
J. Scott Pagan	78	22
Chris Jones	80	20

(1) Excludes stock options and RSUs whose value is at risk with the value of the Corporation’s stock price.

The base salary for our Named Executive Officers is reviewed annually. The base salary review for each Named Executive Officer takes into consideration factors such as current competitive market conditions and particular skills, such as leadership ability and management effectiveness, experience, responsibility and proven or expected performance of the particular individual. Our Compensation Committee obtains information regarding competitive market conditions through the assistance of our management and outside compensation consultants.

In reviewing base salary, the performance of each Named Executive Officer is evaluated. The performance of each of the Named Executive Officers other than Mr. Mesher is assessed by Mr. Mesher, in his capacity as the direct supervisor of the four other Named Executive Officers. Our Board assesses the performance of Mr. Mesher.

Recommendations for adjustments to base salary for Named Executive Officers other than Mr. Mesher, if any, are made by Mr. Mesher to our Compensation Committee for consideration which, following its review and assessment process described above, approves salary of those Named Executive Officers pursuant to authority delegated to it and by the Board of Directors. For Mr. Mesher, our Board conducts the initial discussions and makes the initial decisions with respect to Mr. Mesher in a special session from which management is absent. Our Board communicates its decisions directly to Mr. Mesher and provides further discussion in an executive session in which management is allowed to attend.

We also provide various employee benefit programs to all of our employees, which include but are not limited to, medical health insurance; dental insurance; life insurance; and, tax-based retirement savings plans matching contributions. Named Executive Officers

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are also eligible to participate in an executive health care benefits program that is not otherwise available to all of our employees. Pursuant to this program, each Named Executive Officer is eligible to be reimbursed for a limited value of additional health care expenses in excess of the dollar limitations available to all of our employees.

For the tax-based retirement savings plan matching contributions, Named Executive Officers in Canada are eligible to participate in the Corporation’s deferred profit sharing plan (“DPSP”) pursuant to which the Corporation will contribute to the Named Executive Officer’s DPSP account 50% of the Named Executive Officer’s contributions to the Corporation’s group registered retirement savings plan, subject to a maximum contribution by the Corporation of 3% of the Named Executive Officer’s annual base salary. Named Executive Officers in the United States are eligible to participate in the Corporation’s 401(k) plan pursuant to which the Corporation will contribute to the Named Executive Officer’s 401(k) account 3% of the Named Executive Officer’s base salary contributions to the 401(k) plan, subject to a maximum contribution by the Corporation of $2,000.

b. Variable Short-Term Incentives

The amount of the variable short-term incentive payable to each Named Executive Officer is based on the ability of each Named Executive Officer to meet pre-established, company-wide qualitative and quantitative corporate objectives related to improving shareholder value, which are approved by our Board, such as revenues and EBITDA for the fiscal year. Revenues are measured as actual revenues, as derived from the “Revenues” line of our audited annual consolidated statements of operations, with no adjustments or other alterations made to this figure. EBITDA, which is intended to reflect the operational effectiveness of the Corporation’s leadership, is calculated as earnings before interest, taxes, depreciation and amortization (for which the Corporation includes amortization of intangible assets, contingent acquisition consideration, deferred compensation and stock-based compensation). A description and definition of EBITDA used by the Corporation, as well as a reconciliation of EBITDA to net income for fiscal 2009, is included at Schedule “A” to this Circular.

For Mr. Mesher, the amount of variable short-term incentive, if any, that he is awarded is determined on an annual basis in the discretion of the Compensation Committee. In exercising its discretion, the Compensation Committee considers the performance of the Corporation and Mr. Mesher considering factors that include a comparison of the Corporation’s targeted revenues and EBITDA to the Corporation’s actual revenues and EBITDA.

For the Named Executive Officers other than Mr. Mesher and Mr. Ryan, the amount of variable short-term incentive, if any, that is awarded is determined on an annual basis in the discretion of the Compensation Committee. In exercising its discretion, the Compensation Committee considers the revenues and EBITDA performance of the Corporation (as described above) and Mr. Mesher’s recommendation for each such Named Executive Officer.

For the Named Executive Officers other than Mr. Ryan, the amount of any variable short-term incentive is paid in cash or, at the election of the applicable Named Executive Officer, in RSUs vesting and paid over a period of three years from the fiscal year in which the variable short-term incentive was earned.

Mr. Ryan is eligible to earn variable short-term incentives of up to $35,000 per quarter based on the Corporation achieving and exceeding corporate-wide quarterly revenue and EBITDA targets, determined as follows: (i) $12,500 if the Corporation achieves its quarterly revenues target; (ii) $12,500 if the Corporation achieves its quarterly EBITDA

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target; and (iii) 1% of revenues in excess of the Corporation’s quarterly revenues target, up to a maximum of $10,000. The amount, if any, of variable short-term incentives that Mr. Ryan is entitled to in respect of a fiscal period is calculated by the Chief Financial Officer and reviewed by the Chief Executive Officer prior to payment to Mr. Ryan.

c. Variable Long-Term Incentives

We periodically grant options to our Named Executive Officers and to our other employees and new-hires. During each quarter, our Board and Compensation Committee conducts meetings in which it reviews and may approve grants of options. In making its determination, the Board and Compensation Committee consider the recommendations of the CEO other than for contemplated grants to the CEO.

The grant dates for these options abide by the provisions of our Insider Trading Policy, which states, in part, that stock options may not be granted while there is a black-out period. Generally, the black-out period is during the period beginning on the fifteenth day of the last month of each quarter and ending at the beginning of the second trading day following the date on which our quarterly or annual financial results, as applicable, have been publicly released. If our Board approves the issuance of stock options during a black-out period, these stock options are not granted until the black-out period is over.

With respect to stock option grants, our Board, subject to the recommendation of our Compensation Committee, makes the following determinations:

• The Named Executive Officers and others who are entitled to participate in the stock option plan;

• The number of options to be granted under the plan in general and to each recipient in particular;

• The exercise price for each stock option granted;

• The date on which each option is granted;

• The exercise period for each stock option;

• The expiration date of the stock option; and

• The other material terms and conditions of each stock option grant.

Our Board makes these determinations subject to the provisions of the 1998 Stock Option Plan. Gains from prior option grants are not considered when setting the amount of long-term incentive awards, or any other compensation elements, to any Named Executive Officer.

We also periodically grant RSUs to our Named Executive Officers and to our other employees. During each quarter, our Board and Compensation Committee conducts meetings in which it reviews and may approve the grant of RSUs. In making its determination, the Board and Compensation Committee consider the recommendations of the CEO (except for contemplated grants to the CEO). As with stock options, grants of RSUs are generally not made during a black-out period. Grants of RSUs to Named Executive Officers may have quarterly or annual vesting provisions over a period of three- to five-years.

3. Evaluating Executive Performance

Our Board, our Compensation Committee and our management have instituted a set of procedures to evaluate the performance of each of our Named Executive Officers to help determine the amount of the variable short-term incentives and long-term incentives to award to each Named Executive Officer.

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Our Board approves a budget at the outset of a fiscal year which includes annual corporate financial targets for the Named Executive Officers. These corporate financial targets are considered and established in two levels for each of annual revenue and annual EBITDA: (i) a minimum level; and (ii) a high-performance level. While targets are established on an annual basis, the targets are also broken down by quarter to enable the Compensation Committee to monitor the Corporation’s progress towards achievement of the targets. Each of revenue and EBITDA targets are weighted equally by the Compensation Committee for the purposes of determining what, if any, amount of variable short-term incentive compensation is payable. The minimum annual target must be achieved for any variable short-term incentive to be payable in respect of such target. While the amount of any variable short-term compensation is ultimately determined at the discretion of the Board on receiving the recommendation of the Compensation Committee and considering factors including the individual performance of the applicable Named Executive Officer, corporate performance against the minimum high-performance targets for revenues and EBITDA is heavily weighted in that determination.

The following table details the Corporation’s fiscal 2009 quarterly minimum and high-performance targets for both revenues and EBITDA for purposes of its executives’ variable short-term compensation, in millions of US dollars, and the Corporation’s approximate actual unaudited reported revenues and EBITDA results for the applicable corresponding periods:

Fiscal Period	Revenues Minimum Target	Revenues High Performance Target	Revenues Actual	EBITDA Minimum Target	EBITDA High-Performance Target	EBITDA Actual
Q1	$15.9	$16.3	$16.3	$3.8	$3.9	$3.8
Q2	16.2	16.8	17.1	3.9	4.1	4.1
Q3	16.1	16.6	17.0	3.9	4.1	4.4
Q4	16.1	16.7	15.7	4.1	4.3	4.2
Fiscal 2009	64.3	66.4	66.0	15.7	16.4	16.4

In addition to measurement of these quantitative performance metrics, each Named Executive Officer is qualitatively measured on his or her contribution to the development and execution of the Corporation’s business on a short- and long-term basis. For Named Executive Officers other than Mr. Mesher, the evaluation is completed through one-on-one interviews between the Named Executive Officer and Mr. Mesher. For Mr. Mesher, the Compensation Committee evaluates his performance through its own interview of Mr. Mesher as well as by soliciting comments from other directors and members of management. Factors considered include the Named Executive Officer’s contributions to infrastructure development, merger and acquisition activity, strategic planning and initiatives and customer service.

4. Tying Compensation to Measurements of Performance

We determine targeted amounts of variable short-term incentives for each Named Executive Officer at the beginning of the fiscal year. The targeted amounts are calculated as a percentage of the Named Executive Officer’s annual salary or an absolute dollar amount based on market review and on an individual’s ability to influence the overall outcome.

As indicated above, no variable short-term incentive payments are payable unless the minimum quantitative targets have been achieved. While the amount of any variable short-term compensation is ultimately determined at the discretion of the Board on receiving the recommendation of the Compensation Committee and considering factors including the individual performance of the applicable Named Executive Officer, corporate performance approaching the high-performance targets for both revenues and EBITDA is a strong indicator that all or a substantial proportion of the established variable short-term compensation should be payable to the Named Executive Officer. While the determination as to whether a target has been met is strictly formulaic, the Board reserves the right to make positive or negative adjustments if they consider them to be appropriate. There is no maximum level of variable short-term compensation

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set, and accordingly no limit to what the Named Executive Officer may receive in the event that the targets established at the beginning of the fiscal year are exceeded.

We believe that each element of our compensation program requires strong performance from each of our Named Executive Officers in order for the relevant Named Executive Officer to receive the targeted short-term compensation awards. The following table shows the relative at-risk earnings of each Named Executive Officer by setting out the percentage of salary set aside in fiscal 2009 for achieving the established targets (“On-Target Variable Short-Term Eligibility”):

Name	Base Salary ($)	On-Target Variable Short-Term Incentive Eligibility (% of Base Salary)	On-Target Variable Short-Term Incentive Eligibility ($)
Arthur Mesher	Cdn.$340,000	50%	Cdn.$170,000
Stephanie Ratza	Cdn.$180,000	28%	Cdn.$50,000
Edward Ryan	$200,000	70%	$140,000
J. Scott Pagan	Cdn.$240,000	30%	Cdn.$72,000
Chris Jones	$200,000	25%	$50,000

Fiscal 2009 Compensation of Chief Executive Officer

Using the compensation philosophy, objectives and process described above, the Compensation Committee reviewed the compensation of Mr. Mesher in fiscal 2009.

For fiscal 2009, the compensation of Arthur Mesher in his capacity as CEO was reviewed by the Compensation Committee. In developing its recommendations, the Committee considered all factors that it deemed relevant, with equal weighting, including: the operating performance and financial condition of the Corporation; Mr. Mesher’s duties, responsibilities and performance as an officer; the benchmarking evaluation performed by Towers Perrin; current and historical compensation levels within the Corporation and for Mr. Mesher; and the Corporation’s desire to retain Mr. Mesher’s employment through fiscal 2011. A summary of certain aspects of Mr. Mesher’s fiscal 2009 compensation are included in the Summary Compensation table below.

When setting Mr. Mesher’s salary for fiscal 2009, it was determined that a 3.5%, or approximately $10,000, increase to Mr. Mesher’s 2008 salary would be consistent with the benchmarking performed by Towers Perrin, and would recognize Mr. Mesher’s ongoing contribution to the Corporation’s development. However, in light of the current economic environment and other matters, the Compensation Committee recommended to the Board of Directors that Mr. Mesher’s salary remain at its 2008 level of Cdn.$340,000.

The Compensation Committee also determined that Mr. Mesher would be eligible to earn an additional 50% of his base salary, or Cdn.$170,000, as a variable short-term incentives based on the Corporation achieving or exceeding its fiscal 2009 corporate financial targets referenced above. If earned, the variable short-term incentives could be paid in cash or, at the election of Mr. Mesher, granted in the form of RSUs vesting quarterly over three years from the date of the grant.

Following the end of fiscal year 2009, the Compensation Committee considered various factors including, but not limited to, the following:

• that the Corporation had exceeded its high performance EBITDA target;

• that the Corporation had almost achieved its high performance revenues target;

• that the ability of the Corporation to achieve these financial results had been adversely impacted by foreign exchange movement and the general economic downturn;

• that the Corporation had successfully completed one acquisition in the fiscal year and two additional acquisitions immediately following the end of the fiscal year;

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• Mr. Mesher’s significant contribution to corporate planning activities in fiscal 2009; and

• that Mr. Mesher had continued and broadened his industry leadership role as a representative of Descartes.

After consideration of all factors deemed relevant, the Compensation Committee determined to award Mr. Mesher his maximum Cdn.$170,000 variable short-term incentive. As at April 28, 2009, the variable short-term incentive had not been paid to Mr. Mesher. At Mr. Mesher’s election, he can receive the Cdn.$170,000 in cash or in the form of RSUs vesting quarterly over a three-year period.

The Compensation Committee’s principal focus in compensating the CEO in fiscal 2009 was to focus on long-term incentives that would reward Mr. Mesher for his contribution to the creation of shareholder value. After considering various factors, including the benchmarking completed by Towers Perrin, the Compensation Committee determined that Mr. Mesher’s annual eligibility for long-term incentives should be established at 150% of his base salary of Cdn.$340,000, being Cdn.$510,000. In connection with Mr. Mesher signing an new employment agreement and incentivizing Mr. Mesher to remain as CEO through fiscal 2011, the Compensation Committee determined to immediately grant long-term incentives in respect of fiscal 2009, fiscal 2010 and fiscal 2011, or an aggregate of Cdn.$1,530,000 in long-term incentives, as follows (collectively the “Mesher July 2008 Grants”):

• The grant of 199,219 stock options with an exercise price of Cdn.$3.36, vesting quarterly over a period of five years from the date of the grant, with a fair value at the grant date of approximately Cdn.$255,000;

• The grant of 81,994 RSUs vesting quarterly over a period of three years from the date of the grant, valued at approximately Cdn.$255,000 on the date of the grant;

• The conditional grant of 199,219 stock options with an exercise price of Cdn.$3.36, conditional on Mr. Mesher being continuously employed until February 1, 2009, vesting quarterly over a period of five years from the fulfillment of the condition, with a fair value at the grant date of approximately Cdn.$255,000. Mr. Mesher has since fulfilled this condition and the grant became unconditional as at February 1, 2009;

• The conditional grant of 81,994 RSUs, conditional on Mr. Mesher being continuously employed until February 1, 2009, vesting quarterly over a period of three years from the fulfillment of the condition, valued at approximately Cdn.$255,000 on the date of the grant. Mr. Mesher has since fulfilled this condition and the grant became unconditional as at February 1, 2009;

• The conditional grant of 199,218 stock options with an exercise price of Cdn.$3.36, conditional on Mr. Mesher being continuously employed until February 1, 2010, vesting quarterly over a period of five years from the fulfillment of the condition, with a fair value at the grant date of approximately Cdn.$255,000; and

• The conditional grant of 81,993 RSUs, conditional on Mr. Mesher being continuously employed until February 1, 2010, vesting quarterly over a period of three years from the fulfillment of the condition, valued at approximately Cdn.$255,000 on the date of the grant.

In addition to the foregoing terms, the Compensation Committee determined that if Mr. Mesher’s employment is terminated by the Corporation without cause, the stock options granted as part of the Mesher July 2008 grants shall be exercisable by Mr. Mesher for a period of 2 years after the termination event rather than usual period of six months.

The Compensation Committee also determined to amend Mr. Mesher’s employment agreement to have Mr. Mesher re-confirm his non-competition, non-solicitation, confidentiality and other covenants in favour of the Corporation. The amended employment agreement also provides for the payment of certain amounts in respect of unvested amounts from the Mesher July 2008 Grants if Mr. Mesher’s employment is terminated without cause or there is a change of control (as defined in Mr. Mesher’s employment agreement). A summary of the termination and change of control payments and

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other aspects of the amended employment agreement is included below in this Circular in the section entitled “Termination and Change of Control Benefits”.

Fiscal 2009 Compensation of Other Named Executive Officers

The compensation proposed by the CEO for the other Named Executive Officers for fiscal 2009 was reviewed by the Compensation Committee with reference to the recommendations and considerations of the Compensation Committee in determining the level of compensation of the CEO and the compensation philosophy, objectives and process described in this Circular. A summary of certain aspects of the Named Executive Officers’ fiscal 2009 compensation is included in the Summary Compensation table below.

No adjustments were made to the base salaries of any Named Executive Officer in fiscal 2009. The Named Executive Officers, other than Mr. Ryan, were awarded their full eligibility pursuant to the variable short-term incentives in the amounts outlined above in the section “Tying Compensation to Measurements of Performance” and the Summary Compensation table below. These variable short-term incentives payable to the Named Executive Officers, other than Mr. Ryan, have not been paid as at April 28, 2009. The Named Executive Officers, other than Mr. Ryan, may elect to receive their variable short-term incentives in cash or in the form of RSUs vesting quarterly over a period of three-years from the date of the grant. Mr. Ryan’s variable short-term incentives have all been paid.

The following long-term incentives were granted to Named Executive Officers other than Mr. Mesher in respect of fiscal 2009:

J. Scott Pagan

Similar to the methodology described above for the grant of Mr. Mesher’s long-term incentives, after considering various factors, including the benchmarking completed by Towers Perrin, the Compensation Committee determined that Mr. Pagan’s annual eligibility for long-term incentives should be established at 70% of his base salary of Cdn.$240,000, being Cdn.$168,000. In connection with Mr. Pagan signing an new employment agreement and incentivizing Mr. Pagan to remain as EVP Corporate Development, General Counsel and Corporate Secretary through fiscal 2011, the Compensation Committee determined to immediately grant long-term incentives in respect of fiscal 2009, fiscal 2010 and fiscal 2011, or an aggregate of Cdn.$504,000 in long-term incentives, as follows (collectively the “Pagan July 2008 Grants” and referred to herein from time to time collectively with the Mesher July 2008 Grants and Jones July 2008 Grants (as defined below) as the “July 2008 Grants”):

• The grant of 65,625 stock options with an exercise price of Cdn.$3.36, vesting quarterly over a period of five years from the date of the grant, with a fair value at the grant date of approximately Cdn.$84,000;

• The grant of 27,010 RSUs vesting quarterly over a period of three years from the date of the grant, valued at approximately Cdn.$84,000 on the date of the grant;

• The conditional grant of 65,625 stock options with an exercise price of Cdn.$3.36, conditional on Mr. Pagan being continuously employed until February 1, 2009, vesting quarterly over a period of five years from the fulfillment of the condition, with a fair value at the grant date of approximately Cdn.$84,000. Mr. Pagan has since fulfilled this condition and the grant became unconditional as at February 1, 2009;

• The conditional grant of 27,010 RSUs, conditional on Mr. Pagan being continuously employed until February 1, 2009, vesting quarterly over a period of three years from the fulfillment of the condition, valued at approximately Cdn.$84,000 on the date of the grant. Mr. Pagan has since fulfilled this condition and the grant became unconditional as at February 1, 2009;

• The conditional grant of 65,625 stock options with an exercise price of Cdn.$3.36, conditional on Mr. Pagan being continuously employed until February 1, 2010, vesting quarterly over a period of five years from the fulfillment of the condition, with a fair value at the grant date of approximately Cdn.$84,000; and

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• The conditional grant of 27,009 RSUs, conditional on Mr. Pagan being continuously employed until February 1, 2010, vesting quarterly over a period of three years from the fulfillment of the condition, valued at approximately Cdn.$84,000 on the date of the grant.

The Compensation Committee also determined to amend Mr. Pagan’s employment agreement to have Mr. Pagan re-confirm his non-competition, non-solicitation, confidentiality and other covenants in favour of the Corporation. The amended employment agreement also provides for the payment of certain amounts in respect of unvested amounts from the Pagan July 2008 Grants if Mr. Pagan’s employment is terminated without cause or there is a change of control (as defined in Mr. Pagan’s employment agreement). A summary of the termination and change of control payments and other aspects of the amended employment agreement is included below in this Circular in the section entitled “Termination and Change of Control Benefits”.

Chris Jones

Similar to the methodology described above for the grants of Mr. Mesher’s and Mr. Pagan’s long-term incentives, after considering various factors, including the benchmarking completed by Towers Perrin, the Compensation Committee determined that Mr. Jones’ annual eligibility for long-term incentives should be established at 26% of his base salary of $200,000, being $52,000. To incentivize Mr. Jones through fiscal 2011, the Compensation Committee determined to immediately grant long-term incentives in respect of fiscal 2009, fiscal 2010 and fiscal 2011, or an aggregate of approximately $156,000 in long-term incentives, as follows (collectively the “Jones July 2008 Grants”):

• The grant of 16,667 stock options with an exercise price of Cdn.$3.36, vesting annually over a period of five years from the date of the grant, with a fair value at the grant date of approximately $19,000;

• The grant of 13,200 RSUs vesting quarterly over a period of five years from the date of the grant, valued at approximately $33,500 on the date of the grant;

• The conditional grant of 16,667 stock options with an exercise price of Cdn.$3.36, conditional on Mr. Jones being continuously employed until February 1, 2009, vesting quarterly over a period of five years from the fulfillment of the condition, with a fair value at the grant date of approximately $19,000. Mr. Jones has since fulfilled this condition and the grant became unconditional as at February 1, 2009;

• The conditional grant of 13,200 RSUs, conditional on Mr. Jones being continuously employed until February 1, 2009, vesting quarterly over a period of five years from the fulfillment of the condition, valued at approximately $33,500 on the date of the grant. Mr. Jones has since fulfilled this condition and the grant became unconditional as at February 1, 2009;

• The conditional grant of 16,666 stock options with an exercise price of Cdn.$3.36, conditional on Mr. Jones being continuously employed until February 1, 2010, vesting quarterly over a period of five years from the fulfillment of the condition, with a fair value at the grant date of approximately $19,000; and

• The conditional grant of 13,200 RSUs, conditional on Mr. Jones being continuously employed until February 1, 2010, vesting quarterly over a period of five years from the fulfillment of the condition, valued at approximately $33,500 on the date of the grant.

Edward Ryan

After considering various factors, including the benchmarking completed by Towers Perrin, the Compensation Committee determined that Mr. Ryan’s annual eligibility for long-term incentives should be established at 45% of his base salary of $200,000, being $90,000. In connection with incentivizing Mr. Ryan through fiscal 2011, the Compensation Committee determined to immediately grant stock options pursuant to the 1998 Stock Option Plan as long-term incentives for fiscal 2009, fiscal 2010 and fiscal 2011. The Compensation determined to grant Mr. Ryan 200,000 stock options which vest quarterly over five years from the date of the grant, expiring seven years from the date of the grant. The grant had a fair value of approximately $250,000 as at the grant date.

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Stephanie Ratza

After considering various factors, including the benchmarking completed by Towers Perrin, the Compensation Committee determined to make two grants of stock options to Ms. Ratza pursuant to the terms of the 1998 Stock Option Plan, as follows:

• A grant of 50,000 stock options at an exercise price of Cdn.$3.36, vesting quarterly over a period of 5 years from the date of the grant and expiring seven years from the date of the grant; and

• A grant of 50,000 stock options at an exercise price of Cdn.$3.13, vesting quarterly over a period of 5 years from the date of the grant and expiring seven years from the date of the grant.

Summary Compensation Table

The following table sets forth information regarding compensation earned by the Named Executive Officers during fiscal 2009, being the Corporation’s only fiscal year completed after December 31, 2008:

Name and Principal Position	Fiscal Year Ended January 31,	Salary ($)	Share-based Awards2 ($)	Option-based Awards3 ($)	Annual non-equity incentive plan compensation4($)	All Other Compensation5 ($)	Total Compensation ($)
Arthur Mesher1 Chief Executive Officer	2009	277,202	207,909	225,776	138,601	-	849,488
Stephanie Ratza1 Chief Financial Officer	2009	146,754	-	110,069	40,765	-	297,588
Edward Ryan EVP, Global Field Operations	2009	200,000	-	226,661	114,750	-	541,411
J. Scott Pagan1 EVP, General Counsel & Corporate Secretary	2009	195,672	68,488	74,373	58,702	-	397,235
Chris Jones EVP Solutions & Services	2009	200,000	33,500	18,888	50,000	-	302,388

(1) The salary and non-equity incentive plan compensation of Mr. Mesher, Ms. Ratza and Mr. Pagan is paid in Canadian dollars. Amounts included in this table have been converted to US dollars at the rate of 1 US dollar equals 1.2265 Canadian dollars, being the foreign exchange rate reported by the Bank of Canada on January 30, 2009, the last day of fiscal 2009.

(2) Amounts set forth in this column reflect the grant date fair value of RSUs, determined using the number of RSUs granted and the closing price of a Common Share on the TSX on the date of the grant. These amounts do not reflect any financial benefit a Named Executive Officer may have received from the vesting and payment of the awards.

(3) Amounts set forth in this column represent the amount recognized as the accounting share-based payment expense in our consolidated financial statements for fiscal 2009 and do not reflect whether the Named Executive Officer has actually realized a financial benefit from the exercise of the awards. The grant date fair value of a stock option is determined using the Black-Scholes-Merton model. This model is used as it is the model used to value stock options for the purposes of the Corporation’s consolidated financial statements. Details of the options granted in fiscal 2009 are included in the table below called “Outstanding Option-based Awards and Share Based Awards”. In determining the grant date fair value of options granted on July 7, 2008, assumptions and estimates used included a 41.7% volatility factor, 3.4% risk-free rate and 5-year expected life. In determining the grant date fair value of options granted on November 28, 2008, assumptions and estimates used included a 43.8% volatility factor, 2.7% risk-free rate and 5-year expected life. Additional details on key assumptions and estimates used for financial statement purposes are discussed at Note 13 “Stock-based Compensation Plans” to our Consolidated Financial Statements for fiscal 2009.

(4) Annual non-equity incentive plan compensation reflects the entitlement of a Named Executive Officer pursuant to the Corporation’s variable short-term incentives, described earlier in this Circular. Mr. Ryan’s variable short-term incentives were paid on a quarterly basis throughout fiscal 2009, with the last quarterly payment made following fiscal 2009 but prior to April 28, 2009. For Named Executive Officers other than Mr. Ryan, as at April 28, 2009 no variable short-term incentives had been paid, though the amounts are considered earned. The unpaid amounts are expected to be paid during the Corporation’s fiscal year ending January 31, 2010, either in the form of cash or, at the election of the Named Executive Officer, in RSUs.

(5) “Other Annual Compensation” does not include benefits received by the Named Executive Officers which are available generally to all our salaried employees. The total value of all perquisites and other personal benefits for each Named Executive Officer is excluded as it is less than 10% of the Named Executive Officer’s total salary for the financial year and less than Cdn.$50,000.

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Outstanding Option-Based Awards and Share-based Awards

The following table details the outstanding option-based awards and share-based awards for each Named Executive Officer as at January 31, 2009.

	Option-based Awards					Share-based Awards
Name	Grant Date	Number of securities underlying unexercised options (#)	Option Exercise Price (Cdn.$)	Option Expiration Date	Value of unexercised in-the-money options1 ($)	Number of shares or units of shares that have not vested (#)	Market or payout value of share-based awards that have not vested2 ($)
	Dec. 23, 2003	100,000	3.69	Dec. 23, 2010	0
	Sep. 30, 2004	200,000	1.35	Sep. 30, 2011	321,239
	March 7, 2005	479,450	2.46	March 7, 2012	336,182
Arthur Mesher	March 30, 2006	40,000	4.37	March 30, 2013	0
	July 7, 2008	199,219	3.36	July 7, 2015	0
	July 7, 2008	199,2193	3.36	July 7, 2015	0
	July 7, 2008	199,2183	3.36	July 7, 2015	0
						282,865	794,851
	April 2, 2007	175,000	5.05	April 2, 2014	0
Stephanie Ratza	July 7, 2008	50,000	3.36	July 7, 2015	0
	Nov. 28, 2008	50,000	3.13	Nov. 28, 2015	7,746
						9,363	26,310
	March 1, 2002	10,000	7.55	March 1, 2009	0
	Nov. 29, 2002	25,000	5.50	Nov. 29, 2009	0
	Sept. 8, 2003	2,500	3.72	Sept. 8, 2010	0
Edward Ryan	March 12, 2004	37,500	3.18	March 12, 2011	4,280
	Sept. 30, 2004	87,500	1.35	Sept. 30, 2011	140,542
	May 28, 2007	100,000	4.66	May 28, 2014	0
	July 7, 2008	200,000	3.36	July 7, 2015	0
	June 6, 2003	5,000	3.24	June 6, 2010	326
	March 12, 2004	25,000	3.18	March 12, 2011	2,854
	Sept. 30, 2004	100,000	1.35	Sept. 30, 2011	160,620
	March 7, 2005	105,890	2.46	March 7, 2012	74,248
J. Scott Pagan	March 30, 2006	70,000	4.37	March 30, 2013	0
	July 7, 2008	65,625	3.36	July 7, 2015	0
	July 7, 2008	65,6253	3.36	July 7, 2015	0
	July 7, 2008	65,6253	3.36	July 7, 2015	0
						136,661	384,017
	May 27, 2005	200,000	2.64	May 27, 2012	110,885
	July 7, 2008	16,667	3.36	July 7, 2015	0
Chris Jones	July 7, 2008	16,6673	3.36	July 7, 2015	0
	July 7, 2008	16,6663	3.36	July 7, 2015	0
						64,043	179,961

(1) The value of unexercised in-the-money options has been calculated using the difference between the closing price of the Corporation’s Common Shares on the TSX at the end of fiscal 2009 (Cdn.$3.32) and the option exercise price. The value has been reported in US dollars using an exchange rate of 1 US dollar = 1.2265 Canadian dollars, being the foreign exchange rate reported by the Bank of Canada on January 30, 2009, the last day of fiscal 2009. Where the value is $0, the exercise price is higher than Cdn.$3.32. No adjustment has been made for options that have not yet vested and are therefore not yet exercisable.

(2) All share-based awards are in the form of RSUs. The market value of RSUs that have not vested was determined using the closing price of the Common Shares on the NASDAQ at the end of fiscal 2009 ($2.81).

(3) Grant is conditional on continued employment.

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Incentive Plan Awards – Value vested or Earned During Fiscal 2009

Name	Option-based awards – Value vested during the year1 ($)	Share-based awards – Value vested during the year2 ($)	Non-equity incentive plan compensation – Value earned during the year3 ($)
Arthur Mesher	284,784	134,957	138,601
Stephanie Ratza	285	11,890	40,765
Edward Ryan	69,266	0	114,750
J. Scott Pagan	61,843	84,456	58,702
Chris Jones	26,335	34,095	50,000

(1) The total value of stock options that vested in fiscal 2009. The value is equal to the difference between the exercise price of the option and the closing price of the Common Shares reported on the vesting date.

(2) The total value of RSUs vested and paid during fiscal 2009.

(3) Annual non-equity incentive plan compensation reflects the entitlement of a Named Executive Officer pursuant to the Corporation’s variable short-term incentives, described earlier in this Circular. These amounts are also included in the Summary Compensation Table, above.

Termination and Change of Control Benefits

The employment contracts we have entered into with our Named Executive Officers may require us to make certain types of payments and provide certain types of benefits to the Named Executive Officers upon the occurrence of any of these events:

• If the Named Executive Officer is terminated without cause;

• A change in the relationship between the Corporation and the Named Executive Officer; and

• A change of control in the ownership of the Corporation.

When determining the amounts and the type of compensation and benefits to provide in the event of a termination, change in relationship or change in control described above, we considered available information with respect to amounts payable to similarly situated officers of our principal competitors that are listed in the section entitled “Competitive Compensation” which may be found above.

We believe it is in the best interest of the Corporation and its shareholders that the Named Executive Officers are encouraged to focus on the Corporation’s operations. Differences in payment periods, if any, are driven by the position held by the Named Executive Officer and by the Named Executive Officer’s length of service with the Corporation.

Termination Without Cause

If the Named Executive Officer is terminated without cause, we may be obligated to make payments and/or provide benefits to the Named Executive Officer. A termination without cause means a termination of a Named Executive Officer for any reason other than the following:

• The Named Executive Officer’s conviction of a felony or an indictable offense;

• The Named Executive Officer’s material breach of any material representation, warranty, covenant or agreement contained in the Named Executive Officer’s employment agreement, non-disclosure agreement or the Corporation’s Code of Business Conduct and Ethics (the “Code”);

• The Named Executive Officer’s gross and willful misconduct by the Employee;

• The Named Executive Officer’s commission of an act involving embezzlement or fraud;

• The Named Executive Officer’s gross and willful malfeasance or gross and willful non-feasance;

• The Named Executive Officer’s refusal to perform his or her duties; or

• “Cause” as defined at law.

Change in the Relationship Between the Corporation and the Named Executive Officer

If there is a change in the relationship between the Corporation and the Named Executive Officer without the Named Executive Officer’s written consent, we may be obligated to provide payments or

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benefits to the Named Executive Officer, unless such a change is in connection with the termination of the Named Executive Officer either for cause or due to the death or disability of the Named Executive Officer. Some examples of such a change in the relationship between the Named Executive Officer and the Corporation are:

• A change in control described in the previous section which results in a material change of the Named Executive Officer’s position, duties, responsibilities, title or office which were in effect immediately prior to such a change in control (except for a change in any position or duties as a director or for any other material change that is the result of a promotion), which includes any removal of the Named Executive Officer from, or any failure to re-elect or re-appoint the Named Executive Officer to, any positions or offices he or she held immediately prior to such a change in control;

• A material reduction by either the Corporation or by any of the Corporation’s subsidiaries of the Named Executive Officer’s salary, benefits or any other form of remuneration payable by either the Corporation or the Corporation’s subsidiaries; or

• A material breach of the employment agreement between the Corporation and the Named Executive Officer which is committed by the Corporation.

Change in Control

If there is a merger, acquisition or other change in control of the ownership of the Corporation (a “Change of Control”), we may be obligated to provide payments or benefits to the Named Executive Officer. A Change in Control includes the following events:

• There is a transaction in which any person or group acquire ownership of more than 50% of the Corporation’s Common Shares, on a fully-diluted basis;

• During any two year period, directors, including any additional director whose election was approved by a vote of at least a majority of the directors then in office or who were appointed by the directors then in office, cease to constitute a majority of the Board;

• There is a transaction which results in more than 50% of the Corporation’s Common Shares, on a fully-diluted basis, being held by any person or group other than the Corporation’s shareholders immediately preceding the transaction; or

• There is a transaction to sell all or substantially all of the assets of the Corporation.

Amounts Payable Upon Termination or Change of Control

If any one of the triggering events described above take place with respect to any of the Named Executive Officers, we may be obligated to make the payments described below.

Arthur Mesher / J. Scott Pagan

If the Corporation terminates the employment of Mr. Mesher or Mr. Pagan other than for “cause” or the Corporation is deemed to have terminated the Named Executive Officer’s employment as a result of a change in the relationship between the Corporation and the Named Executive Officer, then the following will apply:

• We are required to pay the Named Executive Officer his base salary and maximum variable short-term compensation for up to two years (the “severance period”), subject to a claw-back of up to 50% of such amounts based on the timing and amount of compensation earned by the Named Executive Officer in performing services for third parties during the severance period;

• We are required to pay the Named Executive Officer an amount, in equal semi-monthly amounts over the severance period, in respect of stock options and RSUs from the July 2008 Grants that are unconditionally granted and unvested (“Unvested Options” and “Unvested RSUs”) as of the date the Corporation provides notice of termination or is deemed to have terminated the Named Executive Officer’s employment (the “Termination Date”), as follows:

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o If the Termination Date is prior to the signing of a letter of intent between the Corporation and a third party for a transaction that, if completed, would result in a Change in Control (a “Letter of Intent”), then there is no payment.

o If the Termination Date is after the signing of a Letter of Intent, and either the Change in Control contemplated by the Letter of Intent or any competing Change in Control occurs within twelve (12) months following the Termination Date, then a payment equal to the in-the-money amount for any Unvested Options and fair market value of any Unvested RSUs that were scheduled to vest in the severance period if the Named Executive Officer’s employment had not been terminated. In such a scenario, the fair market value in respect of a Change of Control is the per share amount of any cash and non-cash consideration determined three days prior to the Change of Control.

o If the Termination Date is after the signing of a Letter of Intent, but neither the Change in Control contemplated by such Letter of Intent nor any competing Change in Control occurs within twelve (12) months following the Termination Date, then there shall be no payment.

o If the Termination Date is after the completion of a Change in Control and prior to the first anniversary of that Change in Control, a payment equal to the in-the-money amount of any Unvested Options and fair market value of any Unvested RSUs

o If the Termination Date is after the first year anniversary of a Change in Control, a payment equal to the in-the-money amount for any Unvested Options and fair market value of any Unvested RSUs that were scheduled to vest in the severance period if the Named Executive Officer’s employment had not been terminated.

• In the case of Mr. Mesher, he will have a period of two years after the Termination Date to exercise any vested stock options or RSUs from the Mesher July 2008 Grants.

• We are required to continue the Named Executive Officer’s employee benefits for the severance period

To receive the severance payments outlined above, the Named Executive Officer is required to execute a written release in favour of the Corporation and its employees and agents reasonably satisfactory to the Corporation of any claims arising from or related to the Named Executive Officer’s employment or severance from employment (other than claims for payments pursuant to the employment agreement). Further, the Named Executive Officer must continue to abide by his post-employment covenants to the Corporation to remain eligible for the severance amounts. These covenants included a post-Termination Date non-competition covenant for one year, a post-Termination Date non-solicitation covenant for two years, and confidentiality and non-disparagement covenants. We may waive any breach by the Named Executive Officer of any provision of a covenant or agreement upon the review and approval of our Board.

Mr. Mesher’s stock options, other than the Mesher July 2008 Grants, provide that (i) in the event of a Change in Control they become fully exercisable (to the extent not already vested); and (ii) in the event of the termination of his employment without “cause”, they become fully exercisable (to the extent not already vested) and expire six months after such event, subject to an earlier expiry based on the original expiry date of the option. Mr. Pagan’s stock options, other than the Pagan July 2008 Grants, provide that in the event of a Change in Control they become fully exercisable (to the extent not already vested).

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Mr. Mesher’s and Mr. Pagan’s RSUs, other than their respective July 2008 Grants, provide that the RSUs will vest (to the extent they have not previously vested) (i) immediately, in the event of the termination of his employment without “cause”; or (ii) on the effective date of a “Corporate Transaction”. A “Corporate Transaction” is considered to be any of the following:

(i) a Change in Control;

(ii) a capital reorganization, amalgamation, arrangement, plan of arrangement or other scheme or reorganization;

(iii) an offer for Common Shares, where the Common Shares subject to the offer, together with the offeror’s Common Shares and Common Shares of any person or company acting jointly or in concert with the offeror, constitute in the aggregate 20% or more of the Common Shares;

(iv) an acquisition by a person of Common Shares such that the Common Shares acquired, together with the person’s Shares and Shares of any person or company acting jointly or in concert with such person, constitute in the aggregate 20% or more of the Common Shares outstanding immediately after such acquisition, unless another person has previously acquired and continues to hold Common Shares that represent a greater percentage than the first-mentioned person;

(v) a sale of all or substantially all of the assets of the Corporation or any subsidiary; or

(vi) an extraordinary distribution to shareholders, including extraordinary cash dividends, dividends in kind and return of capital.

Stephanie Ratza / Edward Ryan / Chris Jones

The employment agreements with each of Stephanie Ratza, Edward Ryan and Chris Jones provide that if the Named Executive Officer is terminated without “cause”, the Corporation will pay the Named Executive Officer up to twelve months’ salary as compensation for severance, subject to a 50% reduction of the unpaid balance of such severance amount from the date the departed Named Executive Officer finds alternate employment. Each employment agreement with such Named Executive Officer provides that if the Named Executive Officer resigns within eighteen months after a Change of Control, then the Named Executive Officer will continue to be eligible for the applicable severance pay detailed above. Amounts to be paid are based on the base salary of the Named Executive Officer as identified in the Summary Compensation Table above.

During any severance period, the Named Executive Officer will remain eligible to continue to participate in the employee benefit plans and programs of the Corporation.

To receive the severance payments outlined above, the Named Executive Officer is required to execute a written release of all claims (other than claims for payments pursuant to the employment agreement) reasonably satisfactory to the Corporation releasing the Corporation and its employees and agents from any claims arising from or related to the Named Executive Officer’s employment or severance from employment. Further, the Named Executive Officer must continue to abide by his post-employment covenants to the Corporation to remain eligible for the severance amounts. These covenants included a post-Termination Date non-competition covenant for one year, a post-Termination Date non-solicitation covenant for two years, and confidentiality and non-disparagement covenants. We may waive any breach by the Named Executive Officer of any provision of a covenant or agreement upon the review and approval of our Board.

Stock options granted to the Named Executive Officers prior to fiscal 2009 provide that in the event of a Change in Control, the options become fully exercisable (to the extent not already fully vested).

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RSUs granted to the Named Executive Officers provide that the RSUs will vest (to the extent they have not previously vested) (i) immediately, in the event of the termination of the Named Executive Officer’s employment without Cause; or (ii) on the effective date of a Corporate Transaction.

Quantitative Estimates of Payments upon Termination or Change of Control

Further information regarding payments to our Named Executive Officers in the event of a termination without “cause”, change in relationship or a Change in Control may be found in the table below. This table sets forth the estimated amount of payments and other benefits each Named Executive Officer would be entitled to receive upon the occurrence of the indicated event, assuming that the event occurred on January 31, 2009. Amounts potentially payable under plans which are generally available to all salaried employees, such as life and disability insurance, are excluded from the table. The values related to vesting of stock options and awards are based upon the fair market value of our Common Shares of Cdn.$3.32 per Common Share as reported on the TSX on January 30, 2009, the last trading day of fiscal 2009, converted to US dollars at the rate of 1 US dollar = 1.2265 Canadian dollars, being the foreign exchange rate reported by the Bank of Canada on January 30, 2009. Stock option amounts deduct the applicable exercise price of the stock options. RSU values are calculated using the fair market value of our Common Shares of $2.81 per Common Share as reported on NASDAQ on January 30, 2009. Severance amounts included in the table below assume that a Named Executive Officer does not obtain alternate employment during any severance period. The “Without Cause” summary information for Mr. Mesher and Mr. Pagan includes any deemed termination by the Corporation due to a change in relationship, as described above in the Termination and Change of Control Benefits section.

	Termination Reason	Salary ($)	Variable Short-term ($)	Stock Options ($)	RSUs ($)	Total ($)
Arthur Mesher	Without Cause and Change of Control	554,404	277,202	215,482	353,248	1,400,336
	Without Cause	554,404	277,202	215,482	199,648	1,246,736
	Change of Control	-	-	215,482	199,648	415,130
Stephanie Ratza	Without Cause	146,754	-	-	26,310	173,064
	Change of Control	146,754	-	-	26,310	173,064
Edward Ryan	Without Cause	200,000	-	-	-	200,000
	Change of Control	200,000	-	42,163	-	242,163
J. Scott Pagan	Without Cause and Change of Control	391,344	117,404	-	238,549	747,297
	Without Cause	391,344	117,404	-	187,953	696,701
	Change of Control	-	-	43,231	187,953	231,184
Chris Jones	Without Cause	200,000	-	-	77,958	277,958
	Change of Control	200,000	-	33,265	77,958	311,223

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Director Compensation

The following table sets forth summary information concerning the annual compensation earned by each of the non-employee directors of the Corporation for fiscal 2009.

Name	Fees Earned ($)	Share-based awards1 ($)	Total ($)
David Beatson	47,525	18,000	$65,525
Michael Cardiff	34,283	18,000	52,283
J. Ian Giffen	55,287	28,000	83,287
Chris Hewat	27,807	18,000	45,807
Olivier Sermet2	10,639	-	10,639
Dr. Stephen Watt	36,271	18,000	54,271

(1) Amounts set forth in this column reflect awards of RSUs. RSUs are valued using the number of RSUs granted and the weighted-average closing price of the Common Shares on the NASDAQ in the period of five trading days preceding the date of the grant. These amounts do not reflect any financial benefit a director may have received from the vesting and payment of the awards.

(2) Mr. Sermet’s term as a director was completed as at May 29, 2008.

Directors who are salaried officers or employees of the Corporation receive no compensation for serving as directors. Non-employee directors of the Corporation were compensated in fiscal 2009 based on the retainers for Board and committee work outlined in the table below. During fiscal 2009, the Compensation Committee reviewed the Board of Directors compensation amounts and methods, including a review of a benchmark analysis by Towers Perrin. Based on its review, the Compensation Committee recommended changes to Board of Directors compensation effective April 1, 2008, the details of which are set forth below.

	February 1, 2008 – April 1, 2008	Effective April 1, 2008
Annual Base Retainer	$20,000	$25,000
Audit Committee Retainer	$10,000 – Chair $8,000 – Member	$15,000 – Chair $10,000 – Member
Compensation Committee Retainer	$8,000 – Chair $4,000 – Member	$10,000 – Chair $5,000 – Member
Corp. Governance Committee Retainer	$4,000 – Chair $3,000 – Member	$5,000 – Chair $3,750 – Member
Nominations Committee Retainer	$2,000 – Chair $1,000 – Member	$2,500 – Chair $1,250 – Member

A director may elect, prior to the commencement of a fiscal year, to receive a portion of his or her compensation for that fiscal year in the form of DSUs. Directors may be required to receive a minimum amount of their compensation in the form of DSUs if they have not yet achieved the minimum equity ownership threshold specified by the Equity Ownership Policy, described further below.

All annual retainers are paid in cash and/or DSUs as described below. Outside directors who are not ordinarily resident in the Province of Ontario and travel to attend a meeting of the Board of Directors in person are compensated an additional $1,000 per meeting.

The Board of Directors adopted its original Equity Ownership Policy on June 28, 2004. Under the original Equity Ownership Policy, non-employee directors were required to acquire and hold an aggregate number of Common Shares and DSUs equal to the equivalent of 3 times the annual base retainer of $15,000 ($45,000), within a period ending on the later of June 28, 2010 and the date that is six years from the date the individual becomes a director. Effective May 24, 2007, the annual base retainer for non-employee directors was increased to $20,000 per year and the requirement under the Equity Ownership Policy was correspondingly increased to 3 times the annual base retainer of $20,000 ($60,000). Effective March 5, 2008, the Equity Ownership Policy was increased to $80,000. Until such time as an outside director attains the minimum equity ownership prescribed under the Equity Ownership Policy, the director will be required to receive at least one-half of his annual base retainer in

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DSUs. On March 10, 2009, the Board amended the Equity Ownership Policy such that a director’s investment in the Corporation will be measured as the greater of the value of the investment at the investment date and the current fair market value of the investment, on an investment-by-investment basis.

At the annual meeting of the Corporation’s shareholders held on May 24, 2007, the Corporation’s shareholders approved an amendment to the 1998 Stock Option Plan that limited the grant of options to directors who are not employees or officers of the Corporation (a “non-executive director”). More specifically, the 1998 Stock Option Plan was amended to provide that no options would be granted to any non-executive director after May 24, 2007 if such grant would, at the time of the grant, result in the aggregate number of Common Shares reserved for issuance pursuant to all of the Corporation’s share compensation arrangements to non-executive directors exceeding 0.75% of the issued and outstanding Common Shares. As at April 28, 2009, non-executive directors held options to purchase 500,296 Common Shares pursuant to the 1998 Stock Option Plan, representing 0.9% of the Corporation’s issued and outstanding Common Shares. Accordingly, the Corporation has not granted options to purchase Common Shares to non-executive directors pursuant to the 1998 Stock Option Plan since the amendment was adopted on May 24, 2007.

Effective May 24, 2007, each non-executive director receives an annual grant of $18,000 in RSUs. Each RSU has a value equal to the weighted-average closing price of the Common Shares in the period of five trading days preceding the date of grant. The RSUs vest equally over a period of three years provided the director continues to serve on the Board of Directors. All unvested RSUs vest automatically in the event of a Corporate Transaction. Effective for fiscal 2010, the amount of the annual grant was increased from $18,000 to $25,000.

Effective May 24, 2007, newly-elected directors receive a one-time grant of $54,000 in the form of RSUs. On July 7, 2008, this one-time amount was increased to $62,500. Each RSU has a value equal to the weighted-average closing price of the Common Shares in the period of five trading days preceding the date of grant. The RSUs vest equally over a period of five years provided the director continues to serve on the Board of Directors. All unvested RSUs vest automatically in the event of a Corporate Transaction.

Directors of the Corporation are entitled to reimbursement for expenses incurred by them in their capacity as directors. Each member of the Board of Directors is also eligible for reimbursement of up to $1,000 per fiscal year of fees paid by that individual director for enrolment in continuing education courses or programs conducted by third parties or institutions relevant to their role as a director of the Corporation.

Effective May 24, 2007, the Chairman of the Board received an annual retainer of $20,000 paid as follows: (i) $10,000 in cash, paid quarterly; and (ii) $10,000 in RSUs. These amounts were increased effective April 1, 2008 to an aggregate amount of $25,000 paid as follows: (i) $12,500 in cash, paid quarterly; and (ii) $12,500 in RSUs. Each RSU has a value equal to the weighted-average closing price of the Common Shares in the period of five trading days preceding the date of grant. The RSUs vest equally over a period of three years provided the Chairman of the Board continues to serve on the Board of Directors. All unvested RSUs vest automatically in the event of a Corporate Transaction.

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Outstanding Director Option-Based Awards and Share-based Awards

The following table details the outstanding option-based awards and share-based awards for each of the Corporation’s non-employee directors as at January 31, 2009.

	Option-based Awards				Share-based Awards
Name	Number of securities underlying unexercised options (#)	Option Exercise Price (Cdn.$)	Option Expiration Date	Value of unexercised in-the-money options1 ($)	Number of shares or units of shares that have not vested (#)	Market or payout value of share-based awards that have not vested2 ($)
	45,000	4.17	March 21, 2013	0
David Beatson	15,000	4.40	May 26, 2013	0
					16,414	46,123
Michael Cardiff					22,763	63,964
	43,500	3.18	March 12, 2011	4,965
	45,000	1.35	Sept. 30, 2011	72,279
J. Ian Giffen	15,000	2.64	May 27, 2012	8,316
	15,000	4.40	May 26, 2013	0
					23,640	66,428
	43,500	5.04	May 27, 2009	0
	45,000	1.35	Sept. 30, 2011	72,279
Chris Hewat	15,000	2.64	May 27, 2012	8,316
	15,000	4.40	May 26, 2013	0
					22,316	62,708
	43,500	5.04	May 27, 2009	0
	54,796	3.10	April 4, 2011	9,829
Dr. Stephen Watt	75,000	1.35	Sept. 30, 2011	120,465
	15,000	2.64	May 27, 2012	8,316
	15,000	4.40	May 26, 2013	0
					33,532	94,225

(1) The value of unexercised in-the-money options has been calculated using the difference between the closing price of the Corporation’s Common Shares on the TSX at the end of fiscal 2009 (Cdn.$3.32) and the option exercise price. The value has been reported in US dollars using an exchange rate of 1 US dollar = 1.2265 Canadian dollars, being the foreign exchange rate reported by the Bank of Canada on January 30, 2009, the last day of fiscal 2009. Where the value is $0, the exercise price is higher than Cdn.$3.32. No adjustment has been made for options that have not yet vested and are therefore not yet exercisable.

(2) Share-based awards are in the form of DSUs and RSUs. The market value of RSUs and DSUs that have not vested was determined using the closing price of the Common Shares on the NASDAQ at the end of fiscal 2009 ($2.81).

Director Incentive Plan Awards – Value Vested or Earned During Fiscal 2009

Name	Option-based awards – Value vested during the year1    ($)	Share-based awards – Value vested during the year2    ($)
David Beatson	$-	$3,512
Michael Cardiff	-	11,227
J. Ian Giffen	21,089	5,463
Chris Hewat	18,724	3,512
Olivier Sermet3	4,427	22,346
Dr. Stephen Watt	29,890	3,512

(1) The total value of stock options that vested in fiscal 2009. The value is equal to the difference between the exercise price of the option and the closing price of the Common Shares reported on the vesting date.

(2) The total value of RSUs and DSUs vested and paid during fiscal 2009. Mr. Sermet was the only director to have DSUs vest and paid in fiscal 2009.

(3) Mr. Sermet’s term as a director was completed as at May 29, 2008.

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Performance Graph

The following graph compares the cumulative total shareholder return on the Common Shares to the cumulative total return of the S&P/TSX Composite Index, the NASDAQ Composite Index and the “Software & Services” industry group of the S&P/TSX Composite Index for the Corporation’s last five fiscal years.

	Jan 31, 2004	Jan 31, 2005	Jan 31, 2006	Jan 31, 2007	Jan 31, 2008	Jan 31, 2009
Actual Data (Cdn.$)
Descartes (DSG)	4.15	2.23	3.85	4.61	3.77	3.32
S&P/TSX Composite Index	8521.39	9204.00	11945.64	13034.12	13155.10	8694.90
NASDAQ Composite Index	2066.15	2062.41	2305.82	2463.93	2389.86	1476.42
Software & Services Industry Subgroup	583.14	612.28	600.89	685.29	754.91	728.56
Nominal Data (Cdn.$)
Descartes (DSG)	100	54	93	111	91	80
S&P/TSX Composite Index	100	108	140	153	154	102
NASDAQ Composite Index	100	100	112	119	116	71
Software & Services Industry Subgroup	100	105	103	118	129	125

Notes:

Mr. Mesher was appointed as CEO of the Corporation in November 2004. Since that time, the performance of the Corporation’s Common Shares has exceeded that of the indices included in the performance graph above. In addition, in fiscal 2009 the performance of the Corporation’s Common Shares exceeded that of the NASDAQ Composite Index and the S&P/TSX Composite Index over the

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same period. These trends are reflected in the compensation that has been awarded to the Named Executive Officers over those comparable periods.

Directors’ and Officers’ Liability Insurance

Effective July 1, 2008, the Corporation’s directors’ and officers’ liability insurance policy was renewed for a period of 13 months with a total coverage amount of $25,000,000, which requires the Corporation to pay a deductible of up to $100,000 for each non-securities claim and a deductible of $250,000 for each securities claim, and has annual premiums of approximately $245,000, plus applicable taxes.

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

No director, executive officer, proposed nominee for election as a director, either current or having held such position during fiscal 2009, or any of their respective associates and no employee, former executive officer, former director or former employee of the Corporation or its subsidiaries is, as at April 28, 2009, or has been, at any time since the beginning of fiscal 2009, indebted, in connection with a purchase of Common Shares or otherwise, to (i) the Corporation or its subsidiaries; or (ii) another entity in respect of which the indebtedness is the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or its subsidiaries.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Blake, Cassels & Graydon LLP, in which Mr. Hewat is a partner, provided legal services to the Corporation during fiscal 2009 and has been providing, and is expected to continue to provide, legal services to the Corporation in the fiscal year ending January 31, 2010. For fiscal 2009, the Corporation incurred fees of Cdn.$582,600 for legal services rendered by Blake, Cassels & Graydon LLP.

No person who has been a director or an executive officer of the Corporation, at any time since the beginning of fiscal 2009, or any proposed nominee for election as a director, or any associate or affiliate of any such director or executive officer or proposed nominee, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting, except as otherwise disclosed in this Circular. Except as otherwise disclosed in this Circular, no informed person, proposed nominee for election as a director of the Corporation or any associate or affiliate of any informed person or proposed nominee has or had a material interest, direct or indirect, in any transaction since the beginning of fiscal 2009 or in any proposed transaction which has materially affected or would materially affect the Corporation or any of its subsidiaries.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

The Board of Directors and Management consider good corporate governance to be central to the effective and efficient operation of the Corporation. Over the past year, both Management and the Board of Directors, with the assistance of the Corporate Governance Committee, have devoted significant attention and resources to ensuring that the Corporation’s system of corporate governance would meet or exceed applicable legal and stock exchange requirements.

The Corporation is subject to the requirements of the Canadian Securities Administrators National Instrument 58-101 – Disclosure of Corporate Governance Practices (the “Corporate Governance National Instrument”); National Policy 58-201 – Corporate Governance Guidelines (the “National Policy”); and National Instrument 52-110 – Audit Committees (the “Audit Committee National Instrument”).

The Corporation is also subject to the requirements of the U.S. Sarbanes-Oxley Act and requirements of the Toronto Stock Exchange (“TSX”) and NASDAQ and comparable requirements under Canadian provincial securities legislation, including those relating to the certification of financial and other information by the Corporation’s CEO and CFO; oversight of the Corporation’s external auditors; enhanced independence criteria for audit committee members; the pre-approval of

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permissible non-audit services to be performed by the Corporation’s external auditors; and the establishment of procedures for the anonymous submission of employee complaints regarding the Corporation’s accounting practices (commonly known as whistle-blower procedures).

The Corporation believes that it has a sound governance structure in place for both Management and the Board of Directors, and a comprehensive system of internal controls designed to ensure reliability of financial records. These structures and systems are reviewed and assessed on a frequent basis to account for developments in both Canada and the United States relating to corporate governance, accountability and disclosure.

The following is a description of certain corporate governance practices of the Corporation, as required by the Corporate Governance National Instrument and Audit Committee National Instrument.

Board of Directors

The National Policy recommends that boards of directors of reporting issuers be composed of a majority of independent directors. For the period beginning on February 1, 2008 and ending May 29, 2008, which is the period beginning on the first day of our 2009 fiscal year and ending on the date of our 2008 annual meeting of shareholders, the Board of Directors was composed of a majority of independent directors with five of seven directors being independent. The five independent directors were: Mr. David Beatson; Mr. Michael Cardiff; Mr. J. Ian Giffen; Mr. Olivier Sermet; and Dr. Stephen Watt. Since May 30, 2008, the Board of Directors was composed of a majority of independent directors with four of six directors being independent. The four independent directors were: Mr. David Beatson; Mr. Michael Cardiff; Mr. J. Ian Giffen; and Dr. Stephen Watt. Two directors have material relationships with the Corporation and are therefore not independent. Mr. Mesher, Chief Executive Officer, is considered to have a material relationship with the Corporation for the purposes of the National Policy by virtue of his executive officer position. Mr. Hewat is considered to have a material relationship with the Corporation for the purposes of the National Policy by virtue of being a partner in the law firm Blake, Cassels & Graydon LLP, which provides legal services to, and receives compensatory fees from, the Corporation (see “Certain Relationships and Related Transactions” above).

Mr. J. Ian Giffen, one of the Corporation’s independent directors, is the Chairman of the Board of Directors. The Corporation has taken additional steps to ensure that adequate structures and processes are in place to permit the Board of Directors to function independently of Management. The directors hold in camera sessions of the independent directors at the conclusion of each meeting of the Board of Directors, at which Management and non-independent directors are not present. Six of these in camera meetings were held in fiscal 2009.

Currently, the following directors serve on the boards of other public companies, as listed below:

Director	Public Company Board Membership
David Beatson	PFSweb, Inc. (NASDAQ: PFSW)
Michael Cardiff	Burntsand Inc. (TSX: BRT) Hydrogenics Corp (TSX:HYG; NASDAQ:HYGS) Software Growth Inc. (CDNX:SGW-P.V).
J. Ian Giffen	Absolute Software Corporation (TSX:ABT) Corel Corporation (TSX:CRE; NASDAQ:CREL) MKS Inc. (TSX: MKX) Ruggedcom Inc. (TSX:RCM)

Between February 1, 2008 and April 28, 2009, the Board of Directors and its committees held the following number of meetings:

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	Year ended January 31, 2009	February 1, 2009 – April 28, 2009	Total
Board of Directors	8	2	10
Audit Committee	4	1	5
Compensation Committee	15	1	16
Corporate Governance Committee	4	1	5
Nominating Committee	3	1	4

The attendance of the directors at such meetings was as follows:

Director	Board Meetings Attended	Committee Meetings Attended
David Beatson	10 of 10	21 of 21
Michael Cardiff	10 of 10	9 of 9
J. Ian Giffen	10 of 10	14 of 14
Christopher Hewat	9 of 10	5 of 5
Arthur Mesher	10 of 10	Not applicable
Olivier Sermet1	2 of 3	12 of 15
Dr. Stephen Watt	10 of 10	25 of 25

(1) Mr. Sermet’s term as a director was completed as at May 29, 2008.

Mandate of the Board of Directors

The Board of Directors is responsible for the overall stewardship of the Corporation. The Board discharges this responsibility directly and through delegation of specific responsibilities to committees of the Board, the Chairman of the Board, and the executive officers of the Corporation, all as more particularly described in the Board Mandate attached to this Circular as Schedule “B”.

The Board of Directors reviews the composition of its committees at least annually, typically following the annual meeting of the Corporation’s shareholders, to ensure that the committees are appropriately composed to discharge each committee’s respective responsibilities. In assigning committee responsibilities among its members, the Board of Directors considers factors including the applicable restrictions and requirements of committee composition established by law and regulation; the qualifications and knowledge of the individual members eligible to serve on committees; and the relative distribution of committee responsibilities to each individual member.

Majority Election of Directors Policy

The Board of Directors has adopted the Majority Voting Policy whereby any nominee in an uncontested election who receives, from the Common Shares voted at the Meeting in person or by proxy, a greater number of Common Shares withheld from voting than Common Shares voted in favour or his or her election, must promptly tender his or her resignation to the Chairman of the Board,

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to take effect on acceptance by the Board. The Corporate Governance Committee will expeditiously consider the director’s offer to resign and make a recommendation to the Board whether to accept it. The Board will have 90 days to make a final decision and announce it by way of press release. The director will not participate in any committee or Board deliberations on the resignation offer.

Position Descriptions and Committee Charters

The Board of Directors has adopted a written description of the roles of the CEO and the Chairman of the Board. The CEO’s role is described as having general supervision over the business and affairs of the Corporation, including strategic planning, operational planning and shareholder communication, and leading the implementation of the resolutions and policies of the Board. The Chairman of the Board’s role is described as facilitating the operations and deliberations of the Board and the satisfaction of the Board’s functions and responsibilities under its mandate. The Chairman of the Board’s functions and responsibilities are described as including the following: (a) Board management; (b) advisory matters relating to the CEO; (c) assisting with succession planning; (d) reviewing management’s strategic initiatives; and (e) reviewing the effectiveness of the Corporation’s shareholder communications plan.

The Board of Directors has also adopted written charters for each of the four committees of the Board of Directors. Each committee charter includes a description of the role of the chairman of that committee.

Copies of the position descriptions of the Chairman of the Board and the CEO, and the committee charters are available at www.descartes.com or upon request from the Corporate Secretary of the Corporation.

Orientation and Continuing Education

Responsibility for orientation programs for new directors is assigned to the Corporate Governance Committee. In this regard, the Corporate Governance Committee’s duties include ensuring the adequacy of the orientation and education program for new members of the Board of Directors. While there is no formal orientation program in place, all new directors meet with the Chairman of the Board, the CEO, the CFO and/or the Corporation’s legal counsel. The Corporation’s legal counsel also reviews with each new member: (i) certain information and materials regarding the Corporation, including the role of the Board of Directors and its committees; and (ii) the legal obligations of a director of the Corporation.

The Corporate Governance Committee is also responsible for arranging continuing education for directors in order to ensure that directors acquire and maintain skills and knowledge relevant to the performance of their duties as directors. Director education sessions are generally scheduled to coincide with the Corporation’s regular quarterly Board meetings to extend their knowledge of the Corporation and its operations. Each member of the Board of Directors is also eligible for reimbursement of up to $1,000 per fiscal year of fees paid by that individual director for enrolment in continuing education courses or programs conducted by third parties or institutions relevant to their role as a director of the Corporation.

Ethical Business Conduct

The Board of Directors has adopted the Code applicable to the Corporation’s directors, officers and employees. A copy of the Code is available on the Corporation’s website at www.descartes.com and has been filed on and is accessible through SEDAR at www.sedar.com. The Code sets out in detail the core values and principles by which the Corporation is governed and addresses topics such as: honest and ethical conduct; conflicts of interest; compliance with applicable laws and the Corporation’s policies and procedures; public disclosure and books and records; use of corporate

39

assets and opportunities; confidentiality of corporate information; reporting responsibilities and procedures; health and safety; and non-retaliation.

The Corporation’s General Counsel is responsible for communicating the Code to directors, officers, and employees and assisting the Corporate Governance Committee in administering the Code. The Corporate Governance Committee monitors overall compliance with the Code. The General Counsel and Corporate Governance Committee report to the Board at regular quarterly meetings of the Board of Directors on any issues or concerns that have been raised, provided that any issues or concerns specifically related to accounting, internal financial controls and/or auditing will be reviewed and forwarded to the Audit Committee.

In addition, the Board of Directors has adopted and communicated policies and procedures for the submission by employees, directors or officers of concerns regarding accounting matters or violations of the Code or applicable laws; and the receipt, retention and treatment of such concerns. The Board of Directors and the Audit Committee have established a confidential, anonymous hotline to encourage employees, officers and directors to raise concerns regarding matters covered by the Code (including accounting, internal controls or auditing matters) on a confidential basis free from discrimination, retaliation or harassment. Regular quarterly reminders are sent to employees about the availability of the hotline.

In order to ensure independent judgment in considering transactions/agreements in which a director/officer has a material interest, such transactions/agreements are considered and, if deemed advisable, approved by the independent directors.

Succession Planning

The Corporate Governance Committee, in consultation with the Chairman of the Board and the CEO, is responsible for overseeing the Corporation’s succession planning for the chief executive officer role. The Corporation’s succession planning includes the identification and consideration of suitable short- and long-term candidates to hold the chief executive officer role, on both an interim and permanent basis. Candidates are considered based on various factors, including executive experience, market and industry expertise, geographic location, familiarity with the Corporation’s business and customers and past successes in achieving particular corporate goals. Any considerations or recommendations of the Corporate Governance Committee in respect of succession planning are presented to the Board of Directors for consideration at a session without management present.

Audit Committee

The Audit Committee is comprised of J. Ian Giffen (Chair), David Beatson and Michael Cardiff. Mr. Cardiff joined the Audit Committee on May 29, 2008 co-incident with Olivier Sermet’s departure from the Board of Directors and Audit Committee. Each of Messrs. Giffen, Beatson and Cardiff is independent and financially literate for purposes of the Audit Committee National Instrument, as well as pursuant to the Listing Standards of the NASDAQ and U.S. federal securities legislation. Items 7.2 and 8 of the Corporation’s Annual Information Form dated April 25, 2009, a copy of which is filed on www.sedar.com, contains further disclosure with respect to the Corporation’s Audit Committee as required by section 5.2 of the Audit Committee National Instrument. The Board of Directors has also determined that J. Ian Giffen is an “audit committee financial expert” for the purposes of applicable U.S. securities laws and regulations.

The responsibilities, power and operation of the Audit Committee are set out in its written charter, available on the Corporation’s website at www.descartes.com. The Committee’s primary functions are to oversee the accounting and financial reporting practices of the Corporation and the audits of the Corporation’s financial statements. This includes assisting the Board in fulfilling its responsibilities in reviewing financial disclosures and internal controls over financial reporting;

40

monitoring the system of internal control; monitoring the Corporation’s compliance with applicable laws and regulations; selecting the auditors for shareholder approval; reviewing the qualifications, independence and performance of the auditors; and reviewing the qualifications, independence and performance of the Corporation’s financial management.

In fiscal 2009, the Audit Committee’s activities included the following:

Fiscal 2009 Audited Consolidated Financial Statements

• Reviewed and discussed with Management and the independent auditor the audited annual consolidated financial statements, and the notes and management’s discussion and analysis thereon;

• Discussed with the independent auditor all matters required to be discussed by professional auditing guidelines and standards in Canada and the U.S., including the confirmation of the independent auditor’s independence;

• Received the written disclosures from the independent auditor recommended by the Canadian Institute of Chartered Accountants and the Independence Standards Board in the U.S.; and

• Recommended to the Board that the Corporation’s fiscal 2009 audited consolidated financial statements be approved.

Independent Auditor

• Reviewed the qualifications, performance and independence of the independent auditor, recommended reappointment of the independent auditor for shareholders’ approval, and approved the compensation of the independent auditor;

• Reviewed the independence and qualifications of the independent auditor and lead partners of the independent auditors, based on the independent auditor’s disclosure of its relationship with the Corporation;

• Approved audit and permitted non-audit services to be performed by the independent auditor;

• Delegated authority to the Chair of the Audit Committee to approve requests received during the year for audit and permitted non-audit services to be provided by the independent auditor and reviewed the decisions of the Chair at the next meeting; and

• Reviewed the overall scope and plan of the annual audit with the independent auditor and Management.

Financial Reporting

• Reviewed any significant changes to applicable accounting principles and practices;

• Reviewed with management and the independent auditor prior to publication, and recommended for approval by the Board, the interim quarterly financial statements and the annual consolidated financial statements and the notes and management’s discussion and analysis thereon;

• Reviewed significant financial reporting issues and judgments made in connection with the preparation of the Corporation’s financial statements;

• Reviewed the certification process for annual and interim filings with the CEO and CFO; and

41

• Reviewed and considered the Corporation’s fraud prevention and detection program.

Compliance

• Reviewed the General Counsel’s reports on legal matters that may have a material impact on the Corporation;

• Reviewed the Corporation’s investment policy;

• Reviewed management’s reports on the effectiveness of internal control over financial reporting and disclosure controls and procedures; and

• Reviewed the results of the audit committee hotline program.

Compensation Committee

The Compensation Committee is comprised of David Beatson (Chair), Michael Cardiff and Dr. Stephen Watt. Each of Messrs. Beatson and Cardiff and Dr. Watt is an independent director. Mr. Cardiff joined the Compensation Committee on May 29, 2008 co-incident with Mr. Olivier Sermet’s departure from the Board of Directors and Compensation Committee. None of the members of the Compensation Committee have been or are an officer or employee of the Corporation or any of its subsidiaries.

The responsibilities, powers and operation of the Compensation Committee are set out in its written charter, available on the Corporation’s website at www.descartes.com. The Compensation Committee is responsible for, among other things, reviewing and recommending the form and adequacy of compensation arrangements for the Board of Directors, CEO and other executive officers, having regard to associated risks and responsibilities.

Further information regarding the activities and recommendations of the Compensation Committee is provided in the section “Executive Compensation” included earlier in this Circular.

Corporate Governance Committee

The Corporate Governance Committee is comprised of Dr. Stephen Watt (Chair), J. Ian Giffen and Chris Hewat. Each of Dr. Watt and Mr. Giffen is an independent director. The responsibilities, powers and operation of the Corporate Governance Committee are set out in its written charter, available on the Corporation’s website at www.descartes.com. As described in its charter, the Corporate Governance Committee is responsible for, among other things, assisting the Board of Directors in fulfilling its corporate governance oversight responsibilities. In fiscal 2009, the Corporate Governance Committee’s activities included the following:

• Reviewed and approved for Board approval the Corporation’s corporate governance framework;

• Periodically reviewed the Corporation’s corporate governance activities and reporting to the Board on these activities at quarterly Board meetings;

• Reviewed and recommended for Board approval the statement of corporate governance practices included in this Circular;

• Reviewed the Corporation’s governing documents and recommended to the Board amendments to the Corporation’s Board of Directors mandate, Audit Committee charter, Compensation Committee charter, and Corporate Governance Committee charter;

42

• Reviewed the Code and recommended to the Board certain amendments;

• Conducted an assessment of the performance of the Board, the individual directors, each Board committee and the Chairman of the Board against their respective mandates;

• Evaluated each director against independence criteria applicable to the Corporation;

• Reviewed, and recommended to the Board for approval, the Corporation’s emergency preparedness plan;

• Adopted a Whistleblower Policy establishing a process for the confidential reporting of employee concerns relating to the Corporation’s financial statements or business practices, establishing procedures for the receipt and investigation of such concerns, and confirming the Corporation’s policy to not take retaliatory actions against those raising concerns in good faith; and

• Reviewed, and recommended for Board approval, amendments to the Corporation’s equity ownership policy to measure equity ownership at the greater of the value on the date of the director’s investment and current market value.

Nominating Committee

The Nominating Committee is comprised of Dr. Stephen Watt (Chair) and J. Ian Giffen. Each of Dr. Watt and Mr. Giffen is an independent director. During fiscal 2009, Olivier Sermet, an independent director, served on the Nominating Committee until his term on the Board of Directors and Nominating Committee was completed on May 29, 2008.

The responsibilities, powers and operation of the Nominating Committee are set out in its written charter, available on the Corporation’s website at www.descartes.com. The Nominating Committee’s primary function is to assist the Board in identifying and nominating suitable candidates to serve on the Board of Directors and to succeed the current CEO. To identify new candidates to serve on the Board of Directors, the Nominating Committee:

• Considers the criteria established by the Board for the selection of new directors, which includes professional experience and personal characteristics;

• Maintains a list of desired competencies, expertise, skills, background and personal qualities for potential candidates for the Board of Directors;

• Identifies and recommends to the Board individuals qualified and suitable to become Board members, taking into consideration any perceived gaps in the current Board or committee composition; and

• Maintains a list of suitable candidates for the Board who the Nominating Committee believes meet the identified criteria and whose skills and characteristics complement the existing mix. Potential candidates are approached by the Chair of the Nominating Committee. Candidates meet with the members of the Nominating Committee and the CEO prior to nomination or appointment to review expected contributions and commitment requirements.

In fiscal 2009, the Nominating Committee’s activities included the following:

• Reviewing the composition of the Board’s committees and recommending to the Board how the Board’s committees be constituted;

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• Recruiting and interviewing candidates for appointment to the Board, including by canvassing Board members for input on individuals considered to have the skills and experience identified by the Nominating Committee as complementary to the skills and experience of existing directors; and

• Recommending to the Board the nomination of the current members of the Board for election at the annual meeting of shareholders.

Board of Directors, Committee and Individual Director Assessments

The Corporate Governance Committee is responsible for assessing the effectiveness of the Board as a whole and the committees of the Board. Each director is required to complete, on an annual basis, a written evaluation with respect to the performance of the Board; the performance of the committees; and the contributions of other directors to the Board and its committees. The Corporate Governance Committee reviews the evaluations with the Chairman of the Board. The results of the evaluations are summarized and presented to the full Board of Directors. In addition, the Chairman of the Board or a designated member of the Corporate Governance Committee, as appropriate, reviews with each director that director’s peer evaluation findings.

44

GENERAL

Except where otherwise indicated, information contained herein is given as of the date hereof. Additional information relating to the Corporation can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Further financial information for the Corporation’s most recently completed fiscal year is provided in the Corporation’s audited consolidated comparative financial statements for the fiscal year ended January 31, 2009 prepared in accordance with United States Generally Accepted Accounting Principles and Management’s Discussion & Analysis of Results thereon. Shareholders may contact the Corporation’s investor relations department by phone at (519) 746-6114 ext. 2358 or by e-mail at investor@descartes.com to request copies of these documents.

SHAREHOLDER PROPOSALS

Persons entitled to vote at the next annual meeting of the Corporation, and who wish to submit a proposal at that meeting, must submit proposals by January 31, 2010.

APPROVAL BY THE BOARD OF DIRECTORS

The contents and the sending of this Circular have been approved by the Board of Directors of the Corporation. A copy of this Circular has been sent to each director of the Corporation, each shareholder entitled to notice of the Meeting and to the auditors of the Corporation.

Dated as of April 29, 2009.

J. Scott Pagan

General Counsel & Corporate Secretary

45

SCHEDULE “A”

The Corporation prepares and releases quarterly unaudited and annual audited financial statements prepared in accordance with US generally accepted accounting principles (“GAAP”). The Corporation also discloses and discusses certain non-GAAP financial information, used to evaluate the Corporation’s performance and the performance of the Corporation’s executive officers, in this Circular, in earnings releases and investor conference calls as a complement to results provided in accordance with GAAP. The Corporation believes that current shareholders and potential investors in the Corporation use non-GAAP financial measures, such as EBITDA, in making investment decisions about the Corporation and measuring the Corporation’s operational results.

The term “EBITDA” refers to a financial measure that the Corporation defines as earnings before interest, taxes, depreciation and amortization (for which the Corporation includes amortization of intangible assets, contingent acquisition consideration, deferred compensation and stock-based compensation). Since EBITDA is not a measure determined under GAAP, it may not be comparable to similarly titled measures reported by other companies. EBITDA should not be construed as a substitute for net income determined in accordance with GAAP. The Corporation has presented EBITDA to show the Corporation’s baseline performance before certain non-cash and acquisition-related expenses and other items that are considered by management to be outside Descartes’ ongoing operational results. The Corporation believes that financial analysts, current investors and potential investors use EBITDA to understand the Corporation’s financial results and that EBITDA will help investors’ overall understanding of the Corporation’s results by providing a higher level of transparency for certain expenses and by providing a level of disclosure that will help investors understand how the Corporation plans and measures the business. EBITDA is also used by the Corporation as one of the financial performance targets that is measured to evaluate the performance of Named Executive Officers for the purposes of variable short-term compensation, as we consider EBITDA a metric that helps us evaluate and measure the operating performance of the business that can be impacted by the Named Executive Officers.

The table below reconciles EBITDA to net income reported in our unaudited Consolidated Statements of Operations for our fourth quarter of fiscal 2009 (“Q4FY09”), third quarter of fiscal 2009 (“Q3FY09”), second quarter of fiscal 2009 (“Q2FY09”) and the first quarter of fiscal 2009 (“Q1FY09”), which the Corporation believes is the most directly comparable GAAP measure.

(US dollars in millions)	Q4FY09	Q3FY09	Q2FY09	Q1FY09
Net income, as reported on Consolidated Statements of Operations	15.4	2.3	1.4	1.1
Adjustments to reconcile to EBITDA:
Investment income	(0.2)	(0.3)	(0.2)	(0.3)
Income tax expense (recovery)	(13.1)	0.4	0.6	0.6
Depreciation expense	0.6	0.7	0.6	0.5
Amortization of intangible assets and contingent acquisition consideration	1.3	1.3	1.6	1.8
Amortization of deferred compensation and stock-based compensation expense	0.2	0.2	0.1	0.1
EBITDA	4.2	4.4	4.1	3.8

The table below reconciles EBITDA to net income reported in our audited Consolidated Statements of Operations for fiscal 2009, which the Corporation believes is the most directly comparable GAAP measure.

(US dollars in millions)	Fiscal 2009
Net income, as reported on Consolidated Statements of Operations	20.2
Adjustments to reconcile to EBITDA:
Investment income	(1.0)
Income tax expense (recovery)	(11.5)
Depreciation expense	2.2
Amortization of intangible assets and contingent acquisition consideration	6.0
Amortization of deferred compensation and stock-based compensation expense	0.5
EBITDA	16.4

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SCHEDULE “B”

THE DESCARTES SYSTEMS GROUP INC.

MANDATE FOR

THE BOARD OF DIRECTORS

1. PURPOSE

1. The members of the Board of Directors have the duty to supervise the management of the business and affairs of the Company. The Board, directly and through its committees and the Chairman of the Board shall provide direction to senior management, generally through the Chief Executive Officer, to pursue the best interests of the Company.

2. MEMBERSHIP, ORGANIZATION AND MEETINGS

1. General — The composition and organization of the Board, including: the number, qualifications and remuneration of directors; the number of Board meetings; residency requirements; quorum requirements; meeting procedures and notices of meetings are as established by the Canada Business Corporations Act and the by-laws of the Company.

2. Independence — The Board shall establish independence standards for the directors in accordance with Applicable Requirements (as defined below), and, at least annually, shall affirmatively determine the independence of each director in accordance with these standards. At least a majority of the directors shall be independent in accordance with these standards.

3. Access to Management and Outside Advisors — The Board shall have unrestricted access to the Company’s management and employees. The Board shall have the authority to retain external legal counsel, consultants or other advisors to assist it in fulfilling its responsibilities and to set and pay the respective compensation of these advisors without consulting or obtaining the approval of any Company officer. The Company shall provide appropriate funding, as determined by the Board, for the services of these advisors.

4. Corporate Secretary and Minutes — The Corporate Secretary, his or her designate or any other person the Board requests shall act as secretary of Board meetings. Minutes of Board meetings shall be recorded and maintained by the Corporate Secretary and subsequently presented to the Board for approval.

5. Meetings Without Management — The Board shall, at least twice per year, hold unscheduled or regularly scheduled meetings, or portions of regularly scheduled meetings, at which management is not present.

3. FUNCTIONS AND RESPONSIBILITIES

The Board shall have the functions and responsibilities set out below. In addition to these functions and responsibilities, the Board shall perform such duties as may be required by the binding requirements of any stock exchanges on which the Company’s securities are listed and all other applicable laws (collectively, the “Applicable Requirements”).

1. Strategic Planning

a. Strategic Plans — At least annually, the Board shall review and, if advisable, approve the Company’s strategic planning process and short- and long-term strategic plan prepared by management. In discharging this responsibility, the Board shall review the plan in light of management's assessment of emerging trends, the competitive environment, risk issues, and significant business practices and products.

b. Business Plans — The Board shall review and, if advisable, approve the Company’s annual business plans.

c. Monitoring — At least annually, the Board shall review management's implementation of the Company’s strategic and business plans. The Board shall review and, if advisable, approve any material amendments to, or variances from, these plans.

2.

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Risk Management

a. General — The Board shall, with the assistance of the Audit Committee, review the factors identified by management in its annual and interim disclosures as factors that may affect future financial results and review the strategies identified by management to manage these factors.

b. Review of Controls — The Board shall, with the assistance of the Audit Committee, review the internal, financial, non-financial and business control and information systems that have been established by management and review the standards of corporate conduct that management is applying to these controls.

3. Human Resource Management

a. General — At least annually, the Board shall, with the assistance of the Compensation Committee, review the Company’s approach to human resource management and executive compensation.

b. Succession Review — At least annually, the Board shall, with the assistance of the Compensation Committee and the Corporate Governance Committee, as applicable, review the Chairman of the Board, the Chief Executive Officer and the senior management succession plans of the Company.

c. Integrity of Senior Management — The Board shall, to the extent feasible, satisfy itself as to the integrity of the Chief Executive Officer and other senior management.

4. Corporate Governance

a. General — At least annually, the Board shall, with the assistance of the Corporate Governance Committee, review the Company’s approach to corporate governance.

b. Director Independence — At least annually, the Board shall, with the assistance of the Corporate Governance Committee, evaluate the director independence standards established by the Board and the Board's ability to act independently from management in fulfilling its duties.

c. Ethics Reporting — At least annually, the Board shall, with the assistance of the Corporate Governance Committee, review reports provided by management relating to compliance with, or material deficiencies of, the Company’s Code of Business Conduct and Ethics.

5. Financial Information

a. General — At least annually, the Board shall, with the assistance of the Audit Committee, review the Company’s internal controls relating to financial information and reports provided by management on material deficiencies in, or material changes to, these controls.

b. Integrity of Financial Information — The Board shall, with the assistance of the Audit Committee, review the integrity of the Company’s financial information and systems, the effectiveness of internal controls and management's assertions on internal control and disclosure control procedures.

6. Communications

a. General — At least annually, the Board in conjunction with the Chief Executive Officer shall review the Company’s overall communications strategy, including measures for receiving feedback from the Company’s shareholders.

b. Disclosure — At least annually, the Board shall review management's compliance with the Company’s disclosure policies and procedures. The Board shall, if advisable, approve material changes to the Company’s disclosure policies and procedures.

7. Committees of the Board

a. Board Committees — The Board has established the following committees of the Board: the Compensation Committee; the Audit Committee; the Corporate Governance Committee; and the Nominating Committee. Subject to applicable law, the Board may establish other Board committees or merge or dispose of any Board committee.

b. Committee Mandates — The Board has approved mandates for each Board committee and shall approve mandates for each new Board committee. At least annually, each mandate shall be reviewed, and, based on recommendations of the Corporate

Governance Committee and the Chairman of the Board, as applicable, approved by the Board.

c. Delegation to Committees — The Board has delegated for approval or review the matters set out in each Board committee's mandate to that committee.

d. Consideration of Committee Recommendations — As required, the Board shall consider for approval the specific matters delegated for review to Board committees.

e. Board/Committee Communication — To facilitate communication between the Board and each Board committee, each committee chair shall provide a report to the Board on material matters considered by the committee at the first Board meeting after each meeting of the committee.

4. DIRECTOR ORIENTATION AND EVALUATION

1. Each new director shall participate in the Company’s initial and any ongoing orientation program.

2. At least annually, the Board shall evaluate and review the performance of the Board, each of its committees, each of the directors and the adequacy of this mandate.

5. CURRENCY OF THE BOARD MANDATE

This mandate was last revised and approved by the Board on March 10, 2009.

The Descartes Systems Group Inc.

Corporate Headquarters

120 Randall Drive

Waterloo, Ontario N2V 1C6 Canada

Tel: +1 (519) 746-8110

Toll Free +1 (800) 419-8495

Fax: +1 (519) 747-7037

e-mail: info@descartes.com

www.descartes.com

EX-99.2

NOTICE TO READERS

This Annual Report (“Annual Report”) dated March 31, 2009, which includes our Management’s Discussion and Analysis of Financial Condition and Results of Operations for our fiscal year ended January 31, 2009 (“fiscal 2009 MD&A”) and our consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (the “fiscal 2009 consolidated financial statements”), has been adjusted from the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on April 9, 2009.

This Annual Report has been adjusted to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). Our fiscal 2009 consolidated financial statements have been adjusted to reflect this retrospective adoption of SFAS 141R (the “adjusted fiscal 2009 statements”) and the adjusted fiscal 2009 statements have been filed on SEDAR on the date hereof.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to our adjusted fiscal 2009 statements. We have made corresponding changes in this Annual Report, including the fiscal 2009 MD&A, to reflect the effect of retrospectively adopting SFAS 141R.

Except for Note 17(b) and Note 18 to the adjusted fiscal 2009 financial statements, this Annual Report does not reflect events or developments subsequent to March 31, 2009.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

THE DESCARTES SYSTEMS GROUP INC.

                                                                                                                 

2009 ANNUAL REPORT

US GAAP FINANCIAL RESULTS FOR 2009 FISCAL YEAR

TABLE OF CONTENTS

Letter from the CEO	..................................................................3
Management’s Discussion and Analysis of Financial Condition and Results of Operations	..................................................................4
Overview	..................................................................6
Consolidated Operations	..................................................................9
Quarterly Operating Results	................................................................16
Liquidity and Capital Resources	................................................................17
Commitments, Contingencies and Guarantees	................................................................19
Outstanding Share Data	................................................................21
Application of Critical Accounting Policies	................................................................22
Change In / Initial Adoption of Accounting Policies	................................................................23
Recent Accounting Pronouncements	................................................................24
Controls and Procedures	................................................................25
Trends / Business Outlook	................................................................25
Certain Factors That May Affect Future Results	................................................................28
Management’s Report on Financial Statements and Internal Control Over Financial Reporting	................................................................38
Reports of Independent Registered Chartered Accountants	................................................................39
Consolidated Balance Sheets	................................................................41
Consolidated Statements of Operations	................................................................42
Consolidated Statements of Shareholders’ Equity	................................................................43
Consolidated Statements of Cash Flows	................................................................44
Notes to Consolidated Financial Statements	................................................................45

2

LETTER FROM THE CEO

Dear Shareholders,

Fiscal 2009 was a year of record operational performance for Descartes. We delivered results to our customers with our leading logistics technology solutions and services, and our customers voted with their savings to use Descartes to help them achieve logistics excellence. In fiscal 2009 we generated cash, enhanced our balance sheet, and improved operating margins and performance. And, we did this in the face of global credit market challenges, declining global shipment volumes and unparalleled fluctuations in foreign currency values compared to the United States dollar. We’ve succeeded in a very tough environment.

For Descartes, fiscal 2009’s internal focus was to solidify our existing business. We concentrated on selling our existing solutions; operating our Global Logistics Network™; leveraging our existing intellectual property and other assets; integrating our previously completed acquisitions; and delivering leading logistics results to customers. We also continued to work with our community of more than 5,000 Global Logistics Network customers, trading partners, government agencies and business alliances to make the world a better place through logistics with technology solutions that reduce our customers’ carbon footprints, make international borders more secure and otherwise make deliveries more efficient. We believe we have strengthened as a company, and improved as a logistics community, through these efforts.

Our mission remains the same. We focus on bringing together shippers, transportation carriers, forwarders and government agencies and other logistics intermediaries, and encourage them to work together to create standardized business processes and improve efficiencies. We are a logistics-focused global network that manages multiple transportation methods (air, ocean, truck, contract carrier and private fleet) and multiple business processes. Our results-based and phased approach to engaging customers and assisting them in implementing our solutions proves the value of our solutions and the return on investment that can be realized by working together with Descartes. We focus on delivering value quickly to our customers while managing project risk. We continue to innovate, develop and support global logistics management solutions to differentiate our logistics intensive customers.

Our experienced employees specialize in operations, technology, marketing and sales. The team has deep domain expertise in logistics and distribution and can address the challenges our customers face with first-hand experience. We have cross-trained our field representatives so they can educate our customers on the comprehensive nature of our offerings. We have further developed our reseller and strategic partner channels and are creating logistics communities with our partners to extend our reach. Our reputation grows as our customers succeed.

Descartes is delivering and growing. Our software-as-a-service business model has proven effective and we believe our customer-focused strategy is a competitive differentiator. We have a proven platform for consolidating in our highly fragmented industry, and have already completed 2 new acquisitions in fiscal 2010 to complement our Global Logistics Network. We believe we are well-positioned for growth and focused on continuing to deliver results for our customers and shareholders.

Arthur Mesher,

Chief Executive Officer

3

Member of the Board of Directors

4

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains references to Descartes using the words “we,” “us,” “our” and similar words and the reader is referred to using the words “you,” “your,” and similar words.

The MD&A also refers to our fiscal years. Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our fiscal year, which ended on January 31, 2009, is referred to as the “current fiscal year,” “fiscal 2009,” “2009” or using similar words. Our previous fiscal year, which ended on January 31, 2008, is referred to as the “previous fiscal year,” “fiscal 2008,” “2008” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, 2010 refers to the annual period ending January 31, 2010 and the “fourth quarter of 2010” refers to the quarter ending January 31, 2010.

This MD&A, which is prepared as of March 31, 2009, covers our year ended January 31, 2009, as compared to years ended January 31, 2008 and 2007. You should read the MD&A in conjunction with our audited consolidated financial statements for 2009. We prepare and file our consolidated financial statements and MD&A in United States (“US”) dollars and in accordance with US generally accepted accounting principles (“GAAP”). All dollar amounts we use in the MD&A are in US currency, unless we indicate otherwise.

We have prepared the MD&A with reference to the Form 51-102F1 MD&A disclosure requirements established under National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators.

Additional information about us, including copies of our continuous disclosure materials such as our annual information form, is available on our website at http://www.descartes.com, through the EDGAR website at http://www.sec.gov or through the SEDAR website at http://www.sedar.com.

Certain statements made in this Annual Report, including, but not limited to, statements in the “Trends / Business Outlook” section and statements regarding our expectations concerning future revenues and earnings; our baseline calibration; our future business plans and business planning process; use of proceeds from previously completed financings or other transactions; future purchase price that may be payable pursuant to completed acquisitions and the sources of funds for such payments; allocation of purchase price for completed acquisitions; the impact of our customs compliance business on our revenues; mix of revenues between services revenues and license revenues; our expectations regarding the cyclical nature of our business, including an expectation that our third quarter will be strongest for shipping volumes and our first quarter will be the weakest; our plans to continue to allow customers to elect to license technology in lieu of subscribing to services; our anticipated loss of revenues and customers in fiscal 2010 and beyond and our ability to replace any corresponding loss of revenue; our ability to keep our operating expenses at a level below our baseline revenues; uses of cash; expenses, including amortization of intangibles; goodwill impairment tests and the possibility of future impairment adjustments; income tax provision and expense; effective tax rates applicable to future fiscal periods; anticipated tax benefits; statements regarding increases or decreases to deferred tax assets; the results of our Ontario retail sales tax audit and our ability to collect from our customers any additional retail sales tax assessed as part of the audit.; the effect on expenses of a weak US dollar; our liability with respect to various claims and suits arising in the ordinary course; any commitments referred to in the “Commitments, Contingencies and Guarantees” section of this MD&A; our intention to actively explore future business combinations and other strategic transactions; our liability under indemnification obligations; anticipated geographic break-down of business; our reinvestment of earnings of subsidiaries back into such subsidiaries; the sufficiency of capital to meet working capital and capital expenditure requirements; our ability to raise capital; the impact of new accounting pronouncements; the expensing of acquisition-related expenses for business combination

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transactions completed in fiscal 2010 and thereafter pursuant to SFAS 141R (as defined herein); and other matters related thereto constitute forward-looking information for the purposes of applicable securities laws (“forward-looking statements”). When used in this document, the words “believe,” “plan,” “expect,” “anticipate,” “intend,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are not limited to, the factors discussed under the heading “Certain Factors That May Affect Future Results” appearing in the MD&A. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statements are based.

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  OVERVIEW

We are a global provider of on-demand, software-as-a-service (SaaS) logistics technology solutions that help our customers make and receive shipments. Using our technology solutions, companies can reduce costs, save time, and enhance the service that they deliver to their own customers. Our technology-based solutions, which consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; inventory and asset visibility; rate and transportation management; and warehouse optimization. Our pricing model provides our customers with flexibility in purchasing our solutions on either a license or an on-demand basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), third party intermediaries (including third-party logistics providers, freight forwarders and customs brokers) and distribution-sensitive companies where delivery is either a key or a defining part of their own product or service offering, or where there is an opportunity to reduce costs and improve service levels by optimizing the use of their assets.

The Market

Supply chain management has been evolving over the past several years as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated, end-to-end solutions that combine business document exchange and mobile resource management applications (MRM) with end-to-end supply chain execution management (SCEM) applications, such as transportation management, routing and scheduling, and inventory visibility.

We believe logistics-intensive organizations are seeking new ways to differentiate themselves, drive efficiencies to offset escalating operating costs and improve margins that are trending downward. Existing global trade and transportation processes are often manual and complex to manage. This is a consequence of the growing number of business partners participating in companies’ global supply chains and a lack of standardized business processes.

Additionally, global sourcing, logistics outsourcing and changes in day-to-day requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment gets delayed at the border, a customer changes an order or a breakdown occurs on the road, there are more and more issues that can significantly impact the status of fulfillment schedules and associated costs.

These challenges are heightened for suppliers that have end customers frequently demanding narrower order-to-fulfillment time frames, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers also want real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.

In this market, manual and fragmented logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly for the majority of organizations. Further, these solutions don’t provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. The rate of adoption of newer logistics technology is evolving, but a disproportionate number of organizations still have manual business processes. This presents an opportunity for logistics technology providers to help customers improve efficiencies in their operations.

As the market continues to change, we have been evolving to meet our customers’ needs. We have been educating our prospects and customers on the value of connecting to trading partners through our logistics network and automating, as well as standardizing, business processes. Our customers are increasingly looking for a single source, web-based solution provider who can help them manage the end-to-end shipment process – from the booking of the move of a shipment, to the tracking of that shipment as it moves, to the regulatory compliance filings to be made during the move and, finally, the settlement and audit of the invoice relating to that move.

Additionally, regulatory initiatives mandating electronic filing of shipment information with customs authorities require companies who move freight by air, ocean or truck to automate their processes to remain

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compliant and competitive. Our customs compliance technology helps shippers, transportation providers, freight forwarders and other logistics intermediaries securely and electronically file shipment information with customs authorities and self-audit its own efforts. Our technology also helps carriers and freight forwarders efficiently coordinate with customs brokers to expedite cross-border shipments. While many compliance initiatives started in the US, compliance is quickly becoming a global issue with international shipments crossing several borders on the way to their final destination. With this in mind, in October 2008, we acquired Dexx bvba (“Dexx”), a Belgium-based customs filing and logistics messaging provider, to strengthen our Global Logistics Network regulatory filing solutions in the European market.

Solutions

Our solutions are primarily offered to two identified customer groups: transportation providers and logistics service providers (LSPs) who are served by our Global Logistics Network; and manufacturers, retailers and distributors (MRDs), who are served by our Delivery Management™ solutions. Our solutions enable our customers to purchase and use either one module at a time or combine several modules as a part of their end-to-end, real-time supply chain solution. This gives our customers an opportunity to add supply chain services and capabilities as their business needs grow and change.

Our Global Logistics Network helps transportation companies and LSPs better manage their shipment management process, optimize fleet performance, comply with regulatory requirements, expedite cross-border shipments and connect and communicate with their trading partners. Our Global Logistics Network is one of the world’s largest multimodal electronic networks focused on transportation providers, their trading partners and regulatory agencies.

LSPs are increasingly looking for technology to help them manage the end-to-end shipment lifecycle – from the booking of the shipment with the transportation provider to the settlement and audit of the invoice relating to the shipment. With our acquisition of Global Freight Exchange Limited (“GF-X”) in 2008, we added air cargo booking functionality to our Global Logistics Network to enable our customers to access technology to help them manage the entire air shipment lifecycle.

Our Delivery Management solutions help MRD enterprises reduce logistics costs, efficiently use logistics assets and decrease lead-time variability for their global shipments and regional operations. In addition, these solutions arm the customer service departments of private fleets and contract carriers with information about the location, availability and scheduling of vehicles so they can provide better information to their own clients. Our Delivery Management solutions are differentiated by the ability to combine planning, execution, messaging services and performance management into an integrated solution.

Sales and Distribution

Our sales efforts are primarily directed toward two specific customer markets: (a) transportation companies and LSPs; and (b) MRDs. Our sales staff is regionally based and trained to sell across our solutions to specific customer markets. In North America and Europe, we promote our products primarily through direct sales efforts aimed at existing and potential users of our products. In the Asia Pacific, Indian subcontinent, Ibero-America and African regions, we focus on making our channel partners successful. Channel partners for our other international operations include distributors, alliance partners and value-added resellers.

Marketing

Marketing materials are delivered through targeted programs designed to reach our core customer groups. These programs include trade shows and user group conferences, partner-focused marketing programs, and direct corporate marketing efforts.

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Significant 2009 Events

We reported net income of $20.2 million in 2009, which included an $11.7 million net, non-cash, deferred income tax recovery. This recovery was comprised of a $14.5 million reduction in our valuation allowance for deferred tax assets in the fourth quarter of 2009, less $2.8 million that was used to offset 2009 US and Sweden taxable income. This recovery arose because we determined that it was more likely than not that, in future periods, we would use a portion of our tax loss carryforwards to offset taxable income in certain jurisdictions, including Canada, Netherlands and Australia..

On October 1, 2008 we acquired 100% of the outstanding shares of Dexx, a Belgium-based European customs filing and logistics messaging provider. Dexx’s customs offerings help shippers, cargo carriers and freight forwarders manage the movement and submission of customs filings and messages to a number of customs authorities. In addition to customs services, Dexx manages the Brucargo Community System (BCS), the cargo community system at Brussels airport. BCS provides a comprehensive range of electronic information exchange between airlines, integrators, general sales agents, forwarding agents, ground handlers, truckers and shippers, as well as customs and other governmental bodies. The purchase price for this acquisition was approximately $1.7 million in cash and an additional $0.1 million in transactional costs.

On December 3, 2008, we announced that the Toronto Stock Exchange (the "TSX") had approved the purchase by us of up to an aggregate of 5,244,556 Descartes common shares pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or the NASDAQ Stock Exchange (the "NASDAQ"), if and when we consider advisable.

On January 26, 2009 we went live with our Importer Security Filing (ISF) "10+2" service. This service is available to the more than 4,000 members of our GLN to help them comply with this latest United States Customs and Border Protection's (CBP) ISF "10+2" initiative.

Subsequent Events

On February 5, 2009 we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our GLN and extended our customs compliance solutions. Oceanwide's logistics business (“Oceanwide”) is focused on a web-based, hosted SaaS model that we believe is ideal for customs brokers and freight forwarders who choose to outsource rather than procure or manage traditional enterprise applications behind their own firewalls. Oceanwide provides solutions for; customs filing, including new 10+2 compliant advanced manifest solutions; automated customs broker interfaces (“ABI”); trade compliance; and logistics management software. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition, net of working capital received, was approximately $8.4 million in cash plus transaction costs.

On March 10, 2009, we completed the acquisition of all of the shares of Scancode Systems Inc. (“Scancode). Scancode provides its customers with a system that scales from the loading dock to the enterprise, providing up-to-date rates that allow the customer to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. Scancode’s strength is in helping to manage small parcel shipments with postal services, courier carriers and over 150 less-than-truckload carriers. Scancode also has supporting warehouse and automated data collection functionality. The purchase price for this acquisition, net of working capital received, was approximately $6.5 million in cash plus transaction costs.

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CONSOLIDATED OPERATIONS

The following table shows, for the years indicated, our results of operations in millions of dollars (except per share and weighted average share amounts):

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Total revenues	66.0	59.0	52.0
Cost of revenues	22.3	20.6	17.5
Gross margin	43.7	38.4	34.5
Operating expenses	30.0	27.5	26.2
Amortization of intangible assets	5.2	3.7	2.7
Contingent acquisition consideration	0.8	2.0	2.1
Impairment of goodwill	-	-	0.1
Restructuring recovery	-	-	(0.2)
Income from operations	7.7	5.2	3.6
Investment income	1.0	1.5	0.6
Income before income taxes	8.7	6.7	4.2
Income tax expense (recovery)	(11.5)	(15.7)	0.2
Net income	20.2	22.4	4.0
EARNINGS PER SHARE
BASIC	0.38	0.44	0.09
DILUTED	0.38	0.43	0.09
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) BASIC DILUTED	52,961 53,659	51,225 52,290	45,225 46,475
Other Pertinent Information:
Total assets	145.9	126.4	71.3

Total revenues consist of services revenues and license revenues. Services revenues are principally comprised of the following: (i) ongoing transactional fees for use of our services and products by our customers, which are recognized as the transactions occur; (ii) professional services revenues from consulting, implementation and training services related to our services and products, which are recognized as the services are performed; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products, which are recognized ratably over the subscription period. License revenues derive from licenses granted to our customers to use our software products.

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The following table provides additional analysis of our services and license revenues (in millions of dollars and as a proportion of total revenues) generated over each of the years indicated:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Services revenues	61.0	54.5	46.8
Percentage of total revenues	92%	92%	90%
License revenues	5.0	4.5	5.2
Percentage of total revenues	8%	8%	10%
Total revenues	66.0	59.0	52.0

Ourservices revenues were $61.0 million, $54.5 million and $46.8 million in 2009, 2008 and 2007, respectively.

The increase in services revenues in 2009 from 2008 is primarily due to the inclusion in 2009 of a full year of services revenues from our 2008 acquisitions with services-based revenues, and a partial-year of 2009 revenues from our acquisition of Dexx. 2009 services revenues also increased due to increased customs compliance revenues from the ACE e-manifest initiative (as discussed further in the “Trends / Business Outlook” section of this MD&A).

The increase in services revenues in 2008 from 2007 is primarily due to the inclusion in 2008 of a full year of services revenues from our 2007 acquisition of Flagship Customs Services, Inc. (“FCS”), a partial-year of 2008 revenues from our acquisition of GF-X and, to a lesser extent, other 2008 acquisitions. 2008 services revenues also increased due to increased customs compliance revenues from the ACE e-manifest initiative. The increase in 2008 was partially offset by a decrease in 2008 of recurring ocean services revenues as a result of certain customers of our legacy ocean services cancelling relatively large recurring revenue contracts effective in the third and fourth quarters of 2007 (“Legacy Ocean Services Cancellations”).

Our services revenues are dependent on the number of shipments being moved by our customers and, accordingly, our services revenues are somewhat subject to seasonal shipment volume trends across the various modes of transportation (i.e. air, ocean, truck) we serve. In our first fiscal quarter, we historically have seen lower shipment volumes in air and truck which impact the aggregate number of transactions flowing through our business document exchange. In our second fiscal quarter, we historically have seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. In the third quarter, we have historically seen shipment and transactional volumes at their highest. In the fourth quarter, the various international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive.

Ourlicense revenues were $5.0 million, $4.5 million and $5.2 million in 2009, 2008 and 2007, respectively. While our sales focus has been on generating services revenues in our on-demand, SaaS business model, we have continued to see a market for licensing the products in our Delivery Management suite to MRD and service provider enterprises. The amount of license revenue in a period is dependent on our customers’ preference to license our solutions instead of purchasing our solutions as a service.

As a percentage of total revenues, our services revenues were 92%, 92% and 90% in 2009, 2008 and 2007, respectively. Our high percentage of services revenues reflects our continued success in selling to new customers under our services-based business model rather than our former model that emphasized perpetual license sales.

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We operate in one business segment providing logistics technology solutions. The following table provides additional analysis of our segmented revenues by geographic area of operation (in millions of dollars):

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Canada	8.5	8.9	5.7
Percentage of total revenues	13%	15%	11%
Americas, excluding Canada	39.8	34.5	31.9
Percentage of total revenues	60%	58%	61%
Europe, Middle-East and Africa (“EMEA”)	16.4	14.0	12.5
Percentage of total revenues	25%	24%	24%
Asia Pacific	1.3	1.6	1.9
Percentage of total revenues	2%	3%	4%
Total revenues	66.0	59.0	52.0

Revenues from Canada were $8.5 million, $8.9 million and $5.7 million in 2009, 2008 and 2007, respectively.

The decrease in 2009 as compared to 2008 was principally due to foreign exchange fluctuations, partially offset by increased customs compliance revenues from the ACE e-manifest initiative (as discussed further in the “Trends / Business Outlook” section of this MD&A).

The increase in 2008 as compared to 2007 was principally due to the inclusion of a full year of revenues in 2008 from the predominantly Canada-based ViaSafe Inc. (“ViaSafe”) and, to a lesser extent, Cube Route Inc. (“Cube Route”), both of which we acquired in December 2006. Canadian revenues also increased due to customs compliance revenues from the ACE e-manifest initiative (as discussed further in the “Trends / Business Outlook” section of this MD&A).

Revenues from the Americas region, excluding Canada were $39.8 million, $34.5 million and $31.9 million in 2009, 2008 and 2007, respectively. The increase in 2009 as compared to 2008 was primarily due to the inclusion of revenues in 2009 from the acquisitions completed in the last quarter of 2008 as well as increased customs compliance revenues generated through services related to the ACE e-manifest initiative (as discussed in the “Trends / Business Outlook” section of this MD&A), partially offset by lower transactional revenues from the GLN in part due to lower global shipping volumes.

The increase in 2008 as compared to 2007 was due to the inclusion of a full year of revenues from the predominantly US-based FCS and partial-year revenues from other smaller acquisitions completed in 2008. These increases were partially offset by the loss in the third and fourth quarters of 2007 of recurring revenues from the Legacy Ocean Services Cancellations.

Revenues from the EMEA region were $16.4 million, $14.0 million and $12.5 million in 2009, 2008 and 2007, respectively. The increase in 2009 from 2008 was primarily due to the inclusion of a full year of revenues from GF-X in 2009, which we acquired in mid-August 2007, as well as revenues from Dexx, which we acquired at the beginning of October 2008.

The increase in 2008 from 2007 was primarily due to the inclusion of GF-X revenues from mid-August 2007 onward.

Revenues from the Asia Pacific region were $1.3 million, $1.6 million and $1.9 million in 2009, 2008 and 2007, respectively. The decrease in 2009 from 2008 was primarily due to higher professional services revenues in 2008 related to the licensing of our routing solutions.

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The dollar amount of revenues for the Asia Pacific region decreased in 2008 from 2007 as 2007 included a large license deal from the sale of our Delivery Management solutions in China in the fourth quarter of 2007.

The following table provides additional analysis of cost of revenues (in millions of dollars) and the related gross margins for the years indicated:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Services
Services revenues	61.0	54.5	46.8
Cost of services revenues	21.3	19.8	16.4
Gross margin	39.7	34.7	30.4
Gross margin percentage	65%	64%	65%
License
License revenues	5.0	4.5	5.2
Cost of license revenues	1.0	0.8	1.1
Gross margin	4.0	3.7	4.1
Gross margin percentage	80%	82%	79%
Total
Revenues	66.0	59.0	52.0
Cost of revenues	22.3	20.6	17.5
Gross margin	43.7	38.4	34.5
Gross margin percentage	66%	65%	66%

Cost of services revenues consists of internal costs of running our systems and applications, as well as the cost of salaries and other personnel-related expenses incurred in providing professional service and maintenance work, including consulting and customer support.

Gross margin percentage for services revenues were 65%, 64% and 65% in 2009, 2008 and 2007, respectively.

The gross margin increase in 2009 from 2008 was primarily a result of favourable foreign exchange rates on our non-US dollar expenses offset by increased employee compensation costs incurred to run our GLN.

The decrease in 2008 from 2007 was primarily due to incurring a one-time fee related to the termination of a hosting and management services contract with a vendor in the second half of 2008.

Cost of license revenues consists of costs related to our sale of third-party technology, such as third-party map license fees, referral fees and/or royalties.

Gross margin percentage for license revenues were 80%, 82%, and 79% in 2009, 2008 and 2007, respectively. Our gross margin on license revenues is dependent on the proportion of our license revenues that involve third-party technology. Consequently, our gross margin percentage for license revenues is higher when a lower proportion of our license revenues attract third-party technology costs, and vice versa. This was the primary contributor to the changes in license margins in 2009, 2008 and 2007.

Operating expenses (consisting of sales and marketing, research and development and general and administrative expenses) were $30.0 million, $27.5 million and $26.2 million for 2009, 2008 and 2007, respectively. The increase in operating expenses over those three years arose primarily from the addition of businesses that we acquired in those three years. As well, we expensed $0.3 million of acquisition-related costs in 2009 as a result of

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a recent change in GAAP for business combinations as discussed below in the section on general and administrative expenses and in Note 18 to our consolidated financial statements for 2009.

The following table provides additional analysis of operating expenses (in millions of dollars) for the years indicated:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Total revenues	66.0	59.0	52.0
Sales and marketing expenses	9.0	9.7	10.2
Percentage of total revenues	14%	16%	20%
Research and development expenses	11.4	10.5	9.0
Percentage of total revenues	17%	18%	17%
General and administrative expenses	9.6	7.3	7.0
Percentage of total revenues	15%	12%	13%
Total operating expenses	30.0	27.5	26.2

Sales and marketing expenses include salaries, commissions, stock-based compensation and other personnel-related costs, bad debt expenses, travel expenses, advertising programs and services, and other promotional activities associated with selling and marketing our services and products. Sales and marketing expenses as a percentage of total revenues were 14%, 16% and 20% in 2009, 2008 and 2007, respectively. The decrease as a percentage of total revenues in 2009 from 2008 was primarily attributable to a reduction in the number of employees as a result of our more efficient deployment of existing resources and integrating acquisitions, leading to a decrease in employee compensation, as well as a favourable foreign exchange impact from our non-US dollar sales and marketing expenses.

The decrease in 2008, as compared to 2007, was primarily attributable to a reduction in the number of employees as a result of our more efficient deployment of existing resources and integrating acquisitions, leading to a decrease in employee compensation, travel expenses and third-party marketing consulting costs. This was partially offset by an increase in bad debt expense. The decrease as a percentage of total revenues is primarily attributable to integrating the sales and marketing functions of acquired entities into our global corporate organization.

Research and development expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of technical and engineering personnel associated with our research and product development activities, as well as costs for third-party outsourced development providers. We expensed all costs related to research and development in 2009, 2008 and 2007. Research and development expense was $11.4 million, $10.5 million and $9.0 million in 2009, 2008 and 2007, respectively. The increase in the 2009 from 2008 was primarily attributable to increased payroll and related costs from our 2008 acquisitions, partially offset by a favourable foreign exchange impact from our non-US dollar research and development expenses.

The increase in 2008, as compared to 2007, was primarily attributable to increased payroll and related costs from the ViaSafe, FCS and GF-X acquisitions in April 2006, July 2006 and August 2007, respectively.

General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of administrative personnel, as well as professional fees, acquisition-related expenses and other administrative expenses. General and administrative costs were $9.6 million, $7.3 million and $7.0 million in 2009, 2008 and 2007, respectively. The increase in 2009 from 2008 was primarily due to increased employee compensation and training costs in support of our global operations, as well as an increase in legal and

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compliance costs and US state taxes. The increase in 2009 from 2008 was also due to the inclusion of $0.3 million of acquisition-related costs, primarily professional fees, related to our acquisitions of Oceanwide and Scancode in the first quarter of 2010. Effective from the beginning of 2010, a recent change in GAAP for business combinations as discussed in Note 18 to our consolidated financial statements for 2009 required that we expense those acquisition-related costs in the period incurred. Previously, GAAP required that these expenses be capitalized as part of the purchase price for a completed business combination and were generally recorded as part of goodwill.

The increase in 2008 from 2007 was primarily due to increased compliance costs.

Amortization of intangible assets is amortization of the value attributable to intangible assets, including customer agreements and relationships, non-compete covenants, existing technologies and trade names associated with acquisitions completed by us as of January 31, 2009. Intangible assets with a finite life are amortized to income over their useful life. The amount of amortization expense in a fiscal period is dependent on our acquisition activities, as well as our asset impairment tests. Amortization of intangible assets was $5.2 million, $3.7 million and $2.7 million in 2009, 2008 and 2007, respectively. Amortization expense increased in 2009 from 2008 primarily as a result of including a full year of amortization for the GF-X intangible assets acquired in August 2007 and intangible assets acquired in other 2008 acquisitions, as well as the 2009 acquisition of Dexx in October 2008. As of January 31, 2009, the unamortized portion of all intangible assets amounted to $15.5 million.

Amortization expense increased in 2008 from 2007 primarily as a result of including a full year of amortization for the ViaSafe, FCS and Cube Route intangible assets. We also had a partial year of amortization for the GF-X intangible assets acquired in August 2007 and, to a much lesser extent, other 2008 acquisitions. Offsetting the amortization expense from the 2008 and 2007 acquisitions was a $0.4 million decrease from several components of our intangible assets that are now fully amortized.

We test the fair value of our finite life intangible assets for recoverability when events or changes in circumstances indicate that there may be evidence of impairment. We performed an additional test at January 31, 2009 as a result of the deterioration in economic conditions and determined that there was no impairment. We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related cash flows. No finite life intangible asset impairment has been identified or recorded for any of the fiscal periods reported.

Contingent acquisition consideration. As described more fully in Note 6 to our Consolidated Financial Statements for 2009, contingent acquisition consideration relates to our 2007 acquisitions of ViaSafe and FCS. It represents acquisition consideration that was placed in escrow for the benefit of the former shareholders, to be released over time contingent on the continued employment of those shareholders. If we terminate the employment of a former shareholder (other than for cause) prior to the escrow period expiring, the portion of the contingent acquisition consideration then remaining relating to that employee is released to the former shareholder and is expensed in the period that such shareholder’s employment is terminated. Contingent acquisition consideration of $0.8 million and $2.0 million expensed in 2009 and 2008, respectively, relates solely to FCS. Contingent acquisition consideration of $2.1 million expensed in 2007 relates to ViaSafe and FCS. For ViaSafe, $0.9 million of such consideration expensed in 2007 included contingent acquisition consideration released to former shareholders whose employment was terminated during 2007. No contingent acquisition consideration remains related to ViaSafe. For FCS, $1.2 million of contingent acquisition consideration was expensed in 2007. No contingent acquisition consideration related to FCS remains to be expensed at January 31, 2009.

Impairment of Goodwill was nil in 2009 and 2008 and $0.1 million in 2007.We performed our annual goodwill impairment tests in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) on October 31, 2008. Our testing indicated no evidence that goodwill impairment had occurred as at October 31, 2008. We performed an additional test at January 31, 2009 as a result

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of the deterioration in economic conditions and determined that there was no impairment. In addition, we will continue to perform quarterly analysis of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amount, and, if so, we will perform a goodwill impairment test between the annual dates. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified. During 2009, we recorded an aggregate of $0.4 million of goodwill on our consolidated balance sheets related to the acquisition of Dexx, as well as purchase price adjustments relating to some of our 2008 acquisitions. During 2008, we recorded an aggregate of $4.6 million of goodwill on our consolidated balance sheets related to the OTB Acquisition and the acquisitions of GF-X, RouteView, PCTB and Mobitrac. During 2007, we recorded an aggregate of $20.4 million of goodwill on our consolidated balance sheets related to our acquisitions of ViaSafe, FCS and Cube Route.

Restructuring recovery was nil in 2009 and 2008 and $0.2 million in 2007, relating to our past restructuring plans. The activities under all restructuring initiatives are completed and we do not expect any additional restructuring expenses in connection with any of our restructuring initiatives. During 2007 we had net favourable revisions to our restructuring provisions totaling $0.2 million related primarily to the sublease of certain offices.

Investment income was $1.0 million, $1.5 million and $0.6 million in 2009, 2008 and 2007, respectively. The decrease in investment income in 2009 from 2008 is principally a result of lower interest rates in 2009.

The increase in investment income in 2008 from 2007 is principally a result of higher invested cash balances subsequent to the first quarter of 2008 from the bought deal share offering completed near the end of the first quarter of 2008 (approximately 5.2 million shares) (the “Fiscal 2008 Bought Deal”).

Income tax expense (recovery) is comprised of current and deferred income tax expense (recovery).

Income tax expense – currentwas $0.2 million, $0.3 million and $0.2 million in 2009, 2008 and 2007, respectively. Current income taxes arise primarily from the estimate of our US taxable income that will be subject to federal alternative minimum tax and not fully sheltered by our loss carryforwards in certain US states.

Income tax recovery – deferredwas a recovery of $11.7 million and $16.0 million in 2009 and 2008, respectively and nil for 2007.

A deferred tax asset of $30.2 million has been recorded on our 2009 consolidated balance sheet for tax benefits that we currently expect to realize in future years. We have provided a valuation allowance of $48.8 million in 2009 for the amount of tax benefits that are not currently expected to be realized. In determining the valuation allowance, we considered various factors by taxing jurisdiction, including our currently estimated taxable income over future periods, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and, as a consequence, result in an increase (recovery) or decrease (expense) to the deferred tax assets recorded on our consolidated balance sheets.

Overall, we generated net income of $20.2 million, $22.4 million and $4.0 million in 2009, 2008 and 2007, respectively. The decrease in 2009 from 2008 was primarily a result of a $11.7 million deferred income tax recovery in 2009 as compared to a $16.0 million deferred income tax recovery in 2008, a $2.5 million increase in operating expenses, a $1.5 million increase in amortization of intangible assets, and a $0.5 million decrease in investment income. Partially offsetting these decreases was a $5.3 million increase in gross margin in 2009 from 2008 and a $1.2 million reduction in contingent acquisition consideration expensed in 2009 from 2008.

The increase in 2008 from 2007 was primarily a result of the $16.0 million deferred income tax recovery, a $3.9 million increase in gross margin, and a $0.9 million increase in investment income. Partially offsetting these increases was a $1.3 million increase in operating expenses and a $1.0 million increase in amortization of intangible assets.

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QUARTERLY OPERATING RESULTS

The following table provides an analysis of our unaudited operating results (in thousands of dollars, except per share and weighted average number of share amounts) for each of the quarters ended on the date indicated.

	April 30,	July 31,	October 31,	January 31,	Total
	2008	2008	2008	2009
2009
Revenues	16,289	17,110	16,965	15,680	66,044
Gross margin	10,602	11,018	11,385	10,686	43,691
Operating expenses	7,449	7,659	7,676	7,212	29,996
Net income	1,054	1,392	2,318	15,446	20, 210
Basic and diluted earnings per share	0.02	0.03	0.04	0.29	0.38
Weighted average shares outstanding (thousands):
Basic	52,933	52,942	52,965	53,002	52,961
Diluted	53,636	53,620	53,697	53,683	53,659

	April 30,	July 31,	October 31,	January 31,	Total
	2007	2007	2007	2008
2008
Revenues	13,288	14,263	15,463	16,011	59,025
Gross margin	8,716	9,408	9,995	10,266	38,385
Operating expenses	6,468	6,832	7,171	7,022	27,493
Net income	1,128	1,682	1,697	17,936	22,443
Basic earnings per share	0.02	0.03	0.03	0.34	0.44
Diluted earnings per share	0.02	0.03	0.03	0.33	0.43
Weighted average shares outstanding (thousands):
Basic	46,672	52,354	52,801	52,924	51,225
Diluted	48,221	53,401	53,715	53,721	52,290

Our operations continue to have seasonal trends. In our first fiscal quarter, we historically have seen lower shipment volumes by air and truck which impact the aggregate number of transactions flowing through our GLN business document exchange. In our second fiscal quarter, we historically have seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. In the third quarter, we have historically seen shipment and transactional volumes at their highest. In the fourth quarter, the various international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive.

Revenues have been positively impacted by the ten acquisitions that we have completed since the beginning of 2007. In addition, over the past two fiscal years we have seen increasing transactions processed over our GLN business document exchange as we help our customers comply with electronic filing requirements of new US and Canadian customs regulations, including the CBP ACE e-manifest filing initiative described in more detail in the “Trends / Business Outlook” section later in this MD&A.

Revenues increased in the second quarter of 2008 over the previous quarter, principally due to the performance of our ocean and customs compliance services. Revenues increased in the third quarter of 2008 by $1.2 million over the previous quarter, principally due to our acquisition of GF-X in that quarter. Revenues also increased in the fourth quarter of 2008 primarily as a result of our acquisitions of RouteView, PCTB and Mobitrac in that quarter.

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Net income in the fourth quarter of 2008 was significantly impacted by an income tax recovery of $16.0 million resulting from a reduction in the valuation allowance for our deferred tax assets. Net income in the first, second and third quarters of 2009 was impacted by a deferred tax expense of $0.5 million, $0.5 million and $0.4 million, respectively, as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our US taxable income for the first three quarters of 2009. The expense in the third quarter of 2009 was net of a recovery of $0.4 million as a result of the recognition of certain deferred tax assets in Sweden. Net income in the fourth quarter of 2009 was significantly impacted by an income tax recovery of $13.1 million resulting from a reduction in the valuation allowance for our deferred tax assets. The recovery in the fourth quarter of 2009 was net of a deferred tax expense of $1.0 million as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our taxable income in the US and Sweden.

In 2009, our revenues followed seasonal trends with our second quarter of 2009 reflecting the period when our customers negotiate new ocean contracts and update rates using our technology services. Commencing in the third quarter of 2009, Dexx contributed to our total revenues. However, this increase in revenues in the fourth quarter was offset by large foreign currency translation impact, primarily from converting Canadian dollar and British pound sterling revenues to US dollars. Similarly, while our operating expenses were relatively unchanged throughout the first three quarters of 2009, there was a decrease in fourth quarter operating expenses principally as a result of foreign currency translation to US dollars. Our net income in the fourth quarter of 2009 was also impacted by approximately $0.3 million from a change to GAAP that required acquisition-related costs to be expensed in the period incurred as discussed in Note 18 to our consolidated financial statements for 2009. Prior GAAP required us to capitalize such costs as part of the purchase price for a business combination, generally to goodwill.

Our weighted average shares outstanding has increased since the first quarter of 2008, principally as a result of the Fiscal 2008 Bought Deal, the GF-X acquisition in the third quarter of 2008 (approximately 0.5 million shares) and periodic employee stock option exercises.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital expenditure requirements primarily through cash flows provided from operations, long-term borrowings and sales of debt and equity securities. As at January 31, 2009, we had $57.6 million in cash and cash equivalents and short-term investments and $2.4 million in unused available lines of credit, none of which was held in asset-backed commercial paper. As at January 31, 2008, we had $44.1 million in cash and cash equivalents and $3.0 million in available lines of credit.

We believe that, considering the above, we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of current operating leases, and additional purchase price that may become payable pursuant to the terms of previously completed acquisitions. Should additional future financing be undertaken, the proceeds from any such transaction could be utilized to fund strategic transactions or for general corporate purposes. We expect, from time to time, to consider select strategic transactions to create value and improve performance, which may include acquisitions, dispositions, restructurings, joint ventures and partnerships, and we may undertake a financing transaction in connection with any such potential strategic transaction. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction.

To the extent that any of our non-Canadian subsidiaries have earnings, our intention is that these earnings be re-invested in such subsidiary indefinitely. Accordingly, to date we have not encountered legal or practical restrictions on the abilities of our subsidiaries to repatriate money to Canada, even if such restrictions may exist in

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respect of certain foreign jurisdictions where we have subsidiaries. To the extent there are restrictions, they have not had a material effect on the ability of our Canadian parent to meet its financial obligations.

The table set forth below provides a summary of cash flows for the years indicated in millions of dollars:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Cash provided by operating activities	18.7	11.9	6.5
Additions to capital assets	(1.4)	(1.1)	(1.4)
Acquisition of subsidiaries and acquisition-related costs	(3.2)	(13.3)	(30.4)
Issuance of common shares, net of issue costs	0.2	23.3	13.8
Effect of foreign exchange rates on cash and cash equivalents and short-term investments	(0.8)	1.4	0.4
Net change in cash and cash equivalents and short-term investments	13.5	22.2	(11.1)
Cash and cash equivalents and short-term investments, beginning of year	44.1	21.9	33.0
Cash and cash equivalents and short-term investments, end of year	57.6	44.1	21.9

Cash provided by operating activities was $18.7 million, $11.9 million and $6.5 million for 2009, 2008 and 2007, respectively. The increase in cash provided by operating activities in 2009 from 2008, was principally due to improved operating performance in 2009.

The increase in cash provided by operating activities in 2008, as compared to 2007, was principally due to the 2007 use of $4.0 million of cash to establish the contingent acquisition consideration escrow for the former shareholders of FCS in connection with our acquisition of FCS, as well as improved operating performance in 2008.

Additions to capital assets of $1.4 million, $1.1 million and $1.4 million in 2009, 2008 and 2007, respectively, were primarily composed of investments in computing equipment and software to support our global operations and GLN.

Acquisition of subsidiaries and acquisition-related costs of $3.2 million in 2009 includes $1.5 million related to the acquisition of Dexx, $0.7 million related to our acquisition of GF-X as well as additional purchase price related to the acquisitions of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc. (“the OTB Acquisition”) ($0.3 million) and RouteView ($0.3 million), and cash that was previously held back in connection with another acquisition ($0.1 million) , as well as $0.2 million of cash paid related to acquisitions that we made in 2008 and 2007.

In 2008, we paid cash of $13.3 million which represents $6.2 million for the acquisition of GF-X, $1.1 million related to the OTB Acquisition, $3.0 million related to the acquisition of RouteView, $2.1 million for the acquisition of PCTB and $0.5 million related to the acquisition of Mobitrac, as well as $0.4 million of cash paid related to acquisitions that we made in 2007.

2007 cash paid of $30.4 million represents our 2007 purchases of ViaSafe, FCS and Cube Route, net of cash acquired, and the final $0.1 million ‘earn-out’ payment related to our acquisition of Tradevision AB (“Tradevision”) in 2003. These amounts exclude $4.0 million of cash that was used to establish the contingent acquisition consideration escrow in connection with the FCS acquisition, as the cash used to establish this escrow was included in the calculation of the cash used in operating activities.

Issuance of common shares of $0.2 million in 2009 is comprised of cash proceeds from the exercise of employee stock options.

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Issuance of common shares of $23.3 million in 2008 is comprised of $21.6 million net cash proceeds received from the Fiscal 2008 Bought Deal and $1.7 million from the exercise of employee stock options.

Issuance of common shares of $13.8 million in 2007 is comprised of $13.6 million net cash proceeds received from a bought deal financing completed in the first quarter of 2007 and $0.2 million from the exercise of employee stock options.

Working capital. As at January 31, 2009, our working capital (current assets less current liabilities) was $62.5 million. Current assets include $47.4 million of cash and cash equivalents, $10.2 million of short-term investments, $8.7 million in current trade receivables and a $5.5 million deferred tax asset. Our working capital has increased since January 31, 2008 by $13.9 million primarily as a result of our 2009 operating activities, partially offset by cash used for acquisitions and capital asset additions.

Cash and cash equivalents and short-term investments. As at January 31, 2009, all funds were held in interest-bearing bank accounts, bearer deposit notes or certificates of deposit, primarily with major Canadian and US banks. Cash and cash equivalents include short-term deposits and debt securities with original maturities of three months or less. At January 31, 2009, we held no investments in ABCP.

At various times in 2008 and 2007, we invested in marketable securities. Marketable securities represent cash invested in investment-grade corporate bonds and commercial paper. Short-term investments in 2008 and 2007 included marketable securities that were composed of debt securities maturing within 12 months from the balance sheet date. Those debt securities were marked-to-market with the resulting gain or loss included in other comprehensive income (loss).

COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating lease obligations:

Years Ended January 31,
2010	1.7
2011	1.3
2012	1.0
2013	1.0
2014	1.0
Thereafter	2.8
	8.8

Operating Lease Obligations

We are committed under non-cancelable operating leases for business premises and computer equipment with terms expiring at various dates through 2020. The future minimum amounts payable under these lease agreements are described in the chart above.

Other Obligations

We have a commitment for income taxes incurred to various taxing authorities related to unrecognized tax benefits in the amount of $4.8 million. At this time, we are unable to make reasonably reliable estimates of the period of settlement with the respective taxing authority due to the possibility of the respective statutes of limitations expiring without examination by the applicable taxing authority.

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Contingencies

We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our annual results of operations or financial position.

Business combination agreements

In connection with the March 6, 2007 acquisition of certain assets of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc., an additional $0.85 million in cash may be payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. $0.3 million of that additional purchase price was paid in 2009, and up to $0.4 million remains eligible to be earned by the previous owners.

In respect of our August 17, 2007 acquisition of 100% of the outstanding shares of GF-X, up to $5.2 million in cash was potentially payable if certain performance targets, primarily relating to revenues, were met by GF-X over the four years subsequent to the date of acquisition. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011.

Product Warranties

In the normal course of operations, we provide our customers with product warranties relating to the performance of our software and network services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such on our financial statements.

Ontario Retail Sales Tax Audit

During 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit is on-going as at March 31, 2009, however, the primary issue identified is our failure to collect ORST on certain Descartes services and products. If additional amounts are assessed that previously should have been collected by us from our customers, then we will attempt to collect this additional ORST from our customers.

We have estimated that the maximum additional tax expense resulting from the ORST audit would be $0.6 million, however, net of ORST we expect to collect from customers, we estimate the additional tax expense to be $0.1 million. Accordingly, the net impact of $0.1 million has been included in our financial statements for the year ending January 31, 2009. We anticipate that the audit will be substantially completed during the first half of fiscal 2010.

Guarantees

In the normal course of business we enter into a variety of agreements that may contain features that meet the definition of a guarantee under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The following lists our significant guarantees:

Intellectual property indemnification obligations

We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license agreement with our customer, which license terms are typically perpetual. To date, we have not encountered material costs as a result of such indemnifications.

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Other indemnification agreements

In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements and leasing transactions. These indemnifications that we provide require us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparty as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnifications.

In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability for the guarantees or indemnities described above on our financial statements.

OUTSTANDING SHARE DATA

We have an unlimited number of common shares authorized for issuance. As of March 31, 2009, we had 53,013,527 common shares issued and outstanding.

As of March 31, 2009, there were 5,342,595 options issued and outstanding, and 221,507 remaining available for grant under all stock option plans.

On April 26, 2007, we closed the Fiscal 2008 Bought Deal, which raised gross proceeds of CAD$25.0 million (equivalent to approximately $22.3 million at the time of the transaction) from a sale of 5,000,000 common shares at a price of CAD$5.00 per share. The underwriters also exercised an over-allotment option on April 26, 2007 to purchase an additional 200,000, 400,000 and 150,000 common shares (in aggregate, 15% of the offering) at CAD$5.00 per share from the Company, Mr. Mesher and Mr. Ryan, respectively. Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to Descartes were approximately $21.5 million at the time of the transaction. We used the net proceeds of the offering to fund our 2008 and 2009 acquisitions as identified in Note 3 to our Consolidated Financial Statements for 2009 and for general corporate purposes and working capital.

On November 30, 2004, we announced that our board of directors had adopted a shareholder rights plan (the “Rights Plan”) to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the company. The Rights Plan was approved by the Toronto Stock Exchange and was originally approved by our shareholders on May 18, 2005. The Rights Plan took effect as of November 29, 2004. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

On December 3, 2008, we announced that the TSX had approved the purchase by us of up to an aggregate of 5,244,556 common shares of Descartes pursuant to a normal course issuer bid. The purchases can occur from time

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to time until December 4, 2009, through the facilities of the TSX and/or NASDAQ, if and when we consider advisable.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period and would materially impact our financial condition or results of operation. Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements for 2009.

Our management has discussed the development, selection and application of our critical accounting policies with the audit committee of the board of directors. In addition, the board of directors has reviewed the accounting policy disclosures in this MD&A.

The following discusses the critical accounting estimates and assumptions that management has made under these policies and how they affect the amounts reported in the 2009 Consolidated Financial Statements:

Revenue recognition

In recognizing revenue, we make estimates and assumptions on factors such as the probability of collection of the revenue from the customer, whether the sales price is fixed or determinable, the amount of revenue to allocate to individual elements in a multiple element arrangement and other matters. We make these estimates and assumptions using our past experience, taking into account any other current information that may be relevant. These estimates and assumptions may differ from the actual outcome for a given customer which could impact operating results in a future period.

Long-Lived Assets

We test long-lived assets for recoverability when events or changes in circumstances indicate evidence of impairment.

In connection with business acquisitions that we have completed, we identify and estimate the fair value of net assets acquired, including certain identifiable intangible assets (other than goodwill) and liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value of the net assets acquired is assigned to goodwill. Intangible assets include customer agreements and relationships, existing technologies and trade names. Intangible assets are amortized on a straight-line basis over their estimated useful lives. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Our impairment analysis contains estimates due to the inherently speculative nature of forecasting long-term estimated cash flows and determining the ultimate useful lives of assets. Actual results will differ, which could materially impact our impairment assessment.

In the case of goodwill, we test for impairment at least annually at October 31 of each year and at any other time if any event occurs or circumstances change that would more likely than not reduce our enterprise value below our carrying amount. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other

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assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Income Taxes

We have provided for income taxes based on information that is currently available to us. Tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. At January 31, 2009, we have recorded deferred tax assets of $30.2 million on our consolidated balance sheet for tax benefits that we currently expect to realize in future periods. During 2009 we determined that there was sufficient positive evidence such that it was more likely than not that we would use a portion of our tax loss carryforwards to offset taxable income in Canada, Netherlands, Sweden, and Australia in future periods. This positive evidence includes that we have earned cumulative income after permanent differences in each of these jurisdictions in the current and two preceding tax years. Accordingly, we reduced our valuation allowance for our deferred tax assets by $14.5 million, representing the amount of tax loss carryforwards that we projected would be used to offset taxable income in these jurisdictions over the ensuing six-year period. In making the projection for the six-year period, we made certain assumptions, including the following: (i) that the current economic downturn will result in reduced profit levels in fiscal 2010 and 2011, with a return to a level of income consistent with the current income levels in 2012 and beyond; (ii) that there will be continued customer migration from technology platforms owned by our US entity and our Swedish entity to a technology platform owned by another entity in our corporate group, further reducing taxable income in the US and Sweden; and (iii) that tax rates in these jurisdictions will be consistent over the six-year period of projection, except in Canada where rates are expected to decrease through 2013 and then remain consistent thereafter. Any further change to decrease the valuation allowance for the deferred tax assets would result in an income tax recovery on the consolidated statements of operations. If we achieve and maintain a consistent level of profitability, the likelihood of additional reductions to our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our business jurisdictions will increase.

CHANGE IN / INITIAL ADOPTION OF ACCOUNTING POLICIES

Recently adopted accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), effective for fiscal years beginning after November 15, 2007, which is our fiscal year ending January 31, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which is our fiscal year ending January 31, 2010. We adopted the non-deferred portion of SFAS 157 on February 1, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That Is

Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP became effective on October 10, 2008, and applies to prior periods for which financial statements have not yet been issued. We adopted FSP 157-3 on October 10, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”), effective for fiscal years beginning after November 15, 2007, which is our year ending January 31, 2009. SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. Our financial instruments are currently composed of cash and cash equivalents, short-term investments, accounts receivable, accounts payable

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and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities. Our adoption of SFAS 159 on February 1, 2008 did not have a material impact on our results of operations and financial condition to date and we have not elected to apply the fair value option to any of our eligible financial instruments and other items to date.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent issued accounting pronouncements not yet adopted

We are currently in the process of assessing the anticipated impact that the deferred portion of SFAS 157 will have on our results of operations and financial condition once effective.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. We are currently in the process of assessing the anticipated impact SFAS 141R will have on our results of operations and financial condition once effective. We currently believe that the adoption of SFAS 141R will result in the inclusion of certain types of expenses related to future business combinationsin our results of operations that we currently capitalize pursuant to existing accounting standards and may also impact our financial statements in other ways. In our previously reported financial results for the year ended January 31, 2009, our consolidated balance sheet included $258,000 of deferred acquisition-related costs which were presented in prepaid expenses and other. We have adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). The effect of adopting SFAS 141R on our previously reported consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 is described more fully in Note 18 to our consolidated financial statements for 2009.

In April 2008, the FASB issued FSP 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 the recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets”. The intent of the guidance is 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. For a recognized intangible asset, an entity will be required to disclose information that enables users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. We are currently in the process of assessing the anticipated impact FSP 142-3 will have on our results of operations and financial condition once effective.

In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period that the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We do not expect the adoption of EITF 08-7 to have a material impact on its consolidated financial statements.

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CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, management evaluated our disclosure controls and procedures (as defined in National Instrument 52-109) as of January 31, 2009. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of our internal control over financial reporting (as defined in National Instrument 52-109) as of January 31, 2009, based on criteria established in “Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission”. Based on the assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 31, 2009, our internal control over financial reporting was effective.

Our management has not conducted an assessment of the internal control over financial reporting of our wholly-owned subsidiary, Dexx bvba (“Dexx”), which we acquired on October 1, 2008. The conclusions of our Chief Executive Officer and Chief Financial Officer in this Annual Report regarding the effectiveness of our internal control over financial reporting as of January 31, 2009 does not include the internal control over financial reporting of Dexx. Dexx’s contribution to our consolidated financial statements for the year ended January 31, 2009 was less than 1% of both consolidated total revenues and net income. Additionally, Dexx’s total assets and net liabilities as of January 31, 2009 were less than 1% of consolidated total assets and net assets, respectively.

TRENDS / BUSINESS OUTLOOK

This section discusses our outlook for 2010 as of the date of this MD&A, and contains forward-looking statements.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation, or the freight market in general, include legal and regulatory requirements; timing of contract renewals between our customers and their own customers; seasonal-based tariffs; vacation periods applicable to particular shipping or receiving nations; weather-related events or natural disasters, that impact shipping in particular geographies; availability of credit to support shipping operations; economic downturns, and amendments to international trade agreements. As many of our services are sold on a “per shipment” basis, we anticipate that our business will continue to reflect the general cyclical and seasonal nature of shipment volumes with our third quarter being the strongest quarter for shipment volumes (compared to our first quarter being the weakest quarter for shipment volumes).

In 2006, US Customs and Border Protection (“CBP”) launched its e-manifest initiative requiring trucks entering the US to file an electronic manifest through its Automated Commercial Environment (“ACE”), providing the CBP with an advance electronic notice of the contents of the truck. Such filings are now mandatory at land ports of entry into the US. Similar filings are required for ocean vessels and airplanes at US air and sea ports. CBP has implemented enhancements to this ACE e-manifest initiative, called “10 + 2” enhancements, that require additional data and filings to be provided to CBP in 2010, starting with ocean shipments. We have various customs compliance services specifically designed to help air, ocean and truck carriers comply with this ACE e-manifest initiative and have recently launched our 10 + 2 solution and acquired additional 10+2 solutions and

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customers as part of our acquisition of Oceanwide. If the roll-out of these initiatives continues as scheduled and compliance is rigidly enforced by CBP, then we anticipate that our revenues will be positively impacted in 2010. A similar e-manifest initiative is being developed for Canada by the Canadian Border Service Agency and may be effective and enforced in 2010.

In fiscal 2009, our services revenues comprised approximately 92% of our total revenues, with the balance being license revenues. We expect that our focus in 2010 will remain on generating services revenues, primarily by promoting use of our GLN (including customs compliance services) and the migration of customers using our legacy license-based products to our services-based architecture. We do, however, anticipate maintaining the flexibility to license our products to those customers who prefer to buy the products in that fashion and the composition of our revenues in any one quarter between services revenues and license revenues will be impacted by the buying preferences of our customers.

In the latter half of fiscal 2009 and in to fiscal 2010, we have seen a massive global economic downturn that has impacted all areas of the economy, including employment, the availability of credit, manufacturing and retail sales. With economic conditions impacting what is being built and sold, we anticipate that there will be an impact on volumes that are shipped. Portions of our revenues are dependent on the amount of goods being shipped, the types of goods being shipped, the modes by which they are being shipped and/or the number of aggregate shipments. Accordingly, we are planning for our transaction revenues to be adversely impacted by the global economic downturn in fiscal 2010.

In addition, in fiscal 2010 we anticipate that some of our customers will be impacted by the global economic downturn in such a manner that they will either choose to reduce or eliminate their use of some of our services. In particular, in 2010 we anticipate that we will lose approximately $3 million in annual recurring revenues as customers cease using our legacy ocean contract services and other legacy applications. We can provide no assurance that we will be able to replace that recurring revenue.

We also have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts, particularly for our ocean products, which provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. Based on our historical experience, we anticipate that over a one-year period we may lose approximately 3% or more of our aggregate revenues in the ordinary course. This 3% is in addition to the $3 million in annual recurring revenues that we anticipate losing in fiscal 2010. There can be no assurance that we will be able to replace such lost revenue with new revenue from new customer relationships or from existing customers.

We internally measure and manage our “baseline operating expenses,” which we define as our total expenses less interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, contingent acquisition consideration, deferred compensation and stock-based compensation). We currently intend to manage our business with the goal of having our baseline operating expenses for a period be between 75% and 80% of our total revenues for that period. We also internally measure and monitor our visible, recurring and contracted revenues, which we refer to as our “baseline revenues”. In the first quarter of 2010, we intend to continue to manage our business with our baseline operating expenses at a level below our baseline revenues. We refer to the difference between our baseline revenues and baseline operating expenses as our “baseline calibration”. At March 11, 2009, using foreign exchange rates that existed at January 31, 2009, we estimated that our baseline revenues for the first quarter of 2010 were $16.0 million and our baseline operating expenses were $12.5 million. We consider this to be baseline calibration of $3.5 million for the first quarter of 2010, or approximately 22% of our baseline revenues, determined as of March 11, 2009.

In fiscal 2010, we anticipate that we will need to re-calibrate our business when and if recurring revenues exit our business. We expect that re-calibration of our business will include the reduction of expenses through the implementation of cost reduction initiatives and further acceleration of integration activities for acquired

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companies. In the first quarter of 2010, we started cost reduction activities in anticipation of the $3 million in annual recurring revenues that we plan on losing in 2010 because of the departure of customers of our legacy products and services.

We anticipate that in fiscal 2010, the significant majority of our business will continue to be in the Americas, with the EMEA region being the bulk of the remainder of our business. We believe we currently have some significant opportunities in the Americas region. We anticipate that revenues from the Asia Pacific Region will continue to represent less than 5% of our total revenues in fiscal 2010.

We estimate that amortization expense for existing intangible assets will be $4.5 million for 2010, $4.0 million for 2011, $2.4 million for 2012, $1.3 million for 2013 and $3.3 million thereafter, assuming that no impairment of existing intangible assets occurs in the interim.

We performed our annual goodwill impairment tests in accordance with SFAS 142 on October 31, 2008 and updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009. We are currently scheduled to perform our next annual impairment test on October 31, 2009. In addition, we will continue to perform quarterly analyses of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. The likelihood of any future impairment increases if our public market capitalization is adversely impacted by global economic, capital market or other conditions for a sustained period of time. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified.

In 2009, we spent $1.3 million ($1.1 million in 2008) on capital expenditures and expect that 2010 expenditures will be above that level as we invest in our network and build out infrastructure. Capital expenditures were $0.4 million in the fourth quarter of 2009, and we expect they will be between $0.3 and $0.4 million in the first quarter of 2010.

We conduct business in a variety of foreign currencies and, as a result, all of our foreign operations are subject to foreign exchange fluctuations. Our operations operate in their local currency environment and use their local currency as their functional currency. Assets and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using monthly average exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders’ equity. Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income. We also hold some of our cash in foreign currencies. We currently have no specific hedging program in place to address fluctuations in international currency exchange rates. We can make no accurate prediction of what will happen with international currency exchange rates in 2010. However, if the US dollar is weak in comparison to foreign currencies, then we anticipate this will increase the expenses of our business and have a negative impact on our results of operations.

As of January 31, 2009, our gross amount of unrecognized tax benefits was approximately $4.8 million. We expect that the unrecognized tax benefits will increase within the next 12 months due to uncertain tax positions that may be taken, although at this time a reasonable estimate of the possible increase cannot be made.

In the fourth quarter of 2008, we determined that there was sufficient positive evidence such that it was more likely than not that, in future periods, we would use a portion of our tax loss carryforwards to offset taxable income in the US. Accordingly, we reduced our valuation allowance for our deferred tax assets by $16.0 million, representing the amount of tax loss carryforwards that we projected would be used to offset taxable income in the US over the ensuing six-year period. In the third quarter of 2009, we reduced our valuation allowance by $0.4 million as a result of the recognition of certain deferred tax assets in Sweden. During the last quarter of fiscal 2009, we concluded that there was sufficient positive evidence to support the recognition of a portion of the deferred tax assets in Canada, Netherlands and Australia, and an additional amount in Sweden. The recognition of

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these deferred tax asset balances resulted in a one-time gain reported on the consolidated financial statements of $14.5 million. This gain was partly offset through the utilization of previously recognized deferred tax assets in the amount of $2.8 million, resulting in a net gain of $11.7 million.

The amount of any tax expense in a period will depend on the amount of taxable income, if any, we generate in a jurisdiction and our then current effective tax rate in that jurisdiction. We can provide no assurance as to the timing or amounts of any income tax expense or expensing of deferred tax assets, nor can be we provide any assurance that our current valuation allowance for deferred tax assets will not need to be adjusted further.

Our anticipated tax rate for a period is difficult to predict and may vary from period to period as it depends on factors including the actual jurisdictions in which revenues are earned, the tax rates in those jurisdictions, tax assessments and the amount of tax losses, if any, we have available to offset this income. This is particularly so in the US where we are taxed on a state-by-state basis. Based on our current understanding of our geographical revenue mix, revenue pipeline, tax filings and available tax losses, we currently anticipate that our effective tax rate for fiscal 2010 will be in the range of 60-69%.

We intend to actively explore business combinations in 2010 to add complementary services, products and customers to our existing businesses. In the first quarter or 2010, we completed the acquisitions of Oceanwide and Scancode. Going forward, we intend to focus our acquisition activities on companies that are targeting the same customers as us and processing similar data and, to that end, will listen to our customers’ suggestions as they relate to consolidation opportunities. Depending on the size and scope of any such business combination, or series of contemplated business combinations, we may need to raise additional debt or equity capital. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction.

Certain future commitments are set out above in the section of this MD&A called “Commitments, Contingencies and Guarantees”. We believe that we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of these commitments.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Any investment in us will be subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks described below together with all other information included in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are not aware of or have not focused on, or that we currently deem immaterial, may also impair our business operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, they could materially adversely affect our business, financial condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment.

General economic conditions may affect our business, results of operations and financial condition.

Demand for our products depends in large part upon the level of capital and operating expenditures by many of our customers. Decreased capital and operational spending could have a material adverse effect on the demand for our products and our business, results of operations, cash flow and overall financial condition. Disruptions in the financial markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future, which could result in the delay or cancellation of projects or capital programs on which our business depends. In addition, the disruptions in the financial markets may also have an adverse impact on regional economies or the world economy, which could negatively impact the capital and operating expenditures of our customers. These conditions may reduce the willingness or ability of our customers and prospective

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customers to commit funds to purchase our products and services, or their ability to pay for our products and services after purchase. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the US and other countries.

Our existing customers might cancel existing contracts with us, fail to renew contracts on their renewal dates, and fail to purchase additional services and products, or consolidate contracts with acquired companies.

We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. An example would be our contract to operate the US Census Bureau’s Automated Export System (AESDirect). In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. In 2007, for example, we lost certain customers due to the Legacy Ocean Services Cancellations who generated significant recurring revenues. In 2010, we expect to lose $3 million in annual recurring revenues from departing services customers in addition to the normal 3% annual revenue attrition we plan for. We can provide no assurance that we will not lose additional customers in the future or be able to replace any lost revenues.

If our customers fail to renew their service contracts, fail to purchase additional services or products, or consolidate contracts with acquired companies, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, and changes in our customers’ business or in regulation impacting our customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenues losses. Our business may also be unfavorably affected by market trends impacting our customer base, such as consolidation activity in our customer base.

Disruptions in the movement of freight could negatively affect our revenues.

Our business is highly dependent on the movement of freight from one point to another as we generate transaction revenues as freight is moved by, to or from our customers. If there are disruptions in the movement of freight, whether as a result of labour disputes or weather or natural disaster, or caused by terrorists, political or security activities, contagious illness outbreaks, or otherwise, then our revenues will be adversely affected. As these types of freight disruptions are generally unpredictable, there can be no assurance that our revenues will not be adversely affected by such events.

We have a substantial accumulated deficit and a history of losses and may incur losses in the future.

As at January 31, 2009, our accumulated deficit was $362.6 million. Although we have been profitable for each quarter of the past four years, we had losses in 2005 and prior fiscal periods. While we are encouraged by our recent profits, our profits in 2006 benefited from one-time gains on the disposition of an asset and a significant portion of our net income and earnings per share in the fourth quarter of each of 2008 and 2009 benefited from a non-cash, net deferred income tax recovery of $16.0 million and $11.7 million, respectively. There can be no assurance that we will not incur losses again in the future. We believe that the success of our business and our ability to remain profitable depends on our ability to keep our baseline operating expenses to a level at or below our baseline revenues. There can be no assurance that we can generate further expense reductions or achieve revenues growth, or that any expense reductions or revenues growth achieved can be sustained, to enable us to do so. If we fail to maintain profitability, this would increase the possibility that the value of your investment will decline.

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If we need additional capital in the future and are unable to obtain it as needed or can only obtain it on unfavorable terms, our operations may be adversely affected, and the market price for our securities could decline.

Historically, we have financed our operations primarily through cash flows from our operations, long-term borrowings, and the sale of our debt and equity securities. As at January 31, 2009, we had cash and cash equivalents and short-term investments of approximately $57.6 million and $2.4 million in unutilized operating lines of credit.

While we believe we have sufficient liquidity to fund our current operating and working capital requirements, we may need to raise additional debt or equity capital to fund expansion of our operations, to enhance our services and products, or to acquire or invest in complementary products, services, businesses or technologies. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction. If we raise additional funds through further issuances of convertible debt or equity securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those attaching to our common shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available on terms favorable to us, our operations and growth strategy may be adversely affected and the market price for our common shares could decline.

Making and integrating acquisitions involves a number of risks that could harm our business.

We have in the past acquired, and in the future expect to seek to acquire, additional products, services, customers, technologies or businesses that we believe are complementary to ours. For example, in 2010 we’ve already acquired 2 businesses (Oceanwide and Scancode), in 2009 we acquired one business (Dexx), in 2008 we acquired six businesses and in 2007 we acquired three businesses. However, we may not be able to identify appropriate products, technologies or businesses for acquisition or, if identified, conclude such acquisitions on terms acceptable to us. Acquisitions involve a number of risks, including: diversion of management’s attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company’s internal controls and procedures. In addition, we may not identify all risks or fully assess risks identified in connection with an acquisition. The individual or combined effect of these risks could have a material adverse effect on our business. As well, in paying for an acquisition, we may deplete our cash resources or dilute our shareholder base by issuing additional shares. Furthermore, there is the risk that our valuation assumptions, customer retention expectations and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause us to overvalue an acquisition target. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated.

We may have difficulties maintaining or growing our acquired businesses.

Businesses that we acquire may sell products, or operate services, that we have limited experience operating or managing. For example, Oceanwide, ViaSafe, FCS and Dexx each operate in the emerging regulatory compliance business, and GF-X operates in electronic air freight booking. We may experience unanticipated challenges or difficulties in maintaining these businesses at their current levels or in growing these businesses. Factors that may impair our ability to maintain or grow acquired businesses may include, but are not limited to:

• Challenges in integrating acquired businesses with our business;

• Loss of customers of the acquired business;

• Loss of key personnel from the acquired business, such as former executive officers or key technical personnel;

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• For regulatory compliance businesses, changes in government regulations impacting electronic regulatory filings or import/export compliance, including changes in which government agencies are responsible for gathering import and export information;

• Difficulties in gaining necessary approvals in international markets to expand acquired businesses as contemplated;

• Our inability to obtain or maintain necessary security clearances to provide international shipment management services; and

• Other risk factors identified in this report.

Changes in the value of the US dollar, as compared to the currencies of other countries where we transact business, could harm our operating results and financial condition.

To date, our international revenues have been denominated primarily in US dollars. However, the majority of our international expenses, including the wages of our non-US employees and certain key supply agreements, have been denominated in currencies other than the US dollar. Therefore, changes in the value of the US dollar as compared to these other currencies may materially affect our operating results. We generally have not implemented hedging programs to mitigate our exposure to currency fluctuations affecting international accounts receivable, cash balances and inter-company accounts. We also have not hedged our exposure to currency fluctuations affecting future international revenues and expenses and other commitments. Accordingly, currency exchange rate fluctuations have caused, and may continue to cause, variability in our foreign currency denominated revenue streams, expenses, and our cost to settle foreign currency denominated liabilities. In particular, we incur a significant portion of our expenses in Canadian dollars relative to the amount of revenue we receive in Canadian dollars, so fluctuations in the Canadian-US dollar exchange rate, and in particular, the weakening of the US dollar, could have a material adverse effect on our business, results of operations and financial condition.

If we fail to attract and retain key personnel, it would adversely affect our ability to develop and effectively manage our business.

Our performance is substantially dependent on the performance of our key technical, sales and marketing, and senior management personnel. We do not maintain life insurance policies on any of our employees that list the company as a loss payee. Our success is highly dependent on our ability to identify, hire, train, motivate, promote, and retain highly qualified management, directors, technical, and sales and marketing personnel, including key technical and senior management personnel. Competition for such personnel is always strong. Our inability to attract or retain the necessary management, directors, technical, and sales and marketing personnel, or to attract such personnel on a timely basis, could have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

We have in the past, and may in the future, make changes to our executive management team or board of directors. There can be no assurance that these changes and the resulting transition will not have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

Changes in government filing requirements for global trade may adversely impact our business.

Our regulatory compliance services help our customers comply with government filing requirements relating to global trade. The services that we offer may be impacted, from time to time, by changes in these requirements. Changes in requirements that impact electronic regulatory filings or import/export compliance, including changes adding or reducing filing requirements or changing the government agency responsible for the requirement could impact our business, perhaps adversely.

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Increases in fuel prices and other transportation costs may have an adverse effect on the businesses of our customers resulting in them spending less money with us.

Our customers are all involved, directly or indirectly, in the delivery of goods from one point to another, particularly transportation providers and freight forwarders. As the costs of these deliveries become more expensive, whether as a result of increases in fuel costs or otherwise, our customers may have fewer funds available to spend on our products and services. While it is possible that the demand for our products and services will increase as companies look for ways to reduce fleet size and fuel use and recognize that our products and services are designed to make their deliveries more cost-efficient, there can be no assurance that these companies will be able to allocate sufficient funds to use our products and services. In addition, rising fuel costs may cause global or geographic-specific reductions in the number of shipments being made, thereby impacting the number of transactions being processed by our Global Logistics Network and our corresponding network revenues.

We may not be able to compensate for downward pricing pressure on certain products and services by increased volumes of transactions or increased prices elsewhere in our business, ultimately resulting in lower revenues.

Some of our products and services are sold to industries where there is downward pricing pressure on the particular product or service due to competition, general industry conditions or other causes. We may attempt to deal with this pricing pressure by committing these customers to volumes of activity so that we may better control our costs. In addition, we may attempt to offset this pricing pressure by securing better margins on other products or services sold to the customer, or to other customers elsewhere in our business. If we cannot offset any such downward pricing pressure, then the particular customer may generate less revenue for our business or we may have less aggregate revenue. This could have an adverse impact on our operating results.

The general cyclical and seasonal nature of our business may have a material adverse effect on our business, results of operations and financial condition.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the cyclical and seasonal nature of the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation or the freight market in general include legal and regulatory requirements, timing of contract renewals between our customers and their own customers, seasonal-based tariffs, vacation periods applicable to particular shipping or receiving nations, weather-related events that impact shipping in particular geographies and amendments to international trade agreements. Since some of our revenues from particular products and services are tied to the volume of shipments being processed, adverse fluctuations in the volume of global shipments or shipments in any particular mode of transportation may adversely affect our revenues. There can be no assurance that declines in shipment volumes in the US or internationally won’t have a material adverse effect on our business.

We may have exposure to greater than anticipated tax liabilities or expenses.

We are subject to income and non-income taxes in various jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Although we believe that our estimates are reasonable and that we have adequately provided for income taxes based on all of the information that is currently available to us, tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. We have recorded a valuation allowance for all but $30.2 million of our net deferred tax assets. If we achieve a consistent level of profitability, the likelihood of further reducing our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our jurisdictions will increase. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during subsequent years. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. Any further changes to the valuation allowance for our deferred tax assets would also result in an income tax recovery or income tax expense, as applicable, on the consolidated statements of operations in the period in which the valuation allowance is changed. In addition, when we reduce our deferred tax valuation allowance, we will record

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income tax expense in any subsequent period where we use that deferred tax asset to offset any income tax payable in that period, reducing net income reported for that period, perhaps materially.

Changes to earnings resulting from past acquisitions may adversely affect our operating results.

Under business combination accounting standards, we allocate the total purchase price to an acquired company’s net tangible assets, intangible assets and in-process research and development based on their values as of the date of the acquisition (including certain assets and liabilities that are recorded at fair value) and record the excess of the purchase price over those values as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges that would adversely affect our operating results and may adversely affect our cash flows:

• Impairment of goodwill or intangible assets;

• A reduction in the useful lives of intangible assets acquired;

• Identification of assumed contingent liabilities after we finalize the purchase price allocation period;

• Security breaches;

• Charges to our operating results to eliminate certain pre-merger activities that duplicate those of the acquired company or to reduce our cost structure; or

• Charges to our operating results resulting from revised estimates to restructure an acquired company’s operations after we finalize the purchase price allocation period.

Routine charges to our operating results associated with acquisitions include amortization of intangible assets, in-process research and development as well as other acquisition related charges, restructuring and stock-based compensation associated with assumed stock awards. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities.

We expect to continue to incur additional costs associated with combining the operations of our acquired companies, which may be substantial. Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated stock-based compensation expenses and severance payments, reorganization or closure of facilities, taxes, and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease our net income and earnings per share for the periods in which those adjustments are made.

In December 2007, the FASB issued SFAS 141R, “Business Combinations”. SFAS 141R is effective for us beginning in fiscal 2010, which began on February 1, 2009. As described more fully in Note 18 to our consolidated financial statements for 2009, the adoption of SFAS 141R on February 1, 2009 resulted in a retrospective adjustment to our consolidated financial statements for the year ended January 31, 2009, relating to acquisition related costs which were previously deferred under the provisions of SFAS 141, “Business Combinations”. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition.

If our common share price decreases to a level such that the fair value of our net assets is less than the carrying value of our net assets, we may be required to record additional significant non-cash charges associated with goodwill impairment.

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (‘SFAS 142”), which we adopted effective February 1, 2002. SFAS 142, among other things, requires that goodwill be tested for impairment at least annually. We have designated October 31 as the date for our annual impairment test. Although the results of our testing on October 31, 2008 indicated no evidence of impairment, should the fair value of our net assets, determined by our market capitalization, be less than the carrying value of our net assets at future annual impairment test dates, we may have to recognize goodwill impairment losses in our future results of operations. This could impair our ability to achieve or maintain profitability in the future. We updated the analysis

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as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009.

Fair value assessments of our intangible assets required by GAAP may require us to record significant non-cash charges associated with intangible asset impairment.

Significant portions of our assets, which include customer agreements and relationships, non-compete covenants, existing technologies and trade names, are intangible. We amortize intangible assets on a straight-line basis over their estimated useful lives, which are generally three to five years. We review the carrying value of these assets at least annually for evidence of impairment. In accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”, an impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Future fair value assessments of intangible assets may require impairment charges to be recorded in the results of operations for future periods. This could impair our ability to achieve or maintain profitability in the future.

System or network failures or breaches in connection with our services and products could reduce our sales, impair our reputation, increase costs or result in liability claims, and seriously harm our business.

Any disruption to our services and products, our own information systems or communications networks or those of third-party providers upon whom we rely as part of our own product offerings, including the Internet, could result in the inability of our customers to receive our products for an indeterminate period of time. Our services and products may not function properly for reasons, which may include, but are not limited to, the following:

• System or network failure;

• Interruption in the supply of power;

• Virus proliferation;

• Security breaches;

• Earthquake, fire, flood or other natural disaster; or

• An act of war or terrorism.

Although we have made significant investments, both internally and with third-party providers, in redundant and back-up systems for some of our services and products, these systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers. Any disruption to our services could impair our reputation and cause us to lose customers or revenue, or face litigation, necessitate customer service or repair work that would involve substantial costs and distract management from operating our business.

From time to time, we may be subject to litigation or dispute resolution that could result in significant costs to us and damage to our reputation.

From time to time, we may be subject to litigation or dispute resolution relating to any number or type of claims, including claims for damages related to undetected errors or malfunctions of our services and products or their deployment, claims related to previously-completed acquisition transactions or claims relating to applicable securities laws. A product liability, patent infringement, acquisition-related or securities class action claim could seriously harm our business because of the costs of defending the lawsuit, diversion of employees’ time and attention, and potential damage to our reputation.

Further, our services and products are complex and often implemented by our customers to interact with third-party technology or networks. Claims may be made against us for damages properly attributable to those third-party technologies or networks, regardless of our lack of responsibility for any failure resulting in a loss - even if our services and products perform in accordance with their functional specifications. We may also have disputes with key suppliers for damages incurred which, depending on resolution of the disputes, could impact the ongoing quality, price or availability of the services or products we procure from the supplier. While our agreements with our customers, suppliers and other third-parties may contain provisions designed to limit exposure to potential claims, these limitation of liability provisions may not be enforceable under the laws of some jurisdictions. As a result, we could be required to pay substantial amounts of damages in settlement or upon the determination of any

35

of these types of claims, and incur damage to the reputation of Descartes and our products. The likelihood of such claims and the amount of damages we may be required to pay may increase as our customers increasingly use our services and products for critical business functions, or rely on our services and products as the systems of record to store data for use by other customer applications. Although we carry general liability and directors and officers insurance, our insurance may not cover potential claims, or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

We could be exposed to business risks in our international operations that could cause our operating results to suffer.

While our headquarters are in North America, we currently have direct operations in both Europe and China. We anticipate that these international operations will continue to require significant management attention and financial resources to localize our services and products for delivery in these markets, to develop compliance expertise relating to international regulatory agencies, and to develop direct and indirect sales and support channels in those markets. We face a number of risks associated with conducting our business internationally that could negatively impact our operating results. These risks include, but are not limited to:

• Longer collection time from foreign clients, particularly in the Asia Pacific region;

• Difficulty in repatriating cash from certain foreign jurisdictions;

• Language barriers, conflicting international business practices, and other difficulties related to the management and administration of a global business;

• Difficulties and costs of staffing and managing geographically disparate direct and indirect operations;

• Currency fluctuations and exchange and tariff rates;

• Multiple, and possibly overlapping, tax structures and a wide variety of foreign laws;

• Trade restrictions;

• The need to consider characteristics unique to technology systems used internationally;

• Economic or political instability in some markets; and

• Other risk factors set out in this report.

We may not remain competitive. Increased competition could seriously harm our business.

The market for supply chain technology is highly competitive and subject to rapid technological change. We expect that competition will increase in the future. To maintain and improve our competitive position, we must continue to develop and introduce in a timely and cost effective manner new products, product features and network services to keep pace with our competitors. We currently face competition from a large number of specific entrants, some of which are focused on specific industries, geographic regions or other components of markets we operate in.

Current and potential competitors include supply chain application software vendors, customers that undertake internal software development efforts, value-added networks and business document exchanges, enterprise resource planning software vendors, regulatory filing companies, and general business application software vendors. Many of our current and potential competitors may have one or more of the following relative advantages:

• Longer operating history;

• Greater financial, technical, marketing, sales, distribution and other resources;

• Lower cost structure and more profitable operations;

• Superior product functionality and industry-specific expertise;

• Greater name recognition;

• Broader range of products to offer;

• Better performance;

• Larger installed base of customers;

• Established relationships with existing customers or prospects that we are targeting; and/or

• Greater worldwide presence.

36

Further, current and potential competitors have established, or may establish, cooperative relationships and business combinations among themselves or with third parties to enhance their products, which may result in increased competition. In addition, we expect to experience increasing price competition and competition surrounding other commercial terms as we compete for market share. In particular, larger competitors or competitors with a broader range of services and products may bundle their products, rendering our products more expensive and/or less functional. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.

If we are unable to generate broad market acceptance of our services, products and pricing, serious harm could result to our business.

We currently derive substantially all of our revenues from our supply chain services and products and expect to do so in the future. Broad market acceptance of these types of services and products, and their related pricing, is therefore critical to our future success. The demand for, and market acceptance of, our services and products is subject to a high level of uncertainty. Some of our services and products are often considered complex and may involve a new approach to the conduct of business by our customers. The market for our services and products may weaken, competitors may develop superior services and products, or we may fail to develop acceptable services and products to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations and financial condition.

Our success and ability to compete depends upon our ability to secure and protect patents, trademarks and other proprietary rights.

We consider certain aspects of our internal operations, our products, services and related documentation to be proprietary, and we primarily rely on a combination of patent, copyright, trademark and trade secret laws and other measures to protect our proprietary rights. Patent applications or issued patents, as well as trademark, copyright, and trade secret rights, may not provide adequate protection or competitive advantage and may require significant resources to obtain and defend. We also rely on contractual restrictions in our agreements with customers, employees, outsourced developers and others to protect our intellectual property rights. There can be no assurance that these agreements will not be breached, that we have adequate remedies for any breach, or that our patents, copyrights, trademarks or trade secrets will not otherwise become known. Moreover, the laws of some countries do not protect proprietary intellectual property rights as effectively as do the laws of the US and Canada. Protecting and defending our intellectual property rights could be costly regardless of venue. Through an escrow arrangement, we have granted some of our customers a contingent future right to use our source code for software products solely for internal maintenance services. If our source code is accessed through an escrow, the likelihood of misappropriation or other misuse of our intellectual property may increase.

Claims that we infringe third-party proprietary rights could trigger indemnification obligations and result in significant expenses or restrictions on our ability to provide our products or services.

Competitors and other third-parties have claimed, and in the future may claim, that our current or future services or products infringe their proprietary rights or assert other claims against us. Many of our competitors have obtained patents covering products and services generally related to our products and services, and they may assert these patents against us. Such claims, whether with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from focusing on our core business.

As a result of such a dispute, we may have to pay damages, incur substantial legal fees, suspend the sale or deployment of our services and products, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would increase our expenses and could decrease the functionality of our services and products, which would make our services and products less attractive to our current and/or potential customers. We have agreed in some of our agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties. If we are required to make payments pursuant to these indemnification agreements, it could have a material adverse effect on our business, results of operations and financial condition.

37

Our results of operations may vary significantly from quarter to quarter and therefore may be difficult to predict or may fail to meet investment community expectations.

Our results of operations may vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Such factors include, but are not limited to:

• The termination of any key customer contracts, whether by the customer or by us;

• Recognition and expensing of deferred tax assets;

• Legal costs incurred in bringing or defending any litigation with customers and third-party providers, and any corresponding judgments or awards;

• Legal and compliance costs incurred to comply with Canadian and US regulatory requirements;

• Fluctuations in the demand for our services and products;

• Price and functionality competition in our industry;

• Timing of acquisitions and related costs;

• Changes in legislation and accounting standards;

• Fluctuations in foreign currency exchange rates;

• Our ability to satisfy contractual obligations in customer contracts and deliver services and products to the satisfaction of our customers; and

• Other risk factors discussed in this report.

Although our revenues may fluctuate from quarter to quarter, significant portions of our expenses are not variable in the short term, and we may not be able to reduce them quickly to respond to decreases in revenues. If revenues are below expectations, this shortfall is likely to adversely and/or disproportionately affect our operating results.

Our common share price has in the past been volatile and may also be volatile in the future.

The trading price of our common shares has in the past been subject to wide fluctuations and may also be subject to fluctuation in the future. This may make it more difficult for you to resell your common shares when you want at prices that you find attractive. Increases in our common share price may also increase our compensation expense pursuant to our existing director, officer and employee compensation arrangements. Fluctuations in our common share price may be caused by events unrelated to our operating performance and beyond our control. Factors that may contribute to fluctuations include, but are not limited to:

• Revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;

• Changes in recommendations or financial estimates by industry or investment analysts;

• Changes in management or the composition of our board of directors;

• Outcomes of litigation or arbitration proceedings;

• Announcements of technological innovations or acquisitions by us or by our competitors;

• Introduction of new products or significant customer wins or losses by us or by our competitors;

• Developments with respect to our intellectual property rights or those of our competitors;

• Fluctuations in the share prices of other companies in the technology and emerging growth sectors;

• General market conditions; and

• Other risk factors set out in this report.

If the market price of our common shares drops significantly, shareholders could institute securities class action lawsuits against us, regardless of the merits of such claims. Such a lawsuit could cause us to incur substantial costs and could divert the time and attention of our management and other resources from our business.

38

MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Financial Statements

Management is responsible for the accompanying consolidated financial statements and all other information in this Annual Report. These consolidated financial statements have been prepared in accordance with US GAAP and necessarily include amounts that reflect management’s judgment and best estimates. Financial information contained elsewhere in this Annual Report is prepared on a basis consistent with the consolidated financial statements.

The Board of Directors carries out its responsibilities for the consolidated financial statements through its Audit Committee, consisting solely of independent directors. The Audit Committee meets with management and independent auditors to review the consolidated financial statements and the internal controls as they relate to financial reporting. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to shareholders.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation to the effectiveness of internal control over financial reporting 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of our internal control over financial reporting as of January 31, 2009, based on criteria established in “Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission”. Based on the assessment, management concluded that, as of January 31, 2009, our internal control over financial reporting was effective. Our management has not conducted an assessment of the internal control over financial reporting of our wholly-owned subsidiary, Dexx bvba (“Dexx”), which we acquired on October 1, 2008. Our conclusion in this Annual Report regarding the effectiveness of our internal control over financial reporting as of January 31, 2009 does not include the internal control over financial reporting of Dexx. Dexx’s contribution to our consolidated financial statements for the year ended January 31, 2009 was less than 1% of both consolidated total revenues and net income. Additionally, Dexx’s total assets and net liabilities as of January 31, 2009 were less than 1% of consolidated total assets and net assets, respectively.

Management’s internal control over financial reporting as of January 31, 2009, has been audited by Deloitte & Touche LLP, Independent Registered Chartered Accountants, who also audited our Consolidated Financial Statements for the year ended January 31, 2009, as stated in the Report of Independent Chartered Accountants, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting.

Arthur Mesher	Stephanie Ratza
Chief Executive Officer	Chief Financial Officer
Waterloo, Ontario	Waterloo, Ontario

39

Deloitte & Touche LLP

4210 King Street East

Kitchener ON N2P 2G5

Canada

Tel: (519) 650-7729

Fax: (519) 650-7601

www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of The Descartes Systems Group Inc.

We have audited the accompanying consolidated balance sheets of The Descartes Systems Group Inc. (the “Company”) as at January 31, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended January 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2009 in accordance with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Independent Registered Chartered Accountants

Licensed Public Accountants

Toronto, Ontario

March 10, 2009, except as to Note 17(b) and Note 18, which are as of September 29, 2009

Comments by Independent Registered Chartered Accountants on

Canada-United States of America Reporting Difference

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Company’s financial statements, such as the changes described in Note 2 to the consolidated financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the Board of Directors and Shareholders, dated March 10, 2009, except as to Note 17 and Note 18 which is as of September 30, 2009, is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors’ report when the changes are properly accounted for and adequately disclosed in the financial statements.

Independent Registered Chartered Accountants

Licensed Public Accountants

Toronto, Ontario

March 10, 2009, except as to Note 17(b) and Note 18, which are as of September 29, 2009

40

Deloitte & Touche LLP

4210 King Street East

Kitchener ON N2P 2G5

Canada

Tel: (519) 650-7729

Fax: (519) 650-7601

www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of The Descartes Systems Group Inc.

We have audited the internal control over financial reporting of The Descartes Systems Group Inc. (the “Company”) as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Dexx bvba, which was acquired on October 1, 2008and whose financial statements constitute less than 1% of both consolidated total revenues and net income as well as less than 1% of consolidated total assets and net assets, respectively of the consolidated financial statement amounts as of and for the year ended January 31, 2009. Accordingly, our audit did not include the internal control over financial reporting at Dexx bvba. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Financial Statements and Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 31, 2009 of the Company and our report, dated March 10, 2009, except as to Note 17(b) and Note 18, which are as of September 29, 2009, expressed an unqualified opinion on those financial statements.

Independent Registered Chartered Accountants

Licensed Public Accountants

41

Toronto, Ontario

March 10, 2009

42

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED BALANCE SHEETS

(US DOLLARS IN THOUSANDS; US GAAP)

	January 31,	January 31,
	2009	2008
ASSETS	(Note 18 – as adjusted)
CURRENT ASSETS
Cash and cash equivalents (Note 4)	47,422	44,091
Short-term investments (Note 4)	10,210	-
Accounts receivable
Trade (Note 5)	8,702	10,447
Other	985	1,288
Prepaid expenses and other	855	951
Deferred contingent acquisition consideration (Note 6)	-	833
Deferred income taxes (Note 15)	5,490	3,000
Deferred tax charge	197	115
	73,861	60,725
CAPITAL ASSETS (Note 7)	4,888	6,722
GOODWILL	26,381	25,005
INTANGIBLE ASSETS (Note 8)	15,475	18,914
DEFERRED INCOME TAXES (Note 15)	24,665	14,570
DEFERRED TAX CHARGE	592	458
	145,862	126,394
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	1,938	3,054
Accrued liabilities (Note 9)	5,526	4,514
Income taxes payable	589	783
Deferred revenue	3,317	3,750
	11,370	12,101
INCOME TAX LIABILITY (Note 15)	2,325	1,570
COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 10)	13,695	13,671
SHAREHOLDERS’ EQUITY
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 53,013,227 at January 31, 2009 ( January 31, 2008 – 52,929,977) (Note 11)	44,986	44,653
Additional paid-in capital	449,462	448,918
Accumulated other comprehensive income (Note 11)	363	2,006
Accumulated deficit	(362,644)	(382,854)
	132,167	112,723
	145,862	126,394

The accompanying notes are an integral part of these consolidated financial statements.

                                                                                                 

Approved by the Board:

J. Ian Giffen Stephen Watt

43

Director Director

44

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; US GAAP)

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
	(Note 18 – as adjusted)
REVENUES	66,044	59,025	51,990
COST OF REVENUES	22,353	20,640	17,487
GROSS MARGIN	43,691	38,385	34,503
EXPENSES
Sales and marketing	8,992	9,700	10,138
Research and development	11,458	10,540	9,033
General and administrative	9,546	7,253	7,047
Amortization of intangible assets	5,133	3,644	2,718
Contingent acquisition consideration (Note 6)	833	2,000	2,040
Impairment of goodwill	-	-	100
Restructuring recovery	-	-	(172)
	35,962	33,137	30,904
INCOME FROM OPERATIONS	7,729	5,248	3,599
INVESTMENT INCOME	1,002	1,518	592
INCOME BEFORE INCOME TAXES	8,731	6,766	4,191
INCOME TAX EXPENSE (RECOVERY) (Note 15)
Current	256	323	204
Deferred	(11,735)	(16,000)	-
	(11,479)	(15,677)	204
NET INCOME	20,210	22,443	3,987
EARNINGS PER SHARE (Note 12)
Basic	0.38	0.44	0.09
Diluted	0.38	0.43	0.09
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)
Basic	52,961	51,225	45,225
Diluted	53,659	52,290	46,475

The accompanying notes are an integral part of these consolidated financial statements.

45

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(US DOLLARS IN THOUSANDS; US GAAP)

	January 31,	January 31,	January 31,
	2009	2008	2007
Common shares	(Note 18 – as adjusted)
Balance, beginning of year	44,653	19,354	21
Shares issued:
Stock options exercised	211	2,066	201
Issue of common shares net of issuance costs	122	21,514	13,621
Acquisitions	-	1,719	5,511
Balance, end of year	44,986	44,653	19,354
Additional paid-in capital
Balance, beginning of year, as originally reported	448,918	448,815	446,565
Cumulative effect of adjustments from the adoption of SAB 108 (Note 13)	-	-	1,546
Balance, beginning of year, as adjusted	448,918	448,815	448,111
Unearned compensation related to issuance of stock options	7	4	10
Stock-based compensation expense	527	466	729
Stock options exercised	(34)	(367)	(35)
Stock option income tax benefits	44	-	-
Balance, end of year	449,462	448,918	448,815
Unearned deferred compensation
Balance, beginning of year	-	-	(57)
Deferred compensation earned on stock options	-	-	57
Contingent acquisition consideration recorded (Note 6)	-	-	(869)
Contingent acquisition consideration expensed (Note 6)	-	-	869
Balance, end of year	-	-	-
Accumulated other comprehensive income (loss)
Balance, beginning of year	2,006	(123)	(375)
Foreign currency translation adjustments	(1,643)	2,127	280
Net unrealized investment gains (losses)	-	2	(28)
Balance, end of year	363	2,006	(123)
Accumulated deficit
Balance, beginning of year, as originally reported	(382,854)	(405,297)	(407,738)
Cumulative effect of adjustments from the adoption of SAB 108 (Note 13)	-	-	(1,546)
Balance, beginning of year, as adjusted	(382,854)	(405,297)	(409,284)
Net income	20,210	22,443	3,987
Balance, end of year	(362,644)	(382,854)	(405,297)
Total Shareholders’ Equity	132,167	126,394	62,749

Comprehensive income
Net income	20,210	22,443	3,987
Other comprehensive income (loss):
Foreign currency translation adjustment	(1,643)	2,127	280
Net unrealized investment gains (losses)	-	2	(28)
Total other comprehensive income (loss)	(1,643)	2,129	252
Comprehensive income	18,567	24,572	4,239

46

The accompanying notes are an integral part of these consolidated financial statements.

47

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(US DOLLARS IN THOUSANDS; US GAAP)

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
OPERATING ACTIVITIES	(Note 18 – as adjusted)
Net income	20,210	22,443	3,987
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	2,231	2,424	2,200
Amortization of intangible assets	5,133	3,644	2,718
Contingent acquisition consideration	-	-	869
Impairment of goodwill	-	-	100
Amortization of deferred compensation	7	4	67
Stock-based compensation expense	527	466	729
Deferred income taxes	(11,735)	(16,000)	-
Deferred tax charge	(216)	-	-
Changes in operating assets and liabilities:
Accounts receivable
Trade	772	(1,356)	73
Other	234	(364)	731
Prepaid expenses and other	81	67	(110)
Deferred contingent acquisition consideration	833	2,000	(2,833)
Accounts payable	(617)	(812)	554
Accrued liabilities	1,379	(815)	(1,898)
Income taxes payable	(285)	580	(5)
Deferred revenue	131	(343)	(706)
Cash provided by operating activities	18,685	11,938	6,476
INVESTING ACTIVITIES
Maturities of short-term investments	-	2,820	5,425
Sale of short-term investments	-	-	5,092
Purchase of short-term investments	(10,210)	-	(7,734)
Additions to capital assets	(1,343)	(1,074)	(1,359)
Acquisition of subsidiaries, net of cash acquired and bank indebtedness assumed	(2,231)	(11,374)	(29,352)
Acquisition-related costs	(928)	(1,903)	(1,079)
Cash used in investing activities	(14,712)	(11,531)	(29,007)
FINANCING ACTIVITIES
Issuance of common shares for cash, net of issue costs	177	23,279	13,787
Cash provided by financing activities	177	23,279	13,787
Effect of foreign exchange rate changes on cash and cash equivalents	(819)	1,035	480
Increase (decrease) in cash and cash equivalents	3,331	24,721	(8,264)
Cash and cash equivalents, beginning of year	44,091	19,370	27,634
Cash and cash equivalents, end of year	47,422	44,091	19,370
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	1,194	322	373

The accompanying notes are an integral part of these consolidated financial statements.

48

THE DESCARTES SYSTEMS GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of US dollars, except per share amounts; US GAAP)

Note 1 - Description of the Business

The Descartes Systems Group Inc. (“Descartes”, “Company”, “our” or “we”) operates in one business segment providing logistics technology solutions that help companies efficiently deliver their own products and services to their customers. Our technology-based solutions, which consist of services and software, provide connectivity and document exchange, shipment bookings, regulatory compliance, route planning and wireless dispatch, inventory and asset visibility, rate management, transportation management, and warehouse optimization.

Note 2 –Significant Accounting Policies

Basis of presentation

We prepare our consolidated financial statements in US dollars and in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our current fiscal year, which ends on January 31, 2009, is referred to as the “current fiscal year,” “fiscal 2009,” “2009” or using similar words. Our previous fiscal year, which ended on January 31, 2008, is referred to as the “previous fiscal year,” “fiscal 2008,” “2008” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, “2010” refers to the annual period ending January 31, 2010 and the “fourth quarter of 2010” refers to the quarter ending January 31, 2010.

As described more fully in Note 18 below, our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”) on February 1, 2009 resulted in a retrospective adjustment to our consolidated financial statements for the year ended January 31, 2009. In our previously reported financial results for the year ended January 31, 2009, our consolidated balance sheet included $258,000 of deferred acquisition-related costs in prepaid expenses and other that were previously capitalized under the provisions of SFAS No. 141, “Business Combinations” (“SFAS 141”). Under the provisions of SFAS 141R, and the guidance in SFAS No. 154, “Accounting Changes and Error Corrections” (‘SFAS 154”), we adopted SFAS 141R retrospectively on February 1, 2009.

Certain immaterial reclassifications have been made to prior year financial statements and the notes to conform to the current year presentation. Specifically, we reclassified $573,000 from prepaid expenses and other to deferred tax charge ($115,000 current and $458,000 non-current) on the January 31, 2008 comparative consolidated balance sheet. Since the deferred tax charge balance increased to a material amount during 2009 we were required to present it as a separate line item on our consolidated balance sheets. Accordingly, we also made the related changes to prepaid expenses and other and deferred tax charge on our consolidated statements of cash flows. As well, we reclassified $35,000, $367,000 and $34,000 from additional paid-in capital to common shares on our consolidated statements of shareholders’ equity for January 31, 2007, 2008 and 2009, respectively, to reflect the amounts previously credited to additional paid-in capital for options exercised in each of those years. There were no changes to our consolidated statements of operations for any of the periods presented as a result of these reclassifications.

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Basis of consolidation

The consolidated financial statements include the financial statements of Descartes and our wholly-owned subsidiaries. We do not have any variable interests in variable interest entities. All intercompany accounts and transactions have been eliminated during consolidation.

Financial instruments

Fair value of financial instruments

Financial instruments are composed of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities.

Foreign exchange risk

We are exposed to foreign exchange risk because a higher proportion of our revenues are denominated in US dollars relative to expenditures. Accordingly, our results are affected, and may be affected in the future, by exchange rate fluctuations of the US dollar relative to the Canadian dollar, to various European currencies, and, to a lesser extent, other foreign currencies.

Interest rate risk

We are exposed to reductions in interest rates, which could adversely impact expected returns from our investment of corporate funds in interest bearing bank accounts and short-term investments.

Credit risk

We are exposed to credit risk through our invested cash and accounts receivable. We hold our cash with reputable financial institutions and in highly liquid financial instruments. The lack of concentration of accounts receivable from a single customer and the dispersion of customers among industries and geographical locations mitigate this risk.

We do not use any type of speculative financial instruments, including but not limited to foreign exchange contracts, futures, swaps and option agreements, to manage our foreign exchange or interest rate risks. In addition, we do not hold or issue financial instruments for trading purposes.

Foreign currency translation

We conduct business in a variety of foreign currencies and, as a result, all of our foreign operations are subject to foreign exchange fluctuations. All operations operate in their local currency environment and use their local currency as their functional currency. The functional currency of the parent company is Canadian dollars. Assets and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using monthly average exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders’ equity.

Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income.

Use of estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying note disclosures. Although these estimates and assumptions are based on management’s best knowledge of current events, actual results may be different from the estimates. Estimates and assumptions are used when accounting for items such as allowance for doubtful accounts, depreciation of capital assets, amortization of intangible assets, assumptions embodied in the valuation of assets for impairment assessment, stock-based compensation, restructuring costs, valuation allowances against deferred tax assets, tax positions and recognition of contingencies.

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Cash, cash equivalents and short-term investments

Cash and cash equivalents include short-term deposits with original maturities of three months or less. Short-term investments are composed of short-term deposits and debt securities maturing between three and 12 months from the balance sheet date.

Our investment portfolio is subject to market risk due to changes in interest rates. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our investment policy, we are averse to principal loss and seek to preserve our invested funds by limiting default risk, market risk and reinvestment risk.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from customers who do not make required payments. Specifically, we consider the age of the receivables, historical write-offs, the creditworthiness of the customer, and current economic trends among other factors. Accounts receivable are written off, and the associated allowance is eliminated, if it is determined that the specific balance is no longer collectible.

Impairment of long-lived assets

We account for the impairment and disposition of long-lived assets in accordance with SFAS No. 144 “Accounting for Impairment or Disposal of Long–Lived Assets.” We test long-lived assets, such as capital assets and finite life intangible assets, for recoverability when events or changes in circumstances indicate that there may be an impairment. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows.

Goodwill and intangible assets

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). When we acquire a business, we determine the fair value of the net tangible and intangible (other than goodwill) assets acquired and compare the total amount to the amount that we paid for the investment. Any excess of the amount paid over the fair value of those net assets is considered to be goodwill. Goodwill is tested annually on October 31 for impairment to ensure that the fair value is greater than or equal to the carrying value. Any excess of carrying value over fair value is charged to income in the period in which impairment is determined. Our annual goodwill impairment testing on October 31, 2008 indicated no evidence that goodwill impairment had occurred as of October 31, 2008. We will perform further quarterly analysis of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified.

Intangible assets related to our acquisitions are recorded at their fair value at the acquisition date. Intangible assets include customer agreements and relationships, non-compete covenants, existing technologies and trade names. Intangible assets are amortized on a straight-line basis over their estimated useful lives. We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related future cash flows.

Amortization of our intangible assets is generally recorded at the following rates:

Customer agreements and relationships Straight-line over one-and-a-half to twenty years

Non-compete covenants Straight-line over three years

Existing technology Straight-line over one to five years

Trade names Straight-line over two to fifteen years

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Capital assets

Capital assets are recorded at cost. Depreciation of our capital assets is generally recorded at the following rates:

Computer equipment and software 30% declining balance

Furniture and fixtures 20% declining balance

Leasehold improvements Straight-line over lesser of useful life or term of lease

Revenue recognition

We follow the accounting guidelines and recommendations contained in the American Institute of Certified Public Accountants Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”) and the United States Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin 104, “Revenue Recognition in Financial Statements” (“SAB 104”).

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been delivered or the services have been provided to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. In addition to this general policy, the specific revenue recognition policies for each major category of revenue are included below.

Services Revenues- Services revenues are principally composed of the following: (i) ongoing transactional fees for use of our services and products by our customers, which are recognized as the transactions occur; (ii) professional services revenues from consulting, implementation and training services related to our services and products, which are recognized as the services are performed; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products, which are recognized ratably over the subscription period.

License Revenues - License revenues derive from licenses granted to our customers to use our software products, and are recognized in accordance with SOP 97-2.

We sometimes enter into transactions that represent multiple-element arrangements, which may include any combination of services and software licenses. These multiple element arrangements are assessed to determine whether they can be separated into more than one unit of accounting or element for the purpose of revenue recognition. Fees are allocated to the various elements using the residual method as outlined in SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Pursuant to the residual method, we defer recognition of the fair value of any undelivered elements and determine such fair value using vendor-specific objective evidence. This vendor-specific objective evidence of fair value is established through prices charged for each revenue element when that element is sold separately. We then allocate any residual portion of the arrangement fee to the delivered elements. The revenue recognition policies described in this section are then applied to each element.

We evaluate the collectibility of our trade receivables based upon a combination of factors on a periodic basis. When we become aware of a specific customer’s inability to meet its financial obligations to us (such as in the case of bankruptcy filings or material deterioration in the customer’s operating results or financial position, payment experiences and existence of credit risk insurance for certain customers), we record a specific bad debt provision to reduce the customer’s related trade receivable to its estimated net realizable value. If circumstances related to specific customers change, the estimate of the recoverability of trade receivables could be further adjusted.

Research and development costs

We incur costs related to research and development of our software products. To date, we have not capitalized any development costs under SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.” Costs incurred between the time of establishment of a working model and the point where products are marketed are expensed as they are insignificant.

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Stock-based compensation

We adopted SFAS No. 123 (revised 2004) “Share Based Payment” (“SFAS 123R”) effective February 1, 2006 using the modified prospective application method. Accordingly, the fair value of that portion of employee stock options that is ultimately expected to vest has been amortized to expense in our consolidated statement of operations since February 1, 2006 based on the straight-line attribution method. The accounting for our various stock-based employee compensation plans is described more fully in Note 13 below.

Income taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, we consider factors by taxing jurisdiction, including our estimated taxable income, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense.

Effective February 1, 2007, we adopted FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”) which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides accounting guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The accounting for FIN 48 is described more fully in Note 15 below.

Earnings per share

Basic earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing the applicable net income by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period. The treasury stock method is used to compute the dilutive effect of stock options.

Recently adopted accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), effective for fiscal years beginning after November 15, 2007, which is our fiscal year ending January 31, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which is our fiscal year ending January 31, 2010. We adopted the non-deferred portion of SFAS 157 on February 1, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That Is

Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP became effective on October 10, 2008, and applies to prior periods for which financial statements have not yet been issued. We adopted FSP 157-3 on October 10, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”), effective for fiscal years beginning after November 15, 2007, which is our year ending January 31, 2009. SFAS 159 permits an entity to

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choose to measure many financial instruments and certain other items at fair value. Our financial instruments are currently composed of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities. Our adoption of SFAS 159 on February 1, 2008 did not have a material impact on our results of operations and financial condition to date and we have not elected to apply the fair value option to any of our eligible financial instruments and other items to date.

Recent issued accounting pronouncements not yet adopted

We are currently in the process of assessing the anticipated impact that the deferred portion of SFAS 157 will have on our results of operations and financial condition once effective.

In December 2007, the FASB issued SFAS 141R. SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. We currently believe that the adoption of SFAS 141R will result in the inclusion of certain types of expenses related to future business combinations in our results of operations that we currently capitalize pursuant to existing accounting standards and may also impact our financial statements in other ways. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition. In our previously reported financial results for the period ended January 31, 2009, our consolidated balance sheet included $258,000 of deferred acquisition-related costs which were presented in prepaid expenses and other. Under the transitional provisions of SFAS 141R, and the guidance in SFAS 154, we adopted SFAS 141R retrospectively on February 1, 2009, which resulted in a retrospective adjustment to our previously reported results for our fiscal year ended January 31, 2009. The effect of adopting SFAS 141R on our previously reported consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 is described below in Note 18 to these consolidated financial statements.

In April 2008, the FASB issued FSP 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 the recognized intangible asset under SFAS 142. The intent of the guidance is 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. For a recognized intangible asset, an entity will be required to disclose information that enables users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. We are currently in the process of assessing the anticipated impact FSP 142-3 will have on our results of operations and financial condition once effective.

In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period that the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We do not expect the adoption of EITF 08-7 to have a material impact on its consolidated financial statements.

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Note 3 – Acquisitions

The preliminary purchase price allocation for the business we acquired during the year ended January 31, 2009, which has not been finalized, is as follows:

	Dexx
Purchase price consideration:
Cash, including cash acquired ($100)	1,748
Acquisition-related costs	140
	1,888
Allocated to:
Net tangible assets acquired (liabilities assumed)	(214)
Finite life intangible assets acquired:
Customer agreements and relationships	676
Existing technology	908
Trade names	111
Goodwill	407
	1,888

On October 1, 2008 we acquired 100% of the outstanding shares of Dexx bvba (“Dexx”) a Belgium-based European customs filing and logistics messaging provider. Dexx’s customs offerings help shippers, cargo carriers and freight forwarders manage the movement and submission of customs filings and messages to a number of customs authorities. In addition to customs services, Dexx manages the Brucargo Community System (BCS), the

cargo community system at Brussels airport. BCS provides a comprehensive range of electronic information exchange between airlines, integrators, general sales agents, forwarding agents, ground handlers, truckers and shippers, as well as customs and other governmental bodies. The results of operations for Dexx are included in our consolidated statements of operations from the date acquired. The purchase price for this acquisition was approximately $1.7 million in cash plus an additional $0.1 million in transaction costs.

The Dexx transaction was accounted for as a purchase in accordance with SFAS 141. The purchase price allocation in the table above represents our estimate of the allocation of the purchase price and the fair value of net assets acquired. The valuation of the acquired assets is preliminary, may differ from the final purchase price allocation, and these differences may be material. Changes to the preliminary purchase price and preliminary allocation may arise as we gather additional information that impacts either the amount of the purchase price (such as post-closing working capital adjustments or other escrow claims) or information that impacts the fair value of net assets acquired (such as third-party claims impacting the value of intellectual property). The final purchase price allocation will be completed within one year from the acquisition date.

No in-process research and development was acquired or written-off relating to the Dexx transaction.

The acquired intangible assets are being amortized over their estimated useful lives as follows:

	Dexx
Customer agreements and relationships	10 years
Existing technology	5 years
Trade names	3 years

The goodwill on the Dexx acquisition arose as a result of their assembled workforce and the combined strategic value to our growth plan. The goodwill is not deductible for tax purposes.

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No pro forma results of operations for the Dexx transaction have been presented as it is not material to our consolidated financial statements.

The final purchase price allocations for the businesses that we acquired during the year ended January 31, 2008, are set out in the following table:

	OTB	GF-X	RouteView	PCTB	Mobitrac	Total
Purchase price consideration:
Cash, including cash acquired related to GF-X ($814) and RouteView ($149)	1,443	9,241	3,343	2,090	649	16,766
Common shares	-	1,719	-	-	-	1,719
Acquisition-related costs	60	2,283	211	89	52	2,695
Total purchase price	1,503	13,243	3,554	2,179	701	21,180
Allocated to:
Net tangible assets acquired	(56)	3,931	(232)	318	81	4,042
Finite life intangible assets acquired:
Customer agreements and relationships	333	3,356	467	813	217	5,186
Non-compete covenants	-	925	-	-	-	925
Existing technology	-	2,312	904	277	243	3,736
Trade names	51	1,478	143	66	20	1,758
Goodwill	1,175	1,241	2,272	705	140	5,533
	1,503	13,243	3,554	2,179	701	21,180

The results of operations for the businesses that we acquired in 2008 are included in our consolidated statements of operations from the date acquired, as indicated below.

On March 6, 2007, we acquired certain assets of Ocean Tariff Bureau, Inc. (“Ocean Tariff Bureau”) and Blue Pacific Services, Inc. (“Blue Pacific” and, together with Ocean Tariff Bureau, the “OTB Acquisition”), both based in Long Beach, California. Ocean Tariff Bureau provides tariff filing and contract publishing services to ocean intermediaries involved in the shipping of cargo into or out of US waters. Blue Pacific helps these same types of companies secure surety bonds required to ship cargo into or out of US waters. We paid $1.1 million in cash at closing, with up to an additional $0.85 million in cash payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. If any such additional purchase price becomes payable it will be recorded as goodwill in the period that such payments come due. $0.3 million of that additional purchase price became payable during the quarter ended April 30, 2008 and was recorded as goodwill. We also incurred transaction expenses of approximately $60,000.

On August 17, 2007 we acquired 100% of the outstanding shares of Global Freight Exchange Limited (“GF-X”), a global leader for electronic freight booking in the air cargo industry based in London, U.K. The acquisition adds electronic air freight booking capability to our Global Logistics Network, creating a global network capable of managing the entire air cargo shipment lifecycle. The purchase price for this acquisition included approximately $9.2 million in cash and approximately 0.5 million Descartes common shares valued at $1.7 million. Additional purchase price of up to $5.2 million in cash is payable if certain performance targets, primarily related to revenues, are met by GF-X during the period of 4 years from the date of acquisition. If any such additional purchase price becomes payable it will be recorded as goodwill in the period that such payments come due. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011. We also incurred $2.3 million of acquisition-related costs comprised of

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$1.1 million in transaction expenses, primarily professional fees, and $1.2 million of exit costs and involuntary employee termination benefits.

On December 20, 2007, we acquired 100% of the outstanding shares of RouteView Technologies, Inc. (“RouteView”), based in Burnsville, Minnesota. RouteView provides technology solutions in a recurring revenue model to help small- and medium-sized organizations manage their delivery operations. RouteView's map-based routing software combines with wireless, GPS and automated call-out technology to help numerous customers, particularly in the home delivery and distribution industries, with a comprehensive delivery management solution. The purchase price for this acquisition was approximately $3.0 million in cash, plus an additional $0.5 million in cash if certain sales targets are met by RouteView during the period of one year from the date of acquisition. $0.3 million of additional purchase price related to those provisions was recorded as goodwill in the third quarter of 2009 and paid to the former shareholders of RouteView in December 2008. We also incurred approximately $0.2 million in transaction expenses, primarily professional fees, associated with the acquisition of RouteView.

On January 9, 2008, we acquired certain assets of San Francisco, California-based Pacific Coast Tariff Bureau, Inc. (“PCTB”) in an all cash transaction. PCTB provides tariff filing and contract publishing services to ocean carriers, non-vessel operating common carriers (NVOCCs) and shippers to help them comply with U.S. regulations for domestic and foreign shipping trades. PCTB also provides technology solutions to its customers to help them manage ocean contracts and apply the correct freight rates to bills of lading for ocean shipments. We paid $2.1 million in cash at closing and also incurred transaction expenses of approximately $89,000.

On January 10, 2008, we acquired certain assets of the fleet management business formerly known as Mobitrac (“Mobitrac”) from privately-held Fluensee, Inc. in an all cash transaction. As part of the transaction, we acquired software-as-a-service routing and scheduling technology. The purchase price included $0.7 million in cash and we also incurred transaction expenses of approximately $52,000.

The OTB Acquisition and the GF-X, RouteView, PCTB and Mobitrac transactions were accounted for as purchases in accordance with SFAS 141; therefore, the tangible assets acquired were recorded at their fair value on acquisition date. There may be additional purchase price payable pursuant to the OTB Acquisition and the acquisition of GF-X.

No in-process research and development was acquired or written-off relating to the OTB Acquisition or the GF-X, RouteView, PCTB and Mobitrac transactions.

The acquired intangible assets are being amortized over their estimated useful lives as follows:

	OTB	GF-X	RouteView	PCTB	Mobitrac
Customer agreements and relationships	5 years	8 years	20 years	10 years	1.5 years
Non-compete covenants	N/A	3 years	N/A	N/A	N/A
Existing technology	N/A	5 years	5 years	1 year	4 years
Trade names	5 years	15 years	5 years	3 years	2 years

The goodwill on the above acquisitions arose as a result of their assembled workforce and the combined strategic value to our growth plan. Except for GF-X, the goodwill on the above acquisitions is deductible for tax purposes.

The results of operations subsequent to the August 17, 2007 acquisition date for GF-X have been included in our consolidated financial statements. As required by GAAP, the financial information in the table below summarizes selected results of operations on a pro forma basis as if we had acquired GF-X as of the beginning of each of the periods presented. The pro forma results of operations for the OTB Acquisition and the RouteView, PCTB and Mobitrac transactions have not been included the table below as those acquisitions are not material to our consolidated financial statements. This pro forma information is for information purposes only and does not purport to represent what our results of operations for the periods presented would have been had the acquisition

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of GF-X occurred at the beginning of the period indicated, or to project our result of operations for any future period.

Pro forma results of operations

Year Ended	January 31,	January 31,
	2008	2007
Revenues	61,897	58,046
Net income	20,445	3,983
Earnings per share
Basic	0.40	0.08
Diluted	0.39	0.08

The pro forma net income for 2008 in the table above is inclusive of $0.5 million of non-recurring bonus expense earned by GF-X management in 2008; $0.4 million of costs incurred by GF-X related to the sale of GF-X to us; and non-recurring expenses of $0.2 million for the early termination of a premises lease and related dilapidations. The pro forma net income for 2007 in the table above is inclusive of $1.5 million of a research and development tax credit settlement, net of costs, related to claims from prior fiscal years; and $0.4 million of costs incurred by GF-X related to the sale of GF-X.

Note 4 - Cash, Cash Equivalents and Short-Term Investments

	January 31,	January 31,
	2009	2008
Cash and cash equivalents
Cash on deposit with banks	32,329	44,091
Bearer deposit note	15,093	-
Total cash and cash equivalents	47,422	44,091
Short-term investments
Certificates of deposit	10,210	-
Total short-term investments	10,210	-
Total cash, cash equivalents and short-term investments	57,632	44,091

Our total cash and cash equivalents balance includes approximately $0.1 million of restricted cash as at January 31, 2009 ($0.1 million at January 31, 2008).

We have operating lines of credit in Canada aggregating $2.4 million (CAD $3.0 million) as at January 31, 2009, of which none was utilized ($47,000 at January 31, 2008). Borrowings under these facilities bear interest at prime based on the borrowed currency (3.00% on Canadian dollar borrowings and 3.25% on US dollar borrowings at January 31, 2009), are due on demand, and are secured by our bond portfolio and a general assignment of inventory and accounts receivable.

As at January 31, 2009 we have an outstanding letter of credit of approximately $22,000 related to one of our leased premises.

Note 5 - Trade Receivables

	January 31,	January 31,
	2009	2008
Trade receivables	9,205	11,072
Less: Allowance for doubtful accounts	(503)	(625)

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8,702 10,447

Bad debt expense (recovery) was ($10) for the year ended January 31, 2009 (January 31, 2008 - $172; January 31, 2007 - $73).

Note 6 – Contingent Acquisition Consideration

On April 7, 2006, we acquired 100% of the outstanding shares of Ottawa-based ViaSafe Inc. (“ViaSafe”). Pursuant to the ViaSafe acquisition agreement, 230,849 of the 307,799 common shares issued in connection with the acquisition, with a market value of approximately $0.9 million, were placed into an escrow account to be released to the former shareholders of ViaSafe subject to meeting various criteria, including their continued employment with us. In accordance with the guidance contained in Emerging Issues Task Force 95-8 “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination” (“EITF 95-8”), this $0.9 million was fully expensed in 2007 as a result of the termination of the employment of all of the former shareholders in 2007.

On June 30, 2006, we acquired 100% of the outstanding shares of Maryland-based Flagship Customs Services, Inc. (“FCS”). As part of our acquisition of FCS, we paid $4.0 million to establish a contingent acquisition consideration escrow that was released to the former shareholders of FCS subject to meeting various criteria, including their continued employment with Descartes. In accordance with the guidance contained in EITF 95-8, we expensed the entire $4.0 million on a straight-line basis over the 24 month service and escrow period applicable to the former shareholders which ended June 30, 2008.

Note 7 – Capital Assets

	January 31,	January 31,
	2009	2008
Cost
Computer equipment and software	16,080	17,671
Furniture and fixtures	1,609	1,785
Leasehold improvements	1,747	2,050
	19,436	21,506
Accumulated amortization
Computer equipment and software	11,623	11,632
Furniture and fixtures	1,320	1,397
Leasehold improvements	1,605	1,755
	14,548	14,784
	4,888	6,722

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Note 8 –Intangible Assets

	January 31,	January 31,
	2009	2008
Cost
Customer agreements and relationships	15,571	15,281
Non-compete covenants	925	925
Existing technology	6,642	5,734
Trade names	3,936	3,826
	27,074	25,766
Accumulated amortization
Customer agreements and relationships	6,340	4,059
Non-compete covenants	448	139
Existing technology	3,039	1,339
Trade names	1,772	1,315
	11,599	6,852
	15,475	18,914

Intangible assets related to our acquisitions are recorded at their fair value at the acquisition date. Intangible assets with a finite life are amortized to income over their useful lives. Amortization expense for existing intangible assets is expected to be $4.5 million for 2010, $4.0 million for 2011, $2.4 million for 2012, $1.3 million for 2013, $0.8 million for 2014 and $2.5 million thereafter.

We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related future cash flows. No finite life intangible asset impairment has been identified or recorded in our consolidated statements of operations for any of the fiscal years reported.

Note 9 – Accrued Liabilities

	January 31,	January 31,
	2009	2008
Accrued compensation	1,356	470
Accrued ORST (Note 10)	579	-
Accrued acquisition costs	403	833
Accrued liabilities - other	3,188	3,211
	5,526	4,514

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Note 10 – Commitments, Contingencies and Guarantees

Commitments

To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating lease obligations:

Years Ended January 31,
2010	1.7
2011	1.3
2012	1.0
2013	1.0
2014	1.0
Thereafter	2.8
	8.8

Operating Lease Obligations

We are committed under non-cancelable operating leases for business premises and computer equipment with terms expiring at various dates through 2020. The future minimum amounts payable under these lease agreements are described in the chart above.

Other Obligations

We have a commitment for income taxes incurred to various taxing authorities related to unrecognized tax benefits in the amount of $4.8 million. At this time, we are unable to make reasonably reliable estimates of the period of settlement with the respective taxing authority due to the possibility of the respective statutes of limitations expiring without examination by the applicable taxing authority.

Contingencies

We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our annual results of operations or financial position.

Business combination agreements

In connection with the March 6, 2007 acquisition of certain assets of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc., an additional $0.85 million in cash may be payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. $0.3 million of that additional purchase price was paid in 2009, and up to $0.4 million remains eligible to be earned by the previous owners.

In respect of our August 17, 2007 acquisition of 100% of the outstanding shares of GF-X, up to $5.2 million in cash was potentially payable if certain performance targets, primarily relating to revenues, were met by GF-X over the four years subsequent to the date of acquisition. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011.

Product Warranties

In the normal course of operations, we provide our customers with product warranties relating to the performance of our software and network services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such on our financial statements.

Ontario Retail Sales Tax Audit

In 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit was still on-going at January 31, 2009. While no re-assessment had been issued at

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January 31, 2009, the audit has identified certain instances where ORST should have been collected on certain Descartes services and products. If any such additional ORST is assessed on prior customer transactions, we will attempt to collect this ORST from those customers.

We have estimated that our maximum expense resulting from the ORST audit is $0.6 million, however net of ORST amounts that we expect to collect from customers, we estimate the expense is $0.1 million. Accordingly, the net impact of $0.1 million has been included in our financial statements for the year ending January 31, 2009. We anticipate that the audit will be substantially completed during the first half of fiscal 2010.

Guarantees

In the normal course of business we enter into a variety of agreements that may contain features that meet the definition of a guarantee under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The following lists our significant guarantees:

Intellectual property indemnification obligations

We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license agreement with our customer, which license terms are typically perpetual. To date, we have not encountered material costs as a result of such indemnifications.

Other indemnification agreements

In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements and leasing transactions. These indemnifications that we provide require us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparty as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnifications.

In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability for the guarantees or indemnities described above on our financial statements.

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Note 11– Share Capital

Common Shares Outstanding

We are authorized to issue an unlimited number of our common shares, without par value, for unlimited consideration. Our common shares are not redeemable or convertible.

	January 31,	January 31,	January 31,
(thousands of shares)	2009	2008	2007
Balance, beginning of year	52,930	46,362	40,724
Shares issued:
Stock options exercised	83	878	90
Issue of common shares net of issuance costs	-	5,200	4,140
Acquisitions	-	490	1,408
Balance, end of year	53,013	52,930	46,362

On March 21, 2006, we closed a bought-deal share offering in Canada which raised gross proceeds of CAD$14,940,000 (approximately $12.9 million) from a sale of 3,600,000 common shares at a price of CAD$4.15 per share. The underwriters exercised an over-allotment option on March 27, 2006 to purchase an additional 540,000 common shares (15% of the offering) at CAD$4.15 per share for gross proceeds of CAD$2,241,000 (approximately $1.9 million). Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to us were approximately $13.6 million. We used the net proceeds of the offering for general corporate purposes, funding a portion of the purchase prices of ViaSafe and FCS, and working capital.

As previously described, as part of the consideration for the acquisition of ViaSafe on April 7, 2006 we issued 307,799 common shares valued at approximately $1.1 million for accounting purposes. Also, as previously described, as part of the consideration for the acquisition of FCS on June 30, 2006 we issued 1,100,251 common shares valued at approximately $4.4 million for accounting purposes.

On April 26, 2007, we closed a bought-deal share offering in Canada which raised gross proceeds of CAD$25,000,000 (equivalent to approximately $22.3 million at the time of the transaction) from a sale of 5,000,000 common shares at a price of CAD$5.00 per share. The underwriters also exercised an over-allotment option on April 26, 2007 to purchase an additional 200,000, 400,000 and 150,000 common shares (in aggregate, 15% of the offering) at CAD$5.00 per share from the Company, Mr. Arthur Mesher (our Chief Executive Officer) and Mr. Edward Ryan (our Executive Vice President, Global Field Operations), respectively. Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to Descartes were approximately $21.5 million. In addition, we received an aggregate of approximately CAD$1.1 million (equivalent to approximately $1.0 million at the time of the transaction) in proceeds from Mr. Mesher’s and Mr. Ryan’s exercise of employee stock options to satisfy their respective obligations under the over-allotment option. We used the net proceeds of the offering to fund our 2008 and 2009 acquisitions as identified in Note 3 to our Consolidated Financial Statements for 2009 and for general corporate purposes and working capital.

As previously described, as part of the consideration for the acquisition of GF-X on August 17, 2007 we issued 489,831 common shares valued at approximately $1.7 million for accounting purposes.

On November 30, 2004, we announced that our board of directors had adopted a shareholder rights plan (the “Rights Plan”) to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the company. The Rights Plan was approved by the Toronto Stock Exchange and was originally approved by our shareholders on May 18, 2005. The Rights Plan took effect as of November 29, 2004. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at

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the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

On December 3, 2008, we announced that the Toronto Stock Exchange (the "TSX") had approved the purchase by us of up to an aggregate of 5,244,556 common shares of Descartes pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or the NASDAQ Stock Exchange (the "NASDAQ"), if and when we consider advisable. As of January 31, 2009 there were no purchases made pursuant to this normal course issuer bid.

Accumulated Other Comprehensive Income

Our accumulated other comprehensive income at January 31, 2009 was $0.4 million ($2.0 million at January 31, 2008), comprised entirely of foreign currency translation adjustments.

Note 12 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

Year Ended	January 31, 2009	January 31, 2008	January 31, 2007
Net income for purposes of calculating basic and diluted earnings per share	20,210	22,443	3,987
(number of shares in thousands)
Weighted average shares outstanding	52,961	51,225	45,225
Dilutive effect of employee stock options	698	1,065	1,250
Weighted average common and common equivalent shares outstanding	53,659	52,290	46,475
Earnings per share
Basic	0.38	0.44	0.09
Diluted	0.38	0.43	0.09

For the years ended January 31, 2009, 2008 and 2007, respectively, 2,004,328, 770,868 and 1,734,547 options were excluded from the calculation of diluted EPS as those options had an exercise price greater than or equal to the average market value of our common shares during the applicable periods and their inclusion would have been anti-dilutive. Additionally, for 2009, 2008 and 2007, respectively, the application of the treasury stock method excluded 1,157,231, 1,208,100 and 578,600 options from the calculation of diluted EPS as the assumed proceeds from the unrecognized stock-based compensation expense of such options that are attributed to future service periods made such options anti-dilutive.

Note 13 – Stock-Based Compensation Plans

We maintain stock option plans for directors, officers, employees and other service providers. Options to purchase our common shares are granted at an exercise price equal to the fair market value of our common shares on the day of the grant. This fair market value is determined using the closing price of our common shares on the Toronto Stock Exchange on the day immediately preceding the date of the grant.

Employee stock options generally vest over a five-year period starting from their grant date and expire seven years from the date of their grant. Directors’ and officers’ stock options generally have quarterly vesting over a five-year period. We issue new shares from treasury upon the exercise of a stock option.

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As of January 31, 2009, we had 5,172,908 stock options granted and outstanding under our shareholder-approved stock option plan and 229,757 remained available for grant. In addition, there were 121,737 stock options outstanding in connection with option plans assumed or adopted pursuant to various previously completed acquisitions.

Total estimated stock-based compensation expense recognized under SFAS 123R related to all of our stock options was included in our consolidated statement of operations as follows:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Cost of revenues	25	23	22
Sales and marketing	93	123	228
Research and development	73	53	63
General and administrative	336	267	416
Effect on net income	527	466	729
Effect on earnings per share:
Basic and diluted	0.01	0.01	0.02

Differences between how GAAP and applicable income tax laws treat the amount and timing of recognition of stock-based compensation expense may result in a deferred tax asset. We have recorded a valuation allowance against any such deferred tax asset. We realized a nominal tax benefit in connection with stock options exercised during 2009.

As of January 31, 2009, $1.3 million of total unrecognized compensation costs, net of forfeitures, related to non-vested awards is expected to be recognized over a weighted average period of 1.5 years.

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. Expected volatility is based on historical volatility of our common stock and other factors. The risk-free interest rates are based on the Government of Canada average bond yields for a period consistent with the expected life of the option in effect at the time of the grant. The expected option life is based on the historical life of our granted options and other factors.

Assumptions used in the Black-Scholes model were as follows:

Year Ended	January 31, 2009		January 31, 2008		January 31, 2007
	Weighted-Average	Range	Weighted-Average	Range	Weighted-Average	Range
Expected dividend yield (%)	-	-	-	-	-	-
Expected volatility (%)	41.2	36.0 to 43.8	56.5	39.2 to 58.2	64.3	59.5 to 66.5
Risk-free rate (%)	3.4	2.7 to 3.4	4.0	3.9 to 4.5	4.0	3.9 to 4.3
Expected option life (years)	5	5	5	5	5	5

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A summary of option activity under all of our plans is presented as follows:

	Number of Stock Options Outstanding	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
Balance at January 31, 2008	4,404,854	$3.82
Granted	1,363,031	$3.15
Exercised	(83,250)	$2.24
Forfeited	(289,686)	$3.83
Expired	(100,304)	$10.68
Balance at January 31, 2009	5,294,645	$2.92	4.2	2.2
Vested or expected to vest at January 31, 2009	3,986,586	$3.01	4.0	1.7
Exercisable at January 31, 2009	2,670,216	$2.99	3.1	1.6

The weighted average grant-date fair value of options granted during 2009, 2008 and 2007 was $1.28, $2.15, and $2.10 per share, respectively. The total intrinsic value of options exercised during 2009, 2008 and 2007 was approximately $0.1 million, $2.1 million and $0.2 million, respectively.

Options outstanding and options exercisable as at January 31, 2009 by range of exercise price are as follows:

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Weighted Average Exercise Price	Number of Stock Options	Weighted average remaining contractual life (years)	Weighted Average Exercise Price	Number of Stock Options
$1.10 – $1.10	$1.10	950,400	2.7	$1.10	738,540
$1.79 – $2.31	$2.04	896,190	3.2	$2.04	603,090
$2.49 – $3.15	$2.76	1,758,227	5.4	$2.71	496,608
$3.40 – $4.48	$3.67	1,491,150	4.6	$3.72	633,300
$6.15 – $13.37	$11.30	198,678	1.9	$11.30	198,678
	$2.92	5,294,645	4.2	$2.99	2,670,216

A summary of the status of our non-vested stock options under our shareholder-approved stock option plan as of January 31, 2009 is presented as follows:

	Number of Stock Options Outstanding	Weighted- Average Grant-Date Fair Value per Share
Balance at January 31, 2008	2,373,620	$1.80
Granted	1,363,031	$1.28
Vested	(924,372)	$1.41
Forfeited	(213,200)	$1.77
Balance at January 31, 2009	2,599,079	$1.35

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SAB 108

In September 2006, the SEC issued SAB No. 108 “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which provides interpretive guidance on how registrants should quantify financial statement misstatements. Under SAB 108 registrants are required to consider both a “rollover” method which focuses primarily on the income statement impact of misstatements and the “iron curtain” method which focuses primarily on the balance sheet impact of misstatements. The transitional provisions of SAB 108 allow us to adjust retained earnings for the cumulative effect of immaterial errors relating to prior years. We were required to adopt SAB 108 for the year ended January 31, 2007.

In applying SAB 108, we considered the results of a Company-initiated voluntary review of our stock option granting process since 1997, which review was completed by a Special Committee of independent directors with the assistance of independent external legal counsel. This review did not identify any fraud or intentional wrongdoing. The review did identify certain administrative errors that resulted in an aggregate understatement of approximately $1.5 million in non-cash stock-based compensation expense over the seven fiscal years ended January 31, 2006. The identified errors were: (a) certain instances relating to grants made to employees where the list of employees and/or shares allocated to them was not sufficiently definitive for the grant to be deemed final as of the reported grant date ($1.1 million); (b) delays between board approval and the final grant of stock options that departed from our normal practice ($0.3 million); and (c) one grant in 1999 which inadvertently used the wrong exercise price in the grant documents ($0.1 million).

The following table shows the understated non-cash stock-based compensation expense for each of the periods identified together with the understatement expressed as a percentage of net income (loss) for the applicable period:

Year Ended January 31	2006	2005	2004	2003	2002	2001	2000	Total
(thousands of dollars)
Stock-based compensation expense	20	33	63	269	616	451	94	1,546
Net income (loss) as reported	2,989	(55,331)	(38,493)	(138,195)	(58,718)	(31,626)	(21,769)
Percent of net income (loss) as reported	0.68%	0.06%	0.16%	0.19%	1.05%	1.43%	0.43%

Based in part on this analysis, and applying the guidance of SEC Staff Accounting Bulletin No. 99, “Materiality” (“SAB 99”), we concluded that the impact of these errors was immaterial to prior fiscal years under the "rollover" method that we have historically used. However, applying the “iron curtain” method identified in SAB 108, we concluded that the cumulative errors were material to our fiscal 2007 consolidated financial statements. Accordingly, our opening accumulated deficit for fiscal 2007 was increased by $1.5 million from $407.7 million to $409.3 million, with an offsetting $1.5 million increase to additional paid-in capital, in accordance with the implementation guidance in SAB 108.

Deferred Share Unit Plan

Our board of directors adopted a deferred share unit plan effective as of June 28, 2004 pursuant to which non-employee directors are eligible to receive grants of deferred share units (“DSUs”), each of which has an initial value equal to the weighted-average closing price of our common shares for the five trading days preceding the date of the grant. The plan allows each director to choose to receive, in the form of DSUs, all, none or a percentage of the eligible director’s fees which would otherwise be payable in cash. If a director has invested less than the minimum amount of equity in Descartes, as prescribed from time to time by the board of directors (currently $80,000), then the director must take at least 50% of the base annual fee for serving as a director (currently $25,000) in the form of DSUs. Each DSU fully vests upon award but is distributed only when the director ceases to be a member of the board of directors. Vested units are settled in cash based on our common share price when conversion takes place.

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A summary of activity under our DSU plan is presented as follows:

	Number of DSUs Outstanding
Balance at January 31, 2008	41,861
Granted	21,857
Settled in cash	(6,242)
Balance at January 31, 2009	57,476

As at January 31, 2009, the total DSUs held by participating directors was 57,476, representing an aggregate accrued liability of approximately $155,000 ($158,000 at January 31, 2008). The fair value of the DSU liability is based on the closing price of our common shares at the balance sheet date. The total compensation cost related to DSUs recognized in our consolidated statements of operations was approximately $30,000, $17,000 and $49,000 for 2009, 2008 and 2007, respectively.

Restricted Share Unit Plan

Our board of directors adopted a restricted share unit plan effective as of May 23, 2007 pursuant to which certain of our employees and outside directors are eligible to receive grants of restricted share units (“RSUs”), each of which has an initial value equal to the weighted-average closing price of our common shares for the five trading days preceding the date of the grant. The RSUs generally become vested based on continued employment and have annual vesting over three- to five-year periods. Vested units are settled in cash based on our common share price when conversion takes place, which is within 30 days following a vesting date and in any event prior to December 31 of the calendar year of a vesting date.

A summary of activity under our RSU plan is presented as follows:

	Number of RSUs Outstanding	Weighted- Average Remaining Contractual Life (years)
Balance at January 31, 2008	195,728
Granted	472,774
Vested and settled in cash	(101,872)
Forfeited	(2,765)
Balance at January 31, 2009	563,865	3.0
Vested at January 31, 2009	9,744	-
Non-vested at January 31, 2009	554,121	3.0

We have recognized the compensation cost of the RSUs ratably over the service/vesting period relating to the grant and have recorded an aggregate accrued liability of approximately $90,000 at January 31, 2009 ($34,000 at January 31, 2008). As at January 31, 2009, the unrecognized aggregate liability for the non-vested RSUs was approximately $1.4 million ($0.7 million at January 31, 2008). The fair value of the RSU liability is based on the closing price of our common shares at the balance sheet date. The total compensation cost related to RSUs recognized in our consolidated statements of operations was approximately $0.4 million, $0.3 million and nil for 2009, 2008 and 2007, respectively.

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Note 14 – Employee Pension Plans

We maintain various defined contribution benefit plans for our Canadian, US and UK employees. While the specifics of each plan are different in each country, we contribute an amount related to the level of employee contributions. These contributions are subject to maximum limits and vesting provisions, and can be discontinued at our discretion. The pension costs were approximately $0.3 million in each of 2009, 2008 and 2007.

Note 15 – Income Taxes

Income before income taxes is earned in the following tax jurisdictions:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Canada	2,430	(2,950)	(1,484)
United States	3,606	7,589	6,466
Other countries	2,953	2,127	(791)
Income before income taxes	8,989	6,766	4,191

Income tax expense (recovery) is incurred in the following jurisdictions:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Current income tax expense
Canada	(122)	(160)	59
United States	409	450	92
Other countries	(31)	33	53
	256	323	204
Deferred income tax expense (recovery)
Canada	(13,495)	-	-
United States	3,650	(16,000)	-
Other countries	(1,890)	-	-
	(11,735)	(16,000)	-
Income tax expense (recovery)	(11,479)	(15,677)	204

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The components of the deferred tax assets are as follows:

	January 31,	January 31,
	2009	2008
Current deferred income tax asset:
Accumulated net operating losses:
Canada	1,450	-
United States	3,420	3,000
Europe, Middle East & Africa (“EMEA”) Asia Pacific	585 35	- -
Net current deferred income tax asset	5,490	3,000
Non-current deferred income tax liability:
Difference between tax and accounting basis of intangible assets	(2,945)	(6,554)
Deferred expenses currently deductible	(553)	-
Uncertain tax positions incurred in loss years	(2,359)	(2,868)
	(5,857)	(9,422)
Non-current deferred income tax asset:
Accruals not currently deductible	2,541	1,072
Accumulated net operating losses:
Canada	16,270	20,952
United States	12,060	14,731
EMEA	24,766	34,429
Asia Pacific	4,056	5,999
Accumulated net capital losses:
Canada	398	492
Corporate minimum taxes	913	869
Difference between tax and accounting basis of capital assets	10,759	16,120
Difference between tax and accounting basis of intangible assets	3,537	1,187
Research and development tax credits and expenses	3,627	3,512
Expenses of public offerings	366	659
Other timing differences	12	26
	79,305	100,048
Net non-current deferred income tax asset	73,448	90,626
Valuation allowance	(48,783)	(76,056)
Non-current deferred income tax asset, net of valuation allowance	24,665	14,570

The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, we consider factors by taxing jurisdiction, including our estimated taxable income, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense. Based on the weight of positive and negative evidence regarding recoverability of our deferred tax assets, we have recorded a valuation allowance for $48.7 million of our net deferred tax assets of $78.9 million, resulting in a total net deferred tax asset of $30.2 million at January 31, 2009.

As at January 31, 2009, we had not accrued for Canadian income taxes and foreign withholding taxes applicable to approximately $15.0 million of unremitted earnings of subsidiaries operating outside of Canada. These earnings, which we consider to be invested indefinitely, will become subject to these taxes if and when they are

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remitted as dividends or if we sell our stock in the subsidiaries. We also have not accrued for Canadian and foreign income taxes applicable to approximately $0.4 million of unrealized foreign exchange losses related to loans and advances with and between our subsidiaries. The foreign exchange losses on these loans and advances, which we also consider to be invested indefinitely, will become subject to these taxes if and when the underlying loans and advances are settled. The potential amount of unrecognized deferred Canadian income tax liabilities and foreign withholding and income tax liabilities on the unremitted earnings and foreign exchange gains is not currently practicably determinable.

The provision for income taxes varies from the expected provision at the statutory rates for the reasons detailed in the table below:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Combined basic Canadian statutory rates	33.5%	35.9%	36.1%
Income tax expense based on the above rates	2,925	2,429	1,514
Increase (decrease) in income taxes resulting from:
Permanent differences including amortization of intangibles	2,732	3,223	2,698
Effect of differences between Canadian and foreign tax rates	150	960	(113)
Application of loss carryforwards not previously recognized	(4,150)	(18,549)	(4,028)
Application of research and development tax credits	(27)	(101)	-
Valuation allowance	(13,133)	(3,849)	52
Deferral of tax charges	197	(573)	-
Other	(173)	783	81
Income tax expense (recovery)	(11,479)	(15,677)	204

We have combined income tax loss carryforwards of approximately $217.4 million, which expire as follows:

Expiry year	Canada	United States	EMEA	Asia Pacific	Total
2010	16,246	540	-	302	17,088
2011	-	1,226	4,226	516	5,968
2012	-	883	5,518	770	7,171
2013	-	-	4,171	659	4,830
2014	15,688	-	3,489	528	19,705
2015	-	-	1,912	-	1,912
2016	-	-	-	-	-
2017	-	-	225	-	225
2018	-	3,161	16	-	3,177
2019	-	1,920	-	-	1,920
2020	-	10,688	-	-	10,688
2021	-	3,502	-	-	3,502
2022	-	1,568	-	-	1,568
2023	-	703	-	-	703
2024	-	9,740	-	-	9,740
2025	22,369	7,926	-	-	30,295
2026 2027 2028	165 - 10,857	- - -	- - -	- - -	165 - 10,857
Indefinite	556	-	74,066	13,243	87,865
	65,881	41,857	93,623	16,018	217,379

71

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

	2009	2008
Unrecognized tax benefits as at February 1	4,438	3,194
Gross increases – tax positions in prior periods	3	132
Gross increases – tax positions in the current period	828	1,294
Lapsing of statutes of limitations	(491)	(182)
Unrecognized tax benefits as at January 31	4,778	4,438

We expect that the unrecognized tax benefits will increase within the next 12 months due to uncertain tax positions expected to be taken, although at this time a reasonable estimate of the possible increase cannot be made. Of the $4.8 million of unrecognized tax benefits at January 31, 2009, approximately $4.4 million would impact the effective income tax rate if recognized.

Consistent with our historical financial reporting, we recognize accrued interest and penalties related to unrecognized tax benefits in general and administrative expense. As at January 31, 2009 and January 31, 2008, the unrecognized tax benefits have resulted in no material liability for estimated interest and penalties.

Descartes and our subsidiaries file their tax returns as prescribed by the tax laws of the jurisdictions within which they operate. We are no longer subject to income tax examinations by tax authorities in our major tax jurisdictions as follows:

Tax Jurisdiction	Years No Longer Subject to Audit
US Federal	2005 and prior
Canada	2001 and prior
United Kingdom	2002 and prior
Sweden	2002 and prior

Note 16 – Segmented Information

We review our operating results, assess our performance, make decisions about resources, and generate discrete financial information at the single enterprise level. Accordingly, we have determined that we operate in one business segment providing logistics technology solutions. The following tables provide our segmented revenue information by geographic area of operation and revenue type:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Revenues
Canada	8,510	8,851	5,670
Americas, excluding Canada	39,769	34,533	31,914
EMEA	16,399	13,993	12,479
Asia Pacific	1,366	1,648	1,927
	66,044	59,025	51,990

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Revenues
Services	61,024	54,553	46,750
License	5,020	4,472	5,240
	66,044	59,025	51,990

72

Services revenues are composed of the following: (i) ongoing transactional and/or subscription fees for use of our services and products by our customers; (ii) professional services revenues from consulting, implementation and training services related to our services and products; and (iii) maintenance and other related revenues, which include revenues associated with maintenance and support of our services and products. License revenues derive from licenses granted to our customers to use our software products.

The following table provides our segmented information by geographic area of operation for our long-lived assets. Long-lived assets represent capital assets that are attributed to individual geographic segments.

	January 31,	January 31,
	2009	2008
Total long-lived assets
Canada	3,449	5,050
Americas, excluding Canada	1,118	1,097
EMEA	311	524
Asia Pacific	10	51
	4,888	6,722

Note 17 – Subsequent Events

a) Acquisitions

On February 5, 2009, we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our Global Logistics Network™ (“GLN”) and extended our customs compliance solutions. Oceanwide's logistics business (“Oceanwide”) is focused on a web-based, hosted software-as-a-service (“SaaS”) model that we believe is ideal for customs brokers and freight forwarders who choose to outsource rather than procure or manage traditional enterprise applications behind their own firewalls. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition, net of working capital received, was approximately $8.4 million in cash plus transaction costs.

On March 10, 2009, we acquired all of the shares of privately-held Scancode Systems Inc. (“Scancode) in an all-cash transaction. Scancode provides its customers with a system that scales from the loading dock to the enterprise, providing up-to-date rates that allow customers to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. The purchase price for this acquisition, net of working capital received, was approximately $6.5 million in cash plus transaction costs.

b) Common Shares

On September 29, 2009, we entered into a binding bought deal share offering in Canada to raise gross proceeds of CAD$40,002,300 (approximately $37.2 million) from a sale of 6,838,000 common shares at a price of CAD$5.85 per share. The Company and certain executive officers and directors agreed to grant the underwriters an over-allotment option to purchase, in aggregate, up to an additional 1,025,700 common shares, being 15% of the common shares to be sold under the offering, at CAD$5.85 per share. We anticipate using the net proceeds of the offering for general corporate purposes and potential future acquisitions. The offering is scheduled to close on October 20, 2009.

Note 18 – SFAS 141R Adjustment

As disclosed in Note 2 above, we retrospectively adjusted our January 31, 2009 consolidated financial statements as a result of adopting SFAS 141R on February 1, 2009. The following table sets forth the effects of the adjustment on our previously reported consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year

73

ended January 31, 2009. Amounts reflected as “As Previously Reported” represent those amounts included in our previously issued consolidated financial statements for the year ended January 31, 2009. There was no impact on our January 31, 2008 consolidated financial statements.

Consolidated Balance Sheet

January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
Prepaid expenses and other	1,113	(258)	855
Total assets	146,120	(258)	145,862
Accumulated deficit	(362,386)	(258)	(362,644)
Total shareholders’ equity	132,425	(258)	132,167
Total liabilities and shareholders’ equity	146,120	(258)	145,862

Consolidated Statement of Operations

For the Year Ended January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
General and administrative expenses	9,288	258	9,546
Income before income taxes	8,989	(258)	8,731
Net income	20,468	(258)	20,210
Basic earnings per share	0.39	(0.01)	0.38

Consolidated Statement of Shareholders’ Equity

For the Year Ended January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
Net income	20,468	(258)	20,210
Accumulated deficit	(362,386)	(258)	(362,644)
Comprehensive income	18,825	(258)	18,567

Consolidated Statement of Cash Flows

For the Year Ended January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
Net income	20,468	(258)	20,210
Prepaid expenses and other	(177)	258	81

74

CORPORATE INFORMATION

Stock Exchange Information

Our common stock trades on the Toronto Stock Exchange under the symbol DSG and on The Nasdaq Stock Market under the symbol DSGX.

Transfer Agents

Computershare Investor Services Inc.

100 University Avenue

Toronto, Ontario M5J 2Y1

North America: (800) 663-9097

International: (416) 263-9200

Computershare Trust Company

12039 West Alameda Parkway

Suite Z-2 Lakewood, Colorado

80228 USA

International: (303) 262-0600

Independent Registered Chartered Accountants

Deloitte & Touche LLP

4210 King Street East

Kitchener, Ontario N2P 2G5

(416) 643-8450

Investor Inquiries

Investor Relations

The Descartes Systems Group Inc.

120 Randall Drive

Waterloo, Ontario N2V 1C6

(519) 746-8110 ext. 2358

(800) 419-8495

E-mail: investor@descartes.com

www.descartes.com

75

The Descartes Systems Group Inc.

Corporate Headquarters

120 Randall Drive

Waterloo, Ontario N2V 1C6

Canada

Phone: (519) 746-8110

(800) 419-8495

Fax: (519) 747-0082

info@descartes.com

www.descartes.com

76

EX-99.3

NOTICE TO READERS

These audited consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (“fiscal 2009 consolidated financial statements”) have been adjusted from the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on April 9, 2009.

These fiscal 2009 consolidated financial statements have been adjusted to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). These fiscal 2009 consolidated financial statements have been adjusted to reflect this retrospective adoption of SFAS 141R.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to these fiscal 2009 consolidated financial statements.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

1

Deloitte & Touche LLP

4210 King Street East

Kitchener ON N2P 2G5

Canada

Tel: (519) 650-7729

Fax: (519) 650-7601

www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of The Descartes Systems Group Inc.

We have audited the accompanying consolidated balance sheets of The Descartes Systems Group Inc. (the “Company”) as at January 31, 2009 and 2008, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended January 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2009 in accordance with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Independent Registered Chartered Accountants

Licensed Public Accountants

Toronto, Ontario

March 10, 2009, except as to Note 17(b) and Note 18, which are as of September 29, 2009

Comments by Independent Registered Chartered Accountants on

Canada-United States of America Reporting Difference

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Company’s financial statements, such as the changes described in Note 2 to the consolidated financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the Board of Directors and Shareholders, dated March 10, 2009, except as to Note 17(b) and Note 18 which are as of September 29, 2009, is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors’ report when the changes are properly accounted for and adequately disclosed in the financial statements.

Independent Registered Chartered Accountants

Licensed Public Accountants

Toronto, Ontario

March 10, 2009, except as to Note 17(b) and Note 18, which are as of September 29, 2009

1

Deloitte & Touche LLP

4210 King Street East

Kitchener ON N2P 2G5

Canada

Tel: (519) 650-7729

Fax: (519) 650-7601

www.deloitte.ca

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of The Descartes Systems Group Inc.

We have audited the internal control over financial reporting of The Descartes Systems Group Inc. (the “Company”) as of January 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Dexx bvba, which was acquired on October 1, 2008and whose financial statements constitute less than 1% of both consolidated total revenues and net income as well as less than 1% of consolidated total assets and net assets, respectively of the consolidated financial statement amounts as of and for the year ended January 31, 2009. Accordingly, our audit did not include the internal control over financial reporting at Dexx bvba. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Financial Statements and Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 31, 2009 of the Company and our report, dated March 10, 2009, except as to Note 17(b) and Note 18, which are as of September 29, 2009, expressed an unqualified opinion on those financial statements.

Independent Registered Chartered Accountants

Licensed Public Accountants

Toronto, Ontario

March 10, 2009

2

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED BALANCE SHEETS

(US DOLLARS IN THOUSANDS; US GAAP)

	January 31,	January 31,
	2009	2008
ASSETS	(Note 18 – as adjusted)
CURRENT ASSETS
Cash and cash equivalents (Note 4)	47,422	44,091
Short-term investments (Note 4)	10,210	-
Accounts receivable
Trade (Note 5)	8,702	10,447
Other	985	1,288
Prepaid expenses and other	855	951
Deferred contingent acquisition consideration (Note 6)	-	833
Deferred income taxes (Note 15)	5,490	3,000
Deferred tax charge	197	115
	73,861	60,725
CAPITAL ASSETS (Note 7)	4,888	6,722
GOODWILL	26,381	25,005
INTANGIBLE ASSETS (Note 8)	15,475	18,914
DEFERRED INCOME TAXES (Note 15)	24,665	14,570
DEFERRED TAX CHARGE	592	458
	145,862	126,394
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	1,938	3,054
Accrued liabilities (Note 9)	5,526	4,514
Income taxes payable	589	783
Deferred revenue	3,317	3,750
	11,370	12,101
INCOME TAX LIABILITY (Note 15)	2,325	1,570
COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 10)	13,695	13,671
SHAREHOLDERS’ EQUITY
Common shares – unlimited shares authorized; Shares issued and outstanding totaled 53,013,227 at January 31, 2009 ( January 31, 2008 – 52,929,977) (Note 11)	44,986	44,653
Additional paid-in capital	449,462	448,918
Accumulated other comprehensive income (Note 11)	363	2,006
Accumulated deficit	(362,644)	(382,854)
	132,167	112,723
	145,862	126,394

The accompanying notes are an integral part of these consolidated financial statements.

                                                                                                                             

Approved by the Board:

J. Ian Giffen Stephen Watt

Director Director

4

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; US GAAP)

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
	(Note 18 – as adjusted)
REVENUES	66,044	59,025	51,990
COST OF REVENUES	22,353	20,640	17,487
GROSS MARGIN	43,691	38,385	34,503
EXPENSES
Sales and marketing	8,992	9,700	10,138
Research and development	11,458	10,540	9,033
General and administrative	9,546	7,253	7,047
Amortization of intangible assets	5,133	3,644	2,718
Contingent acquisition consideration (Note 6)	833	2,000	2,040
Impairment of goodwill	-	-	100
Restructuring recovery	-	-	(172)
	35,962	33,137	30,904
INCOME FROM OPERATIONS	7,729	5,248	3,599
INVESTMENT INCOME	1,002	1,518	592
INCOME BEFORE INCOME TAXES	8,731	6,766	4,191
INCOME TAX EXPENSE (RECOVERY) (Note 15)
Current	256	323	204
Deferred	(11,735)	(16,000)	-
	(11,479)	(15,677)	204
NET INCOME	20,210	22,443	3,987
EARNINGS PER SHARE (Note 12)
Basic	0.38	0.44	0.09
Diluted	0.38	0.43	0.09
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands)
Basic	52,961	51,225	45,225
Diluted	53,659	52,290	46,475

The accompanying notes are an integral part of these consolidated financial statements.

5

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(US DOLLARS IN THOUSANDS; US GAAP)

	January 31,	January 31,	January 31,
	2009	2008	2007
Common shares	(Note 18 – as adjusted)
Balance, beginning of year	44,653	19,354	21
Shares issued:
Stock options exercised	211	2,066	201
Issue of common shares net of issuance costs	122	21,514	13,621
Acquisitions	-	1,719	5,511
Balance, end of year	44,986	44,653	19,354
Additional paid-in capital
Balance, beginning of year, as originally reported	448,918	448,815	446,565
Cumulative effect of adjustments from the adoption of SAB 108 (Note 13)	-	-	1,546
Balance, beginning of year, as adjusted	448,918	448,815	448,111
Unearned compensation related to issuance of stock options	7	4	10
Stock-based compensation expense	527	466	729
Stock options exercised	(34)	(367)	(35)
Stock option income tax benefits	44	-	-
Balance, end of year	449,462	448,918	448,815
Unearned deferred compensation
Balance, beginning of year	-	-	(57)
Deferred compensation earned on stock options	-	-	57
Contingent acquisition consideration recorded (Note 6)	-	-	(869)
Contingent acquisition consideration expensed (Note 6)	-	-	869
Balance, end of year	-	-	-
Accumulated other comprehensive income (loss)
Balance, beginning of year	2,006	(123)	(375)
Foreign currency translation adjustments	(1,643)	2,127	280
Net unrealized investment gains (losses)	-	2	(28)
Balance, end of year	363	2,006	(123)
Accumulated deficit
Balance, beginning of year, as originally reported	(382,854)	(405,297)	(407,738)
Cumulative effect of adjustments from the adoption of SAB 108 (Note 13)	-	-	(1,546)
Balance, beginning of year, as adjusted	(382,854)	(405,297)	(409,284)
Net income	20,210	22,443	3,987
Balance, end of year	(362,644)	(382,854)	(405,297)
Total Shareholders’ Equity	132,167	126,394	62,749

Comprehensive income
Net income	20,210	22,443	3,987
Other comprehensive income (loss):
Foreign currency translation adjustment	(1,643)	2,127	280
Net unrealized investment gains (losses)	-	2	(28)
Total other comprehensive income (loss)	(1,643)	2,129	252
Comprehensive income	18,567	24,572	4,239

The accompanying notes are an integral part of these consolidated financial statements.

6

THE DESCARTES SYSTEMS GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(US DOLLARS IN THOUSANDS; US GAAP)

<

(5)

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
OPERATING ACTIVITIES	(Note 18 – as adjusted)
Net income	20,210	22,443	3,987
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	2,231	2,424	2,200
Amortization of intangible assets	5,133	3,644	2,718
Contingent acquisition consideration	-	-	869
Impairment of goodwill	-	-	100
Amortization of deferred compensation	7	4	67
Stock-based compensation expense	527	466	729
Deferred income taxes	(11,735)	(16,000)	-
Deferred tax charge	(216)	-	-
Changes in operating assets and liabilities:
Accounts receivable
Trade	772	(1,356)	73
Other	234	(364)	731
Prepaid expenses and other	81	67	(110)
Deferred contingent acquisition consideration	833	2,000	(2,833)
Accounts payable	(617)	(812)	554
Accrued liabilities	1,379	(815)	(1,898)
Income taxes payable	(285)	580	(5)
Deferred revenue	131	(343)	(706
Cash provided by operating activities	18,685	11,938	6,476
INVESTING ACTIVITIES
Maturities of short-term investments	-	2,820	5,425
Sale of short-term investments	-	-	5,092
Purchase of short-term investments	(10,210)	-	(7,734)
Additions to capital assets	(1,343)	(1,074)	(1,359)
Acquisition of subsidiaries, net of cash acquired and bank indebtedness assumed	(2,231)	(11,374)	(29,352)
Acquisition-related costs	(928)	(1,903)	(1,079)
Cash used in investing activities	(14,712)	(11,531)	(29,007)
FINANCING ACTIVITIES
Issuance of common shares, net of issue costs	177	23,279	13,787
Cash provided by financing activities	177	23,279	13,787
Effect of foreign exchange rate changes on cash and cash equivalents	(819)	1,035	480
Increase (decrease) in cash and cash equivalents	3,331	24,721	(8,264)
Cash and cash equivalents, beginning of year	44,091	19,370	27,634
Cash and cash equivalents, end of year	47,422	44,091	19,370
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	1,194	322	373

The accompanying notes are an integral part of these consolidated financial statements.

7

THE DESCARTES SYSTEMS GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands of US dollars, except per share amounts; US GAAP)

Note 1 - Description of the Business

The Descartes Systems Group Inc. (“Descartes”, “Company”, “our” or “we”) operates in one business segment providing logistics technology solutions that help companies efficiently deliver their own products and services to their customers. Our technology-based solutions, which consist of services and software, provide connectivity and document exchange, shipment bookings, regulatory compliance, route planning and wireless dispatch, inventory and asset visibility, rate management, transportation management, and warehouse optimization.

Note 2 –Significant Accounting Policies

Basis of presentation

We prepare our consolidated financial statements in US dollars and in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our current fiscal year, which ends on January 31, 2009, is referred to as the “current fiscal year,” “fiscal 2009,” “2009” or using similar words. Our previous fiscal year, which ended on January 31, 2008, is referred to as the “previous fiscal year,” “fiscal 2008,” “2008” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, “2010” refers to the annual period ending January 31, 2010 and the “fourth quarter of 2010” refers to the quarter ending January 31, 2010.

As described more fully in Note 18 below, our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”) on February 1, 2009 resulted in a retrospective adjustment to our consolidated financial statements for the year ended January 31, 2009. In our previously reported financial results for the year ended January 31, 2009, our consolidated balance sheet included $258,000 of deferred acquisition-related costs in prepaid expenses and other that were previously capitalized under the provisions of SFAS No. 141, “Business Combinations” (“SFAS 141”). Under the provisions of SFAS 141R, and the guidance in SFAS No. 154, “Accounting Changes and Error Corrections” (‘SFAS 154”), we adopted SFAS 141R retrospectively on February 1, 2009.

Certain immaterial reclassifications have been made to prior year financial statements and the notes to conform to the current year presentation. Specifically, we reclassified $573,000 from prepaid expenses and other to deferred tax charge ($115,000 current and $458,000 non-current) on the January 31, 2008 comparative consolidated balance sheet. Since the deferred tax charge balance increased to a material amount during 2009 we were required to present it as a separate line item on our consolidated balance sheets. Accordingly, we also made the related changes to prepaid expenses and other and deferred tax charge on our consolidated statements of cash flows. As well, we reclassified $35,000, $367,000 and $34,000 from additional paid-in capital to common shares on our consolidated statements of shareholders’ equity for January 31, 2007, 2008 and 2009, respectively, to reflect the amounts previously credited to additional paid-in capital for options exercised in each of those years. There were no changes to our consolidated statements of operations for any of the periods presented as a result of these reclassifications.

Basis of consolidation

The consolidated financial statements include the financial statements of Descartes and our wholly-owned subsidiaries. We do not have any variable interests in variable interest entities. All intercompany accounts and transactions have been eliminated during consolidation.

8

Financial instruments

Fair value of financial instruments

Financial instruments are composed of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities.

Foreign exchange risk

We are exposed to foreign exchange risk because a higher proportion of our revenues are denominated in US dollars relative to expenditures. Accordingly, our results are affected, and may be affected in the future, by exchange rate fluctuations of the US dollar relative to the Canadian dollar, to various European currencies, and, to a lesser extent, other foreign currencies.

Interest rate risk

We are exposed to reductions in interest rates, which could adversely impact expected returns from our investment of corporate funds in interest bearing bank accounts and short-term investments.

Credit risk

We are exposed to credit risk through our invested cash and accounts receivable. We hold our cash with reputable financial institutions and in highly liquid financial instruments. The lack of concentration of accounts receivable from a single customer and the dispersion of customers among industries and geographical locations mitigate this risk.

We do not use any type of speculative financial instruments, including but not limited to foreign exchange contracts, futures, swaps and option agreements, to manage our foreign exchange or interest rate risks. In addition, we do not hold or issue financial instruments for trading purposes.

Foreign currency translation

We conduct business in a variety of foreign currencies and, as a result, all of our foreign operations are subject to foreign exchange fluctuations. All operations operate in their local currency environment and use their local currency as their functional currency. The functional currency of the parent company is Canadian dollars. Assets and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using monthly average exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders’ equity.

Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income.

Use of estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying note disclosures. Although these estimates and assumptions are based on management’s best knowledge of current events, actual results may be different from the estimates. Estimates and assumptions are used when accounting for items such as allowance for doubtful accounts, depreciation of capital assets, amortization of intangible assets, assumptions embodied in the valuation of assets for impairment assessment, stock-based compensation, restructuring costs, valuation allowances against deferred tax assets, tax positions and recognition of contingencies.

Cash, cash equivalents and short-term investments

Cash and cash equivalents include short-term deposits with original maturities of three months or less. Short-term investments are composed of short-term deposits and debt securities maturing between three and 12 months from the balance sheet date.

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Our investment portfolio is subject to market risk due to changes in interest rates. We place our investments with high credit quality issuers and, by policy, limit the amount of credit exposure to any one issuer. As stated in our investment policy, we are averse to principal loss and seek to preserve our invested funds by limiting default risk, market risk and reinvestment risk.

Allowance for doubtful accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from customers who do not make required payments. Specifically, we consider the age of the receivables, historical write-offs, the creditworthiness of the customer, and current economic trends among other factors. Accounts receivable are written off, and the associated allowance is eliminated, if it is determined that the specific balance is no longer collectible.

Impairment of long-lived assets

We account for the impairment and disposition of long-lived assets in accordance with SFAS No. 144 “Accounting for Impairment or Disposal of Long–Lived Assets.” We test long-lived assets, such as capital assets and finite life intangible assets, for recoverability when events or changes in circumstances indicate that there may be an impairment. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows.

Goodwill and intangible assets

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). When we acquire a business, we determine the fair value of the net tangible and intangible (other than goodwill) assets acquired and compare the total amount to the amount that we paid for the investment. Any excess of the amount paid over the fair value of those net assets is considered to be goodwill. Goodwill is tested annually on October 31 for impairment to ensure that the fair value is greater than or equal to the carrying value. Any excess of carrying value over fair value is charged to income in the period in which impairment is determined. Our annual goodwill impairment testing on October 31, 2008 indicated no evidence that goodwill impairment had occurred as of October 31, 2008. We will perform further quarterly analysis of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified.

Intangible assets related to our acquisitions are recorded at their fair value at the acquisition date. Intangible assets include customer agreements and relationships, non-compete covenants, existing technologies and trade names. Intangible assets are amortized on a straight-line basis over their estimated useful lives. We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related future cash flows.

Amortization of our intangible assets is generally recorded at the following rates:

Customer agreements and relationships Straight-line over one-and-a-half to twenty years

Non-compete covenants Straight-line over three years

Existing technology Straight-line over one to five years

Trade names Straight-line over two to fifteen years

Capital assets

Capital assets are recorded at cost. Depreciation of our capital assets is generally recorded at the following rates:

Computer equipment and software 30% declining balance

Furniture and fixtures 20% declining balance

Leasehold improvements Straight-line over lesser of useful life or term of lease

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Revenue recognition

We follow the accounting guidelines and recommendations contained in the American Institute of Certified Public Accountants Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”) and the United States Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin 104, “Revenue Recognition in Financial Statements” (“SAB 104”).

We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been delivered or the services have been provided to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. In addition to this general policy, the specific revenue recognition policies for each major category of revenue are included below.

Services Revenues- Services revenues are principally composed of the following: (i) ongoing transactional fees for use of our services and products by our customers, which are recognized as the transactions occur; (ii) professional services revenues from consulting, implementation and training services related to our services and products, which are recognized as the services are performed; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products, which are recognized ratably over the subscription period.

License Revenues - License revenues derive from licenses granted to our customers to use our software products, and are recognized in accordance with SOP 97-2.

We sometimes enter into transactions that represent multiple-element arrangements, which may include any combination of services and software licenses. These multiple element arrangements are assessed to determine whether they can be separated into more than one unit of accounting or element for the purpose of revenue recognition. Fees are allocated to the various elements using the residual method as outlined in SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Pursuant to the residual method, we defer recognition of the fair value of any undelivered elements and determine such fair value using vendor-specific objective evidence. This vendor-specific objective evidence of fair value is established through prices charged for each revenue element when that element is sold separately. We then allocate any residual portion of the arrangement fee to the delivered elements. The revenue recognition policies described in this section are then applied to each element.

We evaluate the collectibility of our trade receivables based upon a combination of factors on a periodic basis. When we become aware of a specific customer’s inability to meet its financial obligations to us (such as in the case of bankruptcy filings or material deterioration in the customer’s operating results or financial position, payment experiences and existence of credit risk insurance for certain customers), we record a specific bad debt provision to reduce the customer’s related trade receivable to its estimated net realizable value. If circumstances related to specific customers change, the estimate of the recoverability of trade receivables could be further adjusted.

Research and development costs

We incur costs related to research and development of our software products. To date, we have not capitalized any development costs under SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.” Costs incurred between the time of establishment of a working model and the point where products are marketed are expensed as they are insignificant.

Stock-based compensation

We adopted SFAS No. 123 (revised 2004) “Share Based Payment” (“SFAS 123R”) effective February 1, 2006 using the modified prospective application method. Accordingly, the fair value of that portion of employee stock options that is ultimately expected to vest has been amortized to expense in our consolidated statement of operations since February 1, 2006 based on the straight-line attribution method. The accounting for our various stock-based employee compensation plans is described more fully in Note 13 below.

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Income taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, we consider factors by taxing jurisdiction, including our estimated taxable income, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense.

Effective February 1, 2007, we adopted FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”) which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides accounting guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The accounting for FIN 48 is described more fully in Note 15 below.

Earnings per share

Basic earnings per share is calculated by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing the applicable net income by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period. The treasury stock method is used to compute the dilutive effect of stock options.

Recently adopted accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), effective for fiscal years beginning after November 15, 2007, which is our fiscal year ending January 31, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which is our fiscal year ending January 31, 2010. We adopted the non-deferred portion of SFAS 157 on February 1, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That Is

Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP became effective on October 10, 2008, and applies to prior periods for which financial statements have not yet been issued. We adopted FSP 157-3 on October 10, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”), effective for fiscal years beginning after November 15, 2007, which is our year ending January 31, 2009. SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. Our financial instruments are currently composed of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities. Our adoption of SFAS 159 on February 1, 2008 did not have a material impact on our results of operations and financial condition to date and we have not elected to apply the fair value option to any of our eligible financial instruments and other items to date.

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Recent issued accounting pronouncements not yet adopted

We are currently in the process of assessing the anticipated impact that the deferred portion of SFAS 157 will have on our results of operations and financial condition once effective.

In December 2007, the FASB issued SFAS 141R. SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. We currently believe that the adoption of SFAS 141R will result in the inclusion of certain types of expenses related to future business combinations in our results of operations that we currently capitalize pursuant to existing accounting standards and may also impact our financial statements in other ways. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition. In our previously reported financial results for the period ended January 31, 2009, our consolidated balance sheet included $258,000 of deferred acquisition-related costs which were presented in prepaid expenses and other. Under the transitional provisions of SFAS 141R, and the guidance in SFAS 154, we adopted SFAS 141R retrospectively on February 1, 2009, which resulted in a retrospective adjustment to our previously reported results for our fiscal year ended January 31, 2009. The effect of adopting SFAS 141R on our previously reported consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 is described below in Note 18 to these consolidated financial statements.

In April 2008, the FASB issued FSP 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 the recognized intangible asset under SFAS 142. The intent of the guidance is 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. For a recognized intangible asset, an entity will be required to disclose information that enables users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. We are currently in the process of assessing the anticipated impact FSP 142-3 will have on our results of operations and financial condition once effective.

In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period that the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We do not expect the adoption of EITF 08-7 to have a material impact on its consolidated financial statements.

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Note 3 – Acquisitions

The preliminary purchase price allocation for the business we acquired during the year ended January 31, 2009, which has not been finalized, is as follows:

	Dexx
Purchase price consideration:
Cash, including cash acquired ($100)	1,748
Acquisition-related costs	140
	1,888
Allocated to:
Net tangible assets acquired (liabilities assumed)	(214)
Finite life intangible assets acquired:
Customer agreements and relationships	676
Existing technology	908
Trade names	111
Goodwill	407
	1,888

On October 1, 2008 we acquired 100% of the outstanding shares of Dexx bvba (“Dexx”) a Belgium-based European customs filing and logistics messaging provider. Dexx’s customs offerings help shippers, cargo carriers and freight forwarders manage the movement and submission of customs filings and messages to a number of customs authorities. In addition to customs services, Dexx manages the Brucargo Community System (BCS), the

cargo community system at Brussels airport. BCS provides a comprehensive range of electronic information exchange between airlines, integrators, general sales agents, forwarding agents, ground handlers, truckers and shippers, as well as customs and other governmental bodies. The results of operations for Dexx are included in our consolidated statements of operations from the date acquired. The purchase price for this acquisition was approximately $1.7 million in cash plus an additional $0.1 million in transaction costs.

The Dexx transaction was accounted for as a purchase in accordance with SFAS 141. The purchase price allocation in the table above represents our estimate of the allocation of the purchase price and the fair value of net assets acquired. The valuation of the acquired assets is preliminary, may differ from the final purchase price allocation, and these differences may be material. Changes to the preliminary purchase price and preliminary allocation may arise as we gather additional information that impacts either the amount of the purchase price (such as post-closing working capital adjustments or other escrow claims) or information that impacts the fair value of net assets acquired (such as third-party claims impacting the value of intellectual property). The final purchase price allocation will be completed within one year from the acquisition date.

No in-process research and development was acquired or written-off relating to the Dexx transaction.

The acquired intangible assets are being amortized over their estimated useful lives as follows:

	Dexx
Customer agreements and relationships	10 years
Existing technology	5 years
Trade names	3 years

The goodwill on the Dexx acquisition arose as a result of their assembled workforce and the combined strategic value to our growth plan. The goodwill is not deductible for tax purposes.

No pro forma results of operations for the Dexx transaction have been presented as it is not material to our consolidated financial statements.

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The final purchase price allocations for the businesses that we acquired during the year ended January 31, 2008, are set out in the following table:

	OTB	GF-X	RouteView	PCTB	Mobitrac	Total
Purchase price consideration:
Cash, including cash acquired related to GF-X ($814) and RouteView ($149)	1,443	9,241	3,343	2,090	649	16,766
Common shares	-	1,719	-	-	-	1,719
Acquisition-related costs	60	2,283	211	89	52	2,695
Total purchase price	1,503	13,243	3,554	2,179	701	21,180
Allocated to:
Net tangible assets acquired	(56)	3,931	(232)	318	81	4,042
Finite life intangible assets acquired:
Customer agreements and relationships	333	3,356	467	813	217	5,186
Non-compete covenants	-	925	-	-	-	925
Existing technology	-	2,312	904	277	243	3,736
Trade names	51	1,478	143	66	20	1,758
Goodwill	1,175	1,241	2,272	705	140	5,533
	1,503	13,243	3,554	2,179	701	21,180

The results of operations for the businesses that we acquired in 2008 are included in our consolidated statements of operations from the date acquired, as indicated below.

On March 6, 2007, we acquired certain assets of Ocean Tariff Bureau, Inc. (“Ocean Tariff Bureau”) and Blue Pacific Services, Inc. (“Blue Pacific” and, together with Ocean Tariff Bureau, the “OTB Acquisition”), both based in Long Beach, California. Ocean Tariff Bureau provides tariff filing and contract publishing services to ocean intermediaries involved in the shipping of cargo into or out of US waters. Blue Pacific helps these same types of companies secure surety bonds required to ship cargo into or out of US waters. We paid $1.1 million in cash at closing, with up to an additional $0.85 million in cash payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. If any such additional purchase price becomes payable it will be recorded as goodwill in the period that such payments come due. $0.3 million of that additional purchase price became payable during the quarter ended April 30, 2008 and was recorded as goodwill. We also incurred transaction expenses of approximately $60,000.

On August 17, 2007 we acquired 100% of the outstanding shares of Global Freight Exchange Limited (“GF-X”), a global leader for electronic freight booking in the air cargo industry based in London, U.K. The acquisition adds electronic air freight booking capability to our Global Logistics Network, creating a global network capable of managing the entire air cargo shipment lifecycle. The purchase price for this acquisition included approximately $9.2 million in cash and approximately 0.5 million Descartes common shares valued at $1.7 million. Additional purchase price of up to $5.2 million in cash is payable if certain performance targets, primarily related to revenues, are met by GF-X during the period of 4 years from the date of acquisition. If any such additional purchase price becomes payable it will be recorded as goodwill in the period that such payments come due. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011. We also incurred $2.3 million of acquisition-related costs comprised of $1.1 million in transaction expenses, primarily professional fees, and $1.2 million of exit costs and involuntary employee termination benefits.

On December 20, 2007, we acquired 100% of the outstanding shares of RouteView Technologies, Inc. (“RouteView”), based in Burnsville, Minnesota. RouteView provides technology solutions in a recurring revenue

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model to help small- and medium-sized organizations manage their delivery operations. RouteView's map-based routing software combines with wireless, GPS and automated call-out technology to help numerous customers, particularly in the home delivery and distribution industries, with a comprehensive delivery management solution. The purchase price for this acquisition was approximately $3.0 million in cash, plus an additional $0.5 million in cash if certain sales targets are met by RouteView during the period of one year from the date of acquisition. $0.3 million of additional purchase price related to those provisions was recorded as goodwill in the third quarter of 2009 and paid to the former shareholders of RouteView in December 2008. We also incurred approximately $0.2 million in transaction expenses, primarily professional fees, associated with the acquisition of RouteView.

On January 9, 2008, we acquired certain assets of San Francisco, California-based Pacific Coast Tariff Bureau, Inc. (“PCTB”) in an all cash transaction. PCTB provides tariff filing and contract publishing services to ocean carriers, non-vessel operating common carriers (NVOCCs) and shippers to help them comply with U.S. regulations for domestic and foreign shipping trades. PCTB also provides technology solutions to its customers to help them manage ocean contracts and apply the correct freight rates to bills of lading for ocean shipments. We paid $2.1 million in cash at closing and also incurred transaction expenses of approximately $89,000.

On January 10, 2008, we acquired certain assets of the fleet management business formerly known as Mobitrac (“Mobitrac”) from privately-held Fluensee, Inc. in an all cash transaction. As part of the transaction, we acquired software-as-a-service routing and scheduling technology. The purchase price included $0.7 million in cash and we also incurred transaction expenses of approximately $52,000.

The OTB Acquisition and the GF-X, RouteView, PCTB and Mobitrac transactions were accounted for as purchases in accordance with SFAS 141; therefore, the tangible assets acquired were recorded at their fair value on acquisition date. There may be additional purchase price payable pursuant to the OTB Acquisition and the acquisition of GF-X.

No in-process research and development was acquired or written-off relating to the OTB Acquisition or the GF-X, RouteView, PCTB and Mobitrac transactions.

The acquired intangible assets are being amortized over their estimated useful lives as follows:

	OTB	GF-X	RouteView	PCTB	Mobitrac
Customer agreements and relationships	5 years	8 years	20 years	10 years	1.5 years
Non-compete covenants	N/A	3 years	N/A	N/A	N/A
Existing technology	N/A	5 years	5 years	1 year	4 years
Trade names	5 years	15 years	5 years	3 years	2 years

The goodwill on the above acquisitions arose as a result of their assembled workforce and the combined strategic value to our growth plan. Except for GF-X, the goodwill on the above acquisitions is deductible for tax purposes.

The results of operations subsequent to the August 17, 2007 acquisition date for GF-X have been included in our consolidated financial statements. As required by GAAP, the financial information in the table below summarizes selected results of operations on a pro forma basis as if we had acquired GF-X as of the beginning of each of the periods presented. The pro forma results of operations for the OTB Acquisition and the RouteView, PCTB and Mobitrac transactions have not been included the table below as those acquisitions are not material to our consolidated financial statements. This pro forma information is for information purposes only and does not purport to represent what our results of operations for the periods presented would have been had the acquisition of GF-X occurred at the beginning of the period indicated, or to project our result of operations for any future period.

Pro forma results of operations

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Year Ended	January 31,	January 31,
	2008	2007
Revenues	61,897	58,046
Net income	20,445	3,983
Earnings per share
Basic	0.40	0.08
Diluted	0.39	0.08

The pro forma net income for 2008 in the table above is inclusive of $0.5 million of non-recurring bonus expense earned by GF-X management in 2008; $0.4 million of costs incurred by GF-X related to the sale of GF-X to us; and non-recurring expenses of $0.2 million for the early termination of a premises lease and related dilapidations. The pro forma net income for 2007 in the table above is inclusive of $1.5 million of a research and development tax credit settlement, net of costs, related to claims from prior fiscal years; and $0.4 million of costs incurred by GF-X related to the sale of GF-X.

Note 4 - Cash, Cash Equivalents and Short-Term Investments

	January 31,	January 31,
	2009	2008
Cash and cash equivalents
Cash on deposit with banks	32,329	44,091
Bearer deposit note	15,093	-
Total cash and cash equivalents	47,422	44,091
Short-term investments
Certificates of deposit	10,210	-
Total short-term investments	10,210	-
Total cash, cash equivalents and short-term investments	57,632	44,091

Our total cash and cash equivalents balance includes approximately $0.1 million of restricted cash as at January 31, 2009 ($0.1 million at January 31, 2008).

We have operating lines of credit in Canada aggregating $2.4 million (CAD $3.0 million) as at January 31, 2009, of which none was utilized ($47,000 at January 31, 2008). Borrowings under these facilities bear interest at prime based on the borrowed currency (3.00% on Canadian dollar borrowings and 3.25% on US dollar borrowings at January 31, 2009), are due on demand, and are secured by our bond portfolio and a general assignment of inventory and accounts receivable.

As at January 31, 2009 we have an outstanding letter of credit of approximately $22,000 related to one of our leased premises.

Note 5 - Trade Receivables

	January 31,	January 31,
	2009	2008
Trade receivables	9,205	11,072
Less: Allowance for doubtful accounts	(503)	(625)
	8,702	10,447

Bad debt expense (recovery) was ($10) for the year ended January 31, 2009 (January 31, 2008 - $172; January 31, 2007 - $73).

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Note 6 – Contingent Acquisition Consideration

On April 7, 2006, we acquired 100% of the outstanding shares of Ottawa-based ViaSafe Inc. (“ViaSafe”). Pursuant to the ViaSafe acquisition agreement, 230,849 of the 307,799 common shares issued in connection with the acquisition, with a market value of approximately $0.9 million, were placed into an escrow account to be released to the former shareholders of ViaSafe subject to meeting various criteria, including their continued employment with us. In accordance with the guidance contained in Emerging Issues Task Force 95-8 “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination” (“EITF 95-8”), this $0.9 million was fully expensed in 2007 as a result of the termination of the employment of all of the former shareholders in 2007.

On June 30, 2006, we acquired 100% of the outstanding shares of Maryland-based Flagship Customs Services, Inc. (“FCS”). As part of our acquisition of FCS, we paid $4.0 million to establish a contingent acquisition consideration escrow that was released to the former shareholders of FCS subject to meeting various criteria, including their continued employment with Descartes. In accordance with the guidance contained in EITF 95-8, we expensed the entire $4.0 million on a straight-line basis over the 24 month service and escrow period applicable to the former shareholders which ended June 30, 2008.

Note 7 – Capital Assets

	January 31,	January 31,
	2009	2008
Cost
Computer equipment and software	16,080	17,671
Furniture and fixtures	1,609	1,785
Leasehold improvements	1,747	2,050
	19,436	21,506
Accumulated amortization
Computer equipment and software	11,623	11,632
Furniture and fixtures	1,320	1,397
Leasehold improvements	1,605	1,755
	14,548	14,784
	4,888	6,722

Note 8 –Intangible Assets

	January 31,	January 31,
	2009	2008
Cost
Customer agreements and relationships	15,571	15,281
Non-compete covenants	925	925
Existing technology	6,642	5,734
Trade names	3,936	3,826
	27,074	25,766
Accumulated amortization
Customer agreements and relationships	6,340	4,059
Non-compete covenants	448	139
Existing technology	3,039	1,339
Trade names	1,772	1,315
	11,599	6,852
	15,475	18,914

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Intangible assets related to our acquisitions are recorded at their fair value at the acquisition date. Intangible assets with a finite life are amortized to income over their useful lives. Amortization expense for existing intangible assets is expected to be $4.5 million for 2010, $4.0 million for 2011, $2.4 million for 2012, $1.3 million for 2013, $0.8 million for 2014 and $2.5 million thereafter.

We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related future cash flows. No finite life intangible asset impairment has been identified or recorded in our consolidated statements of operations for any of the fiscal years reported.

Note 9 – Accrued Liabilities

	January 31,	January 31,
	2009	2008
Accrued compensation	1,356	470
Accrued ORST (Note 10)	579	-
Accrued acquisition costs	403	833
Accrued liabilities - other	3,188	3,211
	5,526	4,514

Note 10 – Commitments, Contingencies and Guarantees

Commitments

To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating lease obligations:

Years Ended January 31,
2010	1.7
2011	1.3
2012	1.0
2013	1.0
2014	1.0
Thereafter	2.8
	8.8

Operating Lease Obligations

We are committed under non-cancelable operating leases for business premises and computer equipment with terms expiring at various dates through 2020. The future minimum amounts payable under these lease agreements are described in the chart above.

Other Obligations

We have a commitment for income taxes incurred to various taxing authorities related to unrecognized tax benefits in the amount of $4.8 million. At this time, we are unable to make reasonably reliable estimates of the period of settlement with the respective taxing authority due to the possibility of the respective statutes of limitations expiring without examination by the applicable taxing authority.

Contingencies

We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our annual results of operations or financial position.

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Business combination agreements

In connection with the March 6, 2007 acquisition of certain assets of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc., an additional $0.85 million in cash may be payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. $0.3 million of that additional purchase price was paid in 2009, and up to $0.4 million remains eligible to be earned by the previous owners.

In respect of our August 17, 2007 acquisition of 100% of the outstanding shares of GF-X, up to $5.2 million in cash was potentially payable if certain performance targets, primarily relating to revenues, were met by GF-X over the four years subsequent to the date of acquisition. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011.

Product Warranties

In the normal course of operations, we provide our customers with product warranties relating to the performance of our software and network services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such on our financial statements.

Ontario Retail Sales Tax Audit

In 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit was still on-going at January 31, 2009. While no re-assessment had been issued at January 31, 2009, the audit has identified certain instances where ORST should have been collected on certain Descartes services and products. If any such additional ORST is assessed on prior customer transactions, we will attempt to collect this ORST from those customers.

We have estimated that our maximum expense resulting from the ORST audit is $0.6 million, however net of ORST amounts that we expect to collect from customers, we estimate the expense is $0.1 million. Accordingly, the net impact of $0.1 million has been included in our financial statements for the year ending January 31, 2009. We anticipate that the audit will be substantially completed during the first half of fiscal 2010.

Guarantees

In the normal course of business we enter into a variety of agreements that may contain features that meet the definition of a guarantee under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The following lists our significant guarantees:

Intellectual property indemnification obligations

We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license agreement with our customer, which license terms are typically perpetual. To date, we have not encountered material costs as a result of such indemnifications.

Other indemnification agreements

In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements and leasing transactions. These indemnifications that we provide require us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparty as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnifications.

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In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability for the guarantees or indemnities described above on our financial statements.

Note 11– Share Capital

Common Shares Outstanding

We are authorized to issue an unlimited number of our common shares, without par value, for unlimited consideration. Our common shares are not redeemable or convertible.

	January 31,	January 31,	January 31,
(thousands of shares)	2009	2008	2007
Balance, beginning of year	52,930	46,362	40,724
Shares issued:
Stock options exercised	83	878	90
Issue of common shares net of issuance costs	-	5,200	4,140
Acquisitions	-	490	1,408
Balance, end of year	53,013	52,930	46,362

On March 21, 2006, we closed a bought-deal share offering in Canada which raised gross proceeds of CAD$14,940,000 (approximately $12.9 million) from a sale of 3,600,000 common shares at a price of CAD$4.15 per share. The underwriters exercised an over-allotment option on March 27, 2006 to purchase an additional 540,000 common shares (15% of the offering) at CAD$4.15 per share for gross proceeds of CAD$2,241,000 (approximately $1.9 million). Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to us were approximately $13.6 million. We used the net proceeds of the offering for general corporate purposes, funding a portion of the purchase prices of ViaSafe and FCS, and working capital.

As previously described, as part of the consideration for the acquisition of ViaSafe on April 7, 2006 we issued 307,799 common shares valued at approximately $1.1 million for accounting purposes. Also, as previously described, as part of the consideration for the acquisition of FCS on June 30, 2006 we issued 1,100,251 common shares valued at approximately $4.4 million for accounting purposes.

On April 26, 2007, we closed a bought-deal share offering in Canada which raised gross proceeds of CAD$25,000,000 (equivalent to approximately $22.3 million at the time of the transaction) from a sale of 5,000,000 common shares at a price of CAD$5.00 per share. The underwriters also exercised an over-allotment option on April 26, 2007 to purchase an additional 200,000, 400,000 and 150,000 common shares (in aggregate, 15% of the offering) at CAD$5.00 per share from the Company, Mr. Arthur Mesher (our Chief Executive Officer) and Mr. Edward Ryan (our Executive Vice President, Global Field Operations), respectively. Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to Descartes were approximately $21.5 million. In addition, we received an aggregate of approximately CAD$1.1 million (equivalent to approximately $1.0 million at the time of the transaction) in proceeds from Mr. Mesher’s and Mr. Ryan’s exercise of employee stock options to satisfy their respective obligations under the over-allotment option. We used the net proceeds of the offering to fund our 2008 and 2009 acquisitions as identified in Note 3 to our Consolidated Financial Statements for 2009 and for general corporate purposes and working capital.

As previously described, as part of the consideration for the acquisition of GF-X on August 17, 2007 we issued 489,831 common shares valued at approximately $1.7 million for accounting purposes.

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On November 30, 2004, we announced that our board of directors had adopted a shareholder rights plan (the “Rights Plan”) to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the company. The Rights Plan was approved by the Toronto Stock Exchange and was originally approved by our shareholders on May 18, 2005. The Rights Plan took effect as of November 29, 2004. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

On December 3, 2008, we announced that the Toronto Stock Exchange (the "TSX") had approved the purchase by us of up to an aggregate of 5,244,556 common shares of Descartes pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or the NASDAQ Stock Exchange (the "NASDAQ"), if and when we consider advisable. As of January 31, 2009 there were no purchases made pursuant to this normal course issuer bid.

Accumulated Other Comprehensive Income

Our accumulated other comprehensive income at January 31, 2009 was $0.4 million ($2.0 million at January 31, 2008), comprised entirely of foreign currency translation adjustments.

Note 12 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

Year Ended	January 31, 2009	January 31, 2008	January 31, 2007
Net income for purposes of calculating basic and diluted earnings per share	20,210	22,443	3,987
(number of shares in thousands)
Weighted average shares outstanding	52,961	51,225	45,225
Dilutive effect of employee stock options	698	1,065	1,250
Weighted average common and common equivalent shares outstanding	53,659	52,290	46,475
Earnings per share
Basic	0.38	0.44	0.09
Diluted	0.38	0.43	0.09

For the years ended January 31, 2009, 2008 and 2007, respectively, 2,004,328, 770,868 and 1,734,547 options were excluded from the calculation of diluted EPS as those options had an exercise price greater than or equal to the average market value of our common shares during the applicable periods and their inclusion would have been anti-dilutive. Additionally, for 2009, 2008 and 2007, respectively, the application of the treasury stock method excluded 1,157,231, 1,208,100 and 578,600 options from the calculation of diluted EPS as the assumed proceeds from the unrecognized stock-based compensation expense of such options that are attributed to future service periods made such options anti-dilutive.

Note 13 – Stock-Based Compensation Plans

We maintain stock option plans for directors, officers, employees and other service providers. Options to purchase our common shares are granted at an exercise price equal to the fair market value of our common shares on the day of the grant. This fair market value is determined using the closing price of our common shares on the Toronto Stock Exchange on the day immediately preceding the date of the grant.

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Employee stock options generally vest over a five-year period starting from their grant date and expire seven years from the date of their grant. Directors’ and officers’ stock options generally have quarterly vesting over a five-year period. We issue new shares from treasury upon the exercise of a stock option.

As of January 31, 2009, we had 5,172,908 stock options granted and outstanding under our shareholder-approved stock option plan and 229,757 remained available for grant. In addition, there were 121,737 stock options outstanding in connection with option plans assumed or adopted pursuant to various previously completed acquisitions.

Total estimated stock-based compensation expense recognized under SFAS 123R related to all of our stock options was included in our consolidated statement of operations as follows:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Cost of revenues	25	23	22
Sales and marketing	93	123	228
Research and development	73	53	63
General and administrative	336	267	416
Effect on net income	527	466	729
Effect on earnings per share:
Basic and diluted	0.01	0.01	0.02

Differences between how GAAP and applicable income tax laws treat the amount and timing of recognition of stock-based compensation expense may result in a deferred tax asset. We have recorded a valuation allowance against any such deferred tax asset. We realized a nominal tax benefit in connection with stock options exercised during 2009.

As of January 31, 2009, $1.3 million of total unrecognized compensation costs, net of forfeitures, related to non-vested awards is expected to be recognized over a weighted average period of 1.5 years.

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. Expected volatility is based on historical volatility of our common stock and other factors. The risk-free interest rates are based on the Government of Canada average bond yields for a period consistent with the expected life of the option in effect at the time of the grant. The expected option life is based on the historical life of our granted options and other factors.

Assumptions used in the Black-Scholes model were as follows:

Year Ended	January 31, 2009		January 31, 2008		January 31, 2007
	Weighted-Average	Range	Weighted-Average	Range	Weighted-Average	Range
Expected dividend yield (%)	-	-	-	-	-	-
Expected volatility (%)	41.2	36.0 to 43.8	56.5	39.2 to 58.2	64.3	59.5 to 66.5
Risk-free rate (%)	3.4	2.7 to 3.4	4.0	3.9 to 4.5	4.0	3.9 to 4.3
Expected option life (years)	5	5	5	5	5	5

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A summary of option activity under all of our plans is presented as follows:

	Number of Stock Options Outstanding	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
Balance at January 31, 2008	4,404,854	$3.82
Granted	1,363,031	$3.15
Exercised	(83,250)	$2.24
Forfeited	(289,686)	$3.83
Expired	(100,304)	$10.68
Balance at January 31, 2009	5,294,645	$2.92	4.2	2.2
Vested or expected to vest at January 31, 2009	3,986,586	$3.01	4.0	1.7
Exercisable at January 31, 2009	2,670,216	$2.99	3.1	1.6

The weighted average grant-date fair value of options granted during 2009, 2008 and 2007 was $1.28, $2.15, and $2.10 per share, respectively. The total intrinsic value of options exercised during 2009, 2008 and 2007 was approximately $0.1 million, $2.1 million and $0.2 million, respectively.

Options outstanding and options exercisable as at January 31, 2009 by range of exercise price are as follows:

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Weighted Average Exercise Price	Number of Stock Options	Weighted average remaining contractual life (years)	Weighted Average Exercise Price	Number of Stock Options
$1.10 – $1.10	$1.10	950,400	2.7	$1.10	738,540
$1.79 – $2.31	$2.04	896,190	3.2	$2.04	603,090
$2.49 – $3.15	$2.76	1,758,227	5.4	$2.71	496,608
$3.40 – $4.48	$3.67	1,491,150	4.6	$3.72	633,300
$6.15 – $13.37	$11.30	198,678	1.9	$11.30	198,678
	$2.92	5,294,645	4.2	$2.99	2,670,216

A summary of the status of our non-vested stock options under our shareholder-approved stock option plan as of January 31, 2009 is presented as follows:

	Number of Stock Options Outstanding	Weighted- Average Grant-Date Fair Value per Share
Balance at January 31, 2008	2,373,620	$1.80
Granted	1,363,031	$1.28
Vested	(924,372)	$1.41
Forfeited	(213,200)	$1.77
Balance at January 31, 2009	2,599,079	$1.35

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SAB 108

In September 2006, the SEC issued SAB No. 108 “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”), which provides interpretive guidance on how registrants should quantify financial statement misstatements. Under SAB 108 registrants are required to consider both a “rollover” method which focuses primarily on the income statement impact of misstatements and the “iron curtain” method which focuses primarily on the balance sheet impact of misstatements. The transitional provisions of SAB 108 allow us to adjust retained earnings for the cumulative effect of immaterial errors relating to prior years. We were required to adopt SAB 108 for the year ended January 31, 2007.

In applying SAB 108, we considered the results of a Company-initiated voluntary review of our stock option granting process since 1997, which review was completed by a Special Committee of independent directors with the assistance of independent external legal counsel. This review did not identify any fraud or intentional wrongdoing. The review did identify certain administrative errors that resulted in an aggregate understatement of approximately $1.5 million in non-cash stock-based compensation expense over the seven fiscal years ended January 31, 2006. The identified errors were: (a) certain instances relating to grants made to employees where the list of employees and/or shares allocated to them was not sufficiently definitive for the grant to be deemed final as of the reported grant date ($1.1 million); (b) delays between board approval and the final grant of stock options that departed from our normal practice ($0.3 million); and (c) one grant in 1999 which inadvertently used the wrong exercise price in the grant documents ($0.1 million).

The following table shows the understated non-cash stock-based compensation expense for each of the periods identified together with the understatement expressed as a percentage of net income (loss) for the applicable period:

Year Ended January 31	2006	2005	2004	2003	2002	2001	2000	Total
(thousands of dollars)
Stock-based compensation expense	20	33	63	269	616	451	94	1,546
Net income (loss) as reported	2,989	(55,331)	(38,493)	(138,195)	(58,718)	(31,626)	(21,769)
Percent of net income (loss) as reported	0.68%	0.06%	0.16%	0.19%	1.05%	1.43%	0.43%

Based in part on this analysis, and applying the guidance of SEC Staff Accounting Bulletin No. 99, “Materiality” (“SAB 99”), we concluded that the impact of these errors was immaterial to prior fiscal years under the "rollover" method that we have historically used. However, applying the “iron curtain” method identified in SAB 108, we concluded that the cumulative errors were material to our fiscal 2007 consolidated financial statements. Accordingly, our opening accumulated deficit for fiscal 2007 was increased by $1.5 million from $407.7 million to $409.3 million, with an offsetting $1.5 million increase to additional paid-in capital, in accordance with the implementation guidance in SAB 108.

Deferred Share Unit Plan

Our board of directors adopted a deferred share unit plan effective as of June 28, 2004 pursuant to which non-employee directors are eligible to receive grants of deferred share units (“DSUs”), each of which has an initial value equal to the weighted-average closing price of our common shares for the five trading days preceding the date of the grant. The plan allows each director to choose to receive, in the form of DSUs, all, none or a percentage of the eligible director’s fees which would otherwise be payable in cash. If a director has invested less than the minimum amount of equity in Descartes, as prescribed from time to time by the board of directors (currently $80,000), then the director must take at least 50% of the base annual fee for serving as a director (currently $25,000) in the form of DSUs. Each DSU fully vests upon award but is distributed only when the director ceases to be a member of the board of directors. Vested units are settled in cash based on our common share price when conversion takes place.

A summary of activity under our DSU plan is presented as follows:

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	Number of DSUs Outstanding
Balance at January 31, 2008	41,861
Granted	21,857
Settled in cash	(6,242)
Balance at January 31, 2009	57,476

As at January 31, 2009, the total DSUs held by participating directors was 57,476, representing an aggregate accrued liability of approximately $155,000 ($158,000 at January 31, 2008). The fair value of the DSU liability is based on the closing price of our common shares at the balance sheet date. The total compensation cost related to DSUs recognized in our consolidated statements of operations was approximately $30,000, $17,000 and $49,000 for 2009, 2008 and 2007, respectively.

Restricted Share Unit Plan

Our board of directors adopted a restricted share unit plan effective as of May 23, 2007 pursuant to which certain of our employees and outside directors are eligible to receive grants of restricted share units (“RSUs”), each of which has an initial value equal to the weighted-average closing price of our common shares for the five trading days preceding the date of the grant. The RSUs generally become vested based on continued employment and have annual vesting over three- to five-year periods. Vested units are settled in cash based on our common share price when conversion takes place, which is within 30 days following a vesting date and in any event prior to December 31 of the calendar year of a vesting date.

A summary of activity under our RSU plan is presented as follows:

	Number of RSUs Outstanding	Weighted- Average Remaining Contractual Life (years)
Balance at January 31, 2008	195,728
Granted	472,774
Vested and settled in cash	(101,872)
Forfeited	(2,765)
Balance at January 31, 2009	563,865	3.0
Vested at January 31, 2009	9,744	-
Non-vested at January 31, 2009	554,121	3.0

We have recognized the compensation cost of the RSUs ratably over the service/vesting period relating to the grant and have recorded an aggregate accrued liability of approximately $90,000 at January 31, 2009 ($34,000 at January 31, 2008). As at January 31, 2009, the unrecognized aggregate liability for the non-vested RSUs was approximately $1.4 million ($0.7 million at January 31, 2008). The fair value of the RSU liability is based on the closing price of our common shares at the balance sheet date. The total compensation cost related to RSUs recognized in our consolidated statements of operations was approximately $0.4 million, $0.3 million and nil for 2009, 2008 and 2007, respectively.

Note 14 – Employee Pension Plans

We maintain various defined contribution benefit plans for our Canadian, US and UK employees. While the specifics of each plan are different in each country, we contribute an amount related to the level of employee

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contributions. These contributions are subject to maximum limits and vesting provisions, and can be discontinued at our discretion. The pension costs were approximately $0.3 million in each of 2009, 2008 and 2007.

Note 15 – Income Taxes

Income before income taxes is earned in the following tax jurisdictions:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Canada	2,430	(2,950)	(1,484)
United States	3,606	7,589	6,466
Other countries	2,953	2,127	(791)
Income before income taxes	8,989	6,766	4,191

Income tax expense (recovery) is incurred in the following jurisdictions:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Current income tax expense
Canada	(122)	(160)	59
United States	409	450	92
Other countries	(31)	33	53
	256	323	204
Deferred income tax expense (recovery)
Canada	(13,495)	-	-
United States	3,650	(16,000)	-
Other countries	(1,890)	-	-
	(11,735)	(16,000)	-
Income tax expense (recovery)	(11,479)	(15,677)	204

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The components of the deferred tax assets are as follows:

	January 31,	January 31,
	2009	2008
Current deferred income tax asset:
Accumulated net operating losses:
Canada	1,450	-
United States	3,420	3,000
Europe, Middle East & Africa (“EMEA”) Asia Pacific	585 35	- -
Net current deferred income tax asset	5,490	3,000
Non-current deferred income tax liability:
Difference between tax and accounting basis of intangible assets	(2,945)	(6,554)
Deferred expenses currently deductible	(553)	-
Uncertain tax positions incurred in loss years	(2,359)	(2,868)
	(5,857)	(9,422)
Non-current deferred income tax asset:
Accruals not currently deductible	2,541	1,072
Accumulated net operating losses:
Canada	16,270	20,952
United States	12,060	14,731
EMEA	24,766	34,429
Asia Pacific	4,056	5,999
Accumulated net capital losses:
Canada	398	492
Corporate minimum taxes	913	869
Difference between tax and accounting basis of capital assets	10,759	16,120
Difference between tax and accounting basis of intangible assets	3,537	1,187
Research and development tax credits and expenses	3,627	3,512
Expenses of public offerings	366	659
Other timing differences	12	26
	79,305	100,048
Net non-current deferred income tax asset	73,448	90,626
Valuation allowance	(48,783)	(76,056)
Non-current deferred income tax asset, net of valuation allowance	24,665	14,570

The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, we consider factors by taxing jurisdiction, including our estimated taxable income, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense. Based on the weight of positive and negative evidence regarding recoverability of our deferred tax assets, we have recorded a valuation allowance for $48.7 million of our net deferred tax assets of $78.9 million, resulting in a total net deferred tax asset of $30.2 million at January 31, 2009.

As at January 31, 2009, we had not accrued for Canadian income taxes and foreign withholding taxes applicable to approximately $15.0 million of unremitted earnings of subsidiaries operating outside of Canada. These earnings, which we consider to be invested indefinitely, will become subject to these taxes if and when they are remitted as dividends or if we sell our stock in the subsidiaries. We also have not accrued for Canadian and foreign income taxes applicable to approximately $0.4 million of unrealized foreign exchange losses related to

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loans and advances with and between our subsidiaries. The foreign exchange losses on these loans and advances, which we also consider to be invested indefinitely, will become subject to these taxes if and when the underlying loans and advances are settled. The potential amount of unrecognized deferred Canadian income tax liabilities and foreign withholding and income tax liabilities on the unremitted earnings and foreign exchange gains is not currently practicably determinable.

The provision for income taxes varies from the expected provision at the statutory rates for the reasons detailed in the table below:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Combined basic Canadian statutory rates	33.5%	35.9%	36.1%
Income tax expense based on the above rates	2,925	2,429	1,514
Increase (decrease) in income taxes resulting from:
Permanent differences including amortization of intangibles	2,732	3,223	2,698
Effect of differences between Canadian and foreign tax rates	150	960	(113)
Application of loss carryforwards not previously recognized	(4,150)	(18,549)	(4,028)
Application of research and development tax credits	(27)	(101)	-
Valuation allowance	(13,133)	(3,849)	52
Deferral of tax charges	197	(573)	-
Other	(173)	783	81
Income tax expense (recovery)	(11,479)	(15,677)	204

We have combined income tax loss carryforwards of approximately $217.4 million, which expire as follows:

Expiry year	Canada	United States	EMEA	Asia Pacific	Total
2010	16,246	540	-	302	17,088
2011	-	1,226	4,226	516	5,968
2012	-	883	5,518	770	7,171
2013	-	-	4,171	659	4,830
2014	15,688	-	3,489	528	19,705
2015	-	-	1,912	-	1,912
2016	-	-	-	-	-
2017	-	-	225	-	225
2018	-	3,161	16	-	3,177
2019	-	1,920	-	-	1,920
2020	-	10,688	-	-	10,688
2021	-	3,502	-	-	3,502
2022	-	1,568	-	-	1,568
2023	-	703	-	-	703
2024	-	9,740	-	-	9,740
2025	22,369	7,926	-	-	30,295
2026 2027 2028	165 - 10,857	- - -	- - -	- - -	165 - 10,857
Indefinite	556	-	74,066	13,243	87,865
	65,881	41,857	93,623	16,018	217,379

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The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

	2009	2008
Unrecognized tax benefits as at February 1	4,438	3,194
Gross increases – tax positions in prior periods	3	132
Gross increases – tax positions in the current period	828	1,294
Lapsing of statutes of limitations	(491)	(182)
Unrecognized tax benefits as at January 31	4,778	4,438

We expect that the unrecognized tax benefits will increase within the next 12 months due to uncertain tax positions expected to be taken, although at this time a reasonable estimate of the possible increase cannot be made. Of the $4.8 million of unrecognized tax benefits at January 31, 2009, approximately $4.4 million would impact the effective income tax rate if recognized.

Consistent with our historical financial reporting, we recognize accrued interest and penalties related to unrecognized tax benefits in general and administrative expense. As at January 31, 2009 and January 31, 2008, the unrecognized tax benefits have resulted in no material liability for estimated interest and penalties.

Descartes and our subsidiaries file their tax returns as prescribed by the tax laws of the jurisdictions within which they operate. We are no longer subject to income tax examinations by tax authorities in our major tax jurisdictions as follows:

Tax Jurisdiction	Years No Longer Subject to Audit
US Federal	2005 and prior
Canada	2001 and prior
United Kingdom	2002 and prior
Sweden	2002 and prior

Note 16 – Segmented Information

We review our operating results, assess our performance, make decisions about resources, and generate discrete financial information at the single enterprise level. Accordingly, we have determined that we operate in one business segment providing logistics technology solutions. The following tables provide our segmented revenue information by geographic area of operation and revenue type:

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Revenues
Canada	8,510	8,851	5,670
Americas, excluding Canada	39,769	34,533	31,914
EMEA	16,399	13,993	12,479
Asia Pacific	1,366	1,648	1,927
	66,044	59,025	51,990

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Revenues
Services	61,024	54,553	46,750
License	5,020	4,472	5,240
	66,044	59,025	51,990

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Services revenues are composed of the following: (i) ongoing transactional and/or subscription fees for use of our services and products by our customers; (ii) professional services revenues from consulting, implementation and training services related to our services and products; and (iii) maintenance and other related revenues, which include revenues associated with maintenance and support of our services and products. License revenues derive from licenses granted to our customers to use our software products.

The following table provides our segmented information by geographic area of operation for our long-lived assets. Long-lived assets represent capital assets that are attributed to individual geographic segments.

	January 31,	January 31,
	2009	2008
Total long-lived assets
Canada	3,449	5,050
Americas, excluding Canada	1,118	1,097
EMEA	311	524
Asia Pacific	10	51
	4,888	6,722

Note 17 – Subsequent Events

a) Acquisitions

On February 5, 2009, we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our Global Logistics Network™ (“GLN”) and extended our customs compliance solutions. Oceanwide's logistics business (“Oceanwide”) is focused on a web-based, hosted software-as-a-service (“SaaS”) model that we believe is ideal for customs brokers and freight forwarders who choose to outsource rather than procure or manage traditional enterprise applications behind their own firewalls. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition, net of working capital received, was approximately $8.4 million in cash plus transaction costs.

On March 10, 2009, we acquired all of the shares of privately-held Scancode Systems Inc. (“Scancode) in an all-cash transaction. Scancode provides its customers with a system that scales from the loading dock to the enterprise, providing up-to-date rates that allow customers to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. The purchase price for this acquisition, net of working capital received, was approximately $6.5 million in cash plus transaction costs.

b) Common Shares

On September 29, 2009, we entered into a binding bought deal share offering in Canada to raise gross proceeds of CAD$40,002,300 (approximately $37.2 million) from a sale of 6,838,000 common shares at a price of CAD$5.85 per share. The Company and certain executive officers and directors agreed to grant the underwriters an over-allotment option to purchase, in aggregate, up to an additional 1,025,700 common shares, being 15% of the common shares to be sold under the offering, at CAD$5.85 per share. We anticipate using the net proceeds of the offering for general corporate purposes and potential future acquisitions. The offering is scheduled to close on October 20, 2009.

Note 18 – SFAS 141R Adjustment

As disclosed in Note 2 above, we retrospectively adjusted our January 31, 2009 consolidated financial statements as a result of adopting SFAS 141R on February 1, 2009. The following table sets forth the effects of the adjustment on our previously reported consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009. Amounts reflected as “As Previously Reported” represent those amounts included in our

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previously issued consolidated financial statements for the year ended January 31, 2009. There was no impact on our January 31, 2008 consolidated financial statements.

Consolidated Balance Sheet

January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
Prepaid expenses and other	1,113	(258)	855
Total assets	146,120	(258)	145,862
Accumulated deficit	(362,386)	(258)	(362,644)
Total shareholders’ equity	132,425	(258)	132,167
Total liabilities and shareholders’ equity	146,120	(258)	145,862

Consolidated Statement of Operations

For the Year Ended January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
General and administrative expenses	9,288	258	9,546
Income before income taxes	8,989	(258)	8,731
Net income	20,468	(258)	20,210
Basic earnings per share	0.39	(0.01)	0.38

Consolidated Statement of Shareholders’ Equity

For the Year Ended January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
Net income	20,468	(258)	20,210
Accumulated deficit	(362,386)	(258)	(362,644)
Comprehensive income	18,825	(258)	18,567

Consolidated Statement of Cash Flows

For the Year Ended January 31, 2009

	As Previously Reported	Adjustment	As Adjusted
Net income	20,468	(258)	20,210
Prepaid expenses and other	(177)	258	81

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EX-99.4

NOTICE TO READERS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for our fiscal year ended January 31, 2009 (“fiscal 2009 MD&A”) dated March 31, 2009 reflects amendments to the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on April 9, 2009.

This MD&A has been amended to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). Our consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (the “fiscal 2009 consolidated financial statements”) have been adjusted to reflect this retrospective adoption of SFAS 141R (the “adjusted fiscal 2009 statements”) and the adjusted fiscal 2009 statements have been filed on SEDAR on the date hereof.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to our adjusted fiscal 2009 statements. We have made corresponding changes in this fiscal 2009 MD&A to reflect the effect of retrospectively adopting SFAS 141R.

This fiscal 2009 MD&A does not otherwise reflect events or developments subsequent to March 31, 2009.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains references to Descartes using the words “we,” “us,” “our” and similar words and the reader is referred to using the words “you,” “your,” and similar words.

The MD&A also refers to our fiscal years. Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our fiscal year, which ended on January 31, 2009, is referred to as the “current fiscal year,” “fiscal 2009,” “2009” or using similar words. Our previous fiscal year, which ended on January 31, 2008, is referred to as the “previous fiscal year,” “fiscal 2008,” “2008” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, 2010 refers to the annual period ending January 31, 2010 and the “fourth quarter of 2010” refers to the quarter ending January 31, 2010.

This MD&A, which is prepared as of March 31, 2009, covers our year ended January 31, 2009, as compared to years ended January 31, 2008 and 2007. You should read the MD&A in conjunction with our audited consolidated financial statements for 2009. We prepare and file our consolidated financial statements and MD&A in United States (“US”) dollars and in accordance with US generally accepted accounting principles (“GAAP”). All dollar amounts we use in the MD&A are in US currency, unless we indicate otherwise.

We have prepared the MD&A with reference to the Form 51-102F1 MD&A disclosure requirements established under National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators.

Additional information about us, including copies of our continuous disclosure materials such as our annual information form, is available on our website at http://www.descartes.com, through the EDGAR website at http://www.sec.gov or through the SEDAR website at http://www.sedar.com.

Certain statements made in this Annual Report, including, but not limited to, statements in the “Trends / Business Outlook” section and statements regarding our expectations concerning future revenues and earnings; our baseline calibration; our future business plans and business planning process; use of proceeds from previously completed financings or other transactions; future purchase price that may be payable pursuant to completed acquisitions and the sources of funds for such payments; allocation of purchase price for completed acquisitions; the impact of our customs compliance business on our revenues; mix of revenues between services revenues and license revenues; our expectations regarding the cyclical nature of our business, including an expectation that our third quarter will be strongest for shipping volumes and our first quarter will be the weakest; our plans to continue to allow customers to elect to license technology in lieu of subscribing to services; our anticipated loss of revenues and customers in fiscal 2010 and beyond and our ability to replace any corresponding loss of revenue; our ability to keep our operating expenses at a level below our baseline revenues; uses of cash; expenses, including amortization of intangibles; goodwill impairment tests and the possibility of future impairment adjustments; income tax provision and expense; effective tax rates applicable to future fiscal periods; anticipated tax benefits; statements regarding increases or decreases to deferred tax assets; the results of our Ontario retail sales tax audit and our ability to collect from our customers any additional retail sales tax assessed as part of the audit.; the effect on expenses of a weak US dollar; our liability with respect to various claims and suits arising in the ordinary course; any commitments referred to in the “Commitments, Contingencies and Guarantees” section of this MD&A; our intention to actively explore future business combinations and other strategic transactions; our liability under indemnification obligations; anticipated geographic break-down of business; our reinvestment of earnings of subsidiaries back into such subsidiaries; the sufficiency of capital to meet working capital and capital expenditure requirements; our ability to raise capital; the impact of new accounting pronouncements; the expensing of acquisition-related expenses for business combination transactions completed in fiscal 2010 and thereafter pursuant to SFAS 141R (as defined herein); and other matters

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related thereto constitute forward-looking information for the purposes of applicable securities laws (“forward-looking statements”). When used in this document, the words “believe,” “plan,” “expect,” “anticipate,” “intend,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are not limited to, the factors discussed under the heading “Certain Factors That May Affect Future Results” appearing in the MD&A. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statements are based.

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  OVERVIEW

We are a global provider of on-demand, software-as-a-service (SaaS) logistics technology solutions that help our customers make and receive shipments. Using our technology solutions, companies can reduce costs, save time, and enhance the service that they deliver to their own customers. Our technology-based solutions, which consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; inventory and asset visibility; rate and transportation management; and warehouse optimization. Our pricing model provides our customers with flexibility in purchasing our solutions on either a license or an on-demand basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), third party intermediaries (including third-party logistics providers, freight forwarders and customs brokers) and distribution-sensitive companies where delivery is either a key or a defining part of their own product or service offering, or where there is an opportunity to reduce costs and improve service levels by optimizing the use of their assets.

The Market

Supply chain management has been evolving over the past several years as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated, end-to-end solutions that combine business document exchange and mobile resource management applications (MRM) with end-to-end supply chain execution management (SCEM) applications, such as transportation management, routing and scheduling, and inventory visibility.

We believe logistics-intensive organizations are seeking new ways to differentiate themselves, drive efficiencies to offset escalating operating costs and improve margins that are trending downward. Existing global trade and transportation processes are often manual and complex to manage. This is a consequence of the growing number of business partners participating in companies’ global supply chains and a lack of standardized business processes.

Additionally, global sourcing, logistics outsourcing and changes in day-to-day requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment gets delayed at the border, a customer changes an order or a breakdown occurs on the road, there are more and more issues that can significantly impact the status of fulfillment schedules and associated costs.

These challenges are heightened for suppliers that have end customers frequently demanding narrower order-to-fulfillment time frames, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers also want real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.

In this market, manual and fragmented logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly for the majority of organizations. Further, these solutions don’t provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. The rate of adoption of newer logistics technology is evolving, but a disproportionate number of organizations still have manual business processes. This presents an opportunity for logistics technology providers to help customers improve efficiencies in their operations.

As the market continues to change, we have been evolving to meet our customers’ needs. We have been educating our prospects and customers on the value of connecting to trading partners through our logistics network and automating, as well as standardizing, business processes. Our customers are increasingly looking for a single source, web-based solution provider who can help them manage the end-to-end shipment process – from the booking of the move of a shipment, to the tracking of that shipment as it moves, to the regulatory compliance filings to be made during the move and, finally, the settlement and audit of the invoice relating to that move.

Additionally, regulatory initiatives mandating electronic filing of shipment information with customs authorities require companies who move freight by air, ocean or truck to automate their processes to remain

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compliant and competitive. Our customs compliance technology helps shippers, transportation providers, freight forwarders and other logistics intermediaries securely and electronically file shipment information with customs authorities and self-audit its own efforts. Our technology also helps carriers and freight forwarders efficiently coordinate with customs brokers to expedite cross-border shipments. While many compliance initiatives started in the US, compliance is quickly becoming a global issue with international shipments crossing several borders on the way to their final destination. With this in mind, in October 2008, we acquired Dexx bvba (“Dexx”), a Belgium-based customs filing and logistics messaging provider, to strengthen our Global Logistics Network regulatory filing solutions in the European market.

Solutions

Our solutions are primarily offered to two identified customer groups: transportation providers and logistics service providers (LSPs) who are served by our Global Logistics Network; and manufacturers, retailers and distributors (MRDs), who are served by our Delivery Management™ solutions. Our solutions enable our customers to purchase and use either one module at a time or combine several modules as a part of their end-to-end, real-time supply chain solution. This gives our customers an opportunity to add supply chain services and capabilities as their business needs grow and change.

Our Global Logistics Network helps transportation companies and LSPs better manage their shipment management process, optimize fleet performance, comply with regulatory requirements, expedite cross-border shipments and connect and communicate with their trading partners. Our Global Logistics Network is one of the world’s largest multimodal electronic networks focused on transportation providers, their trading partners and regulatory agencies.

LSPs are increasingly looking for technology to help them manage the end-to-end shipment lifecycle – from the booking of the shipment with the transportation provider to the settlement and audit of the invoice relating to the shipment. With our acquisition of Global Freight Exchange Limited (“GF-X”) in 2008, we added air cargo booking functionality to our Global Logistics Network to enable our customers to access technology to help them manage the entire air shipment lifecycle.

Our Delivery Management solutions help MRD enterprises reduce logistics costs, efficiently use logistics assets and decrease lead-time variability for their global shipments and regional operations. In addition, these solutions arm the customer service departments of private fleets and contract carriers with information about the location, availability and scheduling of vehicles so they can provide better information to their own clients. Our Delivery Management solutions are differentiated by the ability to combine planning, execution, messaging services and performance management into an integrated solution.

Sales and Distribution

Our sales efforts are primarily directed toward two specific customer markets: (a) transportation companies and LSPs; and (b) MRDs. Our sales staff is regionally based and trained to sell across our solutions to specific customer markets. In North America and Europe, we promote our products primarily through direct sales efforts aimed at existing and potential users of our products. In the Asia Pacific, Indian subcontinent, Ibero-America and African regions, we focus on making our channel partners successful. Channel partners for our other international operations include distributors, alliance partners and value-added resellers.

Marketing

Marketing materials are delivered through targeted programs designed to reach our core customer groups. These programs include trade shows and user group conferences, partner-focused marketing programs, and direct corporate marketing efforts.

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Significant 2009 Events

We reported net income of $20.2 million in 2009, which included an $11.7 million net, non-cash, deferred income tax recovery. This recovery was comprised of a $14.5 million reduction in our valuation allowance for deferred tax assets in the fourth quarter of 2009, less $2.8 million that was used to offset 2009 US and Sweden taxable income. This recovery arose because we determined that it was more likely than not that, in future periods, we would use a portion of our tax loss carryforwards to offset taxable income in certain jurisdictions, including Canada, Netherlands and Australia..

On October 1, 2008 we acquired 100% of the outstanding shares of Dexx, a Belgium-based European customs filing and logistics messaging provider. Dexx’s customs offerings help shippers, cargo carriers and freight forwarders manage the movement and submission of customs filings and messages to a number of customs authorities. In addition to customs services, Dexx manages the Brucargo Community System (BCS), the cargo community system at Brussels airport. BCS provides a comprehensive range of electronic information exchange between airlines, integrators, general sales agents, forwarding agents, ground handlers, truckers and shippers, as well as customs and other governmental bodies. The purchase price for this acquisition was approximately $1.7 million in cash and an additional $0.1 million in transactional costs.

On December 3, 2008, we announced that the Toronto Stock Exchange (the "TSX") had approved the purchase by us of up to an aggregate of 5,244,556 Descartes common shares pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or the NASDAQ Stock Exchange (the "NASDAQ"), if and when we consider advisable.

On January 26, 2009 we went live with our Importer Security Filing (ISF) "10+2" service. This service is available to the more than 4,000 members of our GLN to help them comply with this latest United States Customs and Border Protection's (CBP) ISF "10+2" initiative.

Subsequent Events

On February 5, 2009 we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our GLN and extended our customs compliance solutions. Oceanwide's logistics business (“Oceanwide”) is focused on a web-based, hosted SaaS model that we believe is ideal for customs brokers and freight forwarders who choose to outsource rather than procure or manage traditional enterprise applications behind their own firewalls. Oceanwide provides solutions for; customs filing, including new 10+2 compliant advanced manifest solutions; automated customs broker interfaces (“ABI”); trade compliance; and logistics management software. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition, net of working capital received, was approximately $8.4 million in cash plus transaction costs.

On March 10, 2009, we completed the acquisition of all of the shares of Scancode Systems Inc. (“Scancode). Scancode provides its customers with a system that scales from the loading dock to the enterprise, providing up-to-date rates that allow the customer to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. Scancode’s strength is in helping to manage small parcel shipments with postal services, courier carriers and over 150 less-than-truckload carriers. Scancode also has supporting warehouse and automated data collection functionality. The purchase price for this acquisition, net of working capital received, was approximately $6.5 million in cash plus transaction costs.

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CONSOLIDATED OPERATIONS

The following table shows, for the years indicated, our results of operations in millions of dollars (except per share and weighted average share amounts):

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Total revenues	66.0	59.0	52.0
Cost of revenues	22.3	20.6	17.5
Gross margin	43.7	38.4	34.5
Operating expenses	30.0	27.5	26.2
Amortization of intangible assets	5.2	3.7	2.7
Contingent acquisition consideration	0.8	2.0	2.1
Impairment of goodwill	-	-	0.1
Restructuring recovery	-	-	(0.2)
Income from operations	7.7	5.2	3.6
Investment income	1.0	1.5	0.6
Income before income taxes	8.7	6.7	4.2
Income tax expense (recovery)	(11.5)	(15.7)	0.2
Net income	20.2	22.4	4.0
EARNINGS PER SHARE
BASIC	0.38	0.44	0.09
DILUTED	0.38	0.43	0.09
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) BASIC DILUTED	52,961 53,659	51,225 52,290	45,225 46,475
Other Pertinent Information:
Total assets	145.9	126.4	71.3

Total revenues consist of services revenues and license revenues. Services revenues are principally comprised of the following: (i) ongoing transactional fees for use of our services and products by our customers, which are recognized as the transactions occur; (ii) professional services revenues from consulting, implementation and training services related to our services and products, which are recognized as the services are performed; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products, which are recognized ratably over the subscription period. License revenues derive from licenses granted to our customers to use our software products.

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The following table provides additional analysis of our services and license revenues (in millions of dollars and as a proportion of total revenues) generated over each of the years indicated:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Services revenues	61.0	54.5	46.8
Percentage of total revenues	92%	92%	90%
License revenues	5.0	4.5	5.2
Percentage of total revenues	8%	8%	10%
Total revenues	66.0	59.0	52.0

Ourservices revenues were $61.0 million, $54.5 million and $46.8 million in 2009, 2008 and 2007, respectively.

The increase in services revenues in 2009 from 2008 is primarily due to the inclusion in 2009 of a full year of services revenues from our 2008 acquisitions with services-based revenues, and a partial-year of 2009 revenues from our acquisition of Dexx. 2009 services revenues also increased due to increased customs compliance revenues from the ACE e-manifest initiative (as discussed further in the “Trends / Business Outlook” section of this MD&A).

The increase in services revenues in 2008 from 2007 is primarily due to the inclusion in 2008 of a full year of services revenues from our 2007 acquisition of Flagship Customs Services, Inc. (“FCS”), a partial-year of 2008 revenues from our acquisition of GF-X and, to a lesser extent, other 2008 acquisitions. 2008 services revenues also increased due to increased customs compliance revenues from the ACE e-manifest initiative. The increase in 2008 was partially offset by a decrease in 2008 of recurring ocean services revenues as a result of certain customers of our legacy ocean services cancelling relatively large recurring revenue contracts effective in the third and fourth quarters of 2007 (“Legacy Ocean Services Cancellations”).

Our services revenues are dependent on the number of shipments being moved by our customers and, accordingly, our services revenues are somewhat subject to seasonal shipment volume trends across the various modes of transportation (i.e. air, ocean, truck) we serve. In our first fiscal quarter, we historically have seen lower shipment volumes in air and truck which impact the aggregate number of transactions flowing through our business document exchange. In our second fiscal quarter, we historically have seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. In the third quarter, we have historically seen shipment and transactional volumes at their highest. In the fourth quarter, the various international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive.

Ourlicense revenues were $5.0 million, $4.5 million and $5.2 million in 2009, 2008 and 2007, respectively. While our sales focus has been on generating services revenues in our on-demand, SaaS business model, we have continued to see a market for licensing the products in our Delivery Management suite to MRD and service provider enterprises. The amount of license revenue in a period is dependent on our customers’ preference to license our solutions instead of purchasing our solutions as a service.

As a percentage of total revenues, our services revenues were 92%, 92% and 90% in 2009, 2008 and 2007, respectively. Our high percentage of services revenues reflects our continued success in selling to new customers under our services-based business model rather than our former model that emphasized perpetual license sales.

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We operate in one business segment providing logistics technology solutions. The following table provides additional analysis of our segmented revenues by geographic area of operation (in millions of dollars):

Year Ended	January 31,	January 31,	January 31,
	2009	2008	2007
Canada	8.5	8.9	5.7
Percentage of total revenues	13%	15%	11%
Americas, excluding Canada	39.8	34.5	31.9
Percentage of total revenues	60%	58%	61%
Europe, Middle-East and Africa (“EMEA”)	16.4	14.0	12.5
Percentage of total revenues	25%	24%	24%
Asia Pacific	1.3	1.6	1.9
Percentage of total revenues	2%	3%	4%
Total revenues	66.0	59.0	52.0

Revenues from Canada were $8.5 million, $8.9 million and $5.7 million in 2009, 2008 and 2007, respectively.

The decrease in 2009 as compared to 2008 was principally due to foreign exchange fluctuations, partially offset by increased customs compliance revenues from the ACE e-manifest initiative (as discussed further in the “Trends / Business Outlook” section of this MD&A).

The increase in 2008 as compared to 2007 was principally due to the inclusion of a full year of revenues in 2008 from the predominantly Canada-based ViaSafe Inc. (“ViaSafe”) and, to a lesser extent, Cube Route Inc. (“Cube Route”), both of which we acquired in December 2006. Canadian revenues also increased due to customs compliance revenues from the ACE e-manifest initiative (as discussed further in the “Trends / Business Outlook” section of this MD&A).

Revenues from the Americas region, excluding Canada were $39.8 million, $34.5 million and $31.9 million in 2009, 2008 and 2007, respectively. The increase in 2009 as compared to 2008 was primarily due to the inclusion of revenues in 2009 from the acquisitions completed in the last quarter of 2008 as well as increased customs compliance revenues generated through services related to the ACE e-manifest initiative (as discussed in the “Trends / Business Outlook” section of this MD&A), partially offset by lower transactional revenues from the GLN in part due to lower global shipping volumes.

The increase in 2008 as compared to 2007 was due to the inclusion of a full year of revenues from the predominantly US-based FCS and partial-year revenues from other smaller acquisitions completed in 2008. These increases were partially offset by the loss in the third and fourth quarters of 2007 of recurring revenues from the Legacy Ocean Services Cancellations.

Revenues from the EMEA region were $16.4 million, $14.0 million and $12.5 million in 2009, 2008 and 2007, respectively. The increase in 2009 from 2008 was primarily due to the inclusion of a full year of revenues from GF-X in 2009, which we acquired in mid-August 2007, as well as revenues from Dexx, which we acquired at the beginning of October 2008.

The increase in 2008 from 2007 was primarily due to the inclusion of GF-X revenues from mid-August 2007 onward.

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Revenues from the Asia Pacific region were $1.3 million, $1.6 million and $1.9 million in 2009, 2008 and 2007, respectively. The decrease in 2009 from 2008 was primarily due to higher professional services revenues in 2008 related to the licensing of our routing solutions.

The dollar amount of revenues for the Asia Pacific region decreased in 2008 from 2007 as 2007 included a large license deal from the sale of our Delivery Management solutions in China in the fourth quarter of 2007.

The following table provides additional analysis of cost of revenues (in millions of dollars) and the related gross margins for the years indicated:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Services
Services revenues	61.0	54.5	46.8
Cost of services revenues	21.3	19.8	16.4
Gross margin	39.7	34.7	30.4
Gross margin percentage	65%	64%	65%
License
License revenues	5.0	4.5	5.2
Cost of license revenues	1.0	0.8	1.1
Gross margin	4.0	3.7	4.1
Gross margin percentage	80%	82%	79%
Total
Revenues	66.0	59.0	52.0
Cost of revenues	22.3	20.6	17.5
Gross margin	43.7	38.4	34.5
Gross margin percentage	66%	65%	66%

Cost of services revenues consists of internal costs of running our systems and applications, as well as the cost of salaries and other personnel-related expenses incurred in providing professional service and maintenance work, including consulting and customer support.

Gross margin percentage for services revenues were 65%, 64% and 65% in 2009, 2008 and 2007, respectively.

The gross margin increase in 2009 from 2008 was primarily a result of favourable foreign exchange rates on our non-US dollar expenses offset by increased employee compensation costs incurred to run our GLN.

The decrease in 2008 from 2007 was primarily due to incurring a one-time fee related to the termination of a hosting and management services contract with a vendor in the second half of 2008.

Cost of license revenues consists of costs related to our sale of third-party technology, such as third-party map license fees, referral fees and/or royalties.

Gross margin percentage for license revenues were 80%, 82%, and 79% in 2009, 2008 and 2007, respectively. Our gross margin on license revenues is dependent on the proportion of our license revenues that involve third-party technology. Consequently, our gross margin percentage for license revenues is higher when a lower proportion of our license revenues attract third-party technology costs, and vice versa. This was the primary contributor to the changes in license margins in 2009, 2008 and 2007.

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Operating expenses (consisting of sales and marketing, research and development and general and administrative expenses) were $30.0 million, $27.5 million and $26.2 million for 2009, 2008 and 2007, respectively. The increase in operating expenses over those three years arose primarily from the addition of businesses that we acquired in those three years. As well, we expensed $0.3 million of acquisition-related costs in 2009 as a result of a recent change in GAAP for business combinations as discussed below in the section on general and administrative expenses and in Note 18 to our consolidated financial statements for 2009.

The following table provides additional analysis of operating expenses (in millions of dollars) for the years indicated:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Total revenues	66.0	59.0	52.0
Sales and marketing expenses	9.0	9.7	10.2
Percentage of total revenues	14%	16%	20%
Research and development expenses	11.4	10.5	9.0
Percentage of total revenues	17%	18%	17%
General and administrative expenses	9.6	7.3	7.0
Percentage of total revenues	15%	12%	13%
Total operating expenses	30.0	27.5	26.2

Sales and marketing expenses include salaries, commissions, stock-based compensation and other personnel-related costs, bad debt expenses, travel expenses, advertising programs and services, and other promotional activities associated with selling and marketing our services and products. Sales and marketing expenses as a percentage of total revenues were 14%, 16% and 20% in 2009, 2008 and 2007, respectively. The decrease as a percentage of total revenues in 2009 from 2008 was primarily attributable to a reduction in the number of employees as a result of our more efficient deployment of existing resources and integrating acquisitions, leading to a decrease in employee compensation, as well as a favourable foreign exchange impact from our non-US dollar sales and marketing expenses.

The decrease in 2008, as compared to 2007, was primarily attributable to a reduction in the number of employees as a result of our more efficient deployment of existing resources and integrating acquisitions, leading to a decrease in employee compensation, travel expenses and third-party marketing consulting costs. This was partially offset by an increase in bad debt expense. The decrease as a percentage of total revenues is primarily attributable to integrating the sales and marketing functions of acquired entities into our global corporate organization.

Research and development expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of technical and engineering personnel associated with our research and product development activities, as well as costs for third-party outsourced development providers. We expensed all costs related to research and development in 2009, 2008 and 2007. Research and development expense was $11.4 million, $10.5 million and $9.0 million in 2009, 2008 and 2007, respectively. The increase in the 2009 from 2008 was primarily attributable to increased payroll and related costs from our 2008 acquisitions, partially offset by a favourable foreign exchange impact from our non-US dollar research and development expenses.

The increase in 2008, as compared to 2007, was primarily attributable to increased payroll and related costs from the ViaSafe, FCS and GF-X acquisitions in April 2006, July 2006 and August 2007, respectively.

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General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of administrative personnel, as well as professional fees, acquisition-related expenses and other administrative expenses. General and administrative costs were $9.6 million, $7.3 million and $7.0 million in 2009, 2008 and 2007, respectively. The increase in 2009 from 2008 was primarily due to increased employee compensation and training costs in support of our global operations, as well as an increase in legal and compliance costs and US state taxes. The increase in 2009 from 2008 was also due to the inclusion of $0.3 million of acquisition-related costs, primarily professional fees, related to our acquisitions of Oceanwide and Scancode in the first quarter of 2010. Effective from the beginning of 2010, a recent change in GAAP for business combinations as discussed in Note 18 to our consolidated financial statements for 2009 required that we expense those acquisition-related costs in the period incurred. Previously, GAAP required that these expenses be capitalized as part of the purchase price for a completed business combination and were generally recorded as part of goodwill.

The increase in 2008 from 2007 was primarily due to increased compliance costs.

Amortization of intangible assets is amortization of the value attributable to intangible assets, including customer agreements and relationships, non-compete covenants, existing technologies and trade names associated with acquisitions completed by us as of January 31, 2009. Intangible assets with a finite life are amortized to income over their useful life. The amount of amortization expense in a fiscal period is dependent on our acquisition activities, as well as our asset impairment tests. Amortization of intangible assets was $5.2 million, $3.7 million and $2.7 million in 2009, 2008 and 2007, respectively. Amortization expense increased in 2009 from 2008 primarily as a result of including a full year of amortization for the GF-X intangible assets acquired in August 2007 and intangible assets acquired in other 2008 acquisitions, as well as the 2009 acquisition of Dexx in October 2008. As of January 31, 2009, the unamortized portion of all intangible assets amounted to $15.5 million.

Amortization expense increased in 2008 from 2007 primarily as a result of including a full year of amortization for the ViaSafe, FCS and Cube Route intangible assets. We also had a partial year of amortization for the GF-X intangible assets acquired in August 2007 and, to a much lesser extent, other 2008 acquisitions. Offsetting the amortization expense from the 2008 and 2007 acquisitions was a $0.4 million decrease from several components of our intangible assets that are now fully amortized.

We test the fair value of our finite life intangible assets for recoverability when events or changes in circumstances indicate that there may be evidence of impairment. We performed an additional test at January 31, 2009 as a result of the deterioration in economic conditions and determined that there was no impairment. We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related cash flows. No finite life intangible asset impairment has been identified or recorded for any of the fiscal periods reported.

Contingent acquisition consideration. As described more fully in Note 6 to our Consolidated Financial Statements for 2009, contingent acquisition consideration relates to our 2007 acquisitions of ViaSafe and FCS. It represents acquisition consideration that was placed in escrow for the benefit of the former shareholders, to be released over time contingent on the continued employment of those shareholders. If we terminate the employment of a former shareholder (other than for cause) prior to the escrow period expiring, the portion of the contingent acquisition consideration then remaining relating to that employee is released to the former shareholder and is expensed in the period that such shareholder’s employment is terminated. Contingent acquisition consideration of $0.8 million and $2.0 million expensed in 2009 and 2008, respectively, relates solely to FCS. Contingent acquisition consideration of $2.1 million expensed in 2007 relates to ViaSafe and FCS. For ViaSafe, $0.9 million of such consideration expensed in 2007 included contingent acquisition consideration released to former shareholders whose employment was terminated during 2007. No contingent acquisition

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consideration remains related to ViaSafe. For FCS, $1.2 million of contingent acquisition consideration was expensed in 2007. No contingent acquisition consideration related to FCS remains to be expensed at January 31, 2009.

Impairment of Goodwill was nil in 2009 and 2008 and $0.1 million in 2007.We performed our annual goodwill impairment tests in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) on October 31, 2008. Our testing indicated no evidence that goodwill impairment had occurred as at October 31, 2008. We performed an additional test at January 31, 2009 as a result of the deterioration in economic conditions and determined that there was no impairment. In addition, we will continue to perform quarterly analysis of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amount, and, if so, we will perform a goodwill impairment test between the annual dates. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified. During 2009, we recorded an aggregate of $0.4 million of goodwill on our consolidated balance sheets related to the acquisition of Dexx, as well as purchase price adjustments relating to some of our 2008 acquisitions. During 2008, we recorded an aggregate of $4.6 million of goodwill on our consolidated balance sheets related to the OTB Acquisition and the acquisitions of GF-X, RouteView, PCTB and Mobitrac. During 2007, we recorded an aggregate of $20.4 million of goodwill on our consolidated balance sheets related to our acquisitions of ViaSafe, FCS and Cube Route.

Restructuring recovery was nil in 2009 and 2008 and $0.2 million in 2007, relating to our past restructuring plans. The activities under all restructuring initiatives are completed and we do not expect any additional restructuring expenses in connection with any of our restructuring initiatives. During 2007 we had net favourable revisions to our restructuring provisions totaling $0.2 million related primarily to the sublease of certain offices.

Investment income was $1.0 million, $1.5 million and $0.6 million in 2009, 2008 and 2007, respectively. The decrease in investment income in 2009 from 2008 is principally a result of lower interest rates in 2009.

The increase in investment income in 2008 from 2007 is principally a result of higher invested cash balances subsequent to the first quarter of 2008 from the bought deal share offering completed near the end of the first quarter of 2008 (approximately 5.2 million shares) (the “Fiscal 2008 Bought Deal”).

Income tax expense (recovery) is comprised of current and deferred income tax expense (recovery).

Income tax expense – currentwas $0.2 million, $0.3 million and $0.2 million in 2009, 2008 and 2007, respectively. Current income taxes arise primarily from the estimate of our US taxable income that will be subject to federal alternative minimum tax and not fully sheltered by our loss carryforwards in certain US states.

Income tax recovery – deferredwas a recovery of $11.7 million and $16.0 million in 2009 and 2008, respectively and nil for 2007.

A deferred tax asset of $30.2 million has been recorded on our 2009 consolidated balance sheet for tax benefits that we currently expect to realize in future years. We have provided a valuation allowance of $48.8 million in 2009 for the amount of tax benefits that are not currently expected to be realized. In determining the valuation allowance, we considered various factors by taxing jurisdiction, including our currently estimated taxable income over future periods, our history of losses for tax purposes, our tax planning strategies and the likelihood of success of our tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and, as a consequence, result in an increase (recovery) or decrease (expense) to the deferred tax assets recorded on our consolidated balance sheets.

Overall, we generated net income of $20.2 million, $22.4 million and $4.0 million in 2009, 2008 and 2007, respectively. The decrease in 2009 from 2008 was primarily a result of a $11.7 million deferred income tax recovery in 2009 as compared to a $16.0 million deferred income tax recovery in 2008, a $2.5 million increase in

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operating expenses, a $1.5 million increase in amortization of intangible assets, and a $0.5 million decrease in investment income. Partially offsetting these decreases was a $5.3 million increase in gross margin in 2009 from 2008 and a $1.2 million reduction in contingent acquisition consideration expensed in 2009 from 2008.

The increase in 2008 from 2007 was primarily a result of the $16.0 million deferred income tax recovery, a $3.9 million increase in gross margin, and a $0.9 million increase in investment income. Partially offsetting these increases was a $1.3 million increase in operating expenses and a $1.0 million increase in amortization of intangible assets.

QUARTERLY OPERATING RESULTS

The following table provides an analysis of our unaudited operating results (in thousands of dollars, except per share and weighted average number of share amounts) for each of the quarters ended on the date indicated.

	April 30,	July 31,	October 31,	January 31,	Total
	2008	2008	2008	2009
2009
Revenues	16,289	17,110	16,965	15,680	66,044
Gross margin	10,602	11,018	11,385	10,686	43,691
Operating expenses	7,449	7,659	7,676	7,212	29,996
Net income	1,054	1,392	2,318	15,446	20, 210
Basic and diluted earnings per share	0.02	0.03	0.04	0.29	0.38
Weighted average shares outstanding (thousands):
Basic	52,933	52,942	52,965	53,002	52,961
Diluted	53,636	53,620	53,697	53,683	53,659

	April 30,	July 31,	October 31,	January 31,	Total
	2007	2007	2007	2008
2008
Revenues	13,288	14,263	15,463	16,011	59,025
Gross margin	8,716	9,408	9,995	10,266	38,385
Operating expenses	6,468	6,832	7,171	7,022	27,493
Net income	1,128	1,682	1,697	17,936	22,443
Basic earnings per share	0.02	0.03	0.03	0.34	0.44
Diluted earnings per share	0.02	0.03	0.03	0.33	0.43
Weighted average shares outstanding (thousands):
Basic	46,672	52,354	52,801	52,924	51,225
Diluted	48,221	53,401	53,715	53,721	52,290

Our operations continue to have seasonal trends. In our first fiscal quarter, we historically have seen lower shipment volumes by air and truck which impact the aggregate number of transactions flowing through our GLN business document exchange. In our second fiscal quarter, we historically have seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. In the third quarter, we have historically seen shipment and transactional volumes at their highest. In the fourth quarter, the various international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive.

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Revenues have been positively impacted by the ten acquisitions that we have completed since the beginning of 2007. In addition, over the past two fiscal years we have seen increasing transactions processed over our GLN business document exchange as we help our customers comply with electronic filing requirements of new US and Canadian customs regulations, including the CBP ACE e-manifest filing initiative described in more detail in the “Trends / Business Outlook” section later in this MD&A.

Revenues increased in the second quarter of 2008 over the previous quarter, principally due to the performance of our ocean and customs compliance services. Revenues increased in the third quarter of 2008 by $1.2 million over the previous quarter, principally due to our acquisition of GF-X in that quarter. Revenues also increased in the fourth quarter of 2008 primarily as a result of our acquisitions of RouteView, PCTB and Mobitrac in that quarter.

Net income in the fourth quarter of 2008 was significantly impacted by an income tax recovery of $16.0 million resulting from a reduction in the valuation allowance for our deferred tax assets. Net income in the first, second and third quarters of 2009 was impacted by a deferred tax expense of $0.5 million, $0.5 million and $0.4 million, respectively, as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our US taxable income for the first three quarters of 2009. The expense in the third quarter of 2009 was net of a recovery of $0.4 million as a result of the recognition of certain deferred tax assets in Sweden. Net income in the fourth quarter of 2009 was significantly impacted by an income tax recovery of $13.1 million resulting from a reduction in the valuation allowance for our deferred tax assets. The recovery in the fourth quarter of 2009 was net of a deferred tax expense of $1.0 million as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our taxable income in the US and Sweden.

In 2009, our revenues followed seasonal trends with our second quarter of 2009 reflecting the period when our customers negotiate new ocean contracts and update rates using our technology services. Commencing in the third quarter of 2009, Dexx contributed to our total revenues. However, this increase in revenues in the fourth quarter was offset by large foreign currency translation impact, primarily from converting Canadian dollar and British pound sterling revenues to US dollars. Similarly, while our operating expenses were relatively unchanged throughout the first three quarters of 2009, there was a decrease in fourth quarter operating expenses principally as a result of foreign currency translation to US dollars. Our net income in the fourth quarter of 2009 was also impacted by approximately $0.3 million from a change to GAAP that required acquisition-related costs to be expensed in the period incurred as discussed in Note 18 to our consolidated financial statements for 2009. Prior GAAP required us to capitalize such costs as part of the purchase price for a business combination, generally to goodwill.

Our weighted average shares outstanding has increased since the first quarter of 2008, principally as a result of the Fiscal 2008 Bought Deal, the GF-X acquisition in the third quarter of 2008 (approximately 0.5 million shares) and periodic employee stock option exercises.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital expenditure requirements primarily through cash flows provided from operations, long-term borrowings and sales of debt and equity securities. As at January 31, 2009, we had $57.6 million in cash and cash equivalents and short-term investments and $2.4 million in unused available lines of credit, none of which was held in asset-backed commercial paper. As at January 31, 2008, we had $44.1 million in cash and cash equivalents and $3.0 million in available lines of credit.

We believe that, considering the above, we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of current operating leases, and additional purchase price that may become payable pursuant to the terms of previously completed acquisitions. Should additional future financing be

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undertaken, the proceeds from any such transaction could be utilized to fund strategic transactions or for general corporate purposes. We expect, from time to time, to consider select strategic transactions to create value and improve performance, which may include acquisitions, dispositions, restructurings, joint ventures and partnerships, and we may undertake a financing transaction in connection with any such potential strategic transaction. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction.

To the extent that any of our non-Canadian subsidiaries have earnings, our intention is that these earnings be re-invested in such subsidiary indefinitely. Accordingly, to date we have not encountered legal or practical restrictions on the abilities of our subsidiaries to repatriate money to Canada, even if such restrictions may exist in respect of certain foreign jurisdictions where we have subsidiaries. To the extent there are restrictions, they have not had a material effect on the ability of our Canadian parent to meet its financial obligations.

The table set forth below provides a summary of cash flows for the years indicated in millions of dollars:

Year ended	January 31,	January 31,	January 31,
	2009	2008	2007
Cash provided by operating activities	18.7	11.9	6.5
Additions to capital assets	(1.4)	(1.1)	(1.4)
Acquisition of subsidiaries and acquisition-related costs	(3.2)	(13.3)	(30.4)
Issuance of common shares, net of issue costs	0.2	23.3	13.8
Effect of foreign exchange rates on cash and cash equivalents and short-term investments	(0.8)	1.4	0.4
Net change in cash and cash equivalents and short-term investments	13.5	22.2	(11.1)
Cash and cash equivalents and short-term investments, beginning of year	44.1	21.9	33.0
Cash and cash equivalents and short-term investments, end of year	57.6	44.1	21.9

Cash provided by operating activities was $18.7 million, $11.9 million and $6.5 million for 2009, 2008 and 2007, respectively. The increase in cash provided by operating activities in 2009 from 2008, was principally due to improved operating performance in 2009.

The increase in cash provided by operating activities in 2008, as compared to 2007, was principally due to the 2007 use of $4.0 million of cash to establish the contingent acquisition consideration escrow for the former shareholders of FCS in connection with our acquisition of FCS, as well as improved operating performance in 2008.

Additions to capital assets of $1.4 million, $1.1 million and $1.4 million in 2009, 2008 and 2007, respectively, were primarily composed of investments in computing equipment and software to support our global operations and GLN.

Acquisition of subsidiaries and acquisition-related costs of $3.2 million in 2009 includes $1.5 million related to the acquisition of Dexx, $0.7 million related to our acquisition of GF-X as well as additional purchase price related to the acquisitions of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc. (“the OTB Acquisition”) ($0.3 million) and RouteView ($0.3 million), and cash that was previously held back in connection with another acquisition ($0.1 million) , as well as $0.2 million of cash paid related to acquisitions that we made in 2008 and 2007.

In 2008, we paid cash of $13.3 million which represents $6.2 million for the acquisition of GF-X, $1.1 million related to the OTB Acquisition, $3.0 million related to the acquisition of RouteView, $2.1 million for the acquisition of PCTB and $0.5 million related to the acquisition of Mobitrac, as well as $0.4 million of cash paid related to acquisitions that we made in 2007.

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2007 cash paid of $30.4 million represents our 2007 purchases of ViaSafe, FCS and Cube Route, net of cash acquired, and the final $0.1 million ‘earn-out’ payment related to our acquisition of Tradevision AB (“Tradevision”) in 2003. These amounts exclude $4.0 million of cash that was used to establish the contingent acquisition consideration escrow in connection with the FCS acquisition, as the cash used to establish this escrow was included in the calculation of the cash used in operating activities.

Issuance of common shares of $0.2 million in 2009 is comprised of cash proceeds from the exercise of employee stock options.

Issuance of common shares of $23.3 million in 2008 is comprised of $21.6 million net cash proceeds received from the Fiscal 2008 Bought Deal and $1.7 million from the exercise of employee stock options.

Issuance of common shares of $13.8 million in 2007 is comprised of $13.6 million net cash proceeds received from a bought deal financing completed in the first quarter of 2007 and $0.2 million from the exercise of employee stock options.

Working capital. As at January 31, 2009, our working capital (current assets less current liabilities) was $62.5 million. Current assets include $47.4 million of cash and cash equivalents, $10.2 million of short-term investments, $8.7 million in current trade receivables and a $5.5 million deferred tax asset. Our working capital has increased since January 31, 2008 by $13.9 million primarily as a result of our 2009 operating activities, partially offset by cash used for acquisitions and capital asset additions.

Cash and cash equivalents and short-term investments. As at January 31, 2009, all funds were held in interest-bearing bank accounts, bearer deposit notes or certificates of deposit, primarily with major Canadian and US banks. Cash and cash equivalents include short-term deposits and debt securities with original maturities of three months or less. At January 31, 2009, we held no investments in ABCP.

At various times in 2008 and 2007, we invested in marketable securities. Marketable securities represent cash invested in investment-grade corporate bonds and commercial paper. Short-term investments in 2008 and 2007 included marketable securities that were composed of debt securities maturing within 12 months from the balance sheet date. Those debt securities were marked-to-market with the resulting gain or loss included in other comprehensive income (loss).

COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating lease obligations:

Years Ended January 31,
2010	1.7
2011	1.3
2012	1.0
2013	1.0
2014	1.0
Thereafter	2.8
	8.8

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Operating Lease Obligations

We are committed under non-cancelable operating leases for business premises and computer equipment with terms expiring at various dates through 2020. The future minimum amounts payable under these lease agreements are described in the chart above.

Other Obligations

We have a commitment for income taxes incurred to various taxing authorities related to unrecognized tax benefits in the amount of $4.8 million. At this time, we are unable to make reasonably reliable estimates of the period of settlement with the respective taxing authority due to the possibility of the respective statutes of limitations expiring without examination by the applicable taxing authority.

Contingencies

We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our annual results of operations or financial position.

Business combination agreements

In connection with the March 6, 2007 acquisition of certain assets of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc., an additional $0.85 million in cash may be payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. $0.3 million of that additional purchase price was paid in 2009, and up to $0.4 million remains eligible to be earned by the previous owners.

In respect of our August 17, 2007 acquisition of 100% of the outstanding shares of GF-X, up to $5.2 million in cash was potentially payable if certain performance targets, primarily relating to revenues, were met by GF-X over the four years subsequent to the date of acquisition. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011.

Product Warranties

In the normal course of operations, we provide our customers with product warranties relating to the performance of our software and network services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such on our financial statements.

Ontario Retail Sales Tax Audit

During 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit is on-going as at March 31, 2009, however, the primary issue identified is our failure to collect ORST on certain Descartes services and products. If additional amounts are assessed that previously should have been collected by us from our customers, then we will attempt to collect this additional ORST from our customers.

We have estimated that the maximum additional tax expense resulting from the ORST audit would be $0.6 million, however, net of ORST we expect to collect from customers, we estimate the additional tax expense to be $0.1 million. Accordingly, the net impact of $0.1 million has been included in our financial statements for the year ending January 31, 2009. We anticipate that the audit will be substantially completed during the first half of fiscal 2010.

Guarantees

In the normal course of business we enter into a variety of agreements that may contain features that meet the definition of a guarantee under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure

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Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The following lists our significant guarantees:

Intellectual property indemnification obligations

We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license agreement with our customer, which license terms are typically perpetual. To date, we have not encountered material costs as a result of such indemnifications.

Other indemnification agreements

In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements and leasing transactions. These indemnifications that we provide require us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparty as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnifications.

In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability for the guarantees or indemnities described above on our financial statements.

OUTSTANDING SHARE DATA

We have an unlimited number of common shares authorized for issuance. As of March 31, 2009, we had 53,013,527 common shares issued and outstanding.

As of March 31, 2009, there were 5,342,595 options issued and outstanding, and 221,507 remaining available for grant under all stock option plans.

On April 26, 2007, we closed the Fiscal 2008 Bought Deal, which raised gross proceeds of CAD$25.0 million (equivalent to approximately $22.3 million at the time of the transaction) from a sale of 5,000,000 common shares at a price of CAD$5.00 per share. The underwriters also exercised an over-allotment option on April 26, 2007 to purchase an additional 200,000, 400,000 and 150,000 common shares (in aggregate, 15% of the offering) at CAD$5.00 per share from the Company, Mr. Mesher and Mr. Ryan, respectively. Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to Descartes were approximately $21.5 million at the time of the transaction. We used the net proceeds of the offering to fund our 2008 and 2009 acquisitions as identified in Note 3 to our Consolidated Financial Statements for 2009 and for general corporate purposes and working capital.

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On November 30, 2004, we announced that our board of directors had adopted a shareholder rights plan (the “Rights Plan”) to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the company. The Rights Plan was approved by the Toronto Stock Exchange and was originally approved by our shareholders on May 18, 2005. The Rights Plan took effect as of November 29, 2004. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

On December 3, 2008, we announced that the TSX had approved the purchase by us of up to an aggregate of 5,244,556 common shares of Descartes pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or NASDAQ, if and when we consider advisable.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period and would materially impact our financial condition or results of operation. Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements for 2009.

Our management has discussed the development, selection and application of our critical accounting policies with the audit committee of the board of directors. In addition, the board of directors has reviewed the accounting policy disclosures in this MD&A.

The following discusses the critical accounting estimates and assumptions that management has made under these policies and how they affect the amounts reported in the 2009 Consolidated Financial Statements:

Revenue recognition

In recognizing revenue, we make estimates and assumptions on factors such as the probability of collection of the revenue from the customer, whether the sales price is fixed or determinable, the amount of revenue to allocate to individual elements in a multiple element arrangement and other matters. We make these estimates and assumptions using our past experience, taking into account any other current information that may be relevant. These estimates and assumptions may differ from the actual outcome for a given customer which could impact operating results in a future period.

Long-Lived Assets

We test long-lived assets for recoverability when events or changes in circumstances indicate evidence of impairment.

In connection with business acquisitions that we have completed, we identify and estimate the fair value of net assets acquired, including certain identifiable intangible assets (other than goodwill) and liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value of the net assets acquired is assigned to goodwill. Intangible assets include customer agreements and relationships, existing technologies and trade

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names. Intangible assets are amortized on a straight-line basis over their estimated useful lives. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Our impairment analysis contains estimates due to the inherently speculative nature of forecasting long-term estimated cash flows and determining the ultimate useful lives of assets. Actual results will differ, which could materially impact our impairment assessment.

In the case of goodwill, we test for impairment at least annually at October 31 of each year and at any other time if any event occurs or circumstances change that would more likely than not reduce our enterprise value below our carrying amount. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Income Taxes

We have provided for income taxes based on information that is currently available to us. Tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. At January 31, 2009, we have recorded deferred tax assets of $30.2 million on our consolidated balance sheet for tax benefits that we currently expect to realize in future periods. During 2009 we determined that there was sufficient positive evidence such that it was more likely than not that we would use a portion of our tax loss carryforwards to offset taxable income in Canada, Netherlands, Sweden, and Australia in future periods. This positive evidence includes that we have earned cumulative income after permanent differences in each of these jurisdictions in the current and two preceding tax years. Accordingly, we reduced our valuation allowance for our deferred tax assets by $14.5 million, representing the amount of tax loss carryforwards that we projected would be used to offset taxable income in these jurisdictions over the ensuing six-year period. In making the projection for the six-year period, we made certain assumptions, including the following: (i) that the current economic downturn will result in reduced profit levels in fiscal 2010 and 2011, with a return to a level of income consistent with the current income levels in 2012 and beyond; (ii) that there will be continued customer migration from technology platforms owned by our US entity and our Swedish entity to a technology platform owned by another entity in our corporate group, further reducing taxable income in the US and Sweden; and (iii) that tax rates in these jurisdictions will be consistent over the six-year period of projection, except in Canada where rates are expected to decrease through 2013 and then remain consistent thereafter. Any further change to decrease the valuation allowance for the deferred tax assets would result in an income tax recovery on the consolidated statements of operations. If we achieve and maintain a consistent level of profitability, the likelihood of additional reductions to our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our business jurisdictions will increase.

CHANGE IN / INITIAL ADOPTION OF ACCOUNTING POLICIES

Recently adopted accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), effective for fiscal years beginning after November 15, 2007, which is our fiscal year ending January 31, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which is our

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fiscal year ending January 31, 2010. We adopted the non-deferred portion of SFAS 157 on February 1, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That Is

Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP became effective on October 10, 2008, and applies to prior periods for which financial statements have not yet been issued. We adopted FSP 157-3 on October 10, 2008 and it has not had a material impact on our results of operations and financial condition to date.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”), effective for fiscal years beginning after November 15, 2007, which is our year ending January 31, 2009. SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. Our financial instruments are currently composed of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The estimated fair values of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities. Our adoption of SFAS 159 on February 1, 2008 did not have a material impact on our results of operations and financial condition to date and we have not elected to apply the fair value option to any of our eligible financial instruments and other items to date.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent issued accounting pronouncements not yet adopted

We are currently in the process of assessing the anticipated impact that the deferred portion of SFAS 157 will have on our results of operations and financial condition once effective.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. We are currently in the process of assessing the anticipated impact SFAS 141R will have on our results of operations and financial condition once effective. We currently believe that the adoption of SFAS 141R will result in the inclusion of certain types of expenses related to future business combinationsin our results of operations that we currently capitalize pursuant to existing accounting standards and may also impact our financial statements in other ways. In our previously reported financial results for the year ended January 31, 2009, our consolidated balance sheet included $258,000 of deferred acquisition-related costs which were presented in prepaid expenses and other. We have adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). The effect of adopting SFAS 141R on our previously reported consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 is described more fully in Note 18 to our consolidated financial statements for 2009.

In April 2008, the FASB issued FSP 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 the recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets”. The intent of the guidance is 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

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under SFAS 141R. For a recognized intangible asset, an entity will be required to disclose information that enables users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. We are currently in the process of assessing the anticipated impact FSP 142-3 will have on our results of operations and financial condition once effective.

In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period that the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We do not expect the adoption of EITF 08-7 to have a material impact on its consolidated financial statements.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, management evaluated our disclosure controls and procedures (as defined in National Instrument 52-109) as of January 31, 2009. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, management assessed the effectiveness of our internal control over financial reporting (as defined in National Instrument 52-109) as of January 31, 2009, based on criteria established in “Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission”. Based on the assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of January 31, 2009, our internal control over financial reporting was effective.

Our management has not conducted an assessment of the internal control over financial reporting of our wholly-owned subsidiary, Dexx bvba (“Dexx”), which we acquired on October 1, 2008. The conclusions of our Chief Executive Officer and Chief Financial Officer in this Annual Report regarding the effectiveness of our internal control over financial reporting as of January 31, 2009 does not include the internal control over financial reporting of Dexx. Dexx’s contribution to our consolidated financial statements for the year ended January 31, 2009 was less than 1% of both consolidated total revenues and net income. Additionally, Dexx’s total assets and net liabilities as of January 31, 2009 were less than 1% of consolidated total assets and net assets, respectively.

TRENDS / BUSINESS OUTLOOK

This section discusses our outlook for 2010 as of the date of this MD&A, and contains forward-looking statements.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation, or the freight market in general, include legal

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and regulatory requirements; timing of contract renewals between our customers and their own customers; seasonal-based tariffs; vacation periods applicable to particular shipping or receiving nations; weather-related events or natural disasters, that impact shipping in particular geographies; availability of credit to support shipping operations; economic downturns, and amendments to international trade agreements. As many of our services are sold on a “per shipment” basis, we anticipate that our business will continue to reflect the general cyclical and seasonal nature of shipment volumes with our third quarter being the strongest quarter for shipment volumes (compared to our first quarter being the weakest quarter for shipment volumes).

In 2006, US Customs and Border Protection (“CBP”) launched its e-manifest initiative requiring trucks entering the US to file an electronic manifest through its Automated Commercial Environment (“ACE”), providing the CBP with an advance electronic notice of the contents of the truck. Such filings are now mandatory at land ports of entry into the US. Similar filings are required for ocean vessels and airplanes at US air and sea ports. CBP has implemented enhancements to this ACE e-manifest initiative, called “10 + 2” enhancements, that require additional data and filings to be provided to CBP in 2010, starting with ocean shipments. We have various customs compliance services specifically designed to help air, ocean and truck carriers comply with this ACE e-manifest initiative and have recently launched our 10 + 2 solution and acquired additional 10+2 solutions and customers as part of our acquisition of Oceanwide. If the roll-out of these initiatives continues as scheduled and compliance is rigidly enforced by CBP, then we anticipate that our revenues will be positively impacted in 2010. A similar e-manifest initiative is being developed for Canada by the Canadian Border Service Agency and may be effective and enforced in 2010.

In fiscal 2009, our services revenues comprised approximately 92% of our total revenues, with the balance being license revenues. We expect that our focus in 2010 will remain on generating services revenues, primarily by promoting use of our GLN (including customs compliance services) and the migration of customers using our legacy license-based products to our services-based architecture. We do, however, anticipate maintaining the flexibility to license our products to those customers who prefer to buy the products in that fashion and the composition of our revenues in any one quarter between services revenues and license revenues will be impacted by the buying preferences of our customers.

In the latter half of fiscal 2009 and in to fiscal 2010, we have seen a massive global economic downturn that has impacted all areas of the economy, including employment, the availability of credit, manufacturing and retail sales. With economic conditions impacting what is being built and sold, we anticipate that there will be an impact on volumes that are shipped. Portions of our revenues are dependent on the amount of goods being shipped, the types of goods being shipped, the modes by which they are being shipped and/or the number of aggregate shipments. Accordingly, we are planning for our transaction revenues to be adversely impacted by the global economic downturn in fiscal 2010.

In addition, in fiscal 2010 we anticipate that some of our customers will be impacted by the global economic downturn in such a manner that they will either choose to reduce or eliminate their use of some of our services. In particular, in 2010 we anticipate that we will lose approximately $3 million in annual recurring revenues as customers cease using our legacy ocean contract services and other legacy applications. We can provide no assurance that we will be able to replace that recurring revenue.

We also have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts, particularly for our ocean products, which provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. Based on our historical experience, we anticipate that over a one-year period we may lose approximately 3% or more of our aggregate revenues in the ordinary course. This 3% is in addition to the $3 million in annual recurring revenues

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that we anticipate losing in fiscal 2010. There can be no assurance that we will be able to replace such lost revenue with new revenue from new customer relationships or from existing customers.

We internally measure and manage our “baseline operating expenses,” which we define as our total expenses less interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, contingent acquisition consideration, deferred compensation and stock-based compensation). We currently intend to manage our business with the goal of having our baseline operating expenses for a period be between 75% and 80% of our total revenues for that period. We also internally measure and monitor our visible, recurring and contracted revenues, which we refer to as our “baseline revenues”. In the first quarter of 2010, we intend to continue to manage our business with our baseline operating expenses at a level below our baseline revenues. We refer to the difference between our baseline revenues and baseline operating expenses as our “baseline calibration”. At March 11, 2009, using foreign exchange rates that existed at January 31, 2009, we estimated that our baseline revenues for the first quarter of 2010 were $16.0 million and our baseline operating expenses were $12.5 million. We consider this to be baseline calibration of $3.5 million for the first quarter of 2010, or approximately 22% of our baseline revenues, determined as of March 11, 2009.

In fiscal 2010, we anticipate that we will need to re-calibrate our business when and if recurring revenues exit our business. We expect that re-calibration of our business will include the reduction of expenses through the implementation of cost reduction initiatives and further acceleration of integration activities for acquired companies. In the first quarter of 2010, we started cost reduction activities in anticipation of the $3 million in annual recurring revenues that we plan on losing in 2010 because of the departure of customers of our legacy products and services.

We anticipate that in fiscal 2010, the significant majority of our business will continue to be in the Americas, with the EMEA region being the bulk of the remainder of our business. We believe we currently have some significant opportunities in the Americas region. We anticipate that revenues from the Asia Pacific Region will continue to represent less than 5% of our total revenues in fiscal 2010.

We estimate that amortization expense for existing intangible assets will be $4.5 million for 2010, $4.0 million for 2011, $2.4 million for 2012, $1.3 million for 2013 and $3.3 million thereafter, assuming that no impairment of existing intangible assets occurs in the interim.

We performed our annual goodwill impairment tests in accordance with SFAS 142 on October 31, 2008 and updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009. We are currently scheduled to perform our next annual impairment test on October 31, 2009. In addition, we will continue to perform quarterly analyses of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. The likelihood of any future impairment increases if our public market capitalization is adversely impacted by global economic, capital market or other conditions for a sustained period of time. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified.

In 2009, we spent $1.3 million ($1.1 million in 2008) on capital expenditures and expect that 2010 expenditures will be above that level as we invest in our network and build out infrastructure. Capital expenditures were $0.4 million in the fourth quarter of 2009, and we expect they will be between $0.3 and $0.4 million in the first quarter of 2010.

We conduct business in a variety of foreign currencies and, as a result, all of our foreign operations are subject to foreign exchange fluctuations. Our operations operate in their local currency environment and use their local currency as their functional currency. Assets and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated

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using monthly average exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders’ equity. Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income. We also hold some of our cash in foreign currencies. We currently have no specific hedging program in place to address fluctuations in international currency exchange rates. We can make no accurate prediction of what will happen with international currency exchange rates in 2010. However, if the US dollar is weak in comparison to foreign currencies, then we anticipate this will increase the expenses of our business and have a negative impact on our results of operations.

As of January 31, 2009, our gross amount of unrecognized tax benefits was approximately $4.8 million. We expect that the unrecognized tax benefits will increase within the next 12 months due to uncertain tax positions that may be taken, although at this time a reasonable estimate of the possible increase cannot be made.

In the fourth quarter of 2008, we determined that there was sufficient positive evidence such that it was more likely than not that, in future periods, we would use a portion of our tax loss carryforwards to offset taxable income in the US. Accordingly, we reduced our valuation allowance for our deferred tax assets by $16.0 million, representing the amount of tax loss carryforwards that we projected would be used to offset taxable income in the US over the ensuing six-year period. In the third quarter of 2009, we reduced our valuation allowance by $0.4 million as a result of the recognition of certain deferred tax assets in Sweden. During the last quarter of fiscal 2009, we concluded that there was sufficient positive evidence to support the recognition of a portion of the deferred tax assets in Canada, Netherlands and Australia, and an additional amount in Sweden. The recognition of these deferred tax asset balances resulted in a one-time gain reported on the consolidated financial statements of $14.5 million. This gain was partly offset through the utilization of previously recognized deferred tax assets in the amount of $2.8 million, resulting in a net gain of $11.7 million.

The amount of any tax expense in a period will depend on the amount of taxable income, if any, we generate in a jurisdiction and our then current effective tax rate in that jurisdiction. We can provide no assurance as to the timing or amounts of any income tax expense or expensing of deferred tax assets, nor can be we provide any assurance that our current valuation allowance for deferred tax assets will not need to be adjusted further.

Our anticipated tax rate for a period is difficult to predict and may vary from period to period as it depends on factors including the actual jurisdictions in which revenues are earned, the tax rates in those jurisdictions, tax assessments and the amount of tax losses, if any, we have available to offset this income. This is particularly so in the US where we are taxed on a state-by-state basis. Based on our current understanding of our geographical revenue mix, revenue pipeline, tax filings and available tax losses, we currently anticipate that our effective tax rate for fiscal 2010 will be in the range of 60-69%.

We intend to actively explore business combinations in 2010 to add complementary services, products and customers to our existing businesses. In the first quarter or 2010, we completed the acquisitions of Oceanwide and Scancode. Going forward, we intend to focus our acquisition activities on companies that are targeting the same customers as us and processing similar data and, to that end, will listen to our customers’ suggestions as they relate to consolidation opportunities. Depending on the size and scope of any such business combination, or series of contemplated business combinations, we may need to raise additional debt or equity capital. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction.

Certain future commitments are set out above in the section of this MD&A called “Commitments, Contingencies and Guarantees”. We believe that we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of these commitments.

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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Any investment in us will be subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks described below together with all other information included in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are not aware of or have not focused on, or that we currently deem immaterial, may also impair our business operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, they could materially adversely affect our business, financial condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment.

General economic conditions may affect our business, results of operations and financial condition.

Demand for our products depends in large part upon the level of capital and operating expenditures by many of our customers. Decreased capital and operational spending could have a material adverse effect on the demand for our products and our business, results of operations, cash flow and overall financial condition. Disruptions in the financial markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future, which could result in the delay or cancellation of projects or capital programs on which our business depends. In addition, the disruptions in the financial markets may also have an adverse impact on regional economies or the world economy, which could negatively impact the capital and operating expenditures of our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to commit funds to purchase our products and services, or their ability to pay for our products and services after purchase. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the US and other countries.

Our existing customers might cancel existing contracts with us, fail to renew contracts on their renewal dates, and fail to purchase additional services and products, or consolidate contracts with acquired companies.

We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. An example would be our contract to operate the US Census Bureau’s Automated Export System (AESDirect). In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. In 2007, for example, we lost certain customers due to the Legacy Ocean Services Cancellations who generated significant recurring revenues. In 2010, we expect to lose $3 million in annual recurring revenues from departing services customers in addition to the normal 3% annual revenue attrition we plan for. We can provide no assurance that we will not lose additional customers in the future or be able to replace any lost revenues.

If our customers fail to renew their service contracts, fail to purchase additional services or products, or consolidate contracts with acquired companies, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, and changes in our customers’ business or in regulation impacting our customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to

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migrate to new products. Such customers will not generate the revenues anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenues losses. Our business may also be unfavorably affected by market trends impacting our customer base, such as consolidation activity in our customer base.

Disruptions in the movement of freight could negatively affect our revenues.

Our business is highly dependent on the movement of freight from one point to another as we generate transaction revenues as freight is moved by, to or from our customers. If there are disruptions in the movement of freight, whether as a result of labour disputes or weather or natural disaster, or caused by terrorists, political or security activities, contagious illness outbreaks, or otherwise, then our revenues will be adversely affected. As these types of freight disruptions are generally unpredictable, there can be no assurance that our revenues will not be adversely affected by such events.

We have a substantial accumulated deficit and a history of losses and may incur losses in the future.

As at January 31, 2009, our accumulated deficit was $362.6 million. Although we have been profitable for each quarter of the past four years, we had losses in 2005 and prior fiscal periods. While we are encouraged by our recent profits, our profits in 2006 benefited from one-time gains on the disposition of an asset and a significant portion of our net income and earnings per share in the fourth quarter of each of 2008 and 2009 benefited from a non-cash, net deferred income tax recovery of $16.0 million and $11.7 million, respectively. There can be no assurance that we will not incur losses again in the future. We believe that the success of our business and our ability to remain profitable depends on our ability to keep our baseline operating expenses to a level at or below our baseline revenues. There can be no assurance that we can generate further expense reductions or achieve revenues growth, or that any expense reductions or revenues growth achieved can be sustained, to enable us to do so. If we fail to maintain profitability, this would increase the possibility that the value of your investment will decline.

If we need additional capital in the future and are unable to obtain it as needed or can only obtain it on unfavorable terms, our operations may be adversely affected, and the market price for our securities could decline.

Historically, we have financed our operations primarily through cash flows from our operations, long-term borrowings, and the sale of our debt and equity securities. As at January 31, 2009, we had cash and cash equivalents and short-term investments of approximately $57.6 million and $2.4 million in unutilized operating lines of credit.

While we believe we have sufficient liquidity to fund our current operating and working capital requirements, we may need to raise additional debt or equity capital to fund expansion of our operations, to enhance our services and products, or to acquire or invest in complementary products, services, businesses or technologies. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction. If we raise additional funds through further issuances of convertible debt or equity securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those attaching to our common shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available on terms favorable to us, our operations and growth strategy may be adversely affected and the market price for our common shares could decline.

Making and integrating acquisitions involves a number of risks that could harm our business.

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We have in the past acquired, and in the future expect to seek to acquire, additional products, services, customers, technologies or businesses that we believe are complementary to ours. For example, in 2010 we’ve already acquired 2 businesses (Oceanwide and Scancode), in 2009 we acquired one business (Dexx), in 2008 we acquired six businesses and in 2007 we acquired three businesses. However, we may not be able to identify appropriate products, technologies or businesses for acquisition or, if identified, conclude such acquisitions on terms acceptable to us. Acquisitions involve a number of risks, including: diversion of management’s attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company’s internal controls and procedures. In addition, we may not identify all risks or fully assess risks identified in connection with an acquisition. The individual or combined effect of these risks could have a material adverse effect on our business. As well, in paying for an acquisition, we may deplete our cash resources or dilute our shareholder base by issuing additional shares. Furthermore, there is the risk that our valuation assumptions, customer retention expectations and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause us to overvalue an acquisition target. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated.

We may have difficulties maintaining or growing our acquired businesses.

Businesses that we acquire may sell products, or operate services, that we have limited experience operating or managing. For example, Oceanwide, ViaSafe, FCS and Dexx each operate in the emerging regulatory compliance business, and GF-X operates in electronic air freight booking. We may experience unanticipated challenges or difficulties in maintaining these businesses at their current levels or in growing these businesses. Factors that may impair our ability to maintain or grow acquired businesses may include, but are not limited to:

• Challenges in integrating acquired businesses with our business;

• Loss of customers of the acquired business;

• Loss of key personnel from the acquired business, such as former executive officers or key technical personnel;

• For regulatory compliance businesses, changes in government regulations impacting electronic regulatory filings or import/export compliance, including changes in which government agencies are responsible for gathering import and export information;

• Difficulties in gaining necessary approvals in international markets to expand acquired businesses as contemplated;

• Our inability to obtain or maintain necessary security clearances to provide international shipment management services; and

• Other risk factors identified in this report.

Changes in the value of the US dollar, as compared to the currencies of other countries where we transact business, could harm our operating results and financial condition.

To date, our international revenues have been denominated primarily in US dollars. However, the majority of our international expenses, including the wages of our non-US employees and certain key supply agreements, have been denominated in currencies other than the US dollar. Therefore, changes in the value of the US dollar as compared to these other currencies may materially affect our operating results. We generally have not implemented hedging programs to mitigate our exposure to currency fluctuations affecting international accounts receivable, cash balances and inter-company accounts. We also have not hedged our exposure to currency fluctuations affecting future international revenues and expenses and other commitments. Accordingly, currency exchange rate fluctuations have caused, and may continue to cause, variability in our foreign currency

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denominated revenue streams, expenses, and our cost to settle foreign currency denominated liabilities. In particular, we incur a significant portion of our expenses in Canadian dollars relative to the amount of revenue we receive in Canadian dollars, so fluctuations in the Canadian-US dollar exchange rate, and in particular, the weakening of the US dollar, could have a material adverse effect on our business, results of operations and financial condition.

If we fail to attract and retain key personnel, it would adversely affect our ability to develop and effectively manage our business.

Our performance is substantially dependent on the performance of our key technical, sales and marketing, and senior management personnel. We do not maintain life insurance policies on any of our employees that list the company as a loss payee. Our success is highly dependent on our ability to identify, hire, train, motivate, promote, and retain highly qualified management, directors, technical, and sales and marketing personnel, including key technical and senior management personnel. Competition for such personnel is always strong. Our inability to attract or retain the necessary management, directors, technical, and sales and marketing personnel, or to attract such personnel on a timely basis, could have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

We have in the past, and may in the future, make changes to our executive management team or board of directors. There can be no assurance that these changes and the resulting transition will not have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

Changes in government filing requirements for global trade may adversely impact our business.

Our regulatory compliance services help our customers comply with government filing requirements relating to global trade. The services that we offer may be impacted, from time to time, by changes in these requirements. Changes in requirements that impact electronic regulatory filings or import/export compliance, including changes adding or reducing filing requirements or changing the government agency responsible for the requirement could impact our business, perhaps adversely.

Increases in fuel prices and other transportation costs may have an adverse effect on the businesses of our customers resulting in them spending less money with us.

Our customers are all involved, directly or indirectly, in the delivery of goods from one point to another, particularly transportation providers and freight forwarders. As the costs of these deliveries become more expensive, whether as a result of increases in fuel costs or otherwise, our customers may have fewer funds available to spend on our products and services. While it is possible that the demand for our products and services will increase as companies look for ways to reduce fleet size and fuel use and recognize that our products and services are designed to make their deliveries more cost-efficient, there can be no assurance that these companies will be able to allocate sufficient funds to use our products and services. In addition, rising fuel costs may cause global or geographic-specific reductions in the number of shipments being made, thereby impacting the number of transactions being processed by our Global Logistics Network and our corresponding network revenues.

We may not be able to compensate for downward pricing pressure on certain products and services by increased volumes of transactions or increased prices elsewhere in our business, ultimately resulting in lower revenues.

Some of our products and services are sold to industries where there is downward pricing pressure on the particular product or service due to competition, general industry conditions or other causes. We may attempt to deal with this pricing pressure by committing these customers to volumes of activity so that we may better control our costs. In addition, we may attempt to offset this pricing pressure by securing better margins on other products or services sold to the customer, or to other customers elsewhere in our business. If we cannot offset any such downward pricing pressure, then the particular customer may generate less revenue for our business or we may have less aggregate revenue. This could have an adverse impact on our operating results.

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The general cyclical and seasonal nature of our business may have a material adverse effect on our business, results of operations and financial condition.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the cyclical and seasonal nature of the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation or the freight market in general include legal and regulatory requirements, timing of contract renewals between our customers and their own customers, seasonal-based tariffs, vacation periods applicable to particular shipping or receiving nations, weather-related events that impact shipping in particular geographies and amendments to international trade agreements. Since some of our revenues from particular products and services are tied to the volume of shipments being processed, adverse fluctuations in the volume of global shipments or shipments in any particular mode of transportation may adversely affect our revenues. There can be no assurance that declines in shipment volumes in the US or internationally won’t have a material adverse effect on our business.

We may have exposure to greater than anticipated tax liabilities or expenses.

We are subject to income and non-income taxes in various jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Although we believe that our estimates are reasonable and that we have adequately provided for income taxes based on all of the information that is currently available to us, tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. We have recorded a valuation allowance for all but $30.2 million of our net deferred tax assets. If we achieve a consistent level of profitability, the likelihood of further reducing our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our jurisdictions will increase. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during subsequent years. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. Any further changes to the valuation allowance for our deferred tax assets would also result in an income tax recovery or income tax expense, as applicable, on the consolidated statements of operations in the period in which the valuation allowance is changed. In addition, when we reduce our deferred tax valuation allowance, we will record income tax expense in any subsequent period where we use that deferred tax asset to offset any income tax payable in that period, reducing net income reported for that period, perhaps materially.

Changes to earnings resulting from past acquisitions may adversely affect our operating results.

Under business combination accounting standards, we allocate the total purchase price to an acquired company’s net tangible assets, intangible assets and in-process research and development based on their values as of the date of the acquisition (including certain assets and liabilities that are recorded at fair value) and record the excess of the purchase price over those values as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges that would adversely affect our operating results and may adversely affect our cash flows:

• Impairment of goodwill or intangible assets;

• A reduction in the useful lives of intangible assets acquired;

• Identification of assumed contingent liabilities after we finalize the purchase price allocation period;

• Security breaches;

• Charges to our operating results to eliminate certain pre-merger activities that duplicate those of the acquired company or to reduce our cost structure; or

• Charges to our operating results resulting from revised estimates to restructure an acquired company’s operations after we finalize the purchase price allocation period.

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Routine charges to our operating results associated with acquisitions include amortization of intangible assets, in-process research and development as well as other acquisition related charges, restructuring and stock-based compensation associated with assumed stock awards. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities.

We expect to continue to incur additional costs associated with combining the operations of our acquired companies, which may be substantial. Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated stock-based compensation expenses and severance payments, reorganization or closure of facilities, taxes, and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease our net income and earnings per share for the periods in which those adjustments are made.

In December 2007, the FASB issued SFAS 141R, “Business Combinations”. SFAS 141R is effective for us beginning in fiscal 2010, which began on February 1, 2009. As described more fully in Note 18 to our consolidated financial statements for 2009, the adoption of SFAS 141R on February 1, 2009 resulted in a retrospective adjustment to our consolidated financial statements for the year ended January 31, 2009, relating to acquisition related costs which were previously deferred under the provisions of SFAS 141, “Business Combinations”. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition.

If our common share price decreases to a level such that the fair value of our net assets is less than the carrying value of our net assets, we may be required to record additional significant non-cash charges associated with goodwill impairment.

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (‘SFAS 142”), which we adopted effective February 1, 2002. SFAS 142, among other things, requires that goodwill be tested for impairment at least annually. We have designated October 31 as the date for our annual impairment test. Although the results of our testing on October 31, 2008 indicated no evidence of impairment, should the fair value of our net assets, determined by our market capitalization, be less than the carrying value of our net assets at future annual impairment test dates, we may have to recognize goodwill impairment losses in our future results of operations. This could impair our ability to achieve or maintain profitability in the future. We updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009.

Fair value assessments of our intangible assets required by GAAP may require us to record significant non-cash charges associated with intangible asset impairment.

Significant portions of our assets, which include customer agreements and relationships, non-compete covenants, existing technologies and trade names, are intangible. We amortize intangible assets on a straight-line basis over their estimated useful lives, which are generally three to five years. We review the carrying value of these assets at least annually for evidence of impairment. In accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”, an impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Future fair value assessments of intangible assets may require impairment charges to be recorded in the results of operations for future periods. This could impair our ability to achieve or maintain profitability in the future.

System or network failures or breaches in connection with our services and products could reduce our sales, impair our reputation, increase costs or result in liability claims, and seriously harm our business.

Any disruption to our services and products, our own information systems or communications networks or those of third-party providers upon whom we rely as part of our own product offerings, including the Internet, could

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result in the inability of our customers to receive our products for an indeterminate period of time. Our services and products may not function properly for reasons, which may include, but are not limited to, the following:

• System or network failure;

• Interruption in the supply of power;

• Virus proliferation;

• Security breaches;

• Earthquake, fire, flood or other natural disaster; or

• An act of war or terrorism.

Although we have made significant investments, both internally and with third-party providers, in redundant and back-up systems for some of our services and products, these systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers. Any disruption to our services could impair our reputation and cause us to lose customers or revenue, or face litigation, necessitate customer service or repair work that would involve substantial costs and distract management from operating our business.

From time to time, we may be subject to litigation or dispute resolution that could result in significant costs to us and damage to our reputation.

From time to time, we may be subject to litigation or dispute resolution relating to any number or type of claims, including claims for damages related to undetected errors or malfunctions of our services and products or their deployment, claims related to previously-completed acquisition transactions or claims relating to applicable securities laws. A product liability, patent infringement, acquisition-related or securities class action claim could seriously harm our business because of the costs of defending the lawsuit, diversion of employees’ time and attention, and potential damage to our reputation.

Further, our services and products are complex and often implemented by our customers to interact with third-party technology or networks. Claims may be made against us for damages properly attributable to those third-party technologies or networks, regardless of our lack of responsibility for any failure resulting in a loss - even if our services and products perform in accordance with their functional specifications. We may also have disputes with key suppliers for damages incurred which, depending on resolution of the disputes, could impact the ongoing quality, price or availability of the services or products we procure from the supplier. While our agreements with our customers, suppliers and other third-parties may contain provisions designed to limit exposure to potential claims, these limitation of liability provisions may not be enforceable under the laws of some jurisdictions. As a result, we could be required to pay substantial amounts of damages in settlement or upon the determination of any of these types of claims, and incur damage to the reputation of Descartes and our products. The likelihood of such claims and the amount of damages we may be required to pay may increase as our customers increasingly use our services and products for critical business functions, or rely on our services and products as the systems of record to store data for use by other customer applications. Although we carry general liability and directors and officers insurance, our insurance may not cover potential claims, or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

We could be exposed to business risks in our international operations that could cause our operating results to suffer.

While our headquarters are in North America, we currently have direct operations in both Europe and China. We anticipate that these international operations will continue to require significant management attention and financial resources to localize our services and products for delivery in these markets, to develop compliance expertise relating to international regulatory agencies, and to develop direct and indirect sales and support channels in those markets. We face a number of risks associated with conducting our business internationally that could negatively impact our operating results. These risks include, but are not limited to:

• Longer collection time from foreign clients, particularly in the Asia Pacific region;

• Difficulty in repatriating cash from certain foreign jurisdictions;

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• Language barriers, conflicting international business practices, and other difficulties related to the management and administration of a global business;

• Difficulties and costs of staffing and managing geographically disparate direct and indirect operations;

• Currency fluctuations and exchange and tariff rates;

• Multiple, and possibly overlapping, tax structures and a wide variety of foreign laws;

• Trade restrictions;

• The need to consider characteristics unique to technology systems used internationally;

• Economic or political instability in some markets; and

• Other risk factors set out in this report.

We may not remain competitive. Increased competition could seriously harm our business.

The market for supply chain technology is highly competitive and subject to rapid technological change. We expect that competition will increase in the future. To maintain and improve our competitive position, we must continue to develop and introduce in a timely and cost effective manner new products, product features and network services to keep pace with our competitors. We currently face competition from a large number of specific entrants, some of which are focused on specific industries, geographic regions or other components of markets we operate in.

Current and potential competitors include supply chain application software vendors, customers that undertake internal software development efforts, value-added networks and business document exchanges, enterprise resource planning software vendors, regulatory filing companies, and general business application software vendors. Many of our current and potential competitors may have one or more of the following relative advantages:

• Longer operating history;

• Greater financial, technical, marketing, sales, distribution and other resources;

• Lower cost structure and more profitable operations;

• Superior product functionality and industry-specific expertise;

• Greater name recognition;

• Broader range of products to offer;

• Better performance;

• Larger installed base of customers;

• Established relationships with existing customers or prospects that we are targeting; and/or

• Greater worldwide presence.

Further, current and potential competitors have established, or may establish, cooperative relationships and business combinations among themselves or with third parties to enhance their products, which may result in increased competition. In addition, we expect to experience increasing price competition and competition surrounding other commercial terms as we compete for market share. In particular, larger competitors or competitors with a broader range of services and products may bundle their products, rendering our products more expensive and/or less functional. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.

If we are unable to generate broad market acceptance of our services, products and pricing, serious harm could result to our business.

We currently derive substantially all of our revenues from our supply chain services and products and expect to do so in the future. Broad market acceptance of these types of services and products, and their related pricing, is therefore critical to our future success. The demand for, and market acceptance of, our services and products is subject to a high level of uncertainty. Some of our services and products are often considered complex and may involve a new approach to the conduct of business by our customers. The market for our services and products may weaken, competitors may develop superior services and products, or we may fail to develop acceptable

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services and products to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations and financial condition.

Our success and ability to compete depends upon our ability to secure and protect patents, trademarks and other proprietary rights.

We consider certain aspects of our internal operations, our products, services and related documentation to be proprietary, and we primarily rely on a combination of patent, copyright, trademark and trade secret laws and other measures to protect our proprietary rights. Patent applications or issued patents, as well as trademark, copyright, and trade secret rights, may not provide adequate protection or competitive advantage and may require significant resources to obtain and defend. We also rely on contractual restrictions in our agreements with customers, employees, outsourced developers and others to protect our intellectual property rights. There can be no assurance that these agreements will not be breached, that we have adequate remedies for any breach, or that our patents, copyrights, trademarks or trade secrets will not otherwise become known. Moreover, the laws of some countries do not protect proprietary intellectual property rights as effectively as do the laws of the US and Canada. Protecting and defending our intellectual property rights could be costly regardless of venue. Through an escrow arrangement, we have granted some of our customers a contingent future right to use our source code for software products solely for internal maintenance services. If our source code is accessed through an escrow, the likelihood of misappropriation or other misuse of our intellectual property may increase.

Claims that we infringe third-party proprietary rights could trigger indemnification obligations and result in significant expenses or restrictions on our ability to provide our products or services.

Competitors and other third-parties have claimed, and in the future may claim, that our current or future services or products infringe their proprietary rights or assert other claims against us. Many of our competitors have obtained patents covering products and services generally related to our products and services, and they may assert these patents against us. Such claims, whether with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from focusing on our core business.

As a result of such a dispute, we may have to pay damages, incur substantial legal fees, suspend the sale or deployment of our services and products, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would increase our expenses and could decrease the functionality of our services and products, which would make our services and products less attractive to our current and/or potential customers. We have agreed in some of our agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties. If we are required to make payments pursuant to these indemnification agreements, it could have a material adverse effect on our business, results of operations and financial condition.

Our results of operations may vary significantly from quarter to quarter and therefore may be difficult to predict or may fail to meet investment community expectations.

Our results of operations may vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Such factors include, but are not limited to:

• The termination of any key customer contracts, whether by the customer or by us;

• Recognition and expensing of deferred tax assets;

• Legal costs incurred in bringing or defending any litigation with customers and third-party providers, and any corresponding judgments or awards;

• Legal and compliance costs incurred to comply with Canadian and US regulatory requirements;

• Fluctuations in the demand for our services and products;

• Price and functionality competition in our industry;

• Timing of acquisitions and related costs;

• Changes in legislation and accounting standards;

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• Fluctuations in foreign currency exchange rates;

• Our ability to satisfy contractual obligations in customer contracts and deliver services and products to the satisfaction of our customers; and

• Other risk factors discussed in this report.

Although our revenues may fluctuate from quarter to quarter, significant portions of our expenses are not variable in the short term, and we may not be able to reduce them quickly to respond to decreases in revenues. If revenues are below expectations, this shortfall is likely to adversely and/or disproportionately affect our operating results.

Our common share price has in the past been volatile and may also be volatile in the future.

The trading price of our common shares has in the past been subject to wide fluctuations and may also be subject to fluctuation in the future. This may make it more difficult for you to resell your common shares when you want at prices that you find attractive. Increases in our common share price may also increase our compensation expense pursuant to our existing director, officer and employee compensation arrangements. Fluctuations in our common share price may be caused by events unrelated to our operating performance and beyond our control. Factors that may contribute to fluctuations include, but are not limited to:

• Revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;

• Changes in recommendations or financial estimates by industry or investment analysts;

• Changes in management or the composition of our board of directors;

• Outcomes of litigation or arbitration proceedings;

• Announcements of technological innovations or acquisitions by us or by our competitors;

• Introduction of new products or significant customer wins or losses by us or by our competitors;

• Developments with respect to our intellectual property rights or those of our competitors;

• Fluctuations in the share prices of other companies in the technology and emerging growth sectors;

• General market conditions; and

• Other risk factors set out in this report.

If the market price of our common shares drops significantly, shareholders could institute securities class action lawsuits against us, regardless of the merits of such claims. Such a lawsuit could cause us to incur substantial costs and could divert the time and attention of our management and other resources from our business.

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EX-99.5

NOTICE TO READERS

This Renewal Annual Information Form (“Renewal AIF”) dated April 25, 2009 reflects amendments to the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on April 30, 2009.

This Renewal AIF has been amended to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). Our consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (the “fiscal 2009 consolidated financial statements”) have been adjusted to reflect this retrospective adoption of SFAS 141R (the “adjusted fiscal 2009 statements”) and the adjusted fiscal 2009 statements have been filed on SEDAR on the date hereof.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to our adjusted fiscal 2009 statements. We have made corresponding changes in this Renewal AIF to reflect the effect of retrospectively adopting SFAS 141R.

This Renewal AIF does not otherwise reflect events or developments subsequent to April 25, 2009.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

RENEWAL ANNUAL INFORMATION FORM

                                                                                                                                                        

APRIL 25, 2009

THE DESCARTES SYSTEMS GROUP INC.

Corporate Headquarters

120 Randall Drive

Waterloo, Ontario N2V 1C6

Canada

Phone:	(519) 746-8110
	(800) 419-8495
Fax:	(519) 747-0082

info@descartes.com

www.descartes.com

TABLE OF CONTENTS

ITEM 1 – GENERAL	............................................................2
ITEM 2 – CORPORATE STRUCTURE	............................................................3
2.1 The Company	......................................................3
2.2 Intercorporate Relationships	......................................................3
ITEM 3 – GENERAL DEVELOPMENT OF THE BUSINESS	............................................................3
3.1 Profile	......................................................3
3.2 History and General Development	......................................................5
3.3 Trends	......................................................9
ITEM 4 – NARRATIVE DESCRIPTION OF THE BUSINESS	............................................................9
4.1 Company Overview	......................................................9
4.2 Principal Products and Services	......................................................10
4.3 Revenue Sources	......................................................16
4.4 Customer Base	.....................................................16
4.5 Sales and Marketing	.....................................................16
4.6 Research and Development	.....................................................17
4.7 Competition	.....................................................18
4.8 Intellectual Property and Other Proprietary Rights	.....................................................19
4.9 Contracts	.....................................................19
4.10 Employees	.....................................................20
4.11 Risks Associated with Foreign Sales and Exchange Rate Fluctuations	......................................................20
4.12 Risks Associated with Cyclical or Seasonal Aspects of the Business	......................................................21
4.13 Reorganizations	......................................................21
4.14 Code of Business Conduct and Ethics	......................................................21
ITEM 5 – RISK FACTORS	..........................................................21
ITEM 6 – MARKET FOR SECURITIES AND RELATED SECURITYHOLDER MATTERS	..........................................................22
6.1 Common Shares	......................................................22
6.2 Transfer Agent and Registrar	......................................................22
6.3 Dividend Policy	......................................................22
6.4 Market for Common Shares	......................................................22
6.5 Shareholders Rights Plan	......................................................22
ITEM 7 – DIRECTORS AND EXECUTIVE OFFICERS	..........................................................23
7.1 Summary Information	.....................................................23
7.2 Committees of the Board of Directors	.....................................................26
7.3 Certain Relationships and Related Transactions	.....................................................27
ITEM 8 – EXTERNAL AUDITORS	..........................................................27
ITEM 9 – LEGAL PROCEEDINGS	..........................................................28
ITEM 10 – ADDITIONAL INFORMATION	..........................................................28
APPENDIX “A” – Charter for the Audit Committee of the Board of Directors	..........................................................29
APPENDIX “B” – Pre-Approval Policy and Procedure for Engagements of the Independent Auditor	..........................................................36

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ITEM 1 GENERAL

Information contained herein is provided as at January 31, 2009 and is in United States (“US”) dollars, unless otherwise indicated.

Our Renewal Annual Information Form (“AIF”) contains references to The Descartes Systems Group Inc. using the words “Descartes,” “Company,” “we,” “us,” “our” and similar words and the reader is referred to using the words “you,” “your” and similar words.

The AIF also refers to our fiscal years. Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our fiscal year, which ended on January 31, 2009, is referred to as the “current fiscal year,” “fiscal 2009,” “2009” or using similar words. Our previous fiscal year, which ended on January 31, 2008, is referred to as the “previous fiscal year,” “fiscal 2008,” “2008” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, 2010 refers to the annual period ending January 31, 2010 and the “fourth quarter of 2010” refers to the quarter ending January 31, 2010.

This AIF is prepared as of April 25, 2009. You should read the AIF in conjunction with our audited consolidated financial statements for 2009 and the management’s discussion and analysis thereon (“MD&A”). We prepare and file our consolidated financial statements and MD&A in US dollars and in accordance with US generally accepted accounting principles (“GAAP”).

We have prepared the AIF with reference to Form 51-102F2, which sets out the AIF disclosure requirements and which was established under National Instrument 51-102 “Continuous Disclosure Obligations” of the Canadian Securities Administrators.

Additional information about us, including copies of our continuous disclosure materials such as our MD&A, is available on our website at www.descartes.com, through the EDGAR website at www.sec.gov or through the SEDAR website at www.sedar.com.

Certain statements made in this AIF, including, but not limited to, statements relating to business trends; the basis for any future growth and for our financial performance; research and development and related expenditures; product and solution developments, enhancements and releases and the timing thereof; our building, development and consolidation of our network infrastructure; competition and changes in the competitive landscape; our management and protection of intellectual property and other proprietary rights; foreign sales and exchange rate fluctuations; cyclical or seasonal aspects of our business; our dividend policy; capital expenditures; our continued use of Blake, Cassels & Graydon LLP as legal counsel; and potential legal proceedings and our liability under current legal proceedings, constitute forward-looking information for the purposes of applicable securities laws (“forward-looking statements”). When used in this document, the words “believe,” “plan,” “expect,” “anticipate,” “intend,” “continue,” “may,” “will,” “should,” or the negative of such terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are not limited to, the global economic crisis; cancellation of key customer contracts; disruption in the movement of freight; changes in regulations affecting global trade; making and integrating acquisitions; greater than anticipated tax liabilities or expenses; the cyclical and seasonal nature of our business; downward pricing pressure; increases in fuel prices and transportation costs; our ability to attract and retain key personnel; the sufficiency and availability of capital; foreign currency rates; differences between preliminary and final purchase price allocations; significant non-cash charges; our failure to meet investment community expectations; volatility of our stock price; risks of international operations; failure of our products to achieve market acceptance or to compete; system or network failures or breaches; our failure to protect our intellectual property or our infringement of third party intellectual property; litigation; our history of losses; and the factors discussed under the heading “Certain Factors That May Affect Future Results” appearing in the MD&A, which is included in our Annual Report to the Shareholders for fiscal 2009. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price

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of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statements are based.

ITEM 2 CORPORATE STRUCTURE

2.1 The Company

Descartes was continued under the Canada Business Corporations Act on July 5, 2006. On July 31, 2006, Descartes was amalgamated under the Canada Business Corporations Act pursuant to an amalgamation between Descartes and ViaSafe Inc. (“ViaSafe”). Our head office and registered office is located at 120 Randall Drive, Waterloo, Ontario N2V 1C6 and our general corporate phone number is (519) 746-8110.

2.2 Intercorporate Relationships

We beneficially own, control and/or direct 100% of all voting, share or membership interests in our material subsidiaries. Our material subsidiaries, determined as at January 31, 2009, are as follows:

• Descartes Systems (USA) LLC, a Delaware subsidiary;

• Descartes U.S. Holdings, Inc., a Delaware subsidiary;

• Flagship Customs Services, Inc, a Maryland subsidiary; and

• Descartes Systems Group AB, a Swedish subsidiary.

ITEM 3 GENERAL DEVELOPMENT OF THE BUSINESS

3.1 Profile

We are a global provider of on-demand, software-as-a-service (“SaaS”) logistics technology solutions that help our customers make and receive shipments. Using our technology solutions, companies can reduce costs, save time, comply with industry regulations and enhance the service that they deliver to their own customers. Our technology-based solutions, which consist of services and software, connect people to their trading partners to enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route planning and wireless dispatch; inventory and asset visibility; rate management; transportation management; and warehouse optimization. Our pricing model provides our customers with flexibility in purchasing our solutions on either a license or a subscription basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), third party intermediaries (including third-party logistics providers, freight forwarders and customs house brokers) and distribution-sensitive companies where delivery is either a key or a defining part of their own product or service offering, or where there is an opportunity to reduce costs and improve service levels by optimizing the use of their assets.

The Market

Supply chain management has been evolving over the past several years as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated, end-to-end solutions that combine business document exchange and mobile resource management applications (MRM) with supply chain execution management (SCEM) applications, such as transportation management, routing and scheduling, and inventory visibility.

We believe logistics-intensive organizations are seeking new ways to differentiate themselves, drive efficiencies to offset escalating operating costs, maximize asset utilization and improve margins that are trending downward. Existing global trade and transportation processes are often manual and complex to manage. This is a

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consequence of the growing number of business partners participating in companies’ global supply chains and a lack of standardized business processes.

Additionally, global sourcing, logistics outsourcing and changes in day-to-day requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment gets delayed at the border, a customer changes an order or a breakdown occurs on the road, there are more and more issues that can significantly impact the status of fulfillment schedules and associated costs.

These challenges are heightened for suppliers that have end customers frequently demanding narrower order-to-fulfillment time frames, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers are also increasingly asking for real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.

In this market, manual and fragmented logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly for the majority of organizations. Further, these solutions do not provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. The rate of adoption of newer logistics technology is evolving, but a disproportionate number of organizations still have manual business processes. This presents an opportunity for logistics technology providers to help customers improve efficiencies in their operations.

As the market continues to change, we have been evolving to meet our customers’ needs. We have been educating our prospects and customers on the value of connecting to trading partners through our logistics network and automating, as well as standardizing, business processes. Our customers are increasingly looking for a single source, web-based solution provider who can help them manage the end-to-end shipment process – from the booking of the move of a shipment, to the tracking of that shipment as it moves, to the regulatory compliance filings to be made during the move and, finally, the settlement and audit of the invoice relating to that move.

Additionally, regulatory initiatives mandating electronic filing of shipment information with customs authorities require companies who move freight by air, ocean or truck to automate their processes to remain compliant and competitive. Our customs compliance technology helps shippers, transportation providers, freight forwarders and other logistics intermediaries securely and electronically file shipment information with customs authorities and self-audit their own efforts. Our technology also helps carriers and freight forwarders efficiently coordinate with customs brokers to expedite cross-border shipments. While many compliance initiatives started in the US, compliance is quickly becoming a global issue with international shipments crossing several borders on the way to their final destination. With this in mind, in October 2008, we acquired Dexx bvba (“Dexx”), a Belgium-based customs filing and logistics messaging provider, to strengthen our Global Logistics Network regulatory filing solutions in the European market.

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Our Solutions – The Global Logistics Network

Our solutions are offered to three principal identified customer groups: (a) transportation providers and logistics service providers (such as third-party logistics providers and customs brokers) (collectively, “LSPs”); (b) manufacturers, retailers and distributors (“MRDs”); and (c) government agencies. These customer groups are served by our Global Logistics Network, one of the world’s largest multimodal electronic networks focused on moving and processing information relevant to transportation providers, their trading partners and regulatory agencies.

Our Global Logistics Network provides a messaging backbone for exchange of logistics information between trading partners across a spectrum of technical sophistication: from paper documents, to electronic document interchange (“EDI”) documents, to wireless data exchange. We also offer value-added services over our Global Logistics Network to solve specific logistics-related business issues that our customers face, such as the tracking of a shipment or vehicle, compliance with regulatory initiatives, the ordering of transportation services or the auditing of transportation invoices. Our customers can purchase our value-added services one-at-a-time, or combine several value-added services as a part of their end-to-end, real-time supply chain solution. This gives our customers an opportunity to add supply chain services and capabilities as their business needs grow and change.

Transportation companies and LSPs typically use our Global Logistics Network to manage their end-to-end shipment lifecycle, optimize fleet performance, track shipments and vehicles, comply with regulatory requirements, expedite cross-border shipments and/or connect and communicate with their trading partners.

MRD enterprises use our Global Logistics Network to reduce operating costs, efficiently use assets and decrease lead-time variability for their deliveries and regional operations. For MRD enterprises that have private fleets, our solutions arm the customer service departments with information about the location, availability and scheduling of vehicles so they can provide better information to their own clients. Our solutions for MRD enterprises are differentiated by combining the power of our Global Logistics Network messaging framework, both for historical EDI and mobile/wireless communication, with advanced route planning, route execution and transportation management systems.

Government agencies use our Global Logistics Network and sophisticated logistics applications to connect to the trade community to gather information about domestic and international shipments to complete statistical analysis, protect borders and ensure compliance with tax and duty regulations.

The value-added services delivered over our Global Logistics Network are designed on a component-based architecture. This enables us to offer many of our applications to customers either hosted by us or hosted by the customer behind its own firewall. Our flexible pricing model offers customers the opportunity to either purchase solutions on a subscription basis or license solutions for their own installation.

3.2 History and General Development

Our origins are in providing logistics-focused software designed to optimally plan and manage routes for direct delivery and retail customers with private fleets. Over the past several years, supply chain management has been changing, as companies across industry verticals are increasingly seeking real-time control of their supply chain activities. We have moved to a network-based business model and technology which we refer to as the Global Logistics Network to assist our customers in gathering and exchanging source data for logistics. We have also designed value-added services that enable shippers, transportation companies and logistics intermediaries to use that information to make better business decisions and deliver better service to their own customers.

Our business has generally developed over the last three fiscal years as follows:

2009 and 2010 through to April 25, 2009

In 2009 we reported net income of $20.2 million, which included an $11.7 million net, non-cash, deferred income tax recovery. This recovery was comprised of a $14.5 million reduction in our valuation allowance for deferred

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tax assets in the fourth quarter of 2009, less $2.8 million that was used to offset 2009 US and Sweden taxable income. This recovery arose because we determined that it was more likely than not that, in future periods, we would use a portion of our tax loss carryforwards to offset taxable income in certain jurisdictions, including Canada, Netherlands and Australia.

On October 1, 2008 we acquired 100% of the outstanding shares of Dexx, a Belgium-based European customs filing and logistics messaging provider. Dexx’s customs offerings help shippers, cargo carriers and freight forwarders manage the movement and submission of customs filings and messages to a number of customs authorities. In addition to customs services, Dexx manages the Brucargo Community System (BCS), the cargo community system at Brussels airport. BCS provides a comprehensive range of electronic information exchange between airlines, integrators, general sales agents, forwarding agents, ground handlers, truckers and shippers, as well as customs and other governmental bodies. The purchase price for this acquisition was approximately $1.7 million in cash and an additional $0.1 million in transactional costs.

On December 3, 2008, we announced that the Toronto Stock Exchange (the "TSX") had approved the purchase by us of up to an aggregate of 5,244,556 Descartes common shares pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or the NASDAQ Stock Exchange (the "NASDAQ"), if and when we consider advisable.

On February 5, 2009 we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our Global Logistics Network and extended our customs compliance solutions. Oceanwide's logistics business (“Oceanwide”) is focused on a web-based, hosted SaaS model that we believe is ideal for customs brokers and freight forwarders who choose to outsource rather than procure or manage traditional enterprise applications behind their own firewalls. Oceanwide provides solutions for the following: customs filing, including new 10+2 compliant advanced manifest solutions; automated customs broker interfaces (“ABI”); trade compliance; and logistics management software. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition, net of working capital received, was approximately $8.4 million in cash plus transaction costs.

On March 11, 2009, we completed the acquisition of all of the shares of Scancode Systems Inc. (“Scancode). Scancode provides its customers with a system that provides up-to-date shipment rates that allow the customer to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. We believe that Scancode’s strength is in helping to manage small parcel shipments with postal services, courier carriers and over 150 less-than-truckload carriers. Scancode also has supporting warehouse and automated data collection functionality. The purchase price for this acquisition, net of working capital received, was approximately $6.5 million in cash plus transaction costs.

2008

In March 2007, we announced that we had acquired certain assets of Ocean Tariff Bureau Inc. (“OTB”) and Blue Pacific Services, Inc. (“Blue Pacific” and, together with OTB, the “OTB Acquisition”), both based in Long Beach, California. OTB provides tariff filing and publishing services to ocean intermediaries involved in the shipping of cargo into or out of US waters. Blue Pacific helps these same types of companies secure surety bonds required to ship cargo into or out of US waters. We paid $1.0 million in cash at closing, with up to an additional $0.85 million in cash payable over the 2.5 year period following closing, dependent on the financial performance of the acquired assets.

In April 2007, Ms. Stephanie Ratza joined Descartes as Chief Financial Officer, replacing Mr. Brandon Nussey who had left to pursue an opportunity with a private technology company.

On April 26, 2007, we closed a bought deal public share offering in Canada that raised gross proceeds of CAD$25.0 million (equivalent to approximately $22.3 million at the time of the transaction) from a sale of 5,000,000 common shares at a price of CAD$5.00 per share. The underwriters also exercised an over-allotment

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option on April 26, 2007 to purchase an additional 200,000, 400,000 and 150,000 common shares (in aggregate, 15% of the offering) at CAD$5.00 per share from Descartes, Mr. Arthur Mesher (our Chief Executive Officer) and Mr. Edward Ryan (our Executive Vice President, Global Field Operations), respectively. Gross proceeds to us from the exercise of the over-allotment option were CAD$1.0 million (equivalent to approximately $0.9 million at the time of the transaction). In addition, we received an aggregate of approximately CAD$1.1 million (equivalent to approximately $1.0 million at the time of the transaction) in proceeds from Mr. Mesher’s and Mr. Ryan’s exercise of employee stock options to satisfy their respective obligations under the over-allotment option.

In May 2007, Mr. Ryan was promoted to Executive Vice President, Global Field Operations. Mr. Ryan was formerly General Manager, Global Logistics Network. We also announced that Gregory Cronin, Executive Vice President, Sales and Marketing, had resigned to pursue an executive role with a private US company.

On June 26, 2007, we announced that technology industry veteran Michael Cardiff had been appointed to our Board of Directors.

On August 17, 2007, we acquired GF-X, a global leader for electronic freight booking in the air cargo industry based in London, U.K. GF-X added electronic air freight booking capability to our Global Logistics Network to enable us to help our customers manage the entire air cargo shipment lifecycle. GF-X’s offering includes a comprehensive, on-line cargo reservation system where air carriers and freight forwarders can complete electronic air cargo bookings. Many of the world’s leading carriers and forwarders use GF-X’s products in major airfreight markets worldwide, including American Airlines, Air France, British Airways, Delta Air Lines, DHL, Kühne + Nagel, Lufthansa, and Panalpina. In support of the acquisition, several key air cargo carriers and freight forwarders extended their customer commitments to use GF-X’s products and services. The purchase price for this acquisition included approximately $9.2 million in cash and approximately 0.5 million Descartes common shares valued at $1.7 million at the time of the acquisition. Additional purchase price of up to $5.2 million in cash was payable if certain performance targets, primarily related to revenues, were met by GF-X over the four-year period ending in August 2011. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011. We also incurred $2.2 million of acquisition-related costs comprised of $1.0 million in transactional expenses, primarily professional fees, and $1.2 million of exit costs and involuntary employee termination benefits.

On December 20, 2007, we acquired RouteView Technologies, Inc. (“RouteView”), a provider of technology solutions in a recurring revenue model to help small- and medium-sized organizations manage their delivery operations. RouteView’s map-based routing software combines with wireless, GPS and automated call-out technology to help numerous customers, particularly in the home delivery and distribution industries, with a comprehensive delivery management solution. The purchase price for this acquisition was approximately $3.5 million in cash, which included an earn-out amount that was paid post-closing based on RouteView achieving established revenue targets.

On January 9, 2008, we acquired Pacific Coast Tariff Bureau Inc. (“PCTB”) for approximately $2.1 million in cash. For over 60 years, PCTB has provided tariff and contract publishing services to leading ocean carriers, non-vessel operating common carriers (“NVOCCs”) and shippers to help them comply with US regulations for domestic and foreign shipping trades. PCTB also provides technology solutions to its customers to help them manage ocean contracts and apply the correct freight rates to bills of lading for ocean shipments.

On January 10, 2008, we acquired the fleet management business formerly known as “Mobitrac” from privately-held Fluensee, Inc. for approximately $0.7 million in cash. The Mobitrac business includes a software-as-a-service, routing and scheduling technology.

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2007

In February 2006, Gregory Cronin joined our management team as Executive Vice President, Business Development & Corporate Strategy. In March 2006, global logistics industry veteran David Beatson joined our Board of Directors. In February 2006, John Albright resigned from our Board of Directors.

On March 21, 2006, we closed a bought-deal share offering in Canada which raised gross proceeds of CAD$14,940,000 (equivalent to approximately $12.9 million at the time of the transaction) from the sale of 3,600,000 common shares at a price of CAD$4.15 per share. The co-lead underwriters for the offering were GMP Securities L.P. and TD Securities Inc. The underwriters exercised an over-allotment option on March 27, 2006 to purchase an additional 540,000 common shares (15% of the offering) at CAD$4.15 per share for gross proceeds of CAD$2,241,000 (equivalent to approximately $1.9 million at the time of the transaction). Once expenses associated with the offering were deducted, including an underwriting fee of 4.5%, total net proceeds to us were approximately $13.6 million. We used the net proceeds of the offering for general corporate purposes, funding a portion of the purchase prices of ViaSafe Inc. (“ViaSafe”) and Flagship Customs Services, Inc. (“FCS”), and for working capital.

On April 7, 2006, we acquired Ottawa-based ViaSafe, a privately-held provider of SaaS to help carriers, customs brokers and LSPs across all modes of transportation negotiate increasingly complex document exchange requirements brought about by new international security initiatives and tightened borders. We paid $7.3 million in cash, issued 307,799 common shares valued at approximately $1.1 million for accounting purposes; and incurred approximately $0.5 million in costs directly attributable to the acquisition. We also assumed ViaSafe’s employee stock option plan pursuant to which outstanding unvested options converted to options to purchase 140,000 Descartes common shares.

On June 30, 2006, we acquired Maryland-based FCS, an on-demand technology provider that helps shippers, transportation providers, freight forwarders and other logistics intermediaries securely and electronically file shipment information with customs authorities, such as US Customs and Border Protection (“CBP”) and the Canadian Border Services Agency. FCS also operates the US Census Bureau's AESDirect service for electronic filing of export information. To acquire FCS, we paid $25.3 million in cash; issued approximately 1.1 million common shares valued at $4.4 million for accounting purposes; and incurred approximately $0.5 million in costs directly attributable to the acquisition.

In September 2006, Gregory Cronin, former Executive Vice President, Business Development and Corporate Strategy, was appointed Executive Vice President, Sales and Marketing. Chris Jones, former Executive Vice President, Solutions and Markets, was appointed Executive Vice President, Solutions and Services. We announced that Mark Weisberger, former Executive Vice President, Field Operations, had left Descartes to pursue other opportunities.

On December 6, 2006, we acquired certain assets of privately-held Cube Route, Inc., which provided on-demand logistics management solutions that included planning, routing, sequencing and optimizing of delivery routes, real-time driver and vehicle tracking, and delivery route analysis. We acquired specified accounts receivable, prepaid accounts, customer contracts and prospects, capital assets, trade and service names, technology and other intellectual property. We paid approximately $1.6 million in cash, assumed certain liabilities and incurred $0.4 million in transactional expenses.

3.3 Trends

Rapid technological change and frequent new product introductions and enhancements characterize the software and network services industries – particularly for logistics management technology companies. Organizations are increasingly requiring greater levels of functionality and more sophisticated product offerings. Accordingly, we expect that our future success will be dependent upon our ability to enhance current products or develop and introduce new products offering enhanced performance and functionality at competitive prices. In particular, we

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believe customers are looking for end-to-end solutions that combine business document exchange and wireless MRM applications with end-to-end SCEM applications, such as transportation management, routing and scheduling and inventory visibility. We believe that there is also growing acceptance of subscription pricing and SaaS business models that create more affordable options.

The continued global reliance on global trade creates a need to comply with new and stricter security and customs regulations which sometimes mandate electronic logistics messaging. Our business may be impacted as regulations affecting domestic and international trade are introduced, modified or repealed. In 2006, US CBP launched its e-manifest initiative requiring trucks entering the US to file an electronic manifest through its Automated Commercial Environment (“ACE”), providing the CBP with an advance electronic notice of the contents of the truck. Such filings are now mandatory at land ports of entry into the US. Similar filings are required for ocean vessels and airplanes at US air and sea ports. CBP has implemented enhancements to this ACE e-manifest initiative, called “10 + 2” enhancements, that require additional data and filings to be provided to CBP in calendar 2010, starting with ocean shipments. We have various customs compliance services specifically designed to help air, ocean and truck carriers comply with this ACE e-manifest initiative and have recently launched our 10 + 2 solution and acquired additional 10+2 solutions and customers as part of our acquisition of Oceanwide’s logistics business. If the roll-out of these initiatives continues as scheduled and compliance is rigidly enforced by CBP, then we anticipate that our revenues will be positively impacted in 2010. A similar e-manifest initiative is being developed for Canada by the Canadian Border Service Agency and may be effective and enforced in calendar 2010.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation, or the freight market in general, include legal and regulatory requirements; timing of contract renewals between our customers and their own customers; seasonal-based tariffs; vacation periods applicable to particular shipping or receiving nations; weather-related events or natural disasters, that impact shipping in particular geographies; availability of credit to support shipping operations; economic downturns, and amendments to international trade agreements. As many of our services are sold on a “per shipment” basis, we anticipate that our business will continue to reflect the general cyclical and seasonal nature of shipment volumes with our third quarter being the strongest quarter for shipment volumes (compared to our first quarter being the weakest quarter for shipment volumes).

ITEM 4 NARRATIVE DESCRIPTION OF THE BUSINESS

4.1 Company Overview

We are a global provider of on-demand, SaaS logistics technology solutions that help our customers make, track and receive shipments. Using our technology solutions, companies can reduce costs, save time, comply with regulations and enhance the service that they deliver to their own customers. Our technology-based solutions, which consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route planning and wireless dispatch; inventory and asset visibility; rate management; transportation management; and warehouse optimization. Our pricing model provides our customers with flexibility in purchasing our solutions on either a license or an on-demand basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), LSPs, MRDs and government agencies.

4.2 Principal Products & Services

In 2009, we enhanced our current solutions and added additional applications through acquisition to support our Global Logistics Network solutions. We provide three main categories of services: (a) Global Logistics Network Services; (b) consulting, implementation and training services; and (c) customer support and maintenance services.

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a) Global Logistics Network Services

Our Global Logistics Network is a multimodal network of transportation providers and their customers that facilitates the interchange of logistics information and provides value-added services that leverage that information. The Global Logistics Network helps companies better manage their logistics book-to-bill process, track inventory, meet regulatory requirements, optimize fleet performance, manage deliveries and effectively communicate with their logistics partners. Our Global Logistics Network services can be principally categorized as: (i) Logistics Messaging Services; (ii) Rate Management Services; (iii) Regulatory and Compliance Services; (iv) Shipment Booking, Tracking and Settlement Services; and (v) Delivery Management Services.

(i) Logistics Messaging Services

The Global Logistics Network features multimodal messaging services that simplify cargo and freight management by providing electronic services to the cargo industry and to companies who engage in import, export and domestic transportation activities. Our Logistics Messaging Services provide a secure and reliable transaction exchange for retailers, suppliers and vendors, plus connectivity services that include trading partner ramp-up programs, data standards and protocol conversion, transportation-specific document compliance, audit and error checking, and archiving. We have several services that help our customers:

Descartes LogiMan™

Descartes LogiMan solution simplifies cargo management by providing comprehensive global visibility and statistical monitoring services of air, road and ocean freight shipments. It links the cargo transportation chain from cargo booking to final delivery confirmation, helping to improve freight management efficiency, reduce costs for participants and improve customer responsiveness.

Descartes CargoAssist (formerly Descartes PC Pro™)

Freight forwarders use Descartes CargoAssist, an electronic forwarding system, to improve freight booking, send electronic waybills and ensure that consignments are handled quickly and efficiently at freight terminals around the world. We provide freight forwarders with access to an electronic infrastructure that connects them with their customers and logistics partners.

Descartes Turnaround Documents™ andDescartes eForms™

Our Turnaround Documents service provides a way to move data from one document into another to reduce data entry time and errors, as well as enable improved visibility to orders as they move through the logistics process. Turnaround Documents collects data from underlying logistics documents in the Global Logistics Network, such as a purchase order, and turns it into an editable “webform” that lets internal teams as well as suppliers and buyers populate and respond with the relevant information. Descartes eForms is an email-based forms service for the Global Logistics Network designed to allow less technologically sophisticated transportation carriers and manufacturers to easily transmit or receive messages.

Descartes Message Quality Monitor™

Descartes Message Quality Monitor uses the power of the Global Logistics Network to connect to major airlines and monitor the message flow to and from a back-office system. We display error messages and “received” status events, enabling users to take immediate action for any discrepancies.

Descartes Data Integrity Services™

Descartes Data Integrity Services monitors messages and their delivery continuously to identify and report errors. Once an error is identified, we contact trading partners and coordinate the correction and re-submission of inaccurate data. The service also provides periodic summary reports by trading partner, message type and error type.

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Descartes Cargo 2000™

Descartes Cargo 2000 allows users to monitor shipments at a master air waybill level from airport to airport, assisting users in complying with the International Air Transport Association’s (“IATA”) Cargo 2000 certification process. Information provided by the system includes quality report compilation, shipment status, exception alerts, route map creation, and departure time reporting. This information enables better decision-making for fulfilling customer expectations and ensures standardized processes for improved service levels.

(ii) Descartes Rate Management

Many factors go into bottom-line calculations of rates, including inland charges, fuel adjustments and currency conversions. Our web-enabled solutions and services help transportation providers make better pricing decisions, get faster quotes to their customers to close more business, enhance contract management processes and improve customer satisfaction levels. A centralized rate database lets customers access contractual commitments to make better decisions about shipment fulfillment processes, including booking/tendering acceptance and routing. The services include the following:

Descartes Rate Builder™

Descartes Rate Builder is an on-demand solution that helps carriers and NVOCCs manage global rates, contracts and rate agreements more efficiently and meet regulatory obligations. Descartes Rate Builder enables companies to create, revise, store and distribute rates via the internet. Once they are generated, Descartes Rate Builder stores all rates in a central database with controlled access privileges. Carriers can designate a “contract owner” who can allow multiple users to contribute during the drafting of a new contract or amendment. NVOCCs can effectively manage a global rate network and help enable LSPs to create and manage both buy-side and sell-side rates digitally; enforce a standardized global pricing policy; and implement a global rate request process.

Descartes WebSimon™ andMyWebSimon™

Designed to help ocean carriers use the Internet to securely manage their own rate (pricing) information across a global enterprise, Descartes WebSimon enables companies to retrieve ocean transportation rules, inland charges, locations, service contracts, rates and all related surcharges. Users can look up a rate for a specific ocean movement, and any additional connected rail or road movements. They can also determine the cost associated with the movement and save, forward, or print the results. MyWebSimon, a branded extension of Descartes WebSimon, is intended for use by the carrier’s customers via the carrier’s own web site. It offers functionality similar to WebSimon and enables the carrier to showcase its own logo and screen colors, with our solution serving as the behind-the-scenes technology enabler. WebSimon and MyWebSimon also allow users to create booking requests online.

Descartes Ocean Freight Audit™

We help eliminate the manual audit processes for ocean freight invoices with our Ocean Freight Audit solution. The solution takes bills of lading messages and automatically audits them against the digitized ocean contracts in Descartes Rate Builder.

 

(iii) Descartes Regulatory & Compliance Services

 

Our Regulatory & Compliance serviceshelp companies meet regulatory requirements for international shipments for international customs agencies and security initiatives. Some of the requirements supported include US CBP’s Automated Export System; CBP’s Automated Manifest System; in-bond shipment details; and the Advance Commercial Information reporting for the Canadian Border Services Agency. We offer different methods to transmit shipment information to customs authorities or the carriers, which helps to ensure the smooth delivery of cargo as it moves through ports and airports, and ultimately to the customer.

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Descartes Automated Manifest Service™

For carriers, freight forwarders, NVOCCs and shippers, our Automated Manifest Service offers a solution to enable firms to comply with US and Canadian customs security initiatives. To accommodate customers’ varying technical capabilities, we offer options that range from a user-friendly webform that permits manual entry of cargo manifest information to a tightly integrated system-to-system EDI connection.

Descartes Customs Compliance™

Descartes Customs Compliance provides customs compliance services to assist transportation providers and LSPs with imports and/or exports to Canada, the US, India and the Netherlands. With our recent acquisition of ViaSafe and FCS, the Global Logistics Network now offers an enhanced range of services to help carriers and LSPs negotiate increasingly complex document exchange requirements brought about by new international security initiatives and tightened borders. In addition, Descartes Customs Compliance services enable customs brokers to receive electronic manifests and invoices from carriers so the manifest can be mapped to the Canadian and US customs release systems.

Descartes Importer Security Filing™

Descartes Importer Security Filing helps carriers, shippers and customs brokers easily and electronically manage shipment information and comply with US customs requirements to electronically submit shipment information for inbound ocean cargo.

Descartes Ocean Compliance™

Descartes Ocean Compliance helps ocean carriers comply with Federal Maritime Commission requirements, and also helps manage the rate information for cargo that moves according to the terms of a privately-negotiated service contract or NVOCC Service Arrangement rather than the public rates of a tariff.

Descartes Electronic In-Bond™

Specifically for carriers, Descartes Electronic In-Bond helps transmit the necessary advance electronic cargo information to the US CBP regarding inbound shipments prior to their arrival in the US. Using approved EDI protocols for the transmission of advance cargo information, we help carriers complete the requirements for filing, and receive in-bond movement authorization within minutes instead of hours or even days.

Descartes EDItrade Customs Link

EDItrade Customs Linkallows custom brokers and self-filing importers to collect data and prepare it for US customs automated broker interface (ABI) entries, including post-entry compliance and supportive modules, to make the process easier and more transparent.

Descartes EDItrade Compliance

EDItrade Complianceenables the importer/exporter community to complete necessary audits, correct data, keep a modification history and report on the data integrity necessary to remain compliant with US customs laws.

 

(iv) Shipment Booking, Tracking and Settlement Services

 

Descartes Bookings and Reservations

Descartes’ centralized booking portals provide visibility into rates, contracts, and shipment details from global locations to enable more informed decision-making and contract development. Carriers can distribute product, routing, capacity and rate information to forwarders 24/7 in real-time, while forwarders can access carrier information and make electronic bookings via a simple web browser.

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Integration of cost tables with contracts also allows for deeper analysis to improve asset utilization and overall margins. Additionally, our host-to-host service enables forwarders to execute bookings from within their own in-house system. Descartes Bookings and Reservations services include the Descartes Global Freight Exchange and Descartes CargoBooker.

Descartes Local Haulage

Descartes Local Haulage helps logistics intermediaries automate the load tendering, proof-of-delivery and invoice settlement processes. We help companies connect their carriers for the electronic transfer and receipt of transportation documents. Information is captured and stored to help manage the transportation processes and capture necessary data to automate the audit and approval of freight invoices for payment.

Descartes Multimodal Track & Trace™

Descartes Multimodal Track & Trace allows LSPs to understand the current status of shipments. We help companies contact their carriers and enable the electronic receipt of shipment status details. Status information is available for viewing and reporting via a web browser, and customers can brand their web sites to offer a custom tracking solution for their customers.

Descartes ForwarderLogic

ForwarderLogic provides comprehensive back-office functionality and real-time information exchange for LSPs handling all modes (air, ocean, truck, and inland/international import and export shipments), from purchase orders all the way to warehousing and final delivery.

Descartes Visibility & Event Management

Descartes Visibility & Event Management connects companies to their customers' order management systems to manage purchase orders, acknowledgements and shipping documents. Details are captured within the Descartes Visibility & Event Management database, which provides access to line-item details and updated status information.

 

(v) Delivery Management Services

 

Descartes’ Delivery Management services integrate design, planning, execution, performance management and messaging solutions that help our MRD customers and their LSPs to optimize inbound and outbound delivery performance. The suite helps address business challenges including the following: (1) strategic planning; (2) warehouse optimization; (3) daily planning; (4) reservations; (5) transportation management; (6) supply chain visibility; (7) mobile solutions; (8) reporting and measuring; (9) on-demand logistics; and (10) sales and merchandiser management.

(1) Strategic Planning:Descartes Sales & Territory Planner™

For strategic delivery planning, Descartes Sales & Territory Planner performs complex service scheduling that simultaneously considers daily, weekly and multi-week deliveries, as well as holidays and other non-working days. It also evaluates geographic distribution and sales potential for each customer to help establish optimal territories and routes. Factors considered include minimizing travel time and related costs, and balancing opportunities across members of the sales team. Additional parameters such as stops, miles and sales volume can also be used to help determine routes and route schedules for sales, delivery or both.

(2) Warehouse Optimization:Descartes DC Optimizer™

Descartes DC Optimizer includes a powerful warehouse organization simulation tool that helps explore “what- if” scenarios of warehouse layouts and slotting decisions before committing to big changes and the costs associated with them.

(3) Daily Planning:Descartes Route Planner™ andDescartes Route Planner RS™

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As each new order is placed, our Daily Planning solutions re-optimize in real-time, allocating resources to help maximize operating efficiencies, deliver priority service to the most profitable accounts and routes; and maintain overall customer service objectives. Our Daily Planning solutions are designed to integrate with existing order management or transportation planning systems, and can help companies reduce costs as a result of shorter routes, reduced fuel consumption and enhanced fleet utilization.

(4) Reservations:Descartes Reservations™ and Descartes Dock Appointment Scheduling™

Descartes Reservations facilitates on-line scheduling of deliveries or service — either for self-service or as a decision support tool for customer service agents. It helps companies to effectively tailor service to the demands of key customers while helping to achieve internal profitability goals. Descartes Reservations also confirms that requests can be met and locks in the appointment, making Descartes Reservations an effective capable-to-promise tool.

Descartes Dock Appointment Scheduling is a collaborative solution that enables shippers, carriers and consignees to schedule dock door appointments. It streamlines the dock appointment process by distributing the responsibility for scheduling from the warehouse to carriers and suppliers. By ensuring all supply chain partners are involved in the process and have visibility into requested, scheduled and rescheduled dock appointments, this solution optimizes receiving operations for inbound shipments to a warehouse.

(5) Transportation Management:Descartes Transportation Manager™

Descartes Transportation Manager facilitates efficient planning and execution of shipping and warehouse activities at multiple touch-points in the distribution process. It helps logistics managers, shippers and third parties simultaneously evaluate shipment alternatives to find efficient shipping methods. It is a solution that scales from the loading dock to the enterprise, providing up-to-date rates that allow the customer to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. The addition of the Scancode transportation management system to Descartes’ Transportation Manager provides capability to manage small parcel shipments with postal services, a variety of small-package delivery carriers and over 150 less-than-truckload carriers. It optimizes transportation purchases for both operational effectiveness and cost efficiency, and helps answer tough questions such as: “How can I effectively use all of my carrier contracts?”; “Who is the most suitable carrier in this mode to handle my shipment?”; “What shipments can I combine to lower my costs?”; and, “What combination methods should I use - aggregation, multi-stop routes or pooling?”

(6) Supply Chain Visibility:Descartes Visibility & Event Management™ andDescartes Turnaround Documents™

Descartes Supply Chain Visibility solutions help improve logistics efficiency by assisting companies in foreseeing order failures before they happen. Companies can achieve line-item level visibility across multiple modes of transportation by connecting to trading partners; systematically sharing data in the form of electronic messages such as purchase orders acknowledgements, advanced shipment notices and carrier status/proof of delivery; and monitoring the order process using alerts to flag potential order failures and enable proactive resolution.

(7) Mobile Solutions:Descartes MobileLink, Descartes Dispatch™, Descartes Dispatch RS™, Descartes Automated Vehicle Locator (“AVL”)

Descartes MobileLink provides integrated two-way wireless communication and passive monitoring capabilities for enhanced logistics execution. By combining route planning and a free flow of information between dispatchers and the field, Descartes MobileLink extends the traditional route planning process and provides real-time visibility into the execution of the plan. Descartes Dispatch facilitates the assignment and execution of multiple or same-day pick-ups and deliveries. Descartes AVL helps improve customer responsiveness through real-time status updates, forward predictability and enhanced exception alerting, which can reduce the need to track every aspect of a schedule and instead emphasize the implications of service interruptions and exceptions.

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(8) Reporting and Measuring:Descartes Reporting Services and Descartes KPI Metrics

Descartes Reporting Services helps companies create and distribute reports within an organization or to suppliers, vendors, sub-contractors or carriers. It provides a simple, secure way to create customized delivery statistics and metrics. It can help simplify the creation and management of supply chain scorecards and, as a byproduct, can help identify best practices.

(9) On-Demand Logistics

Descartes On-Demand Logistics application provides transportation and distribution organizations with a hosted software-as-a-service routing, planning and asset tracking to lower their operating costs, improve customer service and reduce operational complexity. Offered on a pay-as-you-go subscription basis, the on demand logistics solution provides routing, planning and tracking capabilities for a lower total cost of ownership. The solution also enables organizations to cost effectively manage and achieve visibility into the entire delivery process including sequencing and planning routes for optimal efficiency, track drivers in real-time, and analyze and apply historical data to boost operational performance.

(10) Descartes Sales and Merchandiser Management

Descartes’ Sales and Merchandiser Management enables resource planning, route building and optimization, and tracking across delivery operations and mobile workforces, including sales representatives, territory managers and merchandisers. Descartes Sales and Merchandiser Management facilitates weekly activity planning, delivery status visibility for merchandisers and sales representatives, actual miles driven and in-store time calculation, and consolidated performance reporting for management, the merchandiser and sales representatives. Performance data can be uploaded to corporate payroll and expense reporting systems to ensure appropriate payments are being made for resource performance.

(b) Consulting, Implementation and Training Services

Our consultants provide a variety of professional services to customers. These services include project management and consulting services to assist in configuration, implementation and deployment of our solutions. We offer a variety of site-specific technical and consulting services to assist in all phases of the implementation process. We also provide assistance in integrating our products with the customer's existing software. In addition, we offer training services that provide customers with a formalized program to ensure that applications are implemented and utilized in an efficient and cost-effective manner.

(c) Customer Service and Support and Maintenance

We provide worldwide support to our customers through our central support center. Customer support is available 24-hours-a-day, 7-days-per-week via telephone, fax or email.

4.3 Revenue Sources

We generate our revenues from sales of each of the services and products identified in the previous section, which are sometimes sold on a stand-alone basis and sometimes sold in bundles of services and products. As such, we do not measure our revenues by the particular services or products referenced above. Instead, we measure our revenue performance based on whether the customer is buying a license to our technology, or is buying technology services or other services from us. Based on this, our revenues are measured in the following two categories: (a) services revenues, composed of (i) ongoing transactional fees for use of our services and products by our customers; (ii) professional services revenues from consulting, implementation and training services related to our services and products; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products; and (b) license revenues derived from licenses to our customers to use our software products.

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The following table sets forth our revenue sources for the fiscal years ended January 31, 2009 and 2008:

Revenues	Fiscal year ended January 31
	2009		2008
	Amount (US dollars in millions)	Percentage of Total Revenues	Amount (US dollars in millions)	Percentage of Total Revenues
Services	$61.0	92%	$54.5	92%
License	5.0	8%	4.5	8%
Total revenues	$66.0	100%	$59.0	100%

4.4 Customer Base

Our customers are globally diverse, located in the Americas, Europe, Middle East and Africa (“EMEA”) and Asia Pacific regions. Customers range from small- and medium-sized enterprises to established “blue-chip” leaders across a variety of industry verticals. We have a large customer base of transportation carriers, third-party logistics providers, freight forwarders, non-vessel operating common carriers and customs brokers. Other customers include government customs and census agencies, manufacturers, retailers, consumer products suppliers, distributors, and companies in industries such as healthcare, pharmaceuticals and oil and gas.

For the fiscal year ended January 31, 2009, 60% of our revenues were derived from the Americas, excluding Canada, 13% were derived from Canada, 25% were derived from EMEA and the remaining 2% of revenues were derived from the Asia Pacific region.

4.5 Sales and Marketing

(a) Sales Force

Our sales force is expected to sell across our solutions, targeting specific industry verticals and geographies. At present, we sell most of our products and services through a direct sales team that is focused primarily on the North American and EMEA markets, with particular expertise and business contacts in the targeted verticals. Channel partners, such as distributors and value-added resellers, play a central role in our strategy to address global customers, particularly in the Asia Pacific region and in Latin America with our Delivery Management solutions. As at January 31, 2009, we employed a total of 41 individuals in sales and marketing and had relationships with approximately 20 distributors and resellers.

We are headquartered in Waterloo, Ontario, Canada, with additional representative offices in Toronto, Ontario, Ottawa, Ontario and Montreal, Quebec. Our primary representative offices in the United States are in Atlanta, Georgia; Miami, Florida; and Pittsburgh, Pennsylvania. In Europe, our primary representative offices are in Stockholm, Sweden and London, United Kingdom. In Asia Pacific, our primary representative office is in Shanghai, China.

(b) Strategic Marketing Alliances

We also form strategic alliances with various companies in different geographic markets, in different industries and for different products with the goal of expanding our market base. Typically, an alliance participant will market our products in certain geographic and vertical markets and refer customers to us, in exchange for a fee in respect of new customers generated by the alliance participant. Additionally, we have established several working relationships with telecommunication companies, management consulting firms, and complementary hardware and software firms.

4.6 Research and Development

We believe that our future success depends in large part on our ability to maintain and enhance our current product lines. Accordingly, we invest in product development to ensure that sufficient resources are focused on developing new products or enhancing our existing products. We believe that such expenditures are critical to our

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success. In the year ended January 31, 2009, we incurred research and development expenses of approximately $11.5 million, or approximately 17% of our annual consolidated revenues for 2009.

We have made substantial investments in research and development over the last several years. We believe that our growth and future financial performance will depend in part on our ability to enhance existing applications, develop and introduce new applications that keep pace with technological advances, meet changing customer requirements, respond to competitive products and achieve market acceptance.

Our research and development program requires a high degree of detail in business analysis, network operations and design, technical design, and quality assurance. Particular expertise in solving operations research or logistics problems is a benefit to us, as is practical experience in dealing with the day-to-day challenges that our customers face in dealing with logistics providers and deliveries in general. We believe that we are well positioned to address our needs internally; however, we continue to evaluate potential new employees to help us expand or expedite our development processes as needed.

To build applications, we have implemented an application development process based on whether the application is being deployed over a network (software-as-a-service) or is being locally deployed by customers. For our SaaS applications delivered to our customers over our own proprietary Global Logistics Network, we have adopted an approach centered on frequent, smaller application updates. With the application in our own, known environment and technology infrastructure, we are able to minimize development time otherwise needed to accommodate the myriad of platforms that an application may be used over. Using this approach, most of our Global Logistics Network applications and messaging frameworks were updated in 2009, including development and implementation of a single sign-on framework to the Global Logistics Network, logistics messaging archiving functionality, content-based routing rules, advancements to Descartes Cargo Booker, introduction of remote-query functionality to Descartes’ Global Freight Exchange for air freight, Descartes Cargo2000 messaging enhancements and continued broadening of Descartes Transportation Manager. In addition, we were able to develop new applications and document exchange frameworks for the Global Logistics Network, including an importer security filing application to assist with compliance with new US regulations for pre-notification for ocean shipments, as well as support for the Canadian Border Service Agency’s Advanced Commercial Information for highway shipments.

For our locally-deployed applications, we have adopted an approximate six-month release cycle. The cycle requires one month for solution analysis and design, three months for building, one month for review and quality assurance testing, and one month for packaging the application and training our pre-sales and post-sales representatives. Using this six-month release schedule, most generally available products and solutions were enhanced in 2009, including Descartes Rate Builder, Descartes Route Planner, On-Demand Routing and Transportation Manager.

We currently plan to provide one or more releases for our generally available products in 2010 in alignment with the release schedules outlined above. Enhancements not yet generally commercially available are in internal alpha and beta testing. Once our internal testing is complete and, where applicable, additional testing is done with beta customers, we will release the enhancements for general commercial use. We estimate that the costs for these additional activities will not be significant in comparison to our historical expenditures on research and development activities.

We continue to build and develop our network infrastructure to enhance our delivery of services to our customers. We are actively executing our internal ‘One Networked Enterprise’ initiative whereby we are consolidating legacy network infrastructure acquired as part of previous acquisition activities. We anticipate continuing this initiative through 2010, including the advancement of additional integration activities resulting from adding our 2008 and 2009 acquisitions to the ‘One Networked Enterprise’ initiative.

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4.7 Competition

Although we have experienced limited competition to-date from companies with broad application suites with comparable capabilities, the market for our applications is nevertheless highly competitive and subject to rapid technological change. As such, we expect competition to increase in the future. On an application-by-application basis, especially in markets where similar technology has been available for some time, such as routing software and value-added networks, we do experience competition from established vendors. However, we have found that our particular expertise in solving complex logistics problems on a network basis has enabled us to remain competitive. On a geographic basis, we experience competition from both multinational companies and local competitors. We face some disadvantage in entering new markets where competitors may have existing solutions with user interfaces that are advanced in local language presentation. To maintain and improve our competitive position on a global basis, we continue to develop and introduce new applications with the functionality to be easily adapted to local user interface needs (either by Descartes or its distributors in a particular region).

We compete or may compete, directly or indirectly, with the following: (i) application software vendors positioned as supply chain execution and other vendors, such as i2 Technologies, Inc.; (ii) internal development efforts by corporate information technology departments; (iii) middleware vendors that provide integration software, such as Software AG (formerly Webmethods, Inc.); (iv) application software vendors, including enterprise resource planning software vendors who may expand their current offerings into supply chain network service offerings, some of whom may from time to time jointly market our products as a complement to their own systems, such as SAP AG and Oracle Corporation; (v) other business application software vendors, including supply chain planning software vendors that may broaden their product offerings by internally developing, or by acquiring or partnering with, independent developers of supply chain network solutions, particularly on the execution (rather than planning) side, such as JDA Software Group Inc. and Manhattan Associates, Inc.; (vi) other value-added network messaging networks, such as Global eXchange Services, Inc., Kleinschmidt Incorporated and Traxon AG; (vii) cargo booking portals, such as Cargo Portal Services operated by Unisys Corporation, INTTRA and GT Nexus; and (vii) other customs compliance solution providers. We also expect to face additional competition as other established and emerging companies enter the market for supply chain network solutions and new products and technologies are introduced. In addition, current and potential competitors may make strategic acquisitions or establish co-operative relationships among themselves or with third parties, thereby increasing the ability of their products to address the needs of our prospective customers.

We believe the principal competitive factors affecting the market for our solutions include vendor and product reputation; expertise and experience in implementing products in the customer's industry sector; product architecture, functionality and features; cost of ownership; ease and speed of implementation; customer support; product quality, price and performance; and product attributes such as flexibility, scalability, compatibility, functionality and ease of use. In order to be successful in the future, we believe we must continue to respond promptly and effectively to technological change and competitors' innovations.

4.8 Intellectual Property and Other Proprietary Rights

We believe our success depends significantly on our proprietary technology. We rely primarily on a combination of patent, copyright, trademark and trade secret laws, license agreements, non-disclosure agreements and other contractual provisions to establish, maintain and protect our proprietary rights in our products and technology. Some registered forms of protection, such as patents, copyright and trademark registrations, have a limited period of protection determined by the applicable law governing the registration. Other contractual forms of protection, such as license and non-disclosure agreements, have a limited contractual period of protection. The source codes and routing algorithms for our applications and technology are protected both as trade secrets and as unregistered copyrighted works with indefinite periods of protection. We currently have one US patent for technology used in our dynamic vehicle routing application and have another US patent, based on a patent that has been issued to us in the Netherlands, for certain technological processes contained in our network architecture, each with a limited period of protection determined by the applicable laws governing the patents. We have registered or applied for registration of certain trademarks and service marks with limited periods of protection, and will continue to evaluate the registration of additional trademarks and service marks as appropriate.

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We also utilize certain other software technologies, such as geographic data, shipping rate data, translation applications and business intelligence applications that we license from third parties, generally on a non-exclusive basis, including software that is integrated with internally developed software and used in our products to perform key functions. These third party licenses generally require the payment of royalties based on sales of the product in which the technology is used.

Our network customers may use electronic logistics information generated by the customer, or by third parties on behalf of the customer, in connection with the customer’s use of our network services. Our customers are responsible for procuring and paying for the generation of such electronic logistics information and the right to use such electronic logistics information in connection with our network services.

4.9 Contracts

(a) Customer Contracts

We license our software products to our customers primarily by way of written license agreements. The license agreements specify the applicable terms and restrictions of use of the software, the terms and conditions of any enrolment by the customer in our software maintenance program, and the applicable fees to be paid by the customer.

We provide our supply chain services to our customers primarily by way of written subscription agreement. The subscription agreement sets out the applicable terms and restrictions on use of the service, the length of time the customer can use the service, and the applicable fees to be paid by the customer. Typically, these subscription agreements renew at a customer’s option and, in some cases, are subject to earlier termination by the customer on appropriate notice.

We depend on our installed customer base for a significant portion of our revenues. We have contracts with our license customers for ongoing support and maintenance, as well as service contracts that provide recurring services revenues to us. An example would be our contract to operate the US Census Bureau’s Automated Export System (AESDirect). In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. In 2007, for example, we lost certain customers who generated significant recurring revenues due to customers cancelling contracts for legacy ocean products. In 2010, we expect to lose $3 million in annual recurring revenues from departing services customers in addition to the normal 3% annual revenue attrition we plan for. We can provide no assurance that we will not lose additional customers in the future or be able to replace any lost revenues.

If our customers fail to renew their service contracts, fail to purchase additional services or products, or consolidate contracts with acquired companies, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, and changes in our customers’ business or in regulation impacting our customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenues losses. Our business may also be unfavorably affected by market trends impacting our customer base, such as consolidation activity in our customer base.

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(b) Outsourcing Contracts

We deliver some of our supply chain services over our proprietary networks, which are hosted by commercial hosting and co-location providers such as Nocom AB, Q9 Networks Inc. and SunGuard Availability Services Inc. These hosting and co-location contracts, on which we are substantially dependent as they relate to the delivery of our network services, typically contemplate services to be provided for a term at a defined service level, with applicable rights of termination and renewal. We typically pay monthly fees under these contracts, some of which are based on the volume of network activity flowing through the hosting provider. If any of these contracts were terminated without our consent, we could incur substantial costs in migrating to an alternate hosting provider. In such an event, the costs and related management effort could materially adversely affect our operating results and the service that we provide to our customers.

4.10 Employees

As at January 31, 2009, the Company employed 374 full-time staff. Of the 374 employees, 158 of the individuals were engaged in customer service roles (which includes customer support, activations and implementation services), 98 were in research and development roles, 41 were engaged in sales and marketing roles, 38 in network and product support roles and 39 were in general administration roles. Geographically, 327 employees were located in North America, 40 were located in Europe, and 7 were located in the Asia Pacific region.

4.11 Risks Associated with Foreign Sales and Exchange Rate Fluctuations

In 2009, sales outside of the Americas accounted for approximately 27% of our total revenues. Our international revenues are subject to risks associated with foreign sales, including longer collection times from foreign customers (particularly in the Asia Pacific region), difficulty in repatriating cash from foreign jurisdictions, unexpected changes in legal and regulatory requirements, export restrictions, changes in tariffs, exchange rates and other trade barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in management of distributors or representatives, difficulties in staffing and managing foreign operations, difficulties in protecting our intellectual property, seasonality of sales, language issues and potentially adverse tax consequences. There can be no assurance that any of these factors will not have a material adverse effect on our business, results of operations and financial condition.

To date, our international revenues have been denominated primarily in US dollars. However, the majority of our international expenses, including the wages of our non-US employees and certain key supply agreements, have been denominated in currencies other than the US dollar. Therefore, changes in the value of the US dollar as compared to these other currencies may materially affect our operating results. We generally have not implemented hedging programs to mitigate our exposure to currency fluctuations affecting international accounts receivable, cash balances and inter-company accounts. We also have not hedged our exposure to currency fluctuations affecting future international revenues and expenses and other commitments. Accordingly, currency exchange rate fluctuations have caused, and may continue to cause, variability in our foreign currency denominated revenue streams, expenses, and our cost to settle foreign currency denominated liabilities. In particular, we incur a significant portion of our expenses in Canadian dollars relative to the amount of revenue we receive in Canadian dollars, so fluctuations in the Canadian-US dollar exchange rate, and in particular, the weakening of the US dollar, could have a material adverse effect on our business, results of operations and financial condition.

4.12 Risks Associated with Cyclical or Seasonal Aspects of Business

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation, or the freight market in general, include legal and regulatory requirements; timing of contract renewals between our customers and their own customers; seasonal-based tariffs; vacation periods applicable to particular shipping or receiving nations; weather-related events or natural disasters that impact shipping in particular geographies; availability of credit to support shipping operations; economic downturns, and amendments to international trade agreements. As many of our services are

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sold on a “per shipment” basis, we anticipate that our business will continue to reflect the general cyclical and seasonal nature of shipment volumes with our third quarter being the strongest quarter for shipment volumes (compared to our first quarter being the weakest quarter for shipment volumes).

4.13 Reorganizations

In 2009, 2008 and 2007, we completed various integration and reorganization activities in connection with our acquisitions of ViaSafe, FCS, Cube Route, the OTB Acquisition, GF-X, Dexx and other acquisitions, including eliminating redundant management positions and canceling certain ongoing operating contracts.

4.14 Code of Business Conduct and Ethics

Our Board of Directors has adopted our Code of Business Conduct and Ethics (the “Code”) applicable to our directors, officers and employees. A copy of the Code is available on our website at www.descartes.com and has been filed on and is accessible through SEDAR at www.sedar.com.  The Code sets out in detail the core values and principles by which the Corporation is governed and addresses topics such as: honest and ethical conduct; conflicts of interest; compliance with applicable laws and our policies and procedures; public disclosure and books and records; use of corporate assets and opportunities; confidentiality of corporate information; reporting responsibilities and procedures; health and safety; and non-retaliation.

ITEM 5 RISK FACTORS

Reference is made to the section entitled “Certain Factors That May Affect Future Results” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2009 Annual Report for the year ended January 31, 2009, made available to all of our shareholders and filed with various securities regulators, which section is incorporated herein by reference. This information is available on the SEDAR website at www.sedar.com and on the EDGAR website at www.sec.gov.

ITEM 6 MARKET FOR SECURITIES AND RELATED SECURITYHOLDER MATTERS

6.1 Common Shares

We are authorized to issue an unlimited number of common shares for unlimited consideration. The common shares are not redeemable or convertible. Each common share carries the right to receive notice of and one vote at a meeting of shareholders; the right to participate in any distribution of our assets on liquidation, dissolution or winding up; and the right to receive dividends if, as and when declared by the Board of Directors. As at April 25, 2009 there were 53,036,527 common shares outstanding. The common shares are listed on the TSX under the symbol “DSG” and listed on NASDAQ under the symbol “DSGX”.

On December 3, 2008, we announced that the TSX had approved the purchase by us of up to an aggregate of 5,244,556 Descartes common shares pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or the NASDAQ, if and when we consider advisable. As of April 25, 2009, we had not made any purchases pursuant to the normal course issuer bid.

6.2 Transfer Agent and Registrar

The register of transfers of common shares is located in the offices of our stock transfer agent: Computershare Investor Services, Inc., 100 University Avenue, Toronto, Ontario, Canada, M5J 2Y1.

6.3 Dividend Policy

We have not paid any dividends on our common shares to date. We may consider paying dividends on our common shares in the future when operational circumstances permit, having regard to, among other things, our earnings, cash flow and financial requirements as well as relevant legal and business considerations.

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6.4 Market for Common Shares

Please see the following table that identifies the marketplaces on which our common shares trade, as well as the

monthly price ranges and volume traded on each exchange:

	Common Shares - TSX		Common Shares – NASDAQ
Month	Price Range (Cdn. $)	Average Volume	Price Range (US$)	Average Volume
February 2008	$4.10 - 3.43	54,100	$3.86 - 3.53	8,500
March 2008	$3.86 - 3.37	171,500	$3.86 - 3.37	26,100
April 2008	$3.94 - 3.56	48,100	$3.90 - 3.50	11,700
May 2008	$3.91 - 3.45	117,100	$4.03 - 3.42	11,900
June 2008	$3.97 - 3.13	135,900	$3.94 - 3.11	29,400
July 2008	$3.64 - 2.91	96,200	$3.63 - 2.91	6,900
August 2008	$3.94 - 3.35	47,500	$3.67 - 3.20	8,200
September 2008	$4.33 - 3.50	165,700	$4.18 - 3.28	10,600
October 2008	$3.95 - 2.49	266,900	$3.69 - 2.10	14,500
November 2008	$3.90 - 2.75	75,800	$3.34 - 2.17	17,300
December 2008	$3.98 - 3.28	76,200	$3.33 - 2.51	12,000
January 2009	$3.60 - 3.21	84,400	$3.03 - 2.55	9,900

6.5 Shareholder Rights Plan

On November 29, 2004, our board of directors approved a shareholder rights plan (the “Rights Plan”) which was approved by the TSX and was originally approved by our shareholders on May 18, 2005. The primary objectives of the Rights Plan are to ensure that, in the context of an unsolicited bid for control of the Company through an acquisition of our common shares, the following occurs: (i) the board of directors of the Company has sufficient time to explore and develop alternatives for maximizing shareholder value; (ii) there is adequate time for competing bids to emerge; (iii) shareholders have an equal opportunity to participate in such a bid; (iv) shareholders are provided with adequate time to properly assess the bid; and (v) the reduction in the pressure to tender which may be encountered by a shareholder in the course of a bid. The Rights Plan creates a right that attaches to each present and subsequently issued common share. Until the separation time, which typically occurs at the time of an unsolicited takeover bid, whereby an offeror (including persons acting jointly or in concert with the offeror) acquires or attempts to acquire 20% or more of our common shares, the rights are not separable from the common shares, are not exercisable and no separate rights certificates are issued. Each right entitles the holder, other than the 20% offeror, from and after the separation time and before expiration times, to acquire one of our common shares at 50% of the market price at the time of exercise. The Rights Plan must be reconfirmed by shareholders every three years. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

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ITEM 7 DIRECTORS AND EXECUTIVE OFFICERS

7.1 Summary Information

The following table sets forth the name, location of residence and office held by each of our executive officers and directors as at April 25, 2009. Each director is elected at the annual meeting of shareholders or appointed pursuant to the provisions of our by-laws and applicable laws to serve until the next annual meeting or until a successor is elected or appointed, subject to earlier resignation by the director. We do not have an Executive Committee.

Name and Location of Residence	Office Held
J. Ian Giffen(1)(3)(4) Toronto, Ontario, Canada	Director, Chairman of the Board
David I. Beatson(1)(2) Hillsborough, California, U.S.A.	Director
Michael Cardiff(1)(2) Toronto, Ontario, Canada	Director
Chris Hewat(3) Toronto, Ontario, Canada	Director
Arthur Mesher Waterloo, Ontario, Canada	Director, Chief Executive Officer
Dr. Stephen Watt(2)(3)(4) London, Ontario, Canada	Director
Chris Jones Atlanta, Georgia, U.S.A.	Executive Vice President, Solutions & Services
J. Scott Pagan Cambridge, Ontario, Canada	Executive Vice President, Corporate Development, General Counsel & Corporate Secretary
Stephanie Ratza Waterloo, Ontario, Canada	Chief Financial Officer
Edward J. Ryan Fort Washington, Pennsylvania, U.S.A.	Executive Vice President, Global Field Operations

Notes:

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Corporate Governance Committee.

(4) Member of the Nominating Committee

Information about each of our directors and executive officers, including his or her respective principal occupation during at least the five years preceding January 31, 2009, are as follows:

J. Ian Giffen is our Chairman of the Board and has been a member of our Board of Directors since March 2004. Since 1996, he has been a consultant and advisor to and director of software companies and technology investment funds. From January 1992 to January 1996, Mr. Giffen was Vice President and Chief Financial Officer at Alias Research, a developer of 3D graphics software. Mr. Giffen is currently a director of publicly-traded Absolute Software Corporation (TSX:ABT), MKS Inc. (TSX:MKX) and Ruggedcom Inc. (TSX:RCM) and a director/advisor to a number of other private companies. Mr. Giffen is a Chartered Accountant and has a Bachelor of Arts degree in business administration from the University of Strathclyde in Glasgow, Scotland.

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David I. Beatson has been a member of our Board of Directors since March 2006. Since December 2006, Mr. Beatson has been CEO of GlobalWare Solutions, a full-service provider of supply chain management solutions with operations in North America, Europe and Asia. Since August 2001, Mr. Beatson has also been head of Ascent Advisors, LLC, a San Francisco Bay Area consulting firm focusing on strategic planning and mergers and acquisitions. From June 2003 to April 2005, Mr. Beatson was President and Chief Executive Officer of North America for Panalpina, Inc., a world-leading global transportation and logistics supplier based in Basel, Switzerland. Previously, Mr. Beatson served as Chairman, President and CEO of Circle International Group, Inc., a global transportation and logistics company, and as President and CEO of US-based air-freight forwarder Emery Worldwide. Mr. Beatson serves as an industry representative member of the Executive Advisory Committee to the National Industrial Transportation League, on the board of directors of PFSweb, Inc. (NASDAQ: PFSW) and on several other corporate and industry boards, including the Council of Supply Chain Management Professionals.

Michael Cardiff has been a member of our Board of Directors since June 2007. Mr. Cardiff is the Chief Executive Officer of Accelerents Inc., a strategic consulting company focusing on mergers, acquisitions, sales and marketing. Accelerents’ clients include private equity and venture capital firms, as well as public and private corporations. Prior to his role with Accelerents, from 2005 to 2006, Mr. Cardiff was President and CEO at Inea Corporation, a provider of business performance management software for financial institutions, and led its sale to Cartesis Corp. Prior to his role at Inea, from 2003 to 2005, Mr. Cardiff was President and CEO of Fincentric Corporation, a software provider for global financial institutions. Prior to his role at Fincentric, from 1999 to 2003, Mr. Cardiff was Executive Vice President of business and technology solution provider EDS Canada Inc. Mr. Cardiff serves on the boards of directors of public and private companies, including Burntsand Inc. (TSX:BRT), Hydrogenics Corp. (TSX:HYG; NASDAQ:HYGS) and Software Growth Inc. (CDNX:SGW-P.V).

Chris Hewat has been a member of our Board of Directors since June 2000. Mr. Hewat has been a partner at the law firm of Blake, Cassels & Graydon LLP (“Blakes”) since 1993, having joined the firm in 1987. Mr. Hewat practices in the area of securities and business law, with a focus on mergers and acquisitions, securities financings and securities regulatory matters. Blakes provided legal services to us during the fiscal year ended January 31, 2009 and has been providing, and is expected to continue to provide, legal services to us in the fiscal year ending January 31, 2010.

Arthur Mesher has been a member of our Board of Directors since May 2005 and is our Chief Executive Officer. Mr. Mesher first joined our management team in May 1998 and served as Executive Vice President, Corporate Strategy and Business Development until his appointment as Chief Executive Officer in November 2004. Mr. Mesher also occupied the interim Office of the CEO from May 2004 to November 2004. The details of Mr. Mesher’s employment arrangements with Descartes are included in our Management Information Circular dated April 29, 2009 in respect of our annual meeting of shareholders to be held on May 28, 2009, filed on www.sedar.com.

Dr. Stephen Watt has been a member of our Board of Directors since June 2001. Since 1997, Dr. Watt has been a professor in the Department of Computer Science at the University of Western Ontario, and was Chair of the Department from 1997 to 2002. Since 1998, Dr. Watt has served on the board of directors of privately-held, mathematics software company Waterloo Maple Inc. Since 2005, Dr. Watt has been a director of the Fields Institute for Research in Mathematical Sciences.

Chris Jones is our Executive Vice President, Solutions & Services. Mr. Jones joined Descartes in May 2005 and served as Executive Vice President, Solutions & Markets until his appointment to his current role in September 2006. From November 2003 until he joined Descartes, Mr. Jones was Senior Vice President in Aberdeen Group's Value Chain Research division where he was responsible for creating a market-leading supply chain and manufacturing research and advisory research practice. Prior to Aberdeen, from September 1998 to January 2003, Mr. Jones was Executive Vice President of Marketing and Corporate Development for SynQuest, Inc., a provider of supply chain planning solutions. Before joining SynQuest, from May 1994 to September 1998, Mr. Jones was Vice President and Research Director for Enterprise Resource Planning Solutions at the Gartner Group. The

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details of Mr. Jones’ employment arrangements with Descartes are included in our Management Information Circular dated April 29, 2009 in respect of our annual meeting of shareholders to be held on May 28, 2009, filed on www.sedar.com.

J. Scott Pagan is our Executive Vice President, Corporate Development, General Counsel & Corporate Secretary. Mr. Pagan joined our legal department in May 2000. Mr. Pagan was appointed Corporate Secretary in May 2003, General Counsel & Corporate Secretary in June 2004, and Executive Vice President, Corporate Development in July 2007. Prior to joining Descartes, Mr. Pagan was in private legal practice. The details of Mr. Pagan’s employment arrangements with Descartes are included in our Management Information Circular dated April 29, 2009 in respect of our annual meeting of shareholders to be held on May 28, 2009, filed on www.sedar.com.

Stephanie Ratza joined us as Chief Financial Officer on April 2, 2007. From November 2005 until when she joined us, Ms. Ratza served as Chief Financial Officer of iPico Inc. (TSX-V:RFD), a firm which designs, develops, manufactures and markets a broad range of radio frequency identification (RFID) solutions. Prior to iPico, from March 2000 to March 2005, Ms. Ratza served as Vice President, Finance at MKS Inc. (TSX:MKX) and as Director of Finance at MKS from January 1999 to March 2000. The details of Ms. Ratza’s employment arrangements with Descartes are included in our Management Information Circular dated April 29, 2009 in respect of our annual meeting of shareholders to be held on May 28, 2009, filed on www.sedar.com.

Edward J. Ryan is our Executive Vice President, Global Field Operations. Mr. Ryan joined Descartes in February 2000 in connection with our acquisition of E-Transport Incorporated. Since then, Mr. Ryan has occupied various senior sales positions within Descartes, with particular focus on our network and recurring business. Mr. Ryan was appointed General Manager, Global Logistics Network in June 2004 and then appointed Executive Vice President, Global Field Operations in July 2007. The details of Mr. Ryan’s employment arrangements with Descartes are included in our Management Information Circular dated April 29, 2009 in respect of our annual meeting of shareholders to be held on May 28, 2009, filed on www.sedar.com.

To our knowledge, as at April 25, 2009, our directors and executive officers as a group beneficially owned, or controlled or directed, directly or indirectly, 36,349 of our common shares, representing approximately 0.1% of the common shares then outstanding. To our knowledge, as at April 25, 2009, one of the former principal shareholders of FCS (who continues to be employed by us) owns, directly or indirectly, or exercise control or direction over, 522,514 of our common shares, representing approximately 1.0% of the common shares then outstanding.

7.2 Committees of the Board of Directors

Our Board of Directors currently has four committees: the Audit Committee; the Compensation Committee; the Corporate Governance Committee; and the Nominating Committee. The committees, their mandates and membership are discussed below:

Audit Committee

The primary functions of the Audit Committee are to oversee our accounting and financial reporting practices and the audits of our financial statements and to exercise the responsibilities and duties set forth in the Audit Committee charter, including, but not limited to, assisting the Board of Directors in fulfilling its responsibilities in reviewing the following: financial disclosures and internal controls over financial reporting; monitoring the system of internal controls; monitoring our compliance with requirements promulgated by any exchange upon which our securities are traded, or any governmental or regulatory body exercising authority over us, as are in effect from time to time; selecting the auditors for shareholder approval; reviewing the qualifications, independence and performance of the auditors; and reviewing the qualifications, independence and performance of our financial management.

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The Board of Directors has adopted an amended audit committee charter setting out the scope of the Audit Committee’s functions, responsibilities and membership requirements. A copy of that charter is attached as Appendix “A” to this AIF.

The Audit Committee is currently composed of three outside and independent directors: Mr. J. Ian Giffen (Chair), Mr. David Beatson and Mr. Michael Cardiff. The Board of Directors has resolved that Mr. Giffen is an “audit committee financial expert” as defined in paragraph 8(b) of General Instruction B to Form 40-F promulgated by the Securities and Exchange Commission and is financially sophisticated for the purposes of NASDAQ Rule 4350(d)(2)(A).

The following sets out the education and experience of the members of the Audit Committee, each of whom is independent and financially literate:

J. Ian Giffen,C.A., B.A. - Mr. Giffen is a chartered accountant with an extensive technology background. Since 1996 he has acted as a senior advisor and board member to software companies and technology investment funds. From 1992 to 1996, Mr. Giffen was Vice President and Chief Financial Officer at Alias Research Inc., a developer of 3D software, which was sold to Silicon Graphics Inc. Mr. Giffen is currently a director and on the audit committee of publicly-traded Absolute Software Corporation (TSX:ABT), MKS Inc. (TSX:MKX) and Ruggedcom Inc. (TSX:RCM), and a director/advisor to several private companies.

David Beatson,M.B.A., B.S. – Mr. Beatson was awarded his Masters in Business Administration, with a concentration in finance and marketing, from the University of Cincinnati in 1971. Mr. Beatson was also awarded a Bachelor of Science in Business Administration from The Ohio State University. Since January 2007, Mr. Beatson has served in a senior financial role as Chief Executive Officer of GlobalWare Solutions. Mr. Beatson has also previously served in senior financial roles as Regional CEO, North America and Member of the Executive Board of Panalpina, Inc; as President, CEO and Chairman of Supply Links, Inc.; as President and CEO of Emery Worldwide; and as Chairman, President and CEO of Circle International Group, Inc. Mr. Beatson currently serves as a director and on the audit committee of PFSweb, Inc. (NASDAQ: PFSW).

Michael Cardiff,ICD.D– Since 2006, Mr. Cardiff has served in a senior financial role as founder and CEO of Accelerents Inc., a strategic consulting company focusing on mergers, acquisitions, sales and marketing. Mr. Cardiff previously served in senior financial roles as President and CEO at Inea Corporation, and President and CEO of Fincentric Corporation. Mr. Cardiff currently serves as a director and on the audit committees of public compaines Burntsand Inc. (TSX:BRT), Hydrogenics Corp. (TSX:HYG; NASDAQ:HYGS) and Software Growth Inc. (CDNX:SGW-P.V).

The Audit Committee has adopted specific policies and procedures for the engagement of non-audit services from our independent auditor. Those procedures are attached at Appendix “B”.

Compensation Committee

The Compensation Committee is appointed by the Board of Directors to discharge the Board of Directors’ duties and responsibilities relating to the compensation of our CEO and other members of management, as well as to review the human resource policies and practices that cover our employees. The Compensation Committee is currently composed of three outside and independent directors: Mr. David Beatson (Chair); Mr. Michael Cardiff; and Dr. Stephen Watt.

Corporate Governance Committee

The primary function of the Corporate Governance Committee is to assist the Board of Directors in fulfilling its corporate governance oversight responsibilities. The Corporate Governance Committee is currently composed of three outside directors: Dr. Stephen Watt (Chair), Mr. Ian Giffen, and Mr. Chris Hewat, of whom Dr. Stephen Watt and Mr. Ian Giffen are considered independent.

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Nominating Committee

The Nominating Committee’s primary responsibility is to assist the Board of Directors in identifying, recruiting and nominating suitable candidates to serve on the Board of Directors. The Nominating Committee is currently composed of two outside and independent directors: Dr. Stephen Watt (Chair) and Mr. Ian Giffen.

7.3 Certain Relationships and Related Transactions

Blake, Cassels & Graydon LLP (“Blakes”), of which Mr. Hewat, a member of the Board of Directors, is a partner, provided legal services to us during fiscal 2007, fiscal 2008 and fiscal 2009 and has been providing, and is expected to continue to provide, legal services to us in fiscal 2010. For fiscal 2009, we incurred fees of CAD $582,600 for legal services rendered by Blakes.

ITEM 8 EXTERNAL AUDITORS

Our external auditors are Deloitte & Touche LLP, Independent Registered Chartered Accountants and Licensed Public Accountants. Deloitte & Touche LLP have been our external auditors since the fiscal year ended January 31, 1997. Deloitte & Touche LLP are independent with respect to the Company within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario. Deloitte & Touche LLP are also independent with respect to the Company within the meaning of the Securities Exchange Act of 1934 and the rules thereunder administered by the United States Securities and Exchange Commission and the requirements of the Independence Standards Board.

The following table sets forth the approximate fees we have incurred in using the services of Deloitte & Touche LLP in respect of the applicable fiscal years noted (all amounts in table are in US dollars – amounts that were billed in Canadian dollars are converted to US dollars at the applicable exchange rate on the last day of the applicable fiscal period):

Fiscal Year Ended	Audit Fees	Audit-Related Fees	Tax Fees	All Other Fees	Total
January 31, 2009	$299,984	$105,954	$0	$0	$405,938
January 31, 2008	$551,071	$212,369	$7,103	$0	$770,543

“Audit-Related Fees” consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Corporation’s financial statements and are not reported as “Audit Fees”, and include accounting research concerning financial accounting and reporting standards. “Tax fees” consist of fees for professional services rendered for tax compliance, tax advice and tax planning. These services included the preparation of tax returns and assistance and advisory services regarding income, capital and indirect tax compliance matters.

ITEM 9 LEGAL PROCEEDINGS

The Company and its subsidiaries are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business and are typical in our industry. The consequences of these matters are not presently determinable but, in the opinion of management, the ultimate liability is not expected to have a material effect on our annual results of operations, financial position or capital resources. None of these proceedings involves a claim for damages, exclusive of interest and costs, that exceeds 10% of our current assets.

ITEM 10 ADDITIONAL INFORMATION

Additional information about us is available at our website at www.descartes.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.  Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities and securities authorized for issuance under equity compensation

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plans, where applicable, is contained in our Management Information Circular dated April 29, 2009 for our annual meeting of shareholders scheduled to be held on May 28, 2009. Additional financial information is provided in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, the notes thereto and the report of our external auditors thereon contained in our Annual Report to the Shareholders for the year ended January 31, 2009.

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APPENDIX “A”

THE DESCARTES SYSTEMS GROUP INC.

CHARTER FOR

THE AUDIT COMMITTEE OF

THE BOARD OF DIRECTORS

1. PURPOSE

1. The primary functions of the Audit Committee are to oversee the accounting and financial reporting practices of the Company and the audits of the Company’s financial statements and to exercise the responsibilities and duties set forth below, including, but not limited to, assisting the Board in fulfilling its responsibilities in reviewing the following: financial disclosures and internal controls over financial reporting; monitoring the system of internal control; monitoring the Company’s compliance with Applicable Requirements (as defined below); selecting the auditors for shareholder approval; reviewing the qualifications, independence and performance of the auditors; and reviewing the qualifications, independence and performance of the Company’s financial management.

2. MEMBERSHIP AND ORGANIZATION

1. Composition - The Audit Committee shall consist of not less than three independent members of the Board. At the invitation of the Audit Committee, members of the Company’s management and others may attend Audit Committee meetings as the Audit Committee considers necessary or desirable.

2. Appointment and Removal of Audit Committee Members - Each member of the Audit Committee shall be appointed by the Board on an annual basis and shall serve at the pleasure of the Board, or until the earlier of (a) the close of the next annual meeting of the Company’s shareholders at which the member's term of office expires, (b) the death of the member, or (c) the resignation, disqualification or removal of the member from the Audit Committee or from the Board. The Board may fill a vacancy in the membership of the Audit Committee.

3. Chair - At the time of the annual appointment of the members of the Audit Committee, the Board shall appoint a Chair of the Audit Committee. The Chair shall: be a member of the Audit Committee, preside over all Audit Committee meetings, coordinate the Audit Committee's compliance with this mandate, work with management to develop the Audit Committee's annual work-plan and provide reports of the Audit Committee to the Board.

4. Independence - Each member of the Audit Committee shall meet the requirements promulgated by any exchange upon which securities of the Company are traded, or any governmental or regulatory body exercising authority over the Company, as are in effect from time to time (collectively, the “Applicable Requirements”) related to independence and audit committee composition.

5. Financial Literacy - At the time of his or her appointment to the Audit Committee, each member of the Audit Committee shall be able to read and understand fundamental financial statements, including a balance sheet, cash flow statement and income statement and not have participated in the preparation of

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the financial statements of the Company or any current subsidiary of the Company at any time during the preceding three years. At least one member of the Audit Committee shall have past employment experience in financing or accounting, requisite professional certificate in accounting, or other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Further, at least one member of the Audit Committee shall qualify as an “audit committee financial expert” (as such term is defined under the Securities and Exchange Commission’s rules).

3. MEETINGS

1. Meetings - The members of the Audit Committee shall hold meetings as are required to carry out this mandate, and in any case no less than four meetings annually. The external auditors are entitled to attend and be heard at each Audit Committee meeting. The Chair, any member of the Audit Committee, the external auditors, the Chairman of the Board or the Chief Executive Officer or the Chief Financial Officer may call a meeting of the Audit Committee by notifying the Company’s Corporate Secretary who will notify the members of the Audit Committee. The Chair shall chair all Audit Committee meetings that he or she attends, and in the absence of the Chair, the members of the Audit Committee present may appoint a chair from their number for a meeting.

2. Corporate Secretary and Minutes - The Corporate Secretary, his or her designate or any other person the Audit Committee requests, shall act as secretary at Audit Committee meetings. Minutes of Audit Committee meetings shall be recorded and maintained by the Corporate Secretary and subsequently presented to the Audit Committee for approval.

3. Quorum - A majority of the members of the Audit Committee shall constitute a quorum.

4. Access to Management and Outside Advisors - The Audit Committee shall have unrestricted access to the Company’s management and employees and the books and records of the Company, and, from time to time may hold unscheduled or regularly scheduled meetings or portions of regularly scheduled meetings with the auditor, the Chief Financial Officer or the Chief Executive Officer. The Audit Committee shall have the authority to retain external legal counsel, consultants or other advisors to assist it in fulfilling its responsibilities and to set and pay the respective compensation for these advisors without consulting or obtaining the approval of the Board or any Company officer. The Company shall provide appropriate funding, as determined by the Audit Committee, for the services of these advisors.

5. Meetings Without Management - The Audit Committee shall hold unscheduled or regularly scheduled meetings, or portions of regularly scheduled meetings, at which management is not present.

4. FUNCTIONS AND RESPONSIBILITIES

The Audit Committee shall have the functions and responsibilities set out below as well as any other functions that are specifically delegated to the Audit Committee by the Board and that the Board is authorized to delegate by applicable laws and regulations. In addition to these functions and responsibilities, the Audit Committee shall perform the duties required of an audit committee by the Applicable Requirements.

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1. Financial Reports

a. General - The Audit Committee is responsible for overseeing the Company’s financial statements and financial disclosures. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements and financial disclosures and for the appropriateness of the accounting principles and the reporting policies used by the Company. The auditors are responsible for auditing the Company’s annual consolidated financial statements and for reviewing the Company’s unaudited interim financial statements.

b. Review of Annual Financial Reports - The Audit Committee shall review the annual consolidated audited financial statements of the Company, the auditors' report thereon and the related management's discussion and analysis of the Company’s financial condition and results of operation (“MD&A”). After completing its review, if advisable, the Audit Committee shall approve and recommend for Board approval the annual financial statements and the related MD&A.

c. Review of Interim Financial Reports - The Audit Committee shall review the interim consolidated financial statements of the Company, the auditors review report thereon and the related MD&A. After completing its review, if advisable, the Audit Committee shall approve and recommend for Board approval the interim financial statements and the related MD&A.

d. Review Considerations - In conducting its review of the annual financial statements or the interim financial statements, the Audit Committee shall:

i. meet with management and the auditors to discuss the financial statements and MD&A;

ii. review the disclosures in the financial statements;

iii. review the audit report or review report prepared by the auditors;

iv. discuss with management, the auditors and internal legal counsel, as requested, any litigation claim or other contingency that could have a material effect on the financial statements;

v. review critical accounting and other significant estimates and judgements underlying the financial statements as presented by management;

vi. review any material effects of regulatory accounting initiatives or off-balance sheet structures on the financial statements as presented by management;

vii. review any material changes in accounting policies and any significant changes in accounting practices and their impact on the financial statements as presented by management;

viii. review management's report on the effectiveness of internal controls over financial reporting;

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ix. review the factors identified by management as factors that may affect future financial results;

x. review results of the Company’s audit committee hotline program; and

xi. review any other matters, related to the financial statements, that are brought forward by the auditors, management or which are required to be communicated to the Audit Committee under accounting policies, auditing standards or Applicable Requirements.

e. Approval of Other Financial Disclosures - The Audit Committee shall review and, if advisable, approve and recommend for Board approval financial disclosure in a prospectus or other securities offering document of the Company, press releases disclosing financial results of the Company and any other material financial disclosure, including financial guidance provided to analysts rating agencies or otherwise publicly disseminated.

2. Auditors

a. General -The Audit Committee shall be responsible for oversight of the work of the auditors, including the auditors work in preparing or issuing an audit report, performing other audit, review or attest services or any other related work.

b. Appointment and Compensation - The Audit Committee shall review and, if advisable, select and recommend for shareholder approval the appointment of, the auditors. The Audit Committee shall have ultimate authority to approve all audit engagement terms and fees, including the auditor’s audit plan.

c. Resolution of Disagreements – The Audit Committee shall resolve any disagreements between management and the auditors as to financial reporting matters brought to its attention.

d. Discussions with Auditor – At least annually, the Audit Committee shall discuss with the auditor such matters as are required by applicable auditing standards to be discussed by the auditor with the audit committee, including the matters required to be discussed by applicable auditing standards.

e. Audit Plan - At least annually, the Audit Committee shall review a summary of the auditors' annual audit plan. The Audit Committee shall consider and review with the auditors any material changes to the scope of the plan.

f. Quarterly Review Report - The Audit Committee shall review a report prepared by the auditors in respect of each of the interim financial statements of the Company.

g. Independence of Auditors - At least annually, and before the auditors issue their report on the annual financial statements, the Audit Committee shall: obtain from the auditors a formal written statement describing all relationships between the auditors and the Company; discuss with the auditors any disclosed relationships or services that may affect the objectivity and independence of the auditors; and obtain written confirmation from the auditors that they are objective and independent within the meaning of the applicable Rules of Professional Conduct/Code of Ethics

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adopted by the provincial institute or order of chartered accountants to which it belongs and other Applicable Requirements. The Audit Committee shall take appropriate action to oversee the independence of the auditors.

h. Evaluation and Rotation of Lead Partner - At least annually, the Audit Committee shall review the qualifications and performance of the lead partner(s) of the auditors. The Audit Committee shall obtain a report from the auditors annually verifying that the lead partner of the auditors has served in that capacity for no more than five fiscal years of the Company and that the engagement team collectively possesses the experience and competence to perform an appropriate audit.

i. Requirement for Pre-Approval of Non-Audit Services - The Audit Committee shall approve in advance any retainer of the auditors to perform any non-audit service to the Company that it deems advisable in accordance with Applicable Requirements, and Board approved policies and procedures. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee. The decisions of any member of the Audit Committee to whom this authority has been delegated must be presented to the full Audit Committee at its next scheduled Audit Committee meeting.

j. Approval of Hiring Policies. The Audit Committee shall review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Company.

3. Internal Controls

a. General - The Audit Committee shall review the Company’s system of internal controls.

b. Establishment, Review and Approval - The Audit Committee shall require management to implement and maintain appropriate systems of internal controls in accordance with Applicable Requirements and guidance, including internal control over financial reporting and disclosure and to review, evaluate and approve these procedures. At least annually, the Audit Committee shall consider and review with management and the auditors:

i. the effectiveness of, or weaknesses or deficiencies in: the design or operation of the Company’s internal controls (including computerized information system controls and security); the overall control environment for managing business risks; and accounting, financial and disclosure controls (including, without limitation, controls over financial reporting), non-financial controls, and legal and regulatory controls and the impact of any identified weaknesses in internal controls on management's conclusions.

ii. any significant changes in internal control over financial reporting that are disclosed, or considered for disclosure, including those in the Company’s periodic regulatory filings;

iii. any material issues raised by any inquiry or investigation by the Company’s regulators;

iv. the Company’s fraud prevention and detection program, including deficiencies in internal controls that may impact the integrity of financial information, or may expose the

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Company to other significant internal or external fraud losses and the extent of those losses and any disciplinary action in respect of fraud taken against management or other employees who have a significant role in financial reporting; and

v. any related significant issues and recommendations of the auditors together with management's responses thereto, including the timetable for implementation of recommendations to correct weaknesses in internal controls over financial reporting and disclosure controls.

4. Compliance with Legal and Regulatory Requirements - The Audit Committee shall review reports from the Company’s Corporate Secretary and other management members on: legal or compliance matters that may have a material impact on the Company; the effectiveness of the Company’s compliance policies; and any material communications received from regulators. The Audit Committee shall review management's evaluation of and representations relating to compliance with specific Applicable Requirements, and management's plans to remediate any deficiencies identified.

5. Audit Committee Hotline Procedures - The Audit Committee shall establish for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters. Any such complaints or concerns that are received shall be reviewed by the Audit Committee and, if the Audit Committee determines that the matter requires further investigation, it will direct the Chair of the Audit Committee to engage outside advisors, as necessary or appropriate, to investigate the matter and will work with management and the general counsel to reach a satisfactory conclusion.

6. Audit Committee Disclosure - The Audit Committee shall prepare, review and approve any audit committee disclosures required by Applicable Requirements in the Company’s disclosure documents.

7. Delegation - The Audit Committee may, to the extent permissible by Applicable Requirements, designate a sub-committee to review any matter within this mandate as the Audit Committee deems appropriate.

5. REPORTING TO THE BOARD

1. The Chair shall report to the Board, as required by Applicable Requirements or as deemed necessary by the Audit Committee or as requested by the Board, on matters arising at Audit Committee meetings and, where applicable, shall present the Audit Committee's recommendation to the Board for its approval.

6. GENERAL

1. The Audit Committee shall, to the extent permissible by Applicable Requirements, have such additional authority as may be reasonably necessary or desirable, in the Audit Committee’s discretion, to exercise its powers and fulfill the duties under this mandate.

7. CURRENCY OF THE AUDIT COMMITTEE CHARTER

1. This charter was last amended and approved by the Audit Committee on March 10, 2009.

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APPENDIX “B”

PRE-APPROVAL POLICY AND PROCEDURE FOR ENGAGEMENTS OF THE INDEPENDENT AUDITOR

The responsibilities of the Company’s audit committee are set out in the Company’s Audit Committee Charter, which responsibilities include pre-approving audit and non-audit services provided by the independent auditors in order to ensure the services do not impair the auditors' independence. Applicable securities commissions and accounting standards boards have issued rules specifying the permissible services independent auditors may provide to audit clients, as well as the pre-approval of fees. Accordingly, the Company’s Audit Committee has adopted the following Pre-Approval Policy and Procedure.

Under the Audit Committee's approach, an annual program of work will be approved each year for the following categories of services: Audit, Audit-Related, and Tax. Each engagement or category of service will be presented in appropriate detail by business function and geographic area to provide the Audit Committee sufficient understanding of the services provided. Additional engagements may be brought forward from time to time for pre-approval by the Audit Committee.

The Audit Committee will consider whether any service to be obtained from the independent auditors is consistent with applicable rules on auditor independence. Also, the Audit Committee will consider the level of Audit and Audit-Related fees in relation to all other fees paid to the independent auditors, and will review such level each year. In carrying out this responsibility, the Audit Committee may obtain input from Company management on the general level of fees, and the process for determining and reporting fees from the numerous locations where the Company operates and the independent auditors provide services.

The term of any pre-approval applies to the Company’s financial year. Thus, Audit fees for the financial year may include work performed after the close of the calendar year. The pre-approval for Audit-Related and Tax fees is on a calendar-year basis. Unused pre-approval amounts will not be carried forward to the next financial year. Pre-approvals will apply to engagements within a category of service, and cannot be transferred between categories. If fees might otherwise exceed pre-approved amounts for any category of permissible services, then time will be scheduled so that incremental amounts can be reviewed and pre-approved prior to commitment.

Audit Services

Audit services include the annual financial statement audit engagement (including required quarterly reviews), affiliate and subsidiary statutory audits, and other procedures required to be performed by the independent auditors to render an opinion on the Company’s consolidated financial statements. Audit services also include information systems reviews, tests performed on the system of internal controls, and other procedures necessary to support the independent auditors' attestation of management's report on internal controls for financial reporting consistent with applicable securities legislation, as applicable.

The independent auditors are responsible for cost-effectively providing audit services and confirming that audit services are not undertaken prior to review and pre-approval by the Audit Committee. The independent auditors and Company management will jointly manage a process for collecting and reporting Audit fees billed by the independent auditors to Company each year.

Audit-Related Services

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Audit-Related services include services that are reasonably related to the review of the Company’s financial statements. These services include benefit plan and joint venture audits, attestation procedures related to cost certifications and government compliance, consultations on accounting issues, and due diligence procedures. Each year the Audit Committee will review the proposed services to ensure the independence of the independent auditors is not impaired.

Pre-approval will occur each year coincident with pre-approval of Audit services. Company management will monitor the engagement of the independent auditors for Audit-Related services using designated process owners. This process will help provide assurance that the aggregate dollar amount of services obtained does not exceed pre-approval amounts at any time, and that new engagements not initially identified are pre-approved prior to commitment.

Tax Services

The Audit Committee concurs that the independent auditors may provide certain Tax services without impairing independence. These services include preparing local tax filings and related tax services, tax planning, preparing individual employee expatriate tax returns, and other services permitted by applicable securities regulations. The Audit Committee will not permit engaging the independent auditors (1) in connection with a transaction, the sole purpose of which may be impermissible tax avoidance, or (2) for any tax services that may be prohibited by applicable securities rules now or in the future. Company management will monitor the engagement of the independent auditors or other firms for such Tax services to help provide assurance that aggregate dollar amounts of services obtained from the independent auditors do not exceed pre-approval amounts at any time.

All Other Services

The Company does not envision obtaining other services from the independent auditors, except for the Audit, Audit-Related, and Tax services described previously. If permissible other services are requested by the Company, each engagement must be pre-approved by the Audit Committee. Such requests should be supported by endorsement of the Chief Financial Officer prior to review with the Audit Committee.

Prohibited Services

Current securities regulations specify that independent auditors may not provide the following prohibited services: Bookkeeping, Financial Information Systems Design and Implementation, Appraisals or Valuation (other than Tax), Fairness Opinions, Actuarial Services, Internal Audit Outsourcing, Management Functions, Human Resources such as Executive Recruiting, Broker-Dealer Services, Legal Services, or Expert Services such as providing expert testimony or opinions where the purpose of the engagement is to advocate the client's position in an adversarial proceeding. Company personnel may not under any circumstances engage the independent auditors for prohibited services. Potential engagements not clearly permissible should be referred to the Chief Financial Officer.

Delegation

The Audit Committee may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee may not delegate to management the Audit Committee’s responsibilities to pre-approve services performed by the independent auditor.

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EX-99.6

NOTICE TO READERS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for the first three months of our fiscal year ending January 31, 2010 (“fiscal 2010 first quarter MD&A”) dated June 11, 2009 reflects amendments to the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on June 12, 2009.

This MD&A has been amended to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). Our consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (the “fiscal 2009 consolidated financial statements”) have been adjusted to reflect this retrospective adoption of SFAS 141R (the “adjusted fiscal 2009 statements”) and the adjusted fiscal 2009 statements have been filed on SEDAR on the date hereof.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to our adjusted fiscal 2009 statements. We have made corresponding changes in this fiscal 2010 first quarter MD&A to reflect the effect of retrospectively adopting SFAS 141R.

This fiscal 2010 first quarter MD&A does not otherwise reflect events or developments subsequent to June 11, 2009.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains references to Descartes using the words “we,” “us,” “our” and similar words and the reader is referred to using the words “you,” “your,” and similar words.

The MD&A also refers to our fiscal periods. Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our current fiscal year, which will end on January 31, 2010, is referred to as the “current fiscal year,” “fiscal 2010,” “2010” or using similar words. Our previous fiscal year, which ended on January 31, 2009, is referred to as the “previous fiscal year,” “fiscal 2009,” “2009” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, 2011 refers to the annual period ending January 31, 2011 and the “fourth quarter of 2011” refers to the quarter ending January 31, 2011.

This MD&A is prepared as of June 11, 2009. You should read the MD&A in conjunction with our unaudited interim consolidated financial statements that appear elsewhere in this Quarterly Report to Shareholders for our first quarter of fiscal 2010. You should also read the MD&A in conjunction with our audited annual consolidated financial statements, related notes thereto and the related MD&A for fiscal 2009 that are included in our most recent annual report to shareholders (the “2009 Annual Report”).

We prepare and file our consolidated financial statements and MD&A in United States (“US”) dollars and in accordance with US generally accepted accounting principles (“GAAP”). All dollar amounts we use in the MD&A are in US currency, unless we indicate otherwise.

We have prepared the MD&A with reference to Form 51-102F1 MD&A disclosure requirements established under National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators. As it relates to our financial condition and results of operations for the interim period ended April 30, 2009, pursuant to NI 51-102, this MD&A updates the MD&A included in the 2009 Annual Report.

Additional information about us, including copies of our continuous disclosure materials such as our annual information form, is available on our website at http://www.descartes.com, through the EDGAR website at http://www.sec.gov or through the SEDAR website at http://www.sedar.com.

Certain statements made in the MD&A and throughout this Quarterly Report to Shareholders, including, but not limited to, statements in the “Trends / Business Outlook” section and statements regarding our expectations concerning future revenues and earnings; our baseline calibration; our future business plans and business planning process; use of proceeds from previously completed financings or other transactions; future purchase price that may be payable pursuant to completed acquisitions and the sources of funds for such payments; allocation of purchase price for completed acquisitions; the impact of our customs compliance business on our revenues; mix of revenues between services revenues and license revenues; our expectations regarding the cyclical nature of our business, including an expectation that our third quarter will be strongest for shipping volumes and our first quarter will be the weakest; our plans to continue to allow customers to elect to license technology in lieu of subscribing to services; our anticipated loss of revenues and customers in fiscal 2010 and beyond and our ability to replace any corresponding loss of revenue; our ability to keep our operating expenses at a level below our baseline revenues; uses of cash; expenses, including amortization of intangibles; goodwill impairment tests and the possibility of future impairment adjustments; income tax provision and expense; effective tax rates applicable to future fiscal periods; anticipated tax benefits; statements regarding increases or decreases to deferred tax assets; the results of our Ontario retail sales tax audit and our ability to collect from our customers any additional retail

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sales tax assessed as part of the audit.; the effect on expenses of a weak US dollar; our liability with respect to various claims and suits arising in the ordinary course; any commitments referred to in the “Commitments, Contingencies and Guarantees” section of this MD&A; our intention to actively explore future business combinations and other strategic transactions; our liability under indemnification obligations; anticipated geographic break-down of business; our reinvestment of earnings of subsidiaries back into such subsidiaries; the sufficiency of capital to meet working capital and capital expenditure requirements; our ability to raise capital; the impact of new accounting pronouncements; the expensing of acquisition-related expenses for business combination transactions completed in fiscal 2010 and thereafter pursuant to SFAS 141R (as defined herein); and other matters related thereto constitute forward-looking information for the purposes of applicable securities laws (“forward-looking statements”). When used in this document, the words “believe,” “plan,” “expect,” “anticipate,” “intend,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are not limited to, the factors discussed under the heading “Certain Factors That May Affect Future Results” appearing in the MD&A. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statements are based.

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OVERVIEW

We are a global provider of on-demand, software-as-a-service (SaaS) logistics technology solutions that help our customers make and receive shipments. Using our technology solutions, companies can reduce costs, save time, and enhance the service that they deliver to their own customers. Our technology-based solutions, which consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; inventory and asset visibility; rate and transportation management; and warehouse optimization. Our pricing model provides our customers with flexibility in purchasing our solutions on either a license or an on-demand basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), third party intermediaries (including third-party logistics providers, freight forwarders and customs brokers) and distribution-sensitive companies where delivery is either a key or a defining part of their own product or service offering, or where there is an opportunity to reduce costs and improve service levels by optimizing the use of their assets.

The Market

Supply chain management has been evolving over the past several years as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated, end-to-end solutions that combine business document exchange and mobile resource management applications (MRM) with end-to-end supply chain execution management (SCEM) applications, such as transportation management, routing and scheduling, and inventory visibility.

We believe logistics-intensive organizations are seeking new ways to differentiate themselves, drive efficiencies to offset escalating operating costs and improve margins that are trending downward. Existing global trade and transportation processes are often manual and complex to manage. This is a consequence of the growing number of business partners participating in companies’ global supply chains and a lack of standardized business processes.

Additionally, global sourcing, logistics outsourcing and changes in day-to-day requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment gets delayed at the border, a customer changes an order or a breakdown occurs on the road, there are more and more issues that can significantly impact the status of fulfillment schedules and associated costs.

These challenges are heightened for suppliers that have end customers frequently demanding narrower order-to-fulfillment time frames, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers also want real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.

In this market, manual, fragmented and distributed logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly for organizations. Further, many of these solutions don’t provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. We believe this presents an opportunity for logistics technology providers to unite the highly fragmented community and help customers improve efficiencies in their operations.

As the market continues to change, we have been evolving to meet our customers’ needs. The rate of adoption of newer logistics technology is evolving, but a disproportionate number of organizations still have manual business processes. We have been educating our prospects and customers on the value of connecting to trading partners through our logistics network and automating, as well as standardizing, business processes. We believe that our customers are increasingly looking for a single source, web-based solution provider who can help them manage the end-to-end shipment process – from the booking of the move of a shipment, to the tracking of that shipment as it moves, to the regulatory compliance filings to be made during the move and, finally, the settlement and audit of the invoice relating to that move.

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Additionally, regulatory initiatives mandating electronic filing of shipment information with customs authorities require companies who move freight by air, ocean or truck to automate their processes to remain compliant and competitive. Our customs compliance technology helps shippers, transportation providers, freight forwarders and other logistics intermediaries securely and electronically file shipment information with customs authorities and self-audit their own efforts. Our technology also helps carriers and freight forwarders efficiently coordinate with customs brokers to expedite cross-border shipments. While many compliance initiatives started in the US, compliance is quickly becoming a global issue with international shipments crossing several borders on the way to their final destination.

Solutions

Our solutions are primarily offered to two identified customer groups: transportation providers and logistics service providers (LSPs) who are served by our Global Logistics Network (“GLN”); and manufacturers, retailers, distributors and mobile-service providers (MRDMs), who are served by our Delivery Management™ solutions. Our solutions enable our customers to purchase and use either one module at a time or combine several modules as a part of their end-to-end, real-time supply chain solution. This gives our customers an opportunity to add supply chain services and capabilities as their business needs grow and change.

Our Global Logistics Network helps transportation companies and LSPs better manage their shipment management process, optimize fleet performance, comply with regulatory requirements, expedite cross-border shipments and connect and communicate with their trading partners. Our Global Logistics Network is one of the world’s largest multimodal electronic networks focused on transportation providers, their trading partners and regulatory agencies.

LSPs are increasingly looking for technology to help them manage the end-to-end shipment lifecycle – from the booking of the shipment with the transportation provider to the settlement and audit of the invoice relating to the shipment. With our acquisition of Global Freight Exchange Limited (“GF-X”) in 2008, we added air cargo booking functionality to our Global Logistics Network to enable our customers to access technology to help them manage the entire air shipment lifecycle.

Our Delivery Management solutions help MRDM enterprises reduce logistics costs, efficiently use logistics assets and decrease lead-time variability for their global shipments and regional operations. In addition, these solutions arm the customer service departments of private fleets and contract carriers with information about the location, availability and scheduling of vehicles so they can provide better information to their own clients. Our Delivery Management solutions are differentiated by the ability to combine planning, execution, messaging services and performance management into an integrated solution.

Sales and Distribution

Our sales efforts are primarily directed toward two specific customer markets: (a) transportation companies and LSPs; and (b) MRDMs. Our sales staff is regionally based and trained to sell across our solutions to specific customer markets. In North America and Europe, we promote our products primarily through direct sales efforts aimed at existing and potential users of our products. In the Asia Pacific, Indian subcontinent, Ibero-America and African regions, we focus on making our channel partners successful. Channel partners for our other international operations include distributors, alliance partners and value-added resellers.

Marketing

Marketing materials are delivered through targeted programs designed to reach our core customer groups. These programs include trade shows and user group conferences, partner-focused marketing programs, and direct corporate marketing efforts.

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Recent Updates

On February 5, 2009 we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our GLN and extended our customs compliance solutions. Oceanwide's logistics business (“Oceanwide”) was focused on a web-based, hosted SaaS model for customs brokers and freight forwarders. Oceanwide provided solutions for customs filing, including new 10+2 compliant advanced manifest solutions; automated customs broker interfaces (“ABI”); trade compliance; and logistics management software. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition was approximately $9.0 million in cash plus transaction costs.

On March 10, 2009, we completed the acquisition of all of the shares of Scancode Systems Inc. (“Scancode”). Scancode provides its customers with a system that scales from the loading dock to the enterprise, providing up-to-date rates that allow the customer to both make efficient shipment decisions and comply with carrier manifesting and labeling requirements. Scancode’s strength is in helping to manage small parcel shipments with postal services, courier carriers and over 150 less-than-truckload carriers. Scancode also has supporting warehouse and automated data collection functionality. The purchase price for this acquisition was approximately $7.7 million in cash plus transaction costs.

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CONSOLIDATED OPERATIONS

The following table shows, for the periods indicated, our results of operations in millions of dollars (except per share and weighted average share amounts):

	First Quarter of
	2010	2009
Total revenues	17.4	16.3
Cost of revenues	5.2	5.7
Gross margin	12.2	10.6
Operating expenses	8.7	7.4
Amortization of intangible assets	1.8	1.3
Contingent acquisition consideration	-	0.5
Income from operations	1.7	1.4
Investment income	0.1	0.3
Income before income taxes	1.8	1.7
Income tax expense (recovery)	(0.4)	0.6
Net income	2.2	1.1
EARNINGS PER SHARE – BASIC AND DILUTED	0.04	0.02
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) BASIC DILUTED	53,017 53,737	52,933 53,636

Total revenues consist of services revenues and license revenues. Services revenues are principally comprised of the following: (i) ongoing transactional fees for use of our services and products by our customers, which are recognized as the transactions occur; (ii) professional services revenues from consulting, implementation and training services related to our services and products, which are recognized as the services are performed; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products, which are recognized ratably over the subscription period. License revenues derive from perpetual licenses granted to our customers to use our software products.

The following table provides additional analysis of our services and license revenues (in millions of dollars and as a proportion of total revenues) generated over each of the periods indicated:

	First Quarter of
	2010	2009
Services revenues	16.8	14.9
Percentage of total revenues	97%	91%
License revenues	0.6	1.4
Percentage of total revenues	3%	9%
Total revenues	17.4	16.3

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Our services revenues for the first quarter of 2010 were $16.8 million, a 13% increase from the same period in 2009. The increase in services revenues is primarily due to the inclusion in 2010 of a full quarter of services-based revenues from our 2009 acquisition of Dexx bvba (“Dexx”), and services revenues from our February 5, 2009 acquisition of Oceanwide and our March 10, 2009 acquisition of Scancode, partially offset by lower transactional revenues from the GLN in part due to lower global shipping volumes.

Ourlicense revenues were $0.6 million and $1.4 million for the first quarter of 2010 and 2009, respectively. While our sales focus has been on generating services revenues in our on-demand, SaaS business model, we have continued to see a market for licensing the products in our Delivery Management suite to MRDM enterprises. The amount of license revenue in a period is dependent on our customers’ preference to license our solutions instead of purchasing our solutions as a service.

As a percentage of total revenues, our services revenues were 97% and 91% for the first quarter of 2010 and 2009, respectively. Our high percentage of services revenues reflects our continued success in selling to new customers under our services-based business model rather than our former model that emphasized perpetual license sales. Our 2009 and 2010 acquisitions also contributed to the higher percentage of services revenues as the revenues from those acquisitions are predominately services-based.

We operate in one business segment providing logistics technology solutions. The following table provides additional analysis of our segmented revenues by geographic area of operation (in millions of dollars):

	First Quarter of
	2010	2009
Canada	2.5	2.3
Percentage of total revenues	14%	14%
Americas, excluding Canada	11.1	9.4
Percentage of total revenues	64%	58%
Europe, Middle-East and Africa (“EMEA”)	3.4	4.2
Percentage of total revenues	20%	26%
Asia Pacific	0.4	0.4
Percentage of total revenues	2%	2%
Total revenues	17.4	16.3

Revenues from Canada were $2.5 million and $2.3 million for the first quarter of 2010 and 2009, respectively. The increase was principally due to the inclusion of Canadian-based revenues from our acquisitions of Oceanwide and Scancode, partially offset by lower transactional revenues from the GLN in part due to lower shipping volumes.

Revenues from the Americas region, excluding Canada were $11.1 million and $9.4 million for the first quarter of 2010 and 2009, respectively. The increase was primarily due to the recent acquisitions of Oceanwide and Scancode, partially offset by lower transactional revenues from the GLN in part due to lower shipping volumes.

Revenues from the EMEA region were $3.4 million and $4.2 million in the first quarter of 2010 and 2009, respectively. The decrease was due to lower transactional revenues from the GLN in part due to lower shipping volumes, partially offset by the inclusion of a full quarter of revenues from Dexx, which we acquired in 2009.

Revenues from the Asia Pacific region were $0.4 million in the first quarter of 2010, unchanged from the year ago quarter.

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The following table provides additional analysis of cost of revenues (in millions of dollars) and the related gross margins for the periods indicated:

	First Quarter of
	2010	2009
Services
Services revenues	16.8	14.9
Cost of services revenues	5.1	5.4
Gross margin	11.7	9.5
Gross margin percentage	70%	64%
License
License revenues	0.6	1.4
Cost of license revenues	0.1	0.3
Gross margin	0.5	1.1
Gross margin percentage	83%	79%
Total
Revenues	17.4	16.3
Cost of revenues	5.2	5.7
Gross margin	12.2	10.6
Gross margin percentage	70%	65%

Cost of services revenues consists of internal costs of running our systems and applications, as well as salaries and other personnel-related expenses incurred in providing professional service and maintenance work, including consulting and customer support.

Gross margin percentage for services revenues were 70% and 64% in the first quarter of 2010 and 2009, respectively. The increase in the first quarter of 2010 as compared to 2009 primarily resulted from the addition higher-margin services-based business from the Dexx, Oceanwide and Scancode acquisitions.

Cost of license revenues consists of costs related to our sale of third-party technology, such as third-party map license fees, referral fees and/or royalties.

Gross margin percentage for license revenues were 83% and 79% in the first quarter of 2010 and 2009, respectively. Our gross margin on license revenues is dependent on the proportion of our license revenues that involve third-party technology. Consequently, our gross margin percentage for license revenues is higher when a lower proportion of our license revenues attract third-party technology costs, and vice versa. This was the primary contributor to the changes in license margins.

Operating expenses (consisting of sales and marketing, research and development and general and administrative expenses) were $8.7 million and $7.4 million for the first quarter of 2010 and 2009, respectively. The increase in operating expenses arose primarily from the addition of businesses that we acquired subsequent to the first quarter of 2009. As well, we expensed $0.3 of acquisition-related costs that we incurred in the first quarter of 2010 as a result of a recent change in GAAP, as discussed below. Our operating expenses in the first quarter of 2010 were also impacted by $0.4 million of restructuring charges related to integration of previously completed acquisitions and other cost-reduction activities.

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The following table provides additional analysis of operating expenses (in millions of dollars) for the periods indicated:

	First Quarter of
	2010	2009
Total revenues	17.4	16.3
Sales and marketing expenses	2.4	2.3
Percentage of total revenues	14%	14%
Research and development expenses	3.4	2.9
Percentage of total revenues	20%	18%
General and administrative expenses	2.9	2.2
Percentage of total revenues	17%	13%
Total operating expenses	8.7	7.4

Sales and marketing expenses include salaries, commissions, stock-based compensation and other personnel-related costs, bad debt expenses, travel expenses, advertising programs and services, and other promotional activities associated with selling and marketing our services and products. Sales and marketing expenses were $2.4 million for the first quarter of 2010, an increase of 4% from expense of $2.3 million for the same period in 2009. Sales and marketing expenses as a percentage of total revenues were 14% for each of the first quarter of 2010 and 2009, respectively. The increase in sales and marketing expenses in the first quarter of 2010 that arose from the acquired businesses of Oceanwide and Scancode in 2010 and Dexx in 2009, as well as higher bad debt expense, were offset by lower marketing expenses and a favourable foreign exchange impact from on our non-US dollar sales and marketing expenses in the first quarter of 2010.

Research and development expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of technical and engineering personnel associated with our research and product development activities, as well as costs for third-party outsourced development providers. We expensed all costs related to research and development in 2010 and 2009, as applicable. Research and development expenses were $3.4 million for the first quarter of 2010, an increase of 17% from expenses of $2.9 million for the same period in 2009. The increase in the first quarter of 2010 as compared to 2009 was primarily attributable to increased payroll and related costs from our 2010 acquisitions, partially offset by a favourable foreign exchange impact from our non-US dollar research and development expenses.

General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of administrative personnel, as well as professional fees and other administrative expenses. General and administrative costs were $2.9 million and $2.2 million in the first quarter of 2010 and 2009, respectively. The increase in 2010 from 2009 was primarily due to the inclusion of $0.3 million of acquisition-related costs, primarily professional fees, related to our acquisitions of Oceanwide and Scancode in the first quarter of 2010. Effective for our first quarter of 2010, a change in GAAP required that we expense those acquisition-related costs in the period incurred. Previously, GAAP required that these expenses be capitalized as part of the purchase price for a completed business combination and were generally recorded as part of goodwill. The increase in the first quarter of 2010 was also a result of increased payroll and related costs from our 2010 acquisitions, partially offset by a favourable foreign exchange impact from our non-US dollar general and administrative expenses.

Amortization of intangible assets is amortization of the value attributable to intangible assets, including customer agreements and relationships, non-compete covenants, existing technologies and trade names associated with acquisitions completed by us as of April 30, 2009. Intangible assets with a finite life are amortized to income over their useful life. The amount of amortization expense in a fiscal period is dependent on our acquisition activities,

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as well as our asset impairment tests. Amortization of intangible assets for the first quarter of 2010 and 2009 was $1.8 million and $1.3 million, respectively. Amortization expense increased in 2010 from 2009 primarily as a result of including amortization from the 2009 acquisition of Dexx in October 2008 and the acquisitions of Oceanwide and Scancode in the first quarter of 2010. As at April 30, 2009, the unamortized portion of all intangible assets amounted to $26.2 million.

We test the fair value of our finite life intangible assets for recoverability when events or changes in circumstances indicate that there may be evidence of impairment. We performed an additional test at January 31, 2009 as a result of the deterioration in economic conditions and determined that there was no impairment. We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related cash flows. No finite life intangible asset impairment has been identified or recorded for any of the fiscal periods reported.

Contingent acquisition consideration of $0.5 million in the first quarter of 2009 related to our 2007 acquisition of Flagship Customs Services, Inc. (“FCS”). This amount represented acquisition consideration that was placed in escrow for the benefit of the former shareholders and released over time contingent on the continued employment of those shareholders. No contingent acquisition consideration related to FCS remains to be expensed.

Investment income was $0.1 million and $0.3 million for the first quarter of 2010 and 2009, respectively. The decrease in investment income is principally a result of lower interest rates in the 2010 period.

Income tax expense (recovery)is comprised of current and deferred income tax expense.

Income tax expense – currentwas $0.2 million and $0.1 million for the first quarter of 2010 and 2009, respectively. Current income taxes arise primarily from the estimate of our US taxable income that will be subject to federal alternative minimum tax and not fully sheltered by our loss carryforwards in certain US states.

Income tax expense (recovery) – deferredwas a recovery of $0.6 million and an expense of $0.5 million for the first quarter of 2010 and 2009, respectively. As described in Note 14 of the interim consolidated financial statements for the first quarter of 2010, we recorded a deferred income tax recovery of $1.6 million as a result of merging Oceanwide's US operations with our major US operating subsidiary. This deferred income tax recovery was partially offset by a $1.0 million deferred income tax expense as we used some of our deferred tax assets to offset our taxable income in certain jurisdictions in the first quarter of 2010.

Overall, we generated net income of $2.2 million in the first quarter of 2010, compared to net income of $1.1 million for the same period in 2009. A $1.6 million increase in gross margin, a $0.5 million decrease in contingent acquisition consideration and a $1.0 million decrease in income tax expense from a one-time deferred income tax recovery was partially offset by a $1.3 million increase in operating expenses, a $0.5 million increase in amortization of intangible assets, and a $0.2 million decrease in investment income.

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QUARTERLY OPERATING RESULTS

The following table provides an analysis of our unaudited operating results (in thousands of dollars, except per share and weighted average number of share amounts) for each of the quarters ended on the date indicated.

	April 30,	July 31,	October 31,	January 31,	Total
	2009	2009	2009	2010
2010
Revenues	17,419				17,419
Gross margin	12,232				12,232
Operating expenses	8,744				8,744
Net income	2,208				2,208
Basic and diluted earnings per share	0.04				0.04
Weighted average shares outstanding (thousands):
Basic	53,017				53,017
Diluted	53,737				53,737

	April 30,	July 31,	October 31,	January 31,	Total
	2008	2008	2008	2009
2009
Revenues	16,289	17,110	16,965	15,680	66,044
Gross margin	10,602	11,018	11,385	10,686	43,691
Operating expenses	7,449	7,659	7,676	7,212	29,996
Net income	1,054	1,392	2,318	15,446	20,210
Basic and diluted earnings per share	0.02	0.03	0.04	0.29	0.38
Weighted average shares outstanding (thousands):
Basic	52,933	52,942	52,965	53,002	52,961
Diluted	53,636	53,620	53,697	53,683	53,659

	April 30,	July 31,	October 31,	January 31,	Total
	2007	2007	2007	2008
2008
Revenues	13,288	14,263	15,463	16,011	59,025
Gross margin	8,716	9,408	9,995	10,266	38,385
Operating expenses	6,468	6,832	7,171	7,022	27,493
Net income	1,128	1,682	1,697	17,936	22,443
Basic earnings per share	0.02	0.03	0.03	0.34	0.44
Diluted earnings per share	0.02	0.03	0.03	0.33	0.43
Weighted average shares outstanding (thousands):
Basic	46,672	52,354	52,801	52,924	51,225
Diluted	48,221	53,401	53,715	53,721	52,290

Our operations continue to have seasonal trends. In our first fiscal quarter, we historically have seen lower shipment volumes by air and truck which impact the aggregate number of transactions flowing through our GLN business document exchange. In our second fiscal quarter, we historically have seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period but going forward with the recent loss of ocean customers, our trends will follow shipment and transactional volumes. In the third quarter, we have historically seen shipment and transactional volumes at their highest. In the fourth quarter, the various

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international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive.

Revenues have been positively impacted by the ten acquisitions that we have completed since the beginning of 2008. In addition, over the past two fiscal years we have seen increased transactions processed over our GLN business document exchange as we help our customers comply with electronic filing requirements of new US and Canadian customs regulations, including the CBP ACE e-manifest filing initiative described in more detail in the “Trends / Business Outlook” section later in this MD&A. These increases have been tempered by the general economic downturn that started impacting our business and global shipping volumes in 2009.

Revenues increased in the second quarter of 2008 over the previous quarter, principally due to the performance of our ocean and customs compliance services. Revenues increased in the third quarter of 2008 by $1.2 million over the previous quarter, principally due to our acquisition of GF-X in that quarter. Revenues also increased in the fourth quarter of 2008 primarily as a result of our acquisitions of RouteView, PCTB and Mobitrac in that quarter. Net income in the fourth quarter of 2008 was significantly impacted by an income tax recovery of $16.0 million resulting from a reduction in the valuation allowance for our deferred tax assets.

In 2009, our revenues followed historical seasonal trends with our second quarter of 2009 reflecting the period when our customers negotiate new ocean contracts and update rates using our technology services. Commencing in the third quarter of 2009, Dexx contributed to our total revenues. However, this increase in revenues in the fourth quarter was offset by large foreign currency translation impact, primarily from converting Canadian dollar and British pound sterling revenues to US dollars. Similarly, while our operating expenses were relatively unchanged throughout the first three quarters of 2009, there was a decrease in fourth quarter operating expenses principally as a result of foreign currency translation to US dollars. Net income in the first, second and third quarters of 2009 was impacted by a deferred tax expense of $0.5 million, $0.5 million and $0.4 million, respectively, as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our US taxable income for the first three quarters of 2009. The expense in the third quarter of 2009 was net of a recovery of $0.4 million as a result of the recognition of certain deferred tax assets in Sweden. Net income in the fourth quarter of 2009 was significantly impacted by an income tax recovery of $13.1 million resulting from a reduction in the valuation allowance for our deferred tax assets. The recovery in the fourth quarter of 2009 was net of a deferred tax expense of $1.0 million as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our taxable income in the US and Sweden. Our net income in the fourth quarter of 2009 was also impacted by approximately $0.3 million from a change to GAAP that required acquisition-related costs to be expensed in the period incurred. Prior GAAP required us to capitalize such costs as part of the purchase price for a business combination, generally to goodwill.

In the first quarter of 2010, our revenues and expenses increased as a result of our acquisitions of Oceanwide and Scancode. Our net income in the first quarter of 2010 was also impacted by approximately $0.3 million of acquisition-related costs. Prior GAAP required us to capitalize such costs as part of the purchase price for a business combination, generally to goodwill. In the first quarter of 2010, we recorded a deferred income tax recovery of $1.6 million as a result of merging Oceanwide's US operations with our major US operating subsidiary. This deferred income tax recovery was partially offset by a $1.0 million deferred income tax expense as we used some of our deferred tax assets to offset our taxable income in certain jurisdictions in the first quarter of 2010.

Our weighted average shares outstanding has increased since the first quarter of 2008, principally as a result of the issuance of approximately 5.2 million common shares pursuant to our April 2007 bought deal share offering, the GF-X acquisition in the third quarter of 2008 (approximately 0.5 million shares) and periodic employee stock option exercises.

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LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital expenditure requirements primarily through cash flows provided from operations and sales of debt and equity securities. As at April 30, 2009, we had $46.9 million in cash and cash equivalents and short-term investments and $2.4 million in unused available lines of credit, none of which was held in asset-backed commercial paper (“ABCP”). As at January 31, 2009, prior to our acquisitions of Oceanwide and Scancode, we had $57.6 million in cash and cash equivalents and $2.4 million in available lines of credit.

We believe that, considering the above, we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of current operating leases, and additional purchase price that may become payable pursuant to the terms of previously completed acquisitions. Should additional future financing be undertaken, the proceeds from any such transaction could be utilized to fund strategic transactions or for general corporate purposes. We expect, from time to time, to consider select strategic transactions to create value and improve performance, which may include acquisitions, dispositions, restructurings, joint ventures and partnerships, and we may undertake a financing transaction in connection with any such potential strategic transaction. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such financial transactions.

To the extent that any of our non-Canadian subsidiaries have earnings, our intention is that these earnings be re-invested in such subsidiary indefinitely. Accordingly, to date we have not encountered legal or practical restrictions on the abilities of our subsidiaries to repatriate money to Canada, even if such restrictions may exist in respect of certain foreign jurisdictions where we have subsidiaries. To the extent there are restrictions, they have not had a material effect on the ability of our Canadian parent to meet its financial obligations.

The table set forth below provides a summary of cash flows for the periods indicated in millions of dollars:

	First Quarter of
	2010	2009
Cash provided by operating activities	4.4	3.4
Additions to capital assets	(0.3)	(0.3)
Business acquisitions and acquisition-related costs, net of cash acquired	(14.9)	(0.5)
Issuance of common shares	0.1	-
Effect of foreign exchange rate on cash, cash equivalents and short-term investments	-	0.2
Net change in cash, cash equivalents and short-term investments	(10.7)	2.8
Cash, cash equivalents and short-term investments, beginning of period	57.6	44.1
Cash, cash equivalents and short-term investments, end of period	46.9	46.9

Cash provided by operating activities was $4.4 million and $3.4 million for the first quarter of 2010 and 2009, respectively. For the first quarter of 2010, the $4.4 million of cash provided by operating activities resulted from $2.2 million of net income, plus adjustments for $1.7 million of non-cash expenses included in net income, and $0.5 million of cash provided by changes in our operating assets and liabilities.

For the first quarter of 2009, the $3.4 million of cash provided by operating activities resulted from $1.1 million of net income, plus adjustments for $2.4 million of non-cash expenses included in net income, partially offset by a nominal use of cash due to changes in our operating assets and liabilities.

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Additions to capital assets of $0.3 million in each of the first quarter of 2010 and 2009 were primarily composed of investments in computing equipment and software to support our global operations and GLN.

Business acquisitions and acquisition-related costs, net of cash acquired of $14.9 million in the first quarter of 2010 is primarily comprised of $8.9 million of cash for the acquisition of Oceanwide and $5.9 million of cash for the acquisition of Scancode. The balance of this amount consists of acquisition-related costs relating to cash paid in the first quarter of 2010 for business acquisitions that we completed prior to 2010.

Business acquisitions and acquisition-related costs of $0.5 million in the first quarter of 2009 primarily represented cash paid during the first quarter of 2009 relating to our acquisition of GF-X.

Issuance of common shares of $0.1 million in the first quarter of 2010 is a result of the exercise of employee stock options.

Working capital. As at April 30, 2009, our working capital (current assets less current liabilities) was $49.9 million. Current assets include $36.9 million of cash and cash equivalents, $10.0 million of short-term investments, $9.5 million in current trade receivables and a $6.9 million deferred tax asset. Our working capital has decreased since January 31, 2009 by $12.6 million primarily as a result of cash used in the first quarter of 2010 for business acquisitions and, to a lesser extent, capital asset additions, partially offset by positive operating activities in 2010.

Cash and cash equivalents and short-term investments. As at April 30, 2009, all funds were held in interest-bearing bank accounts, bearer deposit notes or certificates of deposit, primarily with major Canadian and US banks. Cash and cash equivalents include short-term deposits and debt securities with original maturities of three months or less. At April 30, 2009, we held no investments in ABCP.

COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating lease obligations:

	Less than 1 year	1-3 years	3-5 years	More than 5 years	Total
Operating lease obligations	1.9	2.8	2.0	2.8	9.5

Operating Lease Obligations

We are committed under non-cancelable operating leases for business premises and computer equipment with terms expiring at various dates through 2020. The future minimum amounts payable under these lease agreements are described in the chart above.

Other Obligations

We have a commitment for income taxes incurred to various taxing authorities related to unrecognized tax benefits in the amount of $4.9 million. At this time, we are unable to make reasonably reliable estimates of the period of settlement with the respective taxing authority due to the possibility of the respective statutes of limitations expiring without examination by the applicable taxing authority.

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Contingencies

We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our annual results of operations or financial position.

Business combination agreements

In connection with the March 6, 2007 acquisition of certain assets of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc., an additional $0.85 million in cash was potentially payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. $0.3 million of that additional purchase price was paid in 2009, another $0.2 million of that additional purchase price became payable during the quarter ended April 30, 2009, and up to $0.1 million remains eligible to be earned by the previous owners prior to the end of the third quarter of 2010.

In respect of our August 17, 2007 acquisition of 100% of the outstanding shares of GF-X, up to $5.2 million in cash was potentially payable if certain performance targets, primarily relating to revenues, were met by GF-X over the four years subsequent to the date of acquisition. No amount was payable in respect of the first year post-acquisition period. Up to $3.9 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the three-year period ending August 17, 2011.

Product Warranties

In the normal course of operations, we provide our customers with product warranties relating to the performance of our software and network services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such on our financial statements.

Ontario Retail Sales Tax Audit

In 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit was still on-going at April 30, 2009. While no re-assessment had been issued at April 30, 2009, the audit has identified certain instances where ORST should have been collected on certain of our services and products. If any such additional ORST is assessed on prior customer transactions, we will attempt to collect this ORST from those customers.

We have estimated that our maximum expense resulting from the ORST audit is $0.7 million, however, net of ORST amounts that we expect to collect from customers, we estimate the expense is $0.2 million. Accordingly, the net impact of $0.2 million has been accrued up to April 30, 2009. We anticipate that the audit will be substantially completed during fiscal 2010.

Guarantees

In the normal course of business we enter into a variety of agreements that may contain features that meet the definition of a guarantee under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The following lists our significant guarantees:

Intellectual property indemnification obligations

We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license and services agreement with our customers, where license terms are typically perpetual. To date, we have not encountered material costs as a result of such indemnifications.

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Other indemnification agreements

In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements and leasing transactions. In addition, our corporate by-laws provide for the indemnification of our directors and officers. Each of these indemnifications requires us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparties as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnifications.

In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability for the guarantees or indemnities described above on our financial statements.

OUTSTANDING SHARE DATA

We have an unlimited number of common shares authorized for issuance. As of June 11, 2009, we had 53,060,327 common shares issued and outstanding.

As of June 11, 2009, there were 5,179,395 options issued and outstanding, and 337,207 remaining available for grant under all stock option plans.

On November 30, 2004, we announced that our board of directors had adopted a shareholder rights plan (the “Rights Plan”) to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the company. The Rights Plan was approved by the Toronto Stock Exchange and was originally approved by our shareholders on May 18, 2005. The Rights Plan took effect as of November 29, 2004. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

On December 3, 2008, we announced that the TSX had approved the purchase by us of up to an aggregate of 5,244,556 common shares of Descartes pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or NASDAQ, if and when we consider advisable. As at June 11, 2009 we had not completed any purchases pursuant to the normal course issuer bid.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our interim consolidated financial statements included herein and accompanying notes are prepared in accordance with GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected

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by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period and would materially impact our financial condition or results of operation. Our significant accounting policies are discussed in Note 2 to the audited consolidated financial statements for 2009 (the “2009 Consolidated Financial Statements”).

Our management has discussed the development, selection and application of our critical accounting policies with the audit committee of the board of directors. In addition, the board of directors has reviewed the accounting policy disclosures in this MD&A.

The following discusses the critical accounting estimates and assumptions that management has made under these policies and how they affect the amounts reported in the unaudited interim consolidated financial statements for the period ended April 30, 2009:

Revenue recognition

In recognizing revenue, we make estimates and assumptions on factors such as the probability of collection of the revenue from the customer, delivery of goods or services, whether the sales price is fixed or determinable, the amount of revenue to allocate to individual elements in a multiple element arrangement and other matters. We make these estimates and assumptions using our past experience, taking into account any other current information that may be relevant. These estimates and assumptions may differ from the actual outcome for a given customer which could impact operating results in a future period.

Long-Lived Assets

We test long-lived assets for recoverability when events or changes in circumstances indicate evidence of impairment.

Intangible assets are amortized on a straight-line basis over their estimated useful lives. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Our impairment analysis contains estimates due to the inherently speculative nature of forecasting long-term estimated cash flows and determining the ultimate useful lives of assets. Actual results will differ, which could materially impact our impairment assessment.

In the case of goodwill, we test for impairment at least annually at October 31 of each year and at any other time if any event occurs or circumstances change that would more likely than not reduce our enterprise value below our carrying amount. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Income Taxes

We have provided for income taxes based on information that is currently available to us. Tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. At April 30, 2009, we have recorded deferred tax assets of $30.9 million on our consolidated balance sheet for tax benefits that we currently expect to realize in future periods. During 2008 and 2009, we determined that there was sufficient positive evidence such that it was more likely than not that we would use a portion of our tax loss carryforwards to offset taxable income in the US, Canada, Netherlands, Sweden, and Australia in future periods. This positive evidence includes that we have earned cumulative income after permanent differences in each of these jurisdictions in the current and two preceding tax years. Accordingly, we reduced our valuation allowance for our deferred tax assets by $16.0 million and $14.5 million in 2008 and 2009, respectively, representing the amount of tax loss carryforwards that we projected would be used to offset taxable income in these jurisdictions

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over the ensuing six-year period. In making the projection for the six-year period, we made certain assumptions, including the following: (i) that the current economic downturn would result in reduced profit levels in fiscal 2010 and 2011, with a return to a level of income consistent with the current income levels in 2012 and beyond; (ii) that there will be continued customer migration from technology platforms owned by our US entity and our Swedish entity to a technology platform owned by another entity in our corporate group, further reducing taxable income in the US and Sweden; and (iii) that tax rates in these jurisdictions will be consistent over the six-year period of projection, except in Canada where rates are expected to decrease through 2013 and then remain consistent thereafter. Any further change to decrease the valuation allowance for the deferred tax assets would result in an income tax recovery on the consolidated statements of operations. If we achieve and maintain a consistent level of profitability, the likelihood of additional reductions to our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our business jurisdictions will increase.

Business Combinations

In connection with business acquisitions that we have completed, we identify and estimate the fair value of net assets acquired, including certain identifiable intangible assets (other than goodwill) and liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value of the net assets acquired is assigned to goodwill. Intangible assets include customer agreements and relationships, non-compete covenants, existing technologies and trade names. Our initial allocation of the purchase price is generally preliminary in nature and may not be final for up to one year from the date of acquisition. Changes to the estimate and assumptions used in determining our purchase price allocation may result in material differences depending on the size of the acquisition completed. For example, since May 29, 2009 when we announced our financial results for the interim period ended April 30, 2009 by press release (the “May 29, 2009 Press Release”), we have revised our initial allocation of the purchase price for the Scancode acquisition due to identification of additional information, and changes in assumption and estimates. These revisions to the preliminary allocation of the purchase price for the Scancode acquisition resulted in certain changes in the amounts allocated to particular assets and liabilities on our unaudited interim consolidated balance sheets as at April 30, 2009 included in this Quarterly Report to Shareholders from the amounts allocated to such assets in the interim consolidated balance sheets as at April 30, 2009 included in the May 29, 2009 Press Release. These changes resulting from the revised allocation of the purchase price on the Scancode acquisition are as follows: (i) the current portion of deferred income tax asset decreased by $34,000 from $6,894,000 to $6,860,000; (ii) goodwill increased by $472,000 from $33,908,000 to $34,380,000; (iii) intangible assets increased by $18,000 from $26,181,000 to $26,199,000; (iv) the current portion of income taxes payable decreased by $44,000 from $921,000 to $877,000; (v) the deferred income tax liability increased by $440,000 from $1,446,000 to $1,886,000; and (vi) accumulated other comprehensive income increased by $60,000 from $347,000 to $407,000. These revised allocations of the purchase price for the Scancode acquisition did not change the unaudited interim consolidated statements of operations or unaudited interim consolidated statements of cash flows for the three-month period ended April 30, 2009 that were previously included in the May 29, 2009 Press Release.

CHANGE IN / INITIAL ADOPTION OF ACCOUNTING POLICIES

Recently adopted accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), effective for fiscal years beginning after November 15, 2007, which was our fiscal year ending January 31, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS 157-2, which delayed the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which is our fiscal year ending January 31, 2010. We adopted the non-deferred portion of SFAS 157 on February 1, 2008 and the deferred portion on February 1, 2009. The adoption of SFAS 157 has not had a material impact on our results of operations or financial condition to date.

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In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. We expensed $0.3 million of acquisition-related costs in the first quarter of 2010 as a result of our adoption of SFAS 141R on February 1, 2009. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition. Our January 31, 2009 consolidated balance sheet included approximately $258,000 of deferred acquisition-related costs in prepaid expenses and other. Accordingly, our adoption of SFAS 141R resulted in a retroactive increase to our January 31, 2009 accumulated deficit and decrease in prepaid expenses and other of $258,000, under the transitional provisions of SFAS 141R.

In April 2009, the FASB issued FSP 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141R-1”), effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. FSP 141R-1 amends and clarifies the application of SFAS 141R to assets and liabilities arising from contingencies in a business combination. Our adoption of FSP 141R-1 on February 1, 2009 did not have a material impact on our results of operations and financial condition for the first quarter of 2010. Depending on the size and scope of any future business combination that we undertake, we believe that FSP 141R-1 may have a material impact on our results of operations and financial condition.

In April 2008, the FASB issued FSP 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 the recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of the guidance is 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. For a recognized intangible asset, an entity will be required to disclose information that enables users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The adoption of FSP 142-3 has not had a material impact on our results of operations or financial condition to date.

In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period that the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The adoption of EITF 08-7 has not had a material impact on our results of operations or financial condition to date.

Recently issued accounting pronouncements not yet adopted

In April 2009, the FASB issued FSP 157-4 “Determining Fair Value when the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly” (“FSP 157-4”). FSP 157-4 clarifies the application of SFAS 157 in determining fair value for a financial asset when the volume or level of activity for that asset or liability has significantly decreased and also provides guidance to identify circumstances that indicate a transaction is not orderly. The FSP is effective for interim and annual reporting periods ending after June 15, 2009, which is our interim reporting period ending July 31, 2009. We are currently in the process of assessing the impact, if any, that FSP 157-4 could have on our results of operations and financial condition once effective.

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In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). The intent of SFAS 165 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim and annual reporting periods ending after June 15, 2009, which is our interim reporting period ending July 31, 2009. We do not expect SFAS 165 to have an impact on our results of operations and financial condition once effective.

TRENDS / BUSINESS OUTLOOK

This section discusses our outlook for the remainder of 2010 as of the date of this MD&A, and contains forward-looking statements.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation, or the freight market in general, include legal and regulatory requirements; timing of contract renewals between our customers and their own customers; seasonal-based tariffs; vacation periods applicable to particular shipping or receiving nations; weather-related events or natural disasters, that impact shipping in particular geographies; availability of credit to support shipping operations; economic downturns, and amendments to international trade agreements. As many of our services are sold on a “per shipment” basis, we anticipate that our business will continue to reflect the general cyclical and seasonal nature of shipment volumes with our third quarter being the strongest quarter for shipment volumes (compared to our first quarter being the weakest quarter for shipment volumes). Historically, in our second fiscal quarter, we’ve seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. We don’t expect to see as large an increase in our second fiscal quarter revenues going-forward as we’ve seen historically in the second fiscal quarter, primarily due to recent departures of customers for our legacy ocean services.

In 2006, US Customs and Border Protection (“CBP”) launched its e-manifest initiative requiring trucks entering the US to file an electronic manifest through its Automated Commercial Environment (“ACE”), providing the CBP with an advance electronic notice of the contents of the truck. Such filings are now mandatory at land ports of entry into the US. Similar filings are required for ocean vessels and airplanes at US air and sea ports. CBP has implemented enhancements to this ACE e-manifest initiative, called “10+2” enhancements, that require additional data and filings to be provided to CBP in 2010, starting with ocean shipments. We have various customs compliance services specifically designed to help air, ocean and truck carriers comply with this ACE e-manifest initiative and have recently launched our 10+2 solution and acquired additional 10+2 solutions and customers as part of our acquisition of Oceanwide. If the roll-out of these initiatives continues as scheduled and compliance is rigidly enforced by CBP, then we anticipate that our revenues will be positively impacted in the remainder of 2010. A similar e-manifest advanced notification initiative is being developed for Canada land ports by the Canadian Border Service Agency and may be effective and enforced in 2010.

In the first quarter of fiscal 2010, our services revenues comprised approximately 97% of our total revenues, with the balance being license revenues. We expect that our focus in the remainder of 2010 will remain on generating services revenues, primarily by promoting use of our GLN (including customs compliance services) and the migration of customers using our legacy license-based products to our services-based architecture. We do, however, anticipate maintaining the flexibility to license our products to those customers who prefer to buy the products in that fashion and the composition of our revenues in any one quarter between services revenues and license revenues will be impacted by the buying preferences of our customers.

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In the latter half of fiscal 2009 and in to fiscal 2010, we have seen a massive global economic downturn that has impacted all areas of the economy, including employment, the availability of credit, manufacturing and retail sales. With economic conditions impacting what is being built and sold, we anticipate that there will be an impact on volumes that are shipped. Portions of our revenues are dependent on the amount of goods being shipped, the types of goods being shipped, the modes by which they are being shipped and/or the number of aggregate shipments. Accordingly, we are planning for our transaction revenues to be adversely impacted by the global economic downturn in the remainder of fiscal 2010.

In addition, in the remainder of fiscal 2010 we anticipate that some of our customers will be impacted by the global economic downturn in such a manner that they will either choose to reduce or eliminate their use of some of our services. In particular, in 2010 we anticipate that we will lose approximately $3 million in annual recurring revenues compared to 2009 as customers cease using our legacy ocean contract services and other legacy applications. We can provide no assurance that we will be able to replace that recurring revenue.

We also have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts, particularly for our ocean products, which provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. Based on our historical experience, we anticipate that over a one-year period we may lose approximately 3% or more of our aggregate revenues in the ordinary course. This 3% is in addition to the $3 million in annual recurring revenues that we anticipate we will lose in fiscal 2010 compared to fiscal 2009. There can be no assurance that we will be able to replace such lost revenue with new revenue from new customer relationships or from existing customers.

We internally measure and manage our “baseline operating expenses,” a non-GAAP financial measure, which we define as our total expenses less interest, taxes, depreciation and amortization (for which we include amortization of intangible assets, contingent acquisition consideration and deferred compensation), stock-based compensation, acquisition-related costs and restructuring charges. We currently intend to manage our business with the goal of having our baseline operating expenses for a period be between 70% and 80% of our total revenues for that period. We also internally measure and monitor our visible, recurring and contracted revenues, which we refer to as our “baseline revenues”, a non-GAAP financial measure. Baseline revenues are not a projection of anticipated total revenues for a period as they exclude any anticipated or expected new sales for a period beyond the date that the baseline revenues are measured. In the second quarter of 2010, we intend to continue to manage our business with our baseline operating expenses at a level below our baseline revenues. We refer to the difference between our baseline revenues and baseline operating expenses as our “baseline calibration”, a non-GAAP financial measure. Our baseline calibration is not a projection of net income or adjusted net income for period, as determined in accordance with GAAP, as it excludes anticipated or expected new sales for a period beyond the date that the baseline calibration is measured, excludes any expenses associated with such new sales, and excludes the expenses identified as excluded in the definition of “baseline operating expenses,” above. At May 1, 2009, using foreign exchange rates that existed at April 30, 2009, we estimated that our baseline revenues for the second quarter of 2010 were $17.0 million and our baseline operating expenses were $13.1 million. However, with large fluctuations in the foreign exchange rates to the US dollar, we also measured our calibration as at May 27, 2009. So, at May 27, 2009, using foreign exchange rates that existed at May 27, 2009, we estimated that our baseline revenues for the second quarter of 2010 were $17.1 million and our baseline operating expenses were $13.4 million. We consider this to be baseline calibration of $3.7 million for the second quarter of 2010, or approximately 22% of our baseline revenues, determined as of May 27, 2009.

In the remainder of fiscal 2010, we anticipate that we will need to re-calibrate our business when and if recurring revenues exit our business or there are further large fluctuations in foreign rates to the US dollar. We expect that re-calibration of our business will include the reduction of expenses through the implementation of cost reduction initiatives and further acceleration of integration activities for acquired companies. In the first quarter of 2010, we started cost reduction activities in anticipation of the $3 million in annual recurring revenues that we expect to

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lose in 2010 because of the departure of customers of our legacy ocean contract services other legacy applications. We expect cost-reduction activities to continue in the second quarter of 2010 to maintain our calibration.

We anticipate that in fiscal 2010, the significant majority of our business will continue to be in the Americas, with the EMEA region being the bulk of the remainder of our business. We believe we currently have some significant opportunities in the Americas region. We anticipate that revenues from the Asia Pacific Region will continue to represent less than 5% of our total revenues in the remainder of fiscal 2010.

We estimate that amortization expense for existing intangible assets will be $5.3 million for the remainder of 2010, $6.8 million for 2011, $4.9 million for 2012, $2.5 million for 2013, $2.0 million for 2014, $1.1 million for 2015 and $3.6 million thereafter, assuming that no impairment of existing intangible assets occurs in the interim.

We performed our annual goodwill impairment tests in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” on October 31, 2008 and updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009. We are currently scheduled to perform our next annual impairment test on October 31, 2009. In addition, we will continue to perform quarterly analyses of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. The likelihood of any future impairment increases if our public market capitalization is adversely impacted by global economic, capital market or other conditions for a sustained period of time. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified.

In 2009, we spent $1.3 million on capital expenditures and expect that 2010 expenditures will be above that level as we invest in our network and build out infrastructure. Capital expenditures were $0.3 million in the first quarter of 2010, and we expect they will be less than $0.5 million in the second quarter of 2010.

We conduct business in a variety of foreign currencies and, as a result, all of our foreign operations are subject to foreign exchange fluctuations. Our operations operate in their local currency environment and use their local currency as their functional currency. Assets and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using monthly average exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders’ equity. Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income. Some of our cash is held in foreign currencies. We currently have no specific hedging program in place to address fluctuations in international currency exchange rates. We can make no accurate prediction of what will happen with international currency exchange rates for the balance of 2010. However, if the US dollar is weak in comparison to foreign currencies, then we anticipate this will increase the expenses of our business and have a negative impact on our results of operations. In such cases we may need to undertake cost-reduction activities to maintain our calibration.

At June 11, 2009, we had 76,438 outstanding deferred stock units (“DSUs”) and 672,032 outstanding restricted stock units (“RSUs”). DSUs and RSUs are notional share units granted to directors, officers and employees that, when vested, are settled in cash by Descartes using the fair market value of Descartes’ common shares at the vesting date. DSUs, which have only been granted to directors, vest upon award but are only paid at the completion of the applicable director’s service to Descartes. RSUs generally vest and are paid over a period of three- to five-years. Our liability to pay amounts for DSUs and RSUs is determined using the fair market value of Descartes’ common shares at the applicable balance sheet date. Increases in the fair market value of Descartes’ common shares between reporting periods will require us to record additional expense in a reporting period; while decreases in the fair market value of Descartes’ common shares between reporting periods require us to record an expense recovery. For DSUs, the amount of any expense or recovery is based on the entire number of DSUs outstanding as DSUs are fully vested upon award. For RSUs, the amount of any expense or recovery is based on the number of RSUs that were expensed in the applicable reporting period as employees performed services, but

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that have not yet vested or been paid pursuant to the terms of the RSU grant. We are not able to predict these expenses or expense recoveries and, accordingly, they are outside our calibration.

As of April 30, 2009, our gross amount of unrecognized tax benefits was approximately $4.9 million. We expect that the unrecognized tax benefits will increase within the next 12 months due to uncertain tax positions that may be taken, although at this time a reasonable estimate of the possible increase cannot be made.

In the first quarter of 2010, we recorded a deferred income tax recovery of $1.6 million as a result of merging Oceanwide's US operations with our major US operating subsidiary. This deferred income tax recovery was partially offset by a $1.0 million deferred income tax expense as we used some of our deferred tax assets to offset our taxable income in certain jurisdictions in the first quarter of 2010.

The amount of any tax expense in a period will depend on the amount of taxable income, if any, we generate in a jurisdiction and our then current effective tax rate in that jurisdiction. We can provide no assurance as to the timing or amounts of any income tax expense or expensing of deferred tax assets, nor can be we provide any assurance that our current valuation allowance for deferred tax assets will not need to be adjusted further.

Our anticipated tax rate for a period is difficult to predict and may vary from period to period as it depends on factors including the actual jurisdictions in which revenues are earned, the tax rates in those jurisdictions, tax assessments and the amount of tax losses, if any, we have available to offset this income. This is particularly so in the US where we are taxed on a state-by-state basis. Based on our current understanding of our geographical revenue mix, revenue pipeline, tax filings and available tax losses, we currently anticipate that our effective tax rate for fiscal 2010 will be in the range of 35-40%.

We intend to actively explore business combinations in the remainder of 2010 to add complementary services, products and customers to our existing businesses. In the first quarter or 2010, we completed the acquisitions of Oceanwide and Scancode. Going forward, we intend to focus our acquisition activities on companies that are targeting the same customers as us and processing similar data and, to that end, will listen to our customers’ suggestions as they relate to consolidation opportunities. Depending on the size and scope of any such business combination, or series of contemplated business combinations, we may need to raise additional debt or equity capital. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction.

Certain future commitments are set out above in the section of this MD&A called “Commitments, Contingencies and Guarantees”. We believe that we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of these commitments.

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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Any investment in us will be subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks described below together with all other information included in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are not aware of or have not focused on, or that we currently deem immaterial, may also impair our business operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, they could materially adversely affect our business, financial condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment.

General economic conditions may affect our business, results of operations and financial condition.

Demand for our products depends in large part upon the level of capital and operating expenditures by many of our customers. Decreased capital and operational spending could have a material adverse effect on the demand for our products and our business, results of operations, cash flow and overall financial condition. Disruptions in the financial markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future, which could result in the delay or cancellation of projects or capital programs on which our business depends. In addition, the disruptions in the financial markets may also have an adverse impact on regional economies or the world economy, which could negatively impact the capital and operating expenditures of our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to commit funds to purchase our products and services, or their ability to pay for our products and services after purchase. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the US and other countries.

Our existing customers might cancel existing contracts with us, fail to renew contracts on their renewal dates, and fail to purchase additional services and products, or consolidate contracts with acquired companies.

We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. An example would be our contract to operate the US Census Bureau’s Automated Export System (AESDirect). In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. In 2007, for example, we lost certain customers due to the Legacy Ocean Services Cancellations who generated significant recurring revenues. In 2010, we expect to lose an additional $3 million in annual recurring revenues using our legacy ocean contract compared to 2009 from departing services customers in addition to the normal 3% annual revenue attrition we plan for. There can be no assurance that we will be able to replace such lost revenue with new revenue from new customer relationships or from existing customers.

If our customers fail to renew their service contracts, fail to purchase additional services or products, or consolidate contracts with acquired companies, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, and changes in our customers’ business or in regulation impacting our customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues anticipated within the timelines

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anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenues losses. Our business may also be unfavorably affected by market trends impacting our customer base, such as consolidation activity in our customer base.

Disruptions in the movement of freight could negatively affect our revenues.

Our business is highly dependent on the movement of freight from one point to another as we generate transaction revenues as freight is moved by, to or from our customers. If there are disruptions in the movement of freight, whether as a result of labour disputes or weather or natural disaster, or caused by terrorists, political or security activities, contagious illness outbreaks, or otherwise, then our revenues will be adversely affected. As these types of freight disruptions are generally unpredictable, there can be no assurance that our revenues will not be adversely affected by such events.

Changes in the value of the US dollar, as compared to the currencies of other countries where we transact business, could harm our operating results and financial condition.

To date, our international revenues have been denominated primarily in US dollars. However, the majority of our international expenses, including the wages of our non-US employees and certain key supply agreements, have been denominated in currencies other than the US dollar. Therefore, changes in the value of the US dollar as compared to these other currencies may materially affect our operating results. We generally have not implemented hedging programs to mitigate our exposure to currency fluctuations affecting international accounts receivable, cash balances and inter-company accounts. We also have not hedged our exposure to currency fluctuations affecting future international revenues and expenses and other commitments. Accordingly, currency exchange rate fluctuations have caused, and may continue to cause, variability in our foreign currency denominated revenue streams, expenses, and our cost to settle foreign currency denominated liabilities. In particular, we incur a significant portion of our expenses in Canadian dollars relative to the amount of revenue we receive in Canadian dollars, so fluctuations in the Canadian-US dollar exchange rate, and in particular, the weakening of the US dollar, could have a material adverse effect on our business, results of operations and financial condition.

We have a substantial accumulated deficit and a history of losses and may incur losses in the future.

As at April 30, 2009, our accumulated deficit was $360.4 million. Although we were profitable in the first quarter of 2010 and we have been profitable for each quarter of the past four years, we had losses in 2005 and prior fiscal periods. While we are encouraged by our recent profits, our profits in 2006 benefited from one-time gains on the disposition of an asset and a significant portion of our net income and earnings per share in the fourth quarter of each of 2008 and 2009 benefited from a non-cash, net deferred income tax recovery of $16.0 million and $11.7 million, respectively. In addition, our net income in the first quarter of 2010 benefitted from a one-time $1.6 million deferred tax recovery resulting from internal corporate re-organizations in connection with our acquisition of Oceanwide. There can be no assurance that we will not incur losses again in the future. We believe that the success of our business and our ability to remain profitable depends on our ability to keep our baseline operating expenses to a level at or below our baseline revenues. There can be no assurance that we can generate further expense reductions or achieve revenues growth, or that any expense reductions or revenues growth achieved can be sustained, to enable us to do so. If we fail to maintain profitability, this would increase the possibility that the value of your investment will decline.

If we need additional capital in the future and are unable to obtain it as needed or can only obtain it on unfavorable terms, our operations may be adversely affected, and the market price for our securities could decline.

Historically, we have financed our operations primarily through cash flows from our operations and the sale of our equity securities. As at April 30, 2009, we had cash and cash equivalents and short-term investments of approximately $46.9 million and $2.4 million in unutilized operating lines of credit.

While we believe we have sufficient liquidity to fund our current operating and working capital requirements, we may need to raise additional debt or equity capital to fund expansion of our operations, to enhance our services

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and products, or to acquire or invest in complementary products, services, businesses or technologies. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction. If we raise additional funds through further issuances of convertible debt or equity securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those attaching to our common shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available on terms favorable to us, our operations and growth strategy may be adversely affected and the market price for our common shares could decline.

Making and integrating acquisitions involves a number of risks that could harm our business.

We have in the past acquired, and in the future expect to seek to acquire, additional products, services, customers, technologies or businesses that we believe are complementary to ours. For example, in 2010 we have acquired two businesses (Oceanwide and Scancode), in 2009 we acquired one business (Dexx), in 2008 we acquired six businesses and in 2007 we acquired three businesses. However, we may not be able to identify appropriate products, technologies or businesses for acquisition or, if identified, conclude such acquisitions on terms acceptable to us. Acquisitions involve a number of risks, including: diversion of management’s attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company’s internal controls and procedures. In addition, we may not identify all risks or fully assess risks identified in connection with an acquisition. The individual or combined effect of these risks could have a material adverse effect on our business. As well, in paying for an acquisition, we may deplete our cash resources or dilute our shareholder base by issuing additional shares. Furthermore, there is the risk that our valuation assumptions, customer retention expectations and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause us to overvalue an acquisition target. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated.

We may have difficulties maintaining or growing our acquired businesses.

Businesses that we acquire may sell products, or operate services, that we have limited experience operating or managing. For example, Oceanwide, ViaSafe, FCS and Dexx each operate in the emerging regulatory compliance business, and GF-X operates in electronic air freight booking. We may experience unanticipated challenges or difficulties in maintaining these businesses at their current levels or in growing these businesses. Factors that may impair our ability to maintain or grow acquired businesses may include, but are not limited to:

• Challenges in integrating acquired businesses with our business;

• Loss of customers of the acquired business;

• Loss of key personnel from the acquired business, such as former executive officers or key technical personnel;

• For regulatory compliance businesses, changes in government regulations impacting electronic regulatory filings or import/export compliance, including changes in which government agencies are responsible for gathering import and export information;

• Difficulties in gaining necessary approvals in international markets to expand acquired businesses as contemplated;

• Our inability to obtain or maintain necessary security clearances to provide international shipment management services; and

• Other risk factors identified in this report.

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If we fail to attract and retain key personnel, it would adversely affect our ability to develop and effectively manage our business.

Our performance is substantially dependent on the performance of our key technical, sales and marketing, and senior management personnel. We do not maintain life insurance policies on any of our employees that list the company as a loss payee. Our success is highly dependent on our ability to identify, hire, train, motivate, promote, and retain highly qualified management, directors, technical, and sales and marketing personnel, including key technical and senior management personnel. Competition for such personnel is always strong. Our inability to attract or retain the necessary management, directors, technical, and sales and marketing personnel, or to attract such personnel on a timely basis, could have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

We have in the past, and may in the future, make changes to our executive management team or board of directors. There can be no assurance that these changes and the resulting transition will not have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

Changes in government filing requirements for global trade may adversely impact our business.

Our regulatory compliance services help our customers comply with government filing requirements relating to global trade. The services that we offer may be impacted, from time to time, by changes in these requirements. Changes in requirements that impact electronic regulatory filings or import/export compliance, including changes adding or reducing filing requirements or changing the government agency responsible for the requirement could impact our business, perhaps adversely.

Increases in fuel prices and other transportation costs may have an adverse effect on the businesses of our customers resulting in them spending less money with us.

Our customers are all involved, directly or indirectly, in the delivery of goods from one point to another, particularly transportation providers and freight forwarders. As the costs of these deliveries become more expensive, whether as a result of increases in fuel costs or otherwise, our customers may have fewer funds available to spend on our products and services. While it is possible that the demand for our products and services will increase as companies look for ways to reduce fleet size and fuel use and recognize that our products and services are designed to make their deliveries more cost-efficient, there can be no assurance that these companies will be able to allocate sufficient funds to use our products and services. In addition, rising fuel costs may cause global or geographic-specific reductions in the number of shipments being made, thereby impacting the number of transactions being processed by our Global Logistics Network and our corresponding network revenues.

We may not be able to compensate for downward pricing pressure on certain products and services by increased volumes of transactions or increased prices elsewhere in our business, ultimately resulting in lower revenues.

Some of our products and services are sold to industries where there is downward pricing pressure on the particular product or service due to competition, general industry conditions or other causes. We may attempt to deal with this pricing pressure by committing these customers to volumes of activity so that we may better control our costs. In addition, we may attempt to offset this pricing pressure by securing better margins on other products or services sold to the customer, or to other customers elsewhere in our business. If we cannot offset any such downward pricing pressure, then the particular customer may generate less revenue for our business or we may have less aggregate revenue. This could have an adverse impact on our operating results.

The general cyclical and seasonal nature of our business may have a material adverse effect on our business, results of operations and financial condition.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the cyclical and seasonal nature of the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation or the freight market in general include legal and regulatory requirements, timing of contract renewals between our customers and their own customers, seasonal-based tariffs, vacation periods applicable to particular shipping or receiving nations, weather-related events that impact shipping in particular geographies and amendments to international

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trade agreements. Since some of our revenues from particular products and services are tied to the volume of shipments being processed, adverse fluctuations in the volume of global shipments or shipments in any particular mode of transportation may adversely affect our revenues. There can be no assurance that declines in shipment volumes in the US or internationally won’t have a material adverse effect on our business.

We may have exposure to greater than anticipated tax liabilities or expenses.

We are subject to income and non-income taxes in various jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Although we believe that our estimates are reasonable and that we have adequately provided for income taxes based on all of the information that is currently available to us, tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. We have recorded a valuation allowance for all but $30.9 million of our net deferred tax assets. If we achieve a consistent level of profitability, the likelihood of further reducing our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our jurisdictions will increase. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during subsequent years. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. Any further changes to the valuation allowance for our deferred tax assets would also result in an income tax recovery or income tax expense, as applicable, on the consolidated statements of operations in the period in which the valuation allowance is changed. In addition, when we reduce our deferred tax valuation allowance, we will record income tax expense in any subsequent period where we use that deferred tax asset to offset any income tax payable in that period, reducing net income reported for that period, perhaps materially.

In addition, in 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit was still on-going at April 30, 2009. While no re-assessment had been issued at April 30, 2009, the audit has identified certain instances where ORST should have been collected on certain Descartes services and products. If any such additional ORST is assessed on prior customer transactions, we will attempt to collect this ORST from those customers, but there can be no assurance we will be successful in such collection efforts. If we are unable to collect such ORST from our customers, we will have additional tax liabilities.

Changes to earnings resulting from past acquisitions may adversely affect our operating results.

Under business combination accounting standards, we allocate the total purchase price to an acquired company’s net tangible assets, intangible assets and in-process research and development based on their values as of the date of the acquisition (including certain assets and liabilities that are recorded at fair value) and record the excess of the purchase price over those values as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges that would adversely affect our operating results and may adversely affect our cash flows:

• Impairment of goodwill or intangible assets;

• A reduction in the useful lives of intangible assets acquired;

• Identification of assumed contingent liabilities after we finalize the purchase price allocation period;

• Charges to our operating results to eliminate certain pre-merger activities that duplicate those of the acquired company or to reduce our cost structure; or

• Charges to our operating results resulting from revised estimates to restructure an acquired company’s operations after we finalize the purchase price allocation period.

Routine charges to our operating results associated with acquisitions include amortization of intangible assets, in-process research and development as well as other acquisition related charges, restructuring and stock-based compensation associated with assumed stock awards. Charges to our operating results in any given period could

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differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities.

We expect to continue to incur additional costs associated with combining the operations of our acquired companies, which may be substantial. Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated stock-based compensation expenses and severance payments, reorganization or closure of facilities, taxes, and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease our net income and earnings per share for the periods in which those adjustments are made.

In December 2007, the FASB issued SFAS 141R, “Business Combinations”. SFAS 141R became effective for us at the beginning of fiscal 2010. We expensed $0.3 million of acquisition-related costs in the first quarter of 2010 as a result of our adoption of SFAS 141R on February 1, 2009. We did not expense similar costs in prior periods. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition.

If our common share price decreases to a level such that the fair value of our net assets is less than the carrying value of our net assets, we may be required to record additional significant non-cash charges associated with goodwill impairment.

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (‘SFAS 142”), which we adopted effective February 1, 2002. SFAS 142, among other things, requires that goodwill be tested for impairment at least annually. We have designated October 31 as the date for our annual impairment test. Although the results of our testing on October 31, 2008 indicated no evidence of impairment, should the fair value of our net assets, determined by our market capitalization, be less than the carrying value of our net assets at future annual impairment test dates, we may have to recognize goodwill impairment losses in our future results of operations. This could impair our ability to achieve or maintain profitability in the future. We updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009.

Fair value assessments of our intangible assets required by GAAP may require us to record significant non-cash charges associated with intangible asset impairment.

Significant portions of our assets, which include customer agreements and relationships, non-compete covenants, existing technologies and trade names, are intangible. We amortize intangible assets on a straight-line basis over their estimated useful lives, which are generally three to five years. We review the carrying value of these assets at least annually for evidence of impairment. In accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”, an impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Future fair value assessments of intangible assets may require impairment charges to be recorded in the results of operations for future periods. This could impair our ability to achieve or maintain profitability in the future.

System or network failures or breaches in connection with our services and products could reduce our sales, impair our reputation, increase costs or result in liability claims, and seriously harm our business.

Any disruption to our services and products, our own information systems or communications networks or those of third-party providers upon whom we rely as part of our own product offerings, including the Internet, could result in the inability of our customers to receive our products for an indeterminate period of time. Our services and products may not function properly for reasons, which may include, but are not limited to, the following:

• System or network failure;

• Interruption in the supply of power;

• Virus proliferation;

• Security breaches;

• Earthquake, fire, flood or other natural disaster; or

• An act of war or terrorism.

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Although we have made significant investments, both internally and with third-party providers, in redundant and back-up systems for some of our services and products, these systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers. Any disruption to our services could impair our reputation and cause us to lose customers or revenue, or face litigation, necessitate customer service or repair work that would involve substantial costs and distract management from operating our business.

From time to time, we may be subject to litigation or dispute resolution that could result in significant costs to us and damage to our reputation.

From time to time, we may be subject to litigation or dispute resolution relating to any number or type of claims, including claims for damages related to undetected errors or malfunctions of our services and products or their deployment, claims related to previously-completed acquisition transactions or claims relating to applicable securities laws. A product liability, patent infringement, acquisition-related or securities class action claim could seriously harm our business because of the costs of defending the lawsuit, diversion of employees’ time and attention, and potential damage to our reputation.

Further, our services and products are complex and often implemented by our customers to interact with third-party technology or networks. Claims may be made against us for damages properly attributable to those third-party technologies or networks, regardless of our lack of responsibility for any failure resulting in a loss - even if our services and products perform in accordance with their functional specifications. We may also have disputes with key suppliers for damages incurred which, depending on resolution of the disputes, could impact the ongoing quality, price or availability of the services or products we procure from the supplier. While our agreements with our customers, suppliers and other third-parties may contain provisions designed to limit exposure to potential claims, these limitation of liability provisions may not be enforceable under the laws of some jurisdictions. As a result, we could be required to pay substantial amounts of damages in settlement or upon the determination of any of these types of claims, and incur damage to the reputation of Descartes and our products. The likelihood of such claims and the amount of damages we may be required to pay may increase as our customers increasingly use our services and products for critical business functions, or rely on our services and products as the systems of record to store data for use by other customer applications. Although we carry general liability and directors and officers insurance, our insurance may not cover potential claims, or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

We could be exposed to business risks in our international operations that could cause our operating results to suffer.

While our headquarters are in North America, we currently have direct operations in both Europe and China. We anticipate that these international operations will continue to require significant management attention and financial resources to localize our services and products for delivery in these markets, to develop compliance expertise relating to international regulatory agencies, and to develop direct and indirect sales and support channels in those markets. We face a number of risks associated with conducting our business internationally that could negatively impact our operating results. These risks include, but are not limited to:

• Longer collection time from foreign clients, particularly in the Asia Pacific region;

• Difficulty in repatriating cash from certain foreign jurisdictions;

• Language barriers, conflicting international business practices, and other difficulties related to the management and administration of a global business;

• Difficulties and costs of staffing and managing geographically disparate direct and indirect operations;

• Currency fluctuations and exchange and tariff rates;

• Multiple, and possibly overlapping, tax structures and a wide variety of foreign laws;

• Trade restrictions;

• The need to consider characteristics unique to technology systems used internationally;

• Economic or political instability in some markets; and

• Other risk factors set out in this report.

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We may not remain competitive. Increased competition could seriously harm our business.

The market for supply chain technology is highly competitive and subject to rapid technological change. We expect that competition will increase in the future. To maintain and improve our competitive position, we must continue to develop and introduce in a timely and cost effective manner new products, product features and network services to keep pace with our competitors. We currently face competition from a large number of specific entrants, some of which are focused on specific industries, geographic regions or other components of markets we operate in.

Current and potential competitors include supply chain application software vendors, customers that undertake internal software development efforts, value-added networks and business document exchanges, enterprise resource planning software vendors, regulatory filing companies, and general business application software vendors. Many of our current and potential competitors may have one or more of the following relative advantages:

• Longer operating history;

• Greater financial, technical, marketing, sales, distribution and other resources;

• Lower cost structure and more profitable operations;

• Superior product functionality and industry-specific expertise;

• Greater name recognition;

• Broader range of products to offer;

• Better performance;

• Larger installed base of customers;

• Established relationships with existing customers or prospects that we are targeting; and/or

• Greater worldwide presence.

Further, current and potential competitors have established, or may establish, cooperative relationships and business combinations among themselves or with third parties to enhance their products, which may result in increased competition. In addition, we expect to experience increasing price competition and competition surrounding other commercial terms as we compete for market share. In particular, larger competitors or competitors with a broader range of services and products may bundle their products, rendering our products more expensive and/or less functional. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.

If we are unable to generate broad market acceptance of our services, products and pricing, serious harm could result to our business.

We currently derive substantially all of our revenues from our supply chain services and products and expect to do so in the future. Broad market acceptance of these types of services and products, and their related pricing, is therefore critical to our future success. The demand for, and market acceptance of, our services and products is subject to a high level of uncertainty. Some of our services and products are often considered complex and may involve a new approach to the conduct of business by our customers. The market for our services and products may weaken, competitors may develop superior services and products, or we may fail to develop acceptable services and products to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations and financial condition.

Our success and ability to compete depends upon our ability to secure and protect patents, trademarks and other proprietary rights.

We consider certain aspects of our internal operations, our products, services and related documentation to be proprietary, and we primarily rely on a combination of patent, copyright, trademark and trade secret laws and other measures to protect our proprietary rights. Patent applications or issued patents, as well as trademark, copyright, and trade secret rights, may not provide adequate protection or competitive advantage and may require significant resources to obtain and defend. We also rely on contractual restrictions in our agreements with customers, employees, outsourced developers and others to protect our intellectual property rights. There can be no assurance that these agreements will not be breached, that we have adequate remedies for any breach, or that

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our patents, copyrights, trademarks or trade secrets will not otherwise become known. Moreover, the laws of some countries do not protect proprietary intellectual property rights as effectively as do the laws of the US and Canada. Protecting and defending our intellectual property rights could be costly regardless of venue. Through an escrow arrangement, we have granted some of our customers a contingent future right to use our source code for software products solely for internal maintenance services. If our source code is accessed through an escrow, the likelihood of misappropriation or other misuse of our intellectual property may increase.

Claims that we infringe third-party proprietary rights could trigger indemnification obligations and result in significant expenses or restrictions on our ability to provide our products or services.

Competitors and other third-parties have claimed, and in the future may claim, that our current or future services or products infringe their proprietary rights or assert other claims against us. Many of our competitors have obtained patents covering products and services generally related to our products and services, and they may assert these patents against us. Such claims, whether with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from focusing on our core business.

As a result of such a dispute, we may have to pay damages, incur substantial legal fees, suspend the sale or deployment of our services and products, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would increase our expenses and could decrease the functionality of our services and products, which would make our services and products less attractive to our current and/or potential customers. We have agreed in some of our agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties. If we are required to make payments pursuant to these indemnification agreements, it could have a material adverse effect on our business, results of operations and financial condition.

Our results of operations may vary significantly from quarter to quarter and therefore may be difficult to predict or may fail to meet investment community expectations.

Our results of operations may vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Such factors include, but are not limited to:

• The termination of any key customer contracts, whether by the customer or by us;

• Recognition and expensing of deferred tax assets;

• Legal costs incurred in bringing or defending any litigation with customers and third-party providers, and any corresponding judgments or awards;

• Legal and compliance costs incurred to comply with Canadian and US regulatory requirements;

• Fluctuations in the demand for our services and products;

• Price and functionality competition in our industry;

• Timing of acquisitions and related costs;

• Changes in legislation and accounting standards;

• Fluctuations in foreign currency exchange rates;

• Our ability to satisfy contractual obligations in customer contracts and deliver services and products to the satisfaction of our customers; and

• Other risk factors discussed in this report.

Although our revenues may fluctuate from quarter to quarter, significant portions of our expenses are not variable in the short term, and we may not be able to reduce them quickly to respond to decreases in revenues. If revenues are below expectations, this shortfall is likely to adversely and/or disproportionately affect our operating results.

Our common share price has in the past been volatile and may also be volatile in the future.

The trading price of our common shares has in the past been subject to wide fluctuations and may also be subject to fluctuation in the future. This may make it more difficult for you to resell your common shares when you want at prices that you find attractive. Increases in our common share price may also increase our compensation expense pursuant to our existing director, officer and employee compensation arrangements. Fluctuations in our common share price may be caused by events unrelated to our operating performance and beyond our control. Factors that may contribute to fluctuations include, but are not limited to:

• Revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;

• Changes in recommendations or financial estimates by industry or investment analysts;

• Changes in management or the composition of our board of directors;

• Outcomes of litigation or arbitration proceedings;

• Announcements of technological innovations or acquisitions by us or by our competitors;

• Introduction of new products or significant customer wins or losses by us or by our competitors;

• Developments with respect to our intellectual property rights or those of our competitors;

• Fluctuations in the share prices of other companies in the technology and emerging growth sectors;

• General market conditions; and

• Other risk factors set out in this report.

If the market price of our common shares drops significantly, shareholders could institute securities class action lawsuits against us, regardless of the merits of such claims. Such a lawsuit could cause us to incur substantial costs and could divert the time and attention of our management and other resources from our business.

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EX-99.7

NOTICE TO READERS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations for the first six months of our fiscal year ending January 31, 2010 (“fiscal 2010 first half MD&A”) dated September 10, 2009 reflects amendments to the version originally filed with the Canadian Securities Administrator’s System for Electronic Document Analysis (“SEDAR”) on September 11, 2009.

This MD&A has been amended to reflect our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” (“SFAS 141R”). We adopted SFAS 141R retrospectively on February 1, 2009 and have accounted for its impact as a retrospective change in an accounting principle under SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). Our consolidated balance sheet, consolidated statement of operations, consolidated statement of shareholders’ equity and consolidated statement of cash flows as at and for the year ended January 31, 2009 (the “fiscal 2009 consolidated financial statements”) have been adjusted to reflect this retrospective adoption of SFAS 141R (the “adjusted fiscal 2009 statements”) and the adjusted fiscal 2009 statements have been filed on SEDAR on the date hereof.

The effect of retrospectively adopting SFAS 141R on our previously reported fiscal 2009 consolidated financial statements is described more fully in Note 18 to our adjusted fiscal 2009 statements. We have made corresponding changes in this fiscal 2010 first half MD&A to reflect the effect of retrospectively adopting SFAS 141R.

This fiscal 2010 first half MD&A does not otherwise reflect events or developments subsequent to September 10, 2009.

September 30, 2009

THE DESCARTES SYSTEMS GROUP INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains references to Descartes using the words “we,” “us,” “our” and similar words and the reader is referred to using the words “you,” “your,” and similar words.

The MD&A also refers to our fiscal periods. Our fiscal year commences on February 1^st of each year and ends on January 31^st of the following year. Our current fiscal year, which will end on January 31, 2010, is referred to as the “current fiscal year,” “fiscal 2010,” “2010” or using similar words. Our previous fiscal year, which ended on January 31, 2009, is referred to as the “previous fiscal year,” “fiscal 2009,” “2009” or using similar words. Other fiscal years are referenced by the applicable year during which the fiscal year ends. For example, 2011 refers to the annual period ending January 31, 2011 and the “fourth quarter of 2011” refers to the quarter ending January 31, 2011.

This MD&A is prepared as of September 10, 2009. You should read the MD&A in conjunction with our unaudited interim consolidated financial statements that appear elsewhere in this Quarterly Report to Shareholders for our second quarter of fiscal 2010. You should also read the MD&A in conjunction with our audited annual consolidated financial statements, related notes thereto and the related MD&A for fiscal 2009 that are included in our most recent annual report to shareholders (the “2009 Annual Report”).

We prepare and file our consolidated financial statements and MD&A in United States (“US”) dollars and in accordance with US generally accepted accounting principles (“GAAP”). All dollar amounts we use in the MD&A are in US currency, unless we indicate otherwise.

We have prepared the MD&A with reference to Form 51-102F1 MD&A disclosure requirements established under National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators. As it relates to our financial condition and results of operations for the interim period ended July 31, 2009, pursuant to NI 51-102, this MD&A updates the MD&A included in the 2009 Annual Report.

Additional information about us, including copies of our continuous disclosure materials such as our annual information form, is available on our website at http://www.descartes.com, through the EDGAR website at http://www.sec.gov or through the SEDAR website at http://www.sedar.com.

Certain statements made in the MD&A and throughout this Quarterly Report to Shareholders, including, but not limited to, statements in the “Trends / Business Outlook” section and statements regarding our expectations concerning future revenues and earnings, including potential variances from period to period; our baseline calibration; our future business plans and business planning process; use of proceeds from previously completed financings or other transactions; future purchase price that may be payable pursuant to completed acquisitions and the sources of funds for such payments; allocation of purchase price for completed acquisitions; the impact of our customs compliance business on our revenues; mix of revenues between services revenues and license revenues and potential variances from period to period; our expectations regarding the cyclical nature of our business, including an expectation that our third quarter will be strongest for shipping volumes and our first quarter will be the weakest; our plans to continue to allow customers to elect to license technology in lieu of subscribing to services; our anticipated loss of revenues and customers in fiscal 2010 and beyond, and our ability to replace any corresponding loss of revenue; our ability to keep our operating expenses at a level below our baseline revenues; uses of cash; expenses, including amortization of intangibles; goodwill impairment tests and the possibility of future impairment adjustments; income tax provision and expense; effective tax rates applicable to future fiscal periods; anticipated tax benefits; statements regarding increases or decreases to deferred tax assets; the results of

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our Ontario retail sales tax audit and our ability to collect from our customers any additional retail sales tax assessed as part of the audit; the effect on expenses of a weak US dollar; our liability with respect to various claims and suits arising in the ordinary course; any commitments referred to in the “Commitments, Contingencies and Guarantees” section of this MD&A; our intention to actively explore future business combinations and other strategic transactions; our liability under indemnification obligations; anticipated geographic break-down of business; our reinvestment of earnings of subsidiaries back into such subsidiaries; the sufficiency of capital to meet working capital and capital expenditure requirements; our ability to raise capital; the impact of new accounting pronouncements; the expensing of acquisition-related expenses for business combination transactions completed in fiscal 2010 and thereafter pursuant to SFAS 141R (as defined herein); and other matters related thereto constitute forward-looking information for the purposes of applicable securities laws (“forward-looking statements”). When used in this document, the words “believe,” “plan,” “expect,” “anticipate,” “intend,” “continue,” “may,” “will,” “should” or the negative of such terms and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause future results to differ materially from those expected. Factors that may cause such differences include, but are not limited to, the factors discussed under the heading “Certain Factors That May Affect Future Results” appearing in the MD&A. If any of such risks actually occur, they could materially adversely affect our business, financial condition or results of operations. In that case, the trading price of our common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management’s current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. Except as required by applicable law, we do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statements are based.

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OVERVIEW

We are a global provider of on-demand, software-as-a-service (SaaS) logistics technology solutions that help our customers make and receive shipments and manage related resources. Using our technology solutions, companies can reduce costs, improve operational performance, save time, comply and enhance the service that they deliver to their own customers. Our technology-based solutions, which primarily consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; inventory and asset visibility; rate and transportation management; and warehouse operations. Our pricing model provides our customers with flexibility in purchasing our solutions either on a perpetual license, subscription or transactional basis. Our primary focus is on serving transportation providers (air, ocean and truck modes), third party intermediaries (including third-party logistics providers, freight forwarders and customs brokers) and distribution-sensitive companies where delivery is either a key or a defining part of their own product or service offering, or where there is an opportunity to reduce costs and improve service levels by optimizing the use of their assets.

The Market

Supply chain management has been evolving over the past several years as companies are increasingly seeking automation and real-time control of their supply chain activities. We believe companies are looking for integrated, end-to-end solutions that combine business document exchange and mobile resource management applications (MRM) with end-to-end supply chain execution (SCE) applications, such as transportation management, routing and scheduling, and inventory visibility, and global trade and compliance systems, such as customs filing and regulatory compliance applications.

We believe logistics-intensive organizations are seeking new ways to reduce operating costs, differentiate themselves, and improve margins that are trending downward. Existing global trade and transportation processes are often manual and complex to manage. This is a consequence of the growing number of business partners participating in companies’ global supply chains and a lack of standardized business processes.

Additionally, global sourcing, logistics outsourcing and changes in day-to-day requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment gets delayed at the border, a customer changes an order or a breakdown occurs on the road, there are more and more issues that can significantly impact the status of fulfillment schedules and associated costs.

These challenges are heightened for suppliers that have end customers frequently demanding narrower order-to-fulfillment time frames, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers also want real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.

In this market, manual, fragmented and distributed logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly, complex and risky for organizations dealing with many trading partners. Further, many of these solutions don’t provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. We believe this presents an opportunity for logistics technology providers to unite the highly fragmented community and help customers improve efficiencies in their operations.

As the market continues to change, we have been evolving to meet our customers’ needs. The rate of adoption of newer logistics technology is evolving, but a disproportionate number of organizations still have manual business processes. We have been educating our prospects and customers on the value of connecting to trading partners through our global logistics network and automating, as well as standardizing, multi-party business processes. We believe that our customers are increasingly looking for a single source, web-based solution provider who can help them manage the end-to-end shipment

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process – from the booking of the move of a shipment, to the tracking of that shipment as it moves, to the regulatory compliance filings to be made during the move and, finally, the settlement and audit of the invoice relating to that move.

Additionally, regulatory initiatives mandating electronic filing of shipment information with customs authorities require companies to automate their processes to remain compliant and competitive. Our customs compliance technology helps shippers, transportation providers, freight forwarders and other logistics intermediaries securely and electronically file shipment information with customs authorities and self-audit their own efforts. Our technology also helps carriers and freight forwarders efficiently coordinate with customs brokers and agencies to expedite cross-border shipments. While many compliance initiatives started in the US, compliance is quickly becoming a global issue with international shipments crossing several borders on the way to their final destination.

Solutions

Our solutions are primarily offered to two identified customer groups: transportation providers and logistics service providers (LSPs) who are served by our Global Logistics Network (“GLN”); and manufacturers, retailers, distributors and mobile-service providers (MRDMs), who are served by our Delivery Management™ solutions. Our solutions enable our customers to purchase and use either one module at a time or combine several modules as a part of their end-to-end, real-time supply chain solution. This gives our customers an opportunity to add supply chain services and capabilities as their business needs grow and change.

Our Global Logistics Network helps transportation companies and LSPs better control their shipment management process, comply with regulatory requirements, expedite cross-border shipments and connect and communicate with their trading partners. Our Global Logistics Network is one of the world’s largest multimodal electronic networks focused on transportation providers, their trading partners and regulatory agencies. LSPs are increasingly looking for technology to help them manage the end-to-end shipment lifecycle – from the booking of the shipment with the transportation provider to the settlement and audit of the invoice relating to the shipment.

Our Delivery Management solutions help MRDM enterprises reduce logistics costs, efficiently use logistics assets and decrease lead-time variability for their global shipments and regional operations. In addition, these solutions arm the customer service departments of private fleets and contract carriers with information about the location, availability and scheduling of vehicles so they can provide better information to their own clients. Our Delivery Management solutions are differentiated by the ability to combine planning, execution, fleet optimization, messaging services and performance management into an integrated solution.

Sales and Distribution

Our sales efforts are primarily directed toward two specific customer markets: (a) transportation companies and LSPs; and (b) MRDMs. Our sales staff is regionally based and trained to sell across our solutions to specific customer markets. In North America and Europe, we promote our products primarily through direct sales efforts aimed at existing and potential users of our products. In the Asia Pacific, Indian subcontinent, Ibero-America and African regions, we focus on making our channel partners successful. Channel partners for our other international operations include distributors, alliance partners and value-added resellers.

Marketing

Marketing materials are delivered through targeted programs designed to reach our core customer groups. These programs include trade shows and user group conferences, partner-focused marketing programs, and direct corporate marketing efforts.

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Recent Updates

On February 5, 2009 we acquired the logistics business of privately-held Oceanwide Inc. in an all-cash transaction. The acquisition added more than 700 members to our GLN and extended our customs compliance solutions. Oceanwide’s logistics business (“Oceanwide”) was focused on a web-based, hosted SaaS model for customs brokers and freight forwarders. Oceanwide provided solutions for customs filing; automated customs broker interfaces (“ABI”); trade compliance; and logistics management software. The acquired logistics business employed approximately 45 people at offices in Montreal, Quebec and Miami, Florida. We acquired 100% of Oceanwide's US operations and certain Canadian assets and liabilities related to the logistics business. The purchase price for this acquisition, converted to US currency, as of the date of the transaction, was approximately $9.0 million in cash plus transaction costs.

On March 10, 2009, we completed the acquisition of all of the shares of Scancode Systems Inc. (“Scancode”). Scancode provides its customers with a system that helps companies manage small parcel shipments with postal services, courier carriers and over 150 less-than-truckload carriers. Scancode also has supporting warehouse management and automated data collection functionality. The purchase price for this acquisition, converted to US currency, as of the date of the transaction, was approximately $7.7 million in cash plus transaction costs.

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CONSOLIDATED OPERATIONS

The following table shows, for the periods indicated, our results of operations in millions of dollars (except per share and weighted average share amounts):

	Second Quarter of		First Half of
	2010	2009	2010	2009
Total revenues	18.6	17.1	36.0	33.4
Cost of revenues	6.0	6.1	11.2	11.8
Gross margin	12.6	11.0	24.8	21.6
Operating expenses	8.3	7.6	17.0	15.1
Amortization of intangible assets	1.7	1.3	3.5	2.6
Contingent acquisition consideration	-	0.3	-	0.8
Income from operations	2.6	1.8	4.3	3.1
Investment income	0.1	0.2	0.2	0.5
Income before income taxes	2.7	2.0	4.5	3.6
Income tax expense	1.9	0.6	1.5	1.2
Net income	0.8	1.4	3.0	2.4
EARNINGS PER SHARE – BASIC AND DILUTED	0.02	0.03	0.06	0.05
WEIGHTED AVERAGE SHARES OUTSTANDING (thousands) BASIC DILUTED	53,051 54,086	52,942 53,620	53,034 53,926	52,938 53,632

Total revenues consist of services revenues and license revenues. Services revenues are principally comprised of the following: (i) ongoing transactional fees for use of our services and products by our customers, which are recognized as the transactions occur; (ii) professional services revenues from consulting, implementation and training services related to our services and products, which are recognized as the services are performed; and (iii) maintenance, subscription and other related revenues, which include revenues associated with maintenance and support of our services and products, which are recognized ratably over the subscription period. License revenues derive from perpetual licenses granted to our customers to use our software products.

The following table provides additional analysis of our services and license revenues (in millions of dollars and as a proportion of total revenues) generated over each of the periods indicated:

	Second Quarter of		First Half of
	2010	2009	2010	2009
Services revenues	17.1	16.0	33.9	30.9
Percentage of total revenues	92%	94%	94%	93%
License revenues	1.5	1.1	2.1	2.5
Percentage of total revenues	8%	6%	6%	7%
Total revenues	18.6	17.1	36.0	33.4

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Our services revenues for the first half of 2010 were $33.9 million, a 10% increase from the same period in 2009. For the second quarter of 2010 our services revenues were $17.1 million, a 7% increase from the same period in 2009. The increase in services revenues was primarily due to the inclusion in 2010 of services-based revenues from our acquisition of Dexx bvba (“Dexx”) in October 2008, and services revenues from our February 5, 2009 acquisition of Oceanwide and our March 10, 2009 acquisition of Scancode. This increase was partially offset by lower transactional revenues from the GLN in 2010, in part due to lower global shipping volumes and also lower revenues in 2010 due to the impact of the translation of foreign currency revenues in 2010.

Ourlicense revenues were $2.1 million and $2.5 million for the first half of 2010 and 2009, respectively. For the second quarter of 2010, our license revenues were $1.5 million, a 36% increase from the same period in 2009. While our sales focus has been on generating services revenues in our on-demand, SaaS business model, we have continued to see a market for licensing the products in our Delivery Management suite to MRDM enterprises. The amount of license revenue in a period is dependent on our customers’ preference to license our solutions instead of purchasing our solutions as a service and we anticipate variances from period to period.

As a percentage of total revenues, our services revenues were 92% and 94% for the second quarter of 2010 and 2009, respectively, and 94% and 93% for the first half of 2010 and 2009, respectively. Our high percentage of services revenues reflects our continued success in selling to new customers under our services-based business model rather than our former model that emphasized perpetual license sales. Our 2009 and 2010 acquisitions also contributed to the higher percentage of services revenues as the revenues from those acquisitions were predominately services-based.

We operate in one business segment providing logistics technology solutions. The following table provides additional analysis of our segmented revenues by geographic area of operation (in millions of dollars):

	Second Quarter of		First Half of
	2010	2009	2010	2009
Canada	3.4	2.4	5.9	4.7
Percentage of total revenues	18%	14%	16%	14%
Americas, excluding Canada	12.2	10.0	24.0	19.4
Percentage of total revenues	66%	59%	67%	58%
Europe, Middle-East and Africa (“EMEA”)	2.7	4.3	5.4	8.5
Percentage of total revenues	14%	25%	15%	26%
Asia Pacific	0.3	0.4	0.7	0.8
Percentage of total revenues	2%	2%	2%	2%
Total revenues	18.6	17.1	36.0	33.4

Revenues from Canada for the first half of 2010 were $5.9 million, a 26% increase from the same period in 2009. For the second quarter of 2010, our revenues were $3.4 million, a 42% increase from the same period in 2009. The increase in both of the 2010 periods was principally due to the inclusion of Canadian-based revenues from our acquisitions of Oceanwide and Scancode. This increase was partially offset by lower transactional revenues from the GLN in part due to lower shipping volumes and also lower revenues in 2010 due to less favourable foreign exchange rates for the translation of Canadian dollar revenues.

Revenues from the Americas region, excluding Canada for the first half of 2010 were $24.0 million, a 24% increase from the same period in 2009. For the second quarter of 2010 our revenues were $12.2 million, a 22% increase from the same period in 2009. The increase in both of the 2010 periods was primarily due to the recent acquisition of Oceanwide, and to a lesser extent Scancode, partially offset by lower transactional revenues from

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the GLN in part due to lower shipping volumes. Revenues for the first half of 2010 reflect reclassifications of $0.7 million of revenues from our first quarter of 2010 from EMEA to the Americas, excluding Canada.

Revenues from the EMEA region for the first half of 2010 were $5.4 million, a 36% decrease from the same period in 2009. For the second quarter of 2010, our revenues were $2.7 million, a 37% decrease from the same period in 2009. The decrease in both of the 2010 periods was due to lower transactional revenues from the GLN in part due to lower shipping volumes and also lower revenues in 2010 due to the translation of foreign currency revenues at less favourable foreign exchange rates. This decrease was partially offset by the inclusion of revenues from Dexx, which we acquired in October 2008. Revenues for the first half of 2010 reflect reclassifications of $0.7 million of revenues from our first quarter of 2010 from EMEA to the Americas, excluding Canada.

Revenues from the Asia Pacific region were $0.7 million and $0.8 million for the first half of 2010 and 2009, respectively. For the second quarter of 2010, our revenues were $0.3 million, a 25% decrease from the same period in 2009. The decrease in the second quarter and first half of 2010 as compared to 2009 was primarily due to higher professional services revenues in the year-ago quarter related to the licensing of our routing solution.

The following table provides additional analysis of cost of revenues (in millions of dollars) and the related gross margins for the periods indicated:

	Second Quarter of		First Half of
	2010	2009	2010	2009
Services
Services revenues	17.1	16.0	33.9	30.9
Cost of services revenues	5.7	5.9	10.8	11.3
Gross margin	11.4	10.1	23.1	19.6
Gross margin percentage	67%	63%	68%	63%
License
License revenues	1.5	1.1	2.1	2.5
Cost of license revenues	0.3	0.2	0.4	0.5
Gross margin	1.2	0.9	1.7	2.0
Gross margin percentage	80%	82%	81%	80%
Total
Revenues	18.6	17.1	36.0	33.4
Cost of revenues	6.0	6.1	11.2	11.8
Gross margin	12.6	11.0	24.8	21.6
Gross margin percentage	68%	64%	69%	65%

Cost of services revenues consists of internal costs of running our systems and applications, as well as salaries and other personnel-related expenses incurred in providing professional service and maintenance work, including consulting and customer support.

Gross margin percentage for services revenues were 68% and 63% in the first half of 2010 and 2009, respectively, and 67% and 63% in the second quarter of 2010 and 2009, respectively. The increase primarily resulted from the addition of higher-margin services-based business from the Dexx, Oceanwide and Scancode acquisitions.

Cost of license revenues consists of costs related to our sale of third-party technology, such as third-party map license fees, referral fees and/or royalties.

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Gross margin percentage for license revenues for the first half of 2010 was 81% compared to 80% for the same period in 2009. For the second quarter of 2010, the gross margin on license revenues was 80% compared to 82% for the same period in 2009. Our gross margin on license revenues is dependent on the proportion of our license revenues that involve third-party technology. Consequently, our gross margin percentage for license revenues is higher when a lower proportion of our license revenues attract third-party technology costs, and vice versa. This was the primary contributor to the changes in license margins.

Operating expenses (consisting of sales and marketing, research and development and general and administrative expenses) were $17.0 million and $15.1 million for the first half of 2010 and 2009, respectively. Operating expenses were $8.3 million and $7.6 million for the second quarter of 2010 and 2009, respectively. The increase in operating expenses in both of the 2010 periods arose primarily from the addition of businesses that we acquired subsequent to the second quarter of 2009. As well, we expensed $0.2 million and $0.5 million of acquisition-related costs that we incurred in the second quarter of 2010 and first half of 2010, respectively, as a result of a recent change in GAAP, as discussed below in the section on general and administrative expenses. Our operating expenses in the first half of 2010 were also impacted by $0.4 million of restructuring charges incurred in the first quarter of 2010 related to integration of previously completed acquisitions and other cost-reduction activities. Our operating expenses in the 2010 periods were also favourably impacted by foreign exchange from our non-US dollar expenses when compared to the foreign exchange rates applied in the 2009 periods.

The following table provides additional analysis of operating expenses (in millions of dollars) for the periods indicated:

	Second Quarter of		First Half of
	2010	2009	2010	2009
Total revenues	18.6	17.1	36.0	33.4
Sales and marketing expenses	2.6	2.4	5.0	4.7
Percentage of total revenues	14%	14%	14%	14%
Research and development expenses	3.7	2.9	7.1	5.8
Percentage of total revenues	20%	17%	20%	17%
General and administrative expenses	2.0	2.3	4.9	4.6
Percentage of total revenues	11%	13%	14%	14%
Total operating expenses	8.3	7.6	17.0	15.1

Sales and marketing expenses include salaries, commissions, stock-based compensation and other personnel-related costs, bad debt expenses, travel expenses, advertising programs and services, and other promotional activities associated with selling and marketing our services and products. Sales and marketing expenses were $5.0 million for the first half of 2010, an increase of 6% from expenses of $4.7 million for the same period in 2009. Sales and marketing expenses were $2.6 million for the second quarter of 2010, an increase of 8% from expense of $2.4 million for the same period in 2009. Sales and marketing expenses as a percentage of total revenues were 14% for each of the first half of 2010 and 2009 as well as for each of the second quarter of 2010 and 2009. The increase in sales and marketing expenses in the second quarter of 2010 that arose from the acquired businesses of Oceanwide and Scancode in 2010 and Dexx in 2009, was partially offset by a favourable foreign exchange impact from our non-US dollar sales and marketing expenses. Sales and marketing expenses increased in the first half of 2010 for those same reasons as well from an increase in bad debt expense in the first half of 2010, in each case, as compared to the first half of 2009.

Research and development expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of technical and engineering personnel associated with our research and product development activities, as well as costs for third-party outsourced development providers. We expensed all costs related to

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research and development in 2010 and 2009. Research and development expenses were $7.1 million for the first half of 2010, an increase of 22% from expenses of $5.8 million for the same period in 2009. Research and development expenses were $3.7 million for the second quarter of 2010, an increase of 28% from expenses of $2.9 million for the same period in 2009. The increase in the second quarter and first half of 2010 as compared to the same periods in 2009 was primarily attributable to increased payroll and related costs from our 2010 acquisitions, partially offset by a favourable foreign exchange impact from our non-US dollar research and development expenses.

General and administrative expenses consist primarily of salaries, stock-based compensation and other personnel-related costs of administrative personnel, as well as professional fees, acquisition-related expenses and other administrative expenses. General and administrative costs were $4.9 million and $4.6 million in the first half of 2010 and 2009, respectively. General and administrative costs were $2.0 million and $2.3 million in the second quarter of 2010 and 2009, respectively. The decrease in the second quarter of 2010 as compared to the same period in 2009 was primarily due to higher professional fees in the 2009 period, partially offset by higher payroll costs for additional finance personnel related to our recent acquisitions. The increase in the first half of 2010 from the same period in 2009 was due the inclusion of $0.5 million of acquisition-related costs, primarily professional fees, related to our acquisitions of Oceanwide and Scancode in the first half of 2010. Effective from the beginning of 2010, a change in GAAP required that we expense those acquisition-related costs in the period incurred. Previously, GAAP required that these expenses be capitalized as part of the purchase price for a completed business combination and were generally recorded as part of goodwill. The increase in the first half of 2010 as compared to the first half of 2009 was also a result of increased payroll and related costs for additional finance personnel related to our recent acquisitions, partially offset by a favourable foreign exchange impact from our non-US dollar general and administrative expenses.

Amortization of intangible assets is amortization of the value attributable to intangible assets, including customer agreements and relationships, non-compete covenants, existing technologies and trade names, associated with acquisitions completed by us as of July 31, 2009. Intangible assets with a finite life are amortized to income over their useful life. The amount of amortization expense in a fiscal period is dependent on our acquisition activities, as well as our asset impairment tests. Amortization of intangible assets for the second quarter and first half of 2010 was $1.7 million and $3.5 million, respectively, compared to $1.3 million and $2.6 million, respectively, for the same periods in 2009. Amortization expense increased in 2010 from 2009 primarily as a result of including amortization from the 2009 acquisition of Dexx in October 2008 and the acquisitions of Oceanwide and Scancode in the first quarter of 2010. As at July 31, 2009, the unamortized portion of all intangible assets amounted to $24.4 million.

We test the fair value of our finite life intangible assets for recoverability when events or changes in circumstances indicate that there may be evidence of impairment. We performed an additional test at January 31, 2009 as a result of the deterioration in economic conditions and determined that there was no impairment. We write down intangible assets with a finite life to fair value when the related undiscounted cash flows are not expected to allow for recovery of the carrying value. Fair value of intangibles is determined by discounting the expected related cash flows. No finite life intangible asset impairment has been identified or recorded for any of the fiscal periods reported.

Contingent acquisition considerationof $0.3 million and $0.8 million in the second quarter and first half of 2009 related to our 2007 acquisition of Flagship Customs Services, Inc. (“FCS”). This amount represented acquisition consideration that was placed in escrow for the benefit of the former shareholders and released over time contingent on the continued employment of those shareholders. No contingent acquisition consideration related to FCS remains to be expensed.

Investment income was $0.2 million and $0.5 million for the first half of 2010 and 2009, respectively and $0.1 million and $0.2 million for the second quarter of 2010 and 2009, respectively. The decrease in investment income is principally a result of lower interest rates in the 2010 periods.

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Income tax expense is comprised of current and deferred income tax expense. Income tax expense for the second quarter of 2010 was approximately 71% of income before income taxes, with current income tax expense being approximately 13% of income before income taxes. For the first half of 2010, income tax expense was approximately 34% of income before income taxes, with current income tax expense being approximately 13% of income before income taxes.

Income tax expense – currentwas $0.3 million and $0.6 million for the second quarter and first half of 2010, respectively, compared to $0.1 million and $0.2 million for the comparable periods in 2009. Current income taxes arise primarily from taxable income estimates for the recent acquisitions of Dexx and Scancode entities that don’t have loss carryforwards to shelter taxable income and also from the estimate of our US taxable income that will be subject to federal alternative minimum tax and not fully sheltered by our loss carryforwards in certain US states.

Income tax expense– deferredwas $1.6 million and $0.9 million for the second quarter and first half of 2010, respectively, compared to $0.5 million and $1.0 million for the comparable periods in 2009. The deferred income tax expense increased in the second quarter of 2010 relative to the second quarter of 2009, primarily as a result of the utilization of some of our deferred tax assets to offset taxable income in jurisdictions where we had not recognized deferred tax assets as of the second quarter of 2009. In addition, in the second quarter of 2010 we recorded an expense of $0.2 million as a result of merging Scancode’s US operations with our major US operating subsidiary and re-evaluating the appropriate level of deferred tax assets for the combined entity. In the first quarter of 2010, we recorded a deferred income tax recovery of $1.6 million as a result of merging Oceanwide's US operations with our major US operating subsidiary and re-evaluating the appropriate level of deferred tax assets for the combined entity. This deferred income tax recovery in the first quarter of 2010 was partially offset by a $1.0 million deferred income tax expense as we used some of our deferred tax assets to offset our taxable income in certain jurisdictions in the first quarter of 2010.

Overall, we generated net income of $3.0 million in the first half of 2010, compared to net income of $2.4 million for the same period in 2009. A $3.2 million increase in gross margin and a $0.8 million decrease in contingent acquisition consideration was partially offset by a $1.9 million increase in operating expenses, a $0.9 million increase in amortization of intangible assets, a $0.3 million decrease in investment income, and a $0.3 million increase in income tax expense.

For the second quarter of 2010, our net income was $0.8 million compared to net income of $1.4 million for the same period in 2009. A $1.6 million increase in gross margin and a $0.3 million decrease in contingent acquisition consideration were offset by a $0.7 million increase in operating expenses, a $0.4 million increase in amortization of intangible assets, a $0.1 million decrease in investment income, and a $1.3 million increase in income tax expense.

QUARTERLY OPERATING RESULTS

The following table provides an analysis of our unaudited operating results (in thousands of dollars, except per share and weighted average number of share amounts) for each of the quarters ended on the date indicated.

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	April 30,	July 31,	October 31,	January 31,	Total
	2009	2009	2009	2010
2010
Revenues	17,419	18,610			36,029
Gross margin	12,232	12,633			24,865
Operating expenses	8,744	8,198			16,942
Net income	2,208	812			3,020
Basic and diluted earnings per share	0.04	0.02			0.06
Weighted average shares outstanding (thousands):
Basic	53,017	53,051			53,034
Diluted	53,737	54,086			53,926

	April 30,	July 31,	October 31,	January 31,	Total
	2008	2008	2008	2009
2009
Revenues	16,289	17,110	16,965	15,680	66,044
Gross margin	10,602	11,018	11,385	10,686	43,691
Operating expenses	7,449	7,659	7,676	7,212	29,996
Net income	1,054	1,392	2,318	15,446	20,210
Basic and diluted earnings per share	0.02	0.03	0.04	0.29	0.38
Weighted average shares outstanding (thousands):
Basic	52,933	52,942	52,965	53,002	52,961
Diluted	53,636	53,620	53,697	53,683	53,659

	April 30,	July 31,	October 31,	January 31,	Total
	2007	2007	2007	2008
2008
Revenues	13,288	14,263	15,463	16,011	59,025
Gross margin	8,716	9,408	9,995	10,266	38,385
Operating expenses	6,468	6,832	7,171	7,022	27,493
Net income	1,128	1,682	1,697	17,936	22,443
Basic earnings per share	0.02	0.03	0.03	0.34	0.44
Diluted earnings per share	0.02	0.03	0.03	0.33	0.43
Weighted average shares outstanding (thousands):
Basic	46,672	52,354	52,801	52,924	51,225
Diluted	48,221	53,401	53,715	53,721	52,290

Our operations continue to have seasonal trends. In our first fiscal quarter, we historically have seen lower shipment volumes by air and truck which impact the aggregate number of transactions flowing through our GLN business document exchange. In our second fiscal quarter, we historically have seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period, but, going forward with the recent loss of ocean customers, our trends will follow general industry shipment and transactional volumes. In the third quarter, we have historically seen shipment and transactional volumes at their highest. In the fourth quarter, the various international holidays impact the aggregate number of shipping days in the quarter, and historically we have seen this adversely impact the number of transactions our network processes and, consequently, the amount of services revenues we receive.

Revenues have been positively impacted by the ten acquisitions that we have completed since the beginning of 2008. In addition, over the past two fiscal years we have seen increased transactions processed over our GLN business document exchange as we help our customers comply with electronic filing requirements of new US and Canadian customs regulations, including the CBP ACE e-manifest filing initiative described in more detail in the

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“Trends / Business Outlook” section later in this MD&A. These increases have been tempered by the general economic downturn that started impacting our business and global shipping volumes in 2009.

Revenues increased in the third quarter of 2008 by $1.2 million over the previous quarter, principally due to our acquisition of Global Freight Exchange Limited (“GF-X”) in that quarter. Revenues also increased in the fourth quarter of 2008 primarily as a result of our acquisitions of RouteView, PCTB and Mobitrac in that quarter. Net income in the fourth quarter of 2008 was significantly impacted by an income tax recovery of $16.0 million resulting from a reduction in the valuation allowance for our deferred tax assets.

In 2009, our revenues followed historical seasonal trends with our second quarter of 2009 reflecting the period when our customers negotiate new ocean contracts and update rates using our technology services. In the latter half of 2009, we saw a massive global economic downturn impact all areas of the economy, including global shipping volumes, and accordingly negatively impacted our revenues. Commencing in the third quarter of 2009, Dexx contributed to our total revenues. However, this increase in revenues in the fourth quarter was offset by a large foreign currency translation impact, primarily from converting Canadian dollar and British pound sterling revenues to US dollars. Similarly, while our operating expenses were relatively unchanged throughout the first three quarters of 2009, there was a decrease in fourth quarter operating expenses principally as a result of foreign currency translation to US dollars. Net income in the first, second and third quarters of 2009 was impacted by a deferred tax expense of $0.5 million, $0.5 million and $0.4 million, respectively, as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our US taxable income for the first three quarters of 2009. The expense in the third quarter of 2009 was net of a recovery of $0.4 million as a result of the recognition of certain deferred tax assets in Sweden. Net income in the fourth quarter of 2009 was significantly impacted by an income tax recovery of $13.1 million resulting from a reduction in the valuation allowance for our deferred tax assets. The recovery in the fourth quarter of 2009 was net of a deferred tax expense of $1.0 million as we used some of the tax loss carryforwards that are included in the deferred tax asset to offset our taxable income in the US and Sweden. Our net income in the fourth quarter of 2009 was also impacted by approximately $0.3 million from a change to GAAP that required acquisition-related costs to be expensed in the period incurred. Prior GAAP required us to capitalize such costs as part of the purchase price for a business combination, generally to goodwill.

In the first quarter of 2010, our revenues and expenses increased as a result of our acquisitions of Oceanwide and Scancode. Our net income in the first quarter of 2010 was also impacted by approximately $0.3 million of acquisition-related costs. Prior GAAP required us to capitalize such costs as part of the purchase price for a business combination, generally to goodwill. In the first quarter of 2010, we recorded a deferred income tax recovery of $1.6 million as a result of merging Oceanwide's US operations with our major US operating subsidiary. This deferred income tax recovery was partially offset by a $1.0 million deferred income tax expense as we used some of our deferred tax assets to offset our taxable income in certain jurisdictions in the first quarter of 2010.

In the second quarter of 2010, our revenues increased from our first quarter of 2010 as a result of the inclusion of a full quarter of revenues from our acquisition of Scancode and also from a favourable foreign exchange impact from our non-US dollar revenues. Our net income in the second quarter of 2010 was adversely impacted by $1.9 million in income tax expenses. The current portion of the income tax expense arose primarily from taxable income estimates for the recent acquisitions of Dexx and Scancode entities that don’t have loss carryforwards to shelter taxable income. The deferred portion of the income tax expense was primarily due to the use of some of our deferred tax assets to offset taxable income in certain jurisdictions. In addition, we recorded a deferred income tax expense of $0.2 million as a result of merging Scancode’s US operations with our major US operating subsidiary and re-evaluating the appropriate level of deferred tax assets for the combined entity.

Our weighted average shares outstanding has increased since the first quarter of 2008, principally as a result of the issuance of approximately 5.2 million common shares pursuant to our April 2007 bought deal share offering, the GF-X acquisition in the third quarter of 2008 (approximately 0.5 million shares) and periodic employee stock option exercises.

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LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital expenditure requirements primarily through cash flows provided from operations and sales of debt and equity securities. As at July 31, 2009, we had $51.3 million in cash and cash equivalents and short-term investments, none of which was held in asset-backed commercial paper (“ABCP”), and $2.8 million in unused available lines of credit. As at January 31, 2009, prior to our acquisitions of Oceanwide and Scancode, we had $57.6 million in cash and cash equivalents and $2.4 million in available lines of credit.

We believe that, considering the above, we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of current operating leases, and additional purchase price that may become payable pursuant to the terms of previously completed acquisitions. Should additional future financing be undertaken, the proceeds from any such transaction could be utilized to fund strategic transactions or for general corporate purposes. We expect, from time to time, to consider select strategic transactions to create value and improve performance, which may include acquisitions, dispositions, restructurings, joint ventures and partnerships, and we may undertake a financing transaction in connection with any such potential strategic transaction. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such financial transactions.

To the extent that any of our non-Canadian subsidiaries have earnings, our intention is that these earnings be re-invested in such subsidiary indefinitely. Accordingly, to date we have not encountered legal or practical restrictions on the abilities of our subsidiaries to repatriate money to Canada, even if such restrictions may exist in respect of certain foreign jurisdictions where we have subsidiaries. To the extent there are restrictions, they have not had a material effect on the ability of our Canadian parent to meet its financial obligations.

The table set forth below provides a summary of cash flows for the periods indicated in millions of dollars:

	Second Quarter of		First Half of
	2010	2009	2010	2009
Cash provided by operating activities	4.4	4.6	8.8	8.0
Additions to capital assets	(0.5)	(0.4)	(0.8)	(0.7)
Business acquisitions and acquisition-related costs, net of cash acquired	(0.1)	(0.6)	(15.0)	(1.1)
Issuance of common shares	-	-	0.1	-
Effect of foreign exchange rate on cash, cash equivalents and short-term investments	0.6	-	0.6	0.2
Net change in cash, cash equivalents and short-term investments	4.4	3.6	(6.3)	6.4
Cash, cash equivalents and short-term investments, beginning of period	46.9	46.9	57.6	44.1
Cash, cash equivalents and short-term investments, end of period	51.3	50.5	51.3	50.5

Cash provided by operating activities was $4.4 million and $4.6 million for the second quarter of 2010 and 2009, respectively, and $8.8 million and $8.0 million for the first half of 2010 and 2009, respectively. For the second quarter of 2010, the $4.4 million of cash provided by operating activities resulted from $0.8 million of net income, plus adjustments for $3.3 million of non-cash expenses included in net income, and $0.2 million of cash provided by changes in our operating assets and liabilities. For the second quarter of 2009, the $4.6 million of cash provided by operating activities resulted from $1.4 million of net income, plus adjustments for $2.5 million of non-cash expenses included in net income, and $0.7 million of cash provided by changes in our operating assets and liabilities.

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For the first half of 2010, the $8.8 million of cash provided by operating activities resulted from $3.0 million of net income, plus adjustments for $5.7 million of non-cash expenses included in net income, and $0.1 million of cash provided by changes in our operating assets and liabilities. For the first half of 2009, the $8.0 million of cash provided by operating activities resulted from $2.4 million of net income, plus adjustments for $4.9 million of non-cash expenses included in net income, and $0.7 million cash provided by changes in our operating assets and liabilities.

Additions to capital assets were $0.5 million and $0.4 million for the second quarter of 2010 and 2009, respectively and $0.8 million and $0.7 million for the first half of 2010 and 2009, respectively. The additions were primarily composed of investments in computing equipment and software to support our global operations and GLN.

Business acquisitions and acquisition-related costs, net of cash acquired of $0.1 million in the second quarter of 2010 is primarily comprised of additional purchase price paid in connection with our 2008 acquisition of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc. (“the OTB Acquisition”). The $0.6 million of cash paid in the second quarter of 2009 primarily represents cash paid during the first half of 2009 relating to our 2008 acquisition of GF-X.

The $15.0 million of acquisition-related costs in the first half of 2010 is primarily comprised of $8.9 million of cash for the acquisition of Oceanwide and $5.9 million of cash for the acquisition of Scancode. The balance of this amount consists of additional purchase price and acquisition-related costs paid in the first half of 2010 for business acquisitions that we completed prior to 2010. Business acquisitions and acquisition-related costs of $1.1 million in the first half of 2009 represents $0.6 million of cash paid during the first half of 2009 relating to our 2008 acquisition of GF-X, as well as $0.3 million of additional purchase price paid related to the OTB acquisition in 2008 and $0.1 million of cash that was held back in connection with another 2008 acquisition.

Issuance of common shares of $0.1 million in the first half of 2010 is a result of the exercise of employee stock options.

Working capital. As at July 31, 2009, our working capital (current assets less current liabilities) was $53.7 million. Current assets include $10.9 million of cash and cash equivalents, $40.4 million of short-term investments, $10.0 million in current trade receivables and a $6.5 million deferred tax asset. Our working capital has decreased since January 31, 2009 by $8.8 million, primarily as a result of cash used in the first half of 2010 for business acquisitions and, to a lesser extent, capital asset additions, partially offset by positive operating activities in 2010.

Cash and cash equivalents and short-term investments. As at July 31, 2009, all funds were held in interest-bearing bank accounts or certificates of deposit, primarily with major Canadian and US banks. Cash and cash equivalents include short-term deposits and debt securities with original maturities of three months or less. At July 31, 2009, we held no investments in ABCP.

COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

To facilitate a better understanding of our commitments, the following information is provided (in millions of dollars) in respect of our operating lease obligations:

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	Less than 1 year	1-3 years	4-5 years	More than 5 years	Total
Operating lease obligations	1.8	3.7	1.9	1.6	9.0

Operating Lease Obligations

We are committed under non-cancelable operating leases for business premises and computer equipment with terms expiring at various dates through 2020. The future minimum amounts payable under these lease agreements are described in the chart above.

Other Obligations

Income taxes

We have a commitment for income taxes incurred to various taxing authorities related to unrecognized tax benefits in the amount of $5.0 million. At this time, we are unable to make reasonably reliable estimates of the period of settlement with the respective taxing authority due to the possibility of the respective statutes of limitations expiring without examination by the applicable taxing authority.

Deferred Share Unit and Restricted Share Unit Plans

As discussed in the “Trends / Business Outlook” section later in this MD&A and in Note 14 to the unaudited interim consolidated financial statements for the second quarter of 2010, we maintain deferred share unit (“DSU”) and restricted share unit (“RSU”) plans for our directors and employees. Any payments made pursuant to these plans are settled in cash. As DSUs are fully vested upon issuance, the DSU liability recorded on our consolidated balance sheets is calculated as the total number of DSUs outstanding at the consolidated balance sheet date multiplied by the closing price of our common shares on the Toronto Stock Exchange (the “TSX”) at the consolidated balance sheet date. For RSUs, the units vest over time and the liability recognized at any given consolidated balance sheet date reflects only those units vested at that date that have not yet been settled in cash. As such, we had 652,544 RSUs outstanding at July 31, 2009 for which no liability was recorded on our consolidated balance sheet. The ultimate liability for any payment of DSUs and RSUs is dependent on the trading price of our common shares.

Contingencies

We are subject to a variety of other claims and suits that arise from time to time in the ordinary course of our business. The consequences of these matters are not presently determinable but, in the opinion of management after consulting with legal counsel, the ultimate aggregate liability is not currently expected to have a material effect on our annual results of operations or financial position.

Business combination agreements

In connection with the March 6, 2007 acquisition of certain assets of Ocean Tariff Bureau, Inc. and Blue Pacific Services, Inc., an additional $0.85 million in cash was potentially payable over the 2.5 year period after closing dependent on the financial performance of the acquired assets. $0.3 million of that additional purchase price was paid in 2009, another $0.2 million of that additional purchase price became payable during the quarter ended July 31, 2009, and up to $0.1 million remains eligible to be earned by the previous owners prior to the end of the third quarter of 2010.

In respect of our August 17, 2007 acquisition of 100% of the outstanding shares of GF-X, up to $5.2 million in cash was potentially payable if certain performance targets, primarily relating to revenues, were met by GF-X over the four years subsequent to the date of acquisition. No amount was payable in respect of the two-year post-acquisition period. Up to $2.6 million in cash remains eligible to be paid to the former owners in respect of performance targets to be achieved over each of the years in the two-year period ending August 17, 2011.

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Product Warranties

In the normal course of operations, we provide our customers with product warranties relating to the performance of our software and network services. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such on our financial statements.

Ontario Retail Sales Tax Audit

In 2009, we were selected for an Ontario Retail Sales Tax (“ORST”) audit. The audit encompasses all of our Ontario revenues. The audit was still on-going at July 31, 2009. While no re-assessment had been issued at July 31, 2009, the audit has identified certain instances where ORST should have been collected on certain of our services and products. If any such additional ORST is assessed on prior customer transactions, we will attempt to collect this ORST from those customers.

We have estimated that our maximum expense resulting from the ORST audit is $0.2 million, however, net of ORST amounts that we expect to collect from customers, we estimate the expense is $0.1 million. Accordingly, the net impact of $0.1 million has been accrued up to July 31, 2009. We anticipate that the audit will be substantially completed during fiscal 2010.

Guarantees

In the normal course of business we enter into a variety of agreements that may contain features that meet the definition of a guarantee under FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). The following lists our significant guarantees:

Intellectual property indemnification obligations

We provide indemnifications of varying scope to our customers against claims of intellectual property infringement made by third parties arising from the use of our products. In the event of such a claim, we are generally obligated to defend our customers against the claim and we are liable to pay damages and costs assessed against our customers that are payable as part of a final judgment or settlement. These intellectual property infringement indemnification clauses are not generally subject to any dollar limits and remain in force for the term of our license and services agreement with our customers, where license terms are typically perpetual. To date, we have not encountered material costs as a result of such indemnifications.

Other indemnification agreements

In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in connection with purchases and sales of assets, securities offerings or buy-backs, service contracts, administration of employee benefit plans, retention of officers and directors, membership agreements, customer financing transactions, and leasing transactions. In addition, our corporate by-laws provide for the indemnification of our directors and officers. Each of these indemnifications requires us, in certain circumstances, to compensate the counterparties for various costs resulting from breaches of representations or obligations under such arrangements, or as a result of third party claims that may be suffered by the counterparties as a consequence of the transaction. We believe that the likelihood that we could incur significant liability under these obligations is remote. Historically, we have not made any significant payments under such indemnifications.

In evaluating estimated losses for the guarantees or indemnities described above, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We are unable to make a reasonable estimate of the maximum potential amount payable under such guarantees or indemnities as many of these arrangements do not specify a maximum potential dollar exposure or time limitation. The amount also depends on the outcome of future events and conditions, which cannot be predicted. Given the foregoing, to date, we have not accrued any liability for the guarantees or indemnities described above on our financial statements.

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OUTSTANDING SHARE DATA

We have an unlimited number of common shares authorized for issuance. As of September 10, 2009, we had 53,062,727 common shares issued and outstanding.

As of September 10, 2009, there were 5,168,609 options issued and outstanding, and 345,107 remaining available for grant under all stock option plans.

On November 30, 2004, we announced that our board of directors had adopted a shareholder rights plan (the “Rights Plan”) to ensure the fair treatment of shareholders in connection with any take-over offer, and to provide our board of directors and shareholders with additional time to fully consider any unsolicited take-over bid. We did not adopt the Rights Plan in response to any specific proposal to acquire control of the company. The Rights Plan was approved by the Toronto Stock Exchange and was originally approved by our shareholders on May 18, 2005. The Rights Plan took effect as of November 29, 2004. On May 29, 2008, our shareholders approved certain amendments to the Rights Plan and approved the Rights Plan continuing in effect. The Rights Plan will expire at the termination of our annual shareholders’ meeting in calendar year 2011 unless its continued existence is ratified by the shareholders before such expiration. We understand that the Rights Plan is similar to plans adopted by other Canadian companies and approved by their shareholders.

On December 3, 2008, we announced that the TSX had approved the purchase by us of up to an aggregate of 5,244,556 common shares of Descartes pursuant to a normal course issuer bid. The purchases can occur from time to time until December 4, 2009, through the facilities of the TSX and/or NASDAQ, if and when we consider advisable. As at September 10, 2009 we had not completed any purchases pursuant to the normal course issuer bid.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our interim consolidated financial statements included herein and accompanying notes are prepared in accordance with GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period and would materially impact our financial condition or results of operation. Our significant accounting policies are discussed in Note 2 to the audited consolidated financial statements for 2009 (the “2009 Consolidated Financial Statements”).

Our management has discussed the development, selection and application of our critical accounting policies with the audit committee of the board of directors. In addition, the board of directors has reviewed the accounting policy disclosures in this MD&A.

The following discusses the critical accounting estimates and assumptions that management has made under these policies and how they affect the amounts reported in the unaudited interim consolidated financial statements for the interim period ended July 31, 2009:

Revenue recognition

In recognizing revenue, we make estimates and assumptions on factors such as the probability of collection of the revenue from the customer, delivery of goods or services, whether the sales price is fixed or determinable, the amount

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of revenue to allocate to individual elements in a multiple element arrangement and other matters. We make these estimates and assumptions using our past experience, taking into account any other current information that may be relevant. These estimates and assumptions may differ from the actual outcome for a given customer which could impact operating results in a future period.

Long-Lived Assets

We test long-lived assets for recoverability when events or changes in circumstances indicate evidence of impairment.

Intangible assets are amortized on a straight-line basis over their estimated useful lives. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Our impairment analysis contains estimates due to the inherently speculative nature of forecasting long-term estimated cash flows and determining the ultimate useful lives of assets. Actual results will differ, which could materially impact our impairment assessment.

In the case of goodwill, we test for impairment at least annually at October 31 of each year and at any other time if any event occurs or circumstances change that would more likely than not reduce our enterprise value below our carrying amount. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Income Taxes

We have provided for income taxes based on information that is currently available to us. Tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. As at July 31, 2009, we had recorded deferred tax assets of $30.7 million on our consolidated balance sheet for tax benefits that we currently expect to realize in future periods. During 2008 and 2009, we determined that there was sufficient positive evidence such that it was more likely than not that we would use a portion of our tax loss carryforwards to offset taxable income in the US, Canada, Netherlands, Sweden, and Australia in future periods. This positive evidence included that we have earned cumulative income, after permanent differences, in each of these jurisdictions in the current and two preceding tax years. Accordingly, we reduced our valuation allowance for our deferred tax assets by $16.0 million and $14.5 million in 2008 and 2009, respectively, representing the amount of tax loss carryforwards that we projected would be used to offset taxable income in these jurisdictions over the ensuing six-year period. In making the projection for the six-year period, we made certain assumptions, including the following: (i) that the current economic downturn would result in reduced profit levels in fiscal 2010 and 2011, with a return to a level of income consistent with the current income levels in 2012 and beyond; (ii) that there will be continued customer migration from technology platforms owned by our US entity and our Swedish entity to a technology platform owned by another entity in our corporate group, further reducing taxable income in the US and Sweden; and (iii) that tax rates in these jurisdictions will be consistent over the six-year period of projection, except in Canada where rates are expected to decrease through 2013 and then remain consistent thereafter. Any further change to decrease the valuation allowance for the deferred tax assets would result in an income tax recovery on the consolidated statements of operations. If we achieve and maintain a consistent level of profitability, the likelihood of additional reductions to our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our business jurisdictions will increase.

Business Combinations

In connection with business acquisitions that we have completed, we identify and estimate the fair value of net assets acquired, including certain identifiable intangible assets (other than goodwill) and liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value of the net assets acquired is assigned to goodwill. Intangible assets include customer agreements and relationships, non-compete covenants, existing

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technologies and trade names. Our initial allocation of the purchase price is generally preliminary in nature and may not be final for up to one year from the date of acquisition. Changes to the estimate and assumptions used in determining our purchase price allocation may result in material differences depending on the size of the acquisition completed.

CHANGE IN / INITIAL ADOPTION OF ACCOUNTING POLICIES

Recently adopted accounting pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), effective for fiscal years beginning after November 15, 2007, which was our fiscal year ending January 31, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. On February 12, 2008, the FASB issued FSP FAS 157-2, which delayed the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008, which is our fiscal year ending January 31, 2010. We adopted the non-deferred portion of SFAS 157 on February 1, 2008 and the deferred portion on February 1, 2009. The adoption of SFAS 157 has not had a material impact on our results of operations or financial condition to date.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. We expensed $0.3 million of acquisition-related costs in the first quarter of 2010 and $0.2 million in the second quarter of 2010 as a result of our adoption of SFAS 141R on February 1, 2009. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition. Our January 31, 2009 consolidated balance sheet included approximately $258,000 of deferred acquisition-related costs in prepaid expenses and other. Accordingly, our adoption of SFAS 141R resulted in a retroactive increase to our January 31, 2009 accumulated deficit and decrease in prepaid expenses and other of $258,000, under the transitional provisions of SFAS 141R.

In April 2009, the FASB issued FSP 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP 141R-1”), effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. FSP 141R-1 amends and clarifies the application of SFAS 141R to assets and liabilities arising from contingencies in a business combination. Our adoption of FSP 141R-1 on February 1, 2009 did not have a material impact on our results of operations and financial condition to date. Depending on the size and scope of any future business combination that we undertake, we believe that FSP 141R-1 may have a material impact on our results of operations and financial condition.

In April 2008, the FASB issued FSP 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 the recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of the guidance is 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. For a recognized intangible asset, an entity will be required to disclose information that enables users of the financial statements to assess the extent to which expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, which is our fiscal year ending January 31, 2010. The adoption of FSP 142-3 has not had a material impact on our results of operations or financial condition to date.

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In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7"). EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting which should be amortized to expense over the period that the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The adoption of EITF 08-7 has not had a material impact on our results of operations or financial condition to date.

In April 2009, the FASB issued FSP 157-4 “Determining Fair Value when the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly” (“FSP 157-4”). FSP 157-4 clarifies the application of SFAS 157 in determining fair value when the volume or level of activity for an asset or liability has significantly decreased and also provides guidance to identify circumstances that indicate a transaction is not orderly. The FSP is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP 157-4 has not had a material impact on our results of operations or financial condition to date.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). The intent of SFAS 165 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim and annual reporting periods ending after June 15, 2009, which is our interim reporting period ended July 31, 2009. The adoption of SFAS 165 has not had a material impact on our results of operations or financial condition to date.

Recently issued accounting pronouncements not yet adopted

In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes a single source of authoritative guidance for nongovernmental entities. SFAS 168 is effective for interim and annual reporting periods ending after September 15, 2009, which is our interim reporting period ending October 31, 2009. The adoption of SFAS 168 will not have a material impact on our results of operations or financial condition but may result in changes to accounting pronouncement references in the notes to our consolidated financial statements.

TRENDS / BUSINESS OUTLOOK

This section discusses our outlook for the second half of 2010 and in general as of the date of this MD&A, and contains forward-looking statements.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation, or the freight market in general, include: legal and regulatory requirements; timing of contract renewals between our customers and their own customers; seasonal-based tariffs; vacation periods applicable to particular shipping or receiving nations; weather-related events or natural disasters, that impact shipping in particular geographies; availability of credit to support shipping operations; economic downturns, and amendments to international trade agreements. As many of our services are sold on a “per shipment” basis, we anticipate that our business will continue to reflect the general cyclical and seasonal nature of shipment volumes with our third quarter being the strongest quarter for shipment

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volumes (compared to our first quarter being the weakest quarter for shipment volumes). Historically, in our second fiscal quarter, we’ve seen an increase in ocean services revenues as ocean carriers are in the midst of their customer contract negotiation period. We don’t expect to see as large an increase in our second fiscal quarter revenues going-forward as we’ve seen historically in the second fiscal quarter, primarily due to recent departures of customers for our legacy ocean services.

In 2006, US Customs and Border Protection (“CBP”) launched its e-manifest initiative requiring trucks entering the US to file an electronic manifest through its Automated Commercial Environment (“ACE”), providing the CBP with an advance electronic notice of the contents of the truck. Such filings are now mandatory at land ports of entry into the US. Similar filings are required for ocean vessels and airplanes at US air and sea ports. CBP has implemented enhancements to this ACE e-manifest initiative, called “10+2” enhancements, that require additional data and filings to be provided to CBP in 2010, starting with ocean shipments. We have various customs compliance services specifically designed to help air, ocean and truck carriers comply with this ACE e-manifest initiative. If the roll-out of these initiatives continues as scheduled and compliance is rigidly enforced by CBP, then we anticipate that our revenues will be positively impacted in the second half of 2010. A similar e-manifest advanced notification initiative, called Advanced Commercial Information (“ACI”), is being developed for Canada land ports by the Canadian Border Service Agency and may be effective and enforced in 2010.

In the second quarter of fiscal 2010, our services revenues comprised approximately 92% of our total revenues, with the balance being license revenues. We expect that our focus in the second half of 2010 will remain on generating services revenues, primarily by promoting use of our GLN (including customs compliance services) and the migration of customers using our legacy license-based products to our services-based architecture. We do, however, anticipate maintaining the flexibility to license our products to those customers who prefer to buy the products in that fashion and the composition of our revenues in any one quarter between services revenues and license revenues will be impacted by the buying preferences of our customers.

In the latter half of fiscal 2009 and in to fiscal 2010, we have seen a massive global economic downturn that has impacted all areas of the economy, including employment, the availability of credit, manufacturing and retail sales. With economic conditions impacting what is being built and sold, we anticipate that there will be an impact on volumes that are shipped. Portions of our revenues are dependent on the amount of goods being shipped, the types of goods being shipped, the modes by which they are being shipped and/or the number of aggregate shipments. Accordingly, we are planning for our transaction revenues to be adversely impacted by the global economic downturn in the second half of fiscal 2010.

In addition, in the second half of fiscal 2010 we anticipate that some of our customers will be impacted by the global economic downturn in such a manner that they will either choose to reduce or eliminate their use of some of our services. In particular, in 2010 we anticipate that we will lose approximately $3 million in annual recurring revenues compared to 2009 as customers cease using our legacy ocean contract services and other legacy applications. In the first half of 2010, we have already seen such reductions impact our recurring revenues. We can provide no assurance that we will be able to replace that recurring revenue.

We also have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts, particularly for our ocean products, which provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. Based on our historical experience, we anticipate that over a one-year period we may lose approximately 3% or more of our aggregate revenues in the ordinary course. This 3% is in addition to the $3 million in annual recurring revenues that we anticipate we will lose in fiscal 2010 compared to fiscal 2009. There can be no assurance that we will be able to replace such lost revenue with new revenue from new customer relationships or from existing customers.

We internally measure and manage our “baseline operating expenses,” a non-GAAP financial measure, which we define as our total expenses less interest, taxes, depreciation and amortization (for which we include amortization

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of intangible assets, contingent acquisition consideration and deferred compensation), stock-based compensation, acquisition-related costs and restructuring charges. We currently intend to manage our business with the goal of having our baseline operating expenses for a period be between 70% and 80% of our total anticipated revenues for that period. We also internally measure and monitor our visible, recurring and contracted revenues, which we refer to as our “baseline revenues,” a non-GAAP financial measure. Baseline revenues are not a projection of anticipated total revenues for a period as they exclude any anticipated or expected new sales for a period beyond the date that the baseline revenues are measured. In the second quarter of 2010, we intend to continue to manage our business with our baseline operating expenses at a level below our baseline revenues. We refer to the difference between our baseline revenues and baseline operating expenses as our “baseline calibration,” a non-GAAP financial measure. Our baseline calibration is not a projection of net income for a period as determined in accordance with GAAP, or adjusted net income for a period as it excludes anticipated or expected new sales for a period beyond the date that the baseline calibration is measured, excludes any expenses associated with such new sales, and excludes the expenses identified as excluded in the definition of “baseline operating expenses,” above. We calculate and disclose “baseline revenues,” “baseline operating expenses” and “baseline calibration” because management uses these metrics in determining its planned levels of expenditures for a period. These metrics are estimates and not projections, nor actual financial results, and are not indicative of current or future performance. These metrics are not comparable to similarly-titled metrics used by other companies and are not a replacement or proxy for any GAAP measure. At August 1, 2009, using foreign exchange rates that existed at July 31, 2009, we estimated that our baseline revenues for the third quarter of 2010 were $17.7 million and our baseline operating expenses were $13.7 million. We consider this to be our baseline calibration of $4.0 million for the second quarter of 2010, or approximately 23% of our baseline revenues, determined as of August 1, 2009.

In the second half of fiscal 2010, we anticipate that we will need to re-calibrate our business when and if recurring revenues exit our business or there are further large fluctuations in foreign exchange rates to the US dollar. We expect that re-calibration of our business will include the reduction of expenses through the implementation of cost reduction initiatives and further acceleration of integration activities for acquired companies. In the first quarter of 2010, we started cost reduction activities in anticipation of the $3 million in annual recurring revenues that we expect to lose in 2010 because of the departure of customers of our legacy ocean contract services and other legacy applications. We expect cost-reduction activities to continue in the second half of 2010 to maintain our calibration.

We anticipate that in fiscal 2010, the significant majority of our business will continue to be in the Americas, with the EMEA region being the bulk of the remainder of our business. We anticipate that revenues from the Asia Pacific Region will continue to represent less than 5% of our total revenues in the second half of fiscal 2010.

We estimate that amortization expense for existing intangible assets will be $3.4 million for the second half of 2010, $6.5 million for 2011, $4.8 million for 2012, $3.0 million for 2013, $2.5 million for 2014, $1.3 million for 2015 and $2.9 million thereafter, assuming that no impairment of existing intangible assets occurs in the interim.

We performed our annual goodwill impairment tests in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” on October 31, 2008 and updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009. We are currently scheduled to perform our next annual impairment test on October 31, 2009. In addition, we will continue to perform quarterly analyses of whether any event has occurred that would more likely than not reduce our enterprise value below our carrying amounts and, if so, we will perform a goodwill impairment test between the annual dates. The likelihood of any future impairment increases if our public market capitalization is adversely impacted by global economic, capital market or other conditions for a sustained period of time. Any future impairment adjustment will be recognized as an expense in the period that the adjustment is identified.

In 2009, we spent $1.3 million on capital expenditures and expect that 2010 expenditures will be above that level as we invest in our network and build out infrastructure. Capital expenditures were $0.5 million in the second quarter of 2010, and we expect they will be at approximately that level in the third quarter of 2010.

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We conduct business in a variety of foreign currencies and, as a result, all of our foreign operations are subject to foreign exchange fluctuations. Our operations operate in their local currency environment and use their local currency as their functional currency. Assets and liabilities of foreign operations are translated into US dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses of foreign operations are translated using monthly average exchange rates. Translation adjustments resulting from this process are accumulated in other comprehensive income (loss) as a separate component of shareholders’ equity. Transactions incurred in currencies other than the functional currency are converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income. Some of our cash is held in foreign currencies. We currently have no specific hedging program in place to address fluctuations in international currency exchange rates. We can make no accurate prediction of what will happen with international currency exchange rates for the balance of 2010. However, if the US dollar is weak in comparison to foreign currencies, then we anticipate this will increase the expenses of our business and have a negative impact on our results of operations. In such cases we may need to undertake cost-reduction activities to maintain our calibration.

At September 10, 2009, we had 76,438 outstanding deferred share units and 641,967 outstanding restricted share units. DSUs and RSUs are notional share units granted to directors, officers and employees that, when vested, are settled in cash by Descartes using the fair market value of Descartes’ common shares at the vesting date. DSUs, which have only been granted to directors, vest upon award but are only paid at the completion of the applicable director’s service to Descartes. RSUs generally vest and are paid over a period of three- to five-years. Our liability to pay amounts for DSUs and RSUs is determined using the fair market value of Descartes’ common shares at the applicable balance sheet date. Increases in the fair market value of Descartes’ common shares between reporting periods will require us to record additional expense in a reporting period; while decreases in the fair market value of Descartes’ common shares between reporting periods require us to record an expense recovery. For DSUs, the amount of any expense or recovery is based on the entire number of DSUs outstanding as DSUs are fully vested upon award. For RSUs, the amount of any expense or recovery is based on the number of RSUs that were expensed in the applicable reporting period as employees performed services, but that have not yet vested or been paid pursuant to the terms of the RSU grant. We are not able to predict these expenses or expense recoveries and, accordingly, they are outside our calibration. The closing price of our shares on the TSX was CAD $4.43 on July 31, 2009 and CAD $5.44 on September 10, 2009. If the closing price of our common shares stays at levels comparable to the September 10, 2009 closing price, then we anticipate that we will incur additional expense in the third quarter of 2010 relating to DSUs and RSUs.

As of July 31, 2009, our gross amount of unrecognized tax benefits was approximately $5.0 million. We expect that the unrecognized tax benefits could increase within the next 12 months due to uncertain tax positions that may be taken, although at this time a reasonable estimate of the possible increase cannot be made.

In the second quarter of 2010, we recorded a deferred income tax expense of $1.6 million including $0.2 million resulting from the merger of Scancode’s US operations with our major US operating subsidiary. The remaining deferred income tax expense of $1.4 million results from the use of some of our deferred tax assets to offset our taxable income in certain jurisdictions in the second quarter of 2010. The amount of any tax expense in a period will depend on the amount of taxable income, if any, we generate in a jurisdiction and our then current effective tax rate in that jurisdiction. We can provide no assurance as to the timing or amounts of any income tax expense or expensing of deferred tax assets, nor can be we provide any assurance that our current valuation allowance for deferred tax assets will not need to be adjusted further.

Our tax expense for a period is difficult to predict as it depends on many factors, including the actual jurisdictions in which income is earned, the tax rates in those jurisdictions, the amount of deferred tax assets relating to the jurisdictions and the valuation allowances relating to those tax assets. For example, in the first quarter of 2010, we had a $0.4 million income tax recovery rather than an income tax expense. At this time, we anticipate that our income tax expense (current and deferred) for 2010 will be 50-55% of income before income taxes, with the current income tax expense portion being 10-15% of income before income taxes.

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We intend to actively explore business combinations in the second half of 2010 to add complementary services, products and customers to our existing businesses. In the first quarter or 2010, we completed the acquisitions of Oceanwide and Scancode. Going forward, we intend to focus our acquisition activities on companies that are targeting the same customers as us and processing similar data and, to that end, will listen to our customers’ suggestions as they relate to consolidation opportunities. In the past, we have considered acquisitions of companies that provide back-office systems to large freight forwarders, however, it is not our present intention to pursue such acquisitions. Depending on the size and scope of any business combination, or series of contemplated business combinations, we may need to raise additional debt or equity capital. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance that we will be able to undertake such a financing transaction.

Certain future commitments are set out above in the section of this MD&A called “Commitments, Contingencies and Guarantees”. We believe that we have sufficient liquidity to fund our current operating and working capital requirements, including the payment of these commitments.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Any investment in us will be subject to risks inherent to our business. Before making an investment decision, you should carefully consider the risks described below together with all other information included in this report. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are not aware of or have not focused on, or that we currently deem immaterial, may also impair our business operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, they could materially adversely affect our business, financial condition, liquidity or results of operations. In that case, the trading price of our securities could decline and you may lose all or part of your investment.

General economic conditions may affect our business, results of operations and financial condition.

Demand for our products depends in large part upon the level of capital and operating expenditures by many of our customers. Decreased capital and operational spending could have a material adverse effect on the demand for our products and our business, results of operations, cash flow and overall financial condition. Disruptions in the financial markets may adversely impact the availability of credit already arranged and the availability and cost of credit in the future, which could result in the delay or cancellation of projects or capital programs on which our business depends. In addition, the disruptions in the financial markets may also have an adverse impact on regional economies or the world economy, which could negatively impact the capital and operating expenditures of our customers. These conditions may reduce the willingness or ability of our customers and prospective customers to commit funds to purchase our products and services, or their ability to pay for our products and services after purchase. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the US and other countries.

Our existing customers might cancel existing contracts with us, fail to renew contracts on their renewal dates, and fail to purchase additional services and products, or consolidate contracts with acquired companies.

We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. An example would be our contract to operate the US Census Bureau’s Automated Export System (AESDirect). In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services. In 2007, for example, certain customers of our legacy ocean services cancelled relatively large recurring revenue contracts. In 2010, we expect to lose an additional $3 million in annual

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recurring revenues compared to 2009 from departing services customers in addition to the normal 3% annual revenue attrition we plan for. There can be no assurance that we will be able to replace such lost revenue with new revenue from new customer relationships or from existing customers.

If our customers fail to renew their service contracts, fail to purchase additional services or products, or consolidate contracts with acquired companies, then our revenues could decrease and our operating results could be adversely affected. Factors influencing such contract terminations could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, and changes in our customers’ business or in regulation impacting our customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenues losses. Our business may also be unfavorably affected by market trends impacting our customer base, such as consolidation activity in our customer base.

Disruptions in the movement of freight could negatively affect our revenues.

Our business is highly dependent on the movement of freight from one point to another as we generate transaction revenues as freight is moved by, to or from our customers. If there are disruptions in the movement of freight, whether as a result of labour disputes or weather or natural disaster, or caused by terrorists, political or security activities, contagious illness outbreaks, or otherwise, then our revenues will be adversely affected. As these types of freight disruptions are generally unpredictable, there can be no assurance that our revenues will not be adversely affected by such events.

Changes in the value of the US dollar, as compared to the currencies of other countries where we transact business, could harm our operating results and financial condition.

To date, our international revenues have been denominated primarily in US dollars. However, the majority of our international expenses, including the wages of our non-US employees and certain key supply agreements, have been denominated in currencies other than the US dollar. Therefore, changes in the value of the US dollar as compared to these other currencies may materially affect our operating results. We generally have not implemented hedging programs to mitigate our exposure to currency fluctuations affecting international accounts receivable, cash balances and inter-company accounts. We also have not hedged our exposure to currency fluctuations affecting future international revenues and expenses and other commitments. Accordingly, currency exchange rate fluctuations have caused, and may continue to cause, variability in our foreign currency denominated revenue streams, expenses, and our cost to settle foreign currency denominated liabilities. In particular, we incur a significant portion of our expenses in Canadian dollars relative to the amount of revenue we receive in Canadian dollars, so fluctuations in the Canadian-US dollar exchange rate, and in particular, the weakening of the US dollar, could have a material adverse effect on our business, results of operations and financial condition.

If we need additional capital in the future and are unable to obtain it as needed or can only obtain it on unfavorable terms, our operations may be adversely affected, and the market price for our securities could decline.

Historically, we have financed our operations primarily through cash flows from our operations and the sale of our equity securities. As at July 31, 2009, we had cash and cash equivalents and short-term investments of approximately $51.3 million and $2.8 million in unutilized operating lines of credit.

While we believe we have sufficient liquidity to fund our current operating and working capital requirements, we may need to raise additional debt or equity capital to fund expansion of our operations, to enhance our services and products, or to acquire or invest in complementary products, services, businesses or technologies. However, with the recent global economic downturn and its impact on credit and capital markets, there can be no assurance

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that we will be able to undertake such a financing transaction. If we raise additional funds through further issuances of convertible debt or equity securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those attaching to our common shares. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If adequate funds are not available on terms favorable to us, our operations and growth strategy may be adversely affected and the market price for our common shares could decline.

Making and integrating acquisitions involves a number of risks that could harm our business.

We have in the past acquired, and in the future expect to seek to acquire, additional products, services, customers, technologies or businesses that we believe are complementary to ours. For example, in 2010 we have acquired two businesses (Oceanwide and Scancode), in 2009 we acquired one business (Dexx), in 2008 we acquired six businesses and in 2007 we acquired three businesses. However, we may not be able to identify appropriate products, technologies or businesses for acquisition or, if identified, conclude such acquisitions on terms acceptable to us. Acquisitions involve a number of risks, including: diversion of management’s attention from current operations; disruption of our ongoing business; difficulties in integrating and retaining all or part of the acquired business, its customers and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired company’s internal controls and procedures. In addition, we may not identify all risks or fully assess risks identified in connection with an acquisition. The individual or combined effect of these risks could have a material adverse effect on our business. As well, in paying for an acquisition, we may deplete our cash resources or dilute our shareholder base by issuing additional shares. Furthermore, there is the risk that our valuation assumptions, customer retention expectations and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause us to overvalue an acquisition target. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated.

We may have difficulties maintaining or growing our acquired businesses.

Businesses that we acquire may sell products, or operate services, that we have limited experience operating or managing. For example, Oceanwide and Dexx each operate in the emerging regulatory compliance business, and GF-X operates in electronic air freight booking. We may experience unanticipated challenges or difficulties in maintaining these businesses at their current levels or in growing these businesses. Factors that may impair our ability to maintain or grow acquired businesses may include, but are not limited to:

• Challenges in integrating acquired businesses with our business;

• Loss of customers of the acquired business;

• Loss of key personnel from the acquired business, such as former executive officers or key technical personnel;

• For regulatory compliance businesses, changes in government regulations impacting electronic regulatory filings or import/export compliance, including changes in which government agencies are responsible for gathering import and export information;

• Difficulties in gaining necessary approvals in international markets to expand acquired businesses as contemplated;

• Our inability to obtain or maintain necessary security clearances to provide international shipment management services; and

• Other risk factors identified in this report.

We have a substantial accumulated deficit and a history of losses and may incur losses in the future.

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As at July 31, 2009, our accumulated deficit was $359.6 million. Although we were profitable in the first two quarters of 2010 and we have been profitable for each quarter of the past four years, we had losses in 2005 and prior fiscal periods. While we are encouraged by our recent profits, our profits in 2006 benefited from one-time gains on the disposition of an asset and a significant portion of our net income and earnings per share in the fourth quarter of each of 2008 and 2009 benefited from a non-cash, net deferred income tax recovery of $16.0 million and $11.7 million, respectively. In addition, our net income in the first quarter of 2010 benefitted from a one-time $1.6 million deferred tax recovery resulting from internal corporate re-organizations in connection with our acquisition of Oceanwide. There can be no assurance that we will not incur losses again in the future. We believe that the success of our business and our ability to remain profitable depends on our ability to keep our baseline operating expenses to a level at or below our baseline revenues. However, non-cash, non-operational charges, such as income tax expenses or impairment charges, may adversely impact our ability to be profitable in any particular period. There can be no assurance that we can generate further expense reductions or achieve revenues growth, or that any expense reductions or revenues growth achieved can be sustained, to enable us to do so. If we fail to maintain profitability, this would increase the possibility that the value of your investment will decline.

If we fail to attract and retain key personnel, it would adversely affect our ability to develop and effectively manage our business.

Our performance is substantially dependent on the performance of our key technical, sales and marketing, and senior management personnel. We do not maintain life insurance policies on any of our employees that list the company as a loss payee. Our success is highly dependent on our ability to identify, hire, train, motivate, promote, and retain highly qualified management, directors, technical, and sales and marketing personnel, including key technical and senior management personnel. Competition for such personnel is always strong. Our inability to attract or retain the necessary management, directors, technical, and sales and marketing personnel, or to attract such personnel on a timely basis, could have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

We have in the past, and may in the future, make changes to our executive management team or board of directors. There can be no assurance that these changes and the resulting transition will not have a material adverse effect on our business, results of operations, financial condition and the price of our securities.

Changes in government filing requirements for global trade may adversely impact our business.

Our regulatory compliance services help our customers comply with government filing requirements relating to global trade. The services that we offer may be impacted, from time to time, by changes in these requirements. Changes in requirements that impact electronic regulatory filings or import/export compliance, including changes adding or reducing filing requirements or changing the government agency responsible for the requirement could impact our business, perhaps adversely.

Increases in fuel prices and other transportation costs may have an adverse effect on the businesses of our customers resulting in them spending less money with us.

Our customers are all involved, directly or indirectly, in the delivery of goods from one point to another, particularly transportation providers and freight forwarders. As the costs of these deliveries become more expensive, whether as a result of increases in fuel costs or otherwise, our customers may have fewer funds available to spend on our products and services. While it is possible that the demand for our products and services will increase as companies look for ways to reduce fleet size and fuel use and recognize that our products and services are designed to make their deliveries more cost-efficient, there can be no assurance that these companies will be able to allocate sufficient funds to use our products and services. In addition, rising fuel costs may cause global or geographic-specific reductions in the number of shipments being made, thereby impacting the number of transactions being processed by our Global Logistics Network and our corresponding network revenues.

We may not be able to compensate for downward pricing pressure on certain products and services by increased volumes of transactions or increased prices elsewhere in our business, ultimately resulting in lower revenues.

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Some of our products and services are sold to industries where there is downward pricing pressure on the particular product or service due to competition, general industry conditions or other causes. We may attempt to deal with this pricing pressure by committing these customers to volumes of activity so that we may better control our costs. In addition, we may attempt to offset this pricing pressure by securing better margins on other products or services sold to the customer, or to other customers elsewhere in our business. If we cannot offset any such downward pricing pressure, then the particular customer may generate less revenue for our business or we may have less aggregate revenue. This could have an adverse impact on our operating results.

The general cyclical and seasonal nature of our business may have a material adverse effect on our business, results of operations and financial condition.

Our business may be impacted from time to time by the general cyclical and seasonal nature of particular modes of transportation and the freight market in general, as well as the cyclical and seasonal nature of the industries that such markets serve. Factors which may create cyclical fluctuations in such modes of transportation or the freight market in general include legal and regulatory requirements, timing of contract renewals between our customers and their own customers, seasonal-based tariffs, vacation periods applicable to particular shipping or receiving nations, weather-related events that impact shipping in particular geographies and amendments to international trade agreements. Since some of our revenues from particular products and services are tied to the volume of shipments being processed, adverse fluctuations in the volume of global shipments or shipments in any particular mode of transportation may adversely affect our revenues. There can be no assurance that declines in shipment volumes in the US or internationally won’t have a material adverse effect on our business.

We may have exposure to greater than anticipated tax liabilities or expenses.

We are subject to income and non-income taxes in various jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Although we believe that our estimates are reasonable and that we have adequately provided for income taxes based on all of the information that is currently available to us, tax filings are subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. We have recorded a valuation allowance for all but $30.7 million of our net deferred tax assets. If we achieve a consistent level of profitability, the likelihood of further reducing our deferred tax valuation allowance for some portion of the losses incurred in prior periods in one of our jurisdictions will increase. We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during subsequent years. Adjustments based on filed returns are generally recorded in the period when the tax returns are filed and the global tax implications are known. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. Any further changes to the valuation allowance for our deferred tax assets would also result in an income tax recovery or income tax expense, as applicable, on the consolidated statements of operations in the period in which the valuation allowance is changed. In addition, when we reduce our deferred tax valuation allowance, we will record income tax expense in any subsequent period where we use that deferred tax asset to offset any income tax payable in that period, reducing net income reported for that period, perhaps materially.

Changes to earnings resulting from past acquisitions may adversely affect our operating results.

Under business combination accounting standards, we allocate the total purchase price to an acquired company’s net tangible assets, intangible assets and in-process research and development based on their values as of the date of the acquisition (including certain assets and liabilities that are recorded at fair value) and record the excess of the purchase price over those values as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain. After we complete an acquisition, the following factors could result in material charges that would adversely affect our operating results and may adversely affect our cash flows:

• Impairment of goodwill or intangible assets;

• A reduction in the useful lives of intangible assets acquired;

• Identification of assumed contingent liabilities after we finalize the purchase price allocation period;

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• Charges to our operating results to eliminate certain pre-merger activities that duplicate those of the acquired company or to reduce our cost structure; or

• Charges to our operating results resulting from revised estimates to restructure an acquired company’s operations after we finalize the purchase price allocation period.

Routine charges to our operating results associated with acquisitions include amortization of intangible assets, in-process research and development as well as other acquisition related charges, restructuring and stock-based compensation associated with assumed stock awards. Charges to our operating results in any given period could differ substantially from other periods based on the timing and size of our future acquisitions and the extent of integration activities.

We expect to continue to incur additional costs associated with combining the operations of our acquired companies, which may be substantial. Additional costs may include costs of employee redeployment, relocation and retention, including salary increases or bonuses, accelerated stock-based compensation expenses and severance payments, reorganization or closure of facilities, taxes, and termination of contracts that provide redundant or conflicting services. Some of these costs may have to be accounted for as expenses that would decrease our net income and earnings per share for the periods in which those adjustments are made.

In December 2007, the FASB issued SFAS 141R, “Business Combinations”. SFAS 141R became effective for us at the beginning of fiscal 2010. We expensed $0.5 million of acquisition-related costs in the first half of 2010 as a result of our adoption of SFAS 141R on February 1, 2009. We did not expense similar costs in prior periods. Depending on the size and scope of any future business combination that we undertake, we believe that SFAS 141R may have a material impact on our results of operations and financial condition.

If our common share price decreases to a level such that the fair value of our net assets is less than the carrying value of our net assets, we may be required to record additional significant non-cash charges associated with goodwill impairment.

We account for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (‘SFAS 142”), which we adopted effective February 1, 2002. SFAS 142, among other things, requires that goodwill be tested for impairment at least annually. We have designated October 31 as the date for our annual impairment test. Although the results of our testing on October 31, 2008 indicated no evidence of impairment, should the fair value of our net assets, determined by our market capitalization, be less than the carrying value of our net assets at future annual impairment test dates, we may have to recognize goodwill impairment losses in our future results of operations. This could impair our ability to achieve or maintain profitability in the future. We updated the analysis as of January 31, 2009 and reconfirmed the October determination that there was no evidence of impairment as of January 31, 2009.

Fair value assessments of our intangible assets required by GAAP may require us to record significant non-cash charges associated with intangible asset impairment.

Significant portions of our assets, which include customer agreements and relationships, non-compete covenants, existing technologies and trade names, are intangible. We amortize intangible assets on a straight-line basis over their estimated useful lives, which are generally three to five years. We review the carrying value of these assets at least annually for evidence of impairment. In accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”, an impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the present value of the expected future cash flows. Future fair value assessments of intangible assets may require impairment charges to be recorded in the results of operations for future periods. This could impair our ability to achieve or maintain profitability in the future.

System or network failures or breaches in connection with our services and products could reduce our sales, impair our reputation, increase costs or result in liability claims, and seriously harm our business.

Any disruption to our services and products, our own information systems or communications networks or those of third-party providers upon whom we rely as part of our own product offerings, including the Internet, could

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result in the inability of our customers to receive our products for an indeterminate period of time. Our services and products may not function properly for reasons, which may include, but are not limited to, the following:

• System or network failure;

• Interruption in the supply of power;

• Virus proliferation;

• Security breaches;

• Earthquake, fire, flood or other natural disaster; or

• An act of war or terrorism.

Although we have made significant investments, both internally and with third-party providers, in redundant and back-up systems for some of our services and products, these systems may be insufficient or may fail and result in a disruption of availability of our products or services to our customers. Any disruption to our services could impair our reputation and cause us to lose customers or revenue, or face litigation, necessitate customer service or repair work that would involve substantial costs and distract management from operating our business.

From time to time, we may be subject to litigation or dispute resolution that could result in significant costs to us and damage to our reputation.

From time to time, we may be subject to litigation or dispute resolution relating to any number or type of claims, including claims for damages related to undetected errors or malfunctions of our services and products or their deployment, claims related to previously-completed acquisition transactions or claims relating to applicable securities laws. A product liability, patent infringement, acquisition-related or securities class action claim could seriously harm our business because of the costs of defending the lawsuit, diversion of employees’ time and attention, and potential damage to our reputation.

Further, our services and products are complex and often implemented by our customers to interact with third-party technology or networks. Claims may be made against us for damages properly attributable to those third-party technologies or networks, regardless of our lack of responsibility for any failure resulting in a loss - even if our services and products perform in accordance with their functional specifications. We may also have disputes with key suppliers for damages incurred which, depending on resolution of the disputes, could impact the ongoing quality, price or availability of the services or products we procure from the supplier. While our agreements with our customers, suppliers and other third-parties may contain provisions designed to limit exposure to potential claims, these limitation of liability provisions may not be enforceable under the laws of some jurisdictions. As a result, we could be required to pay substantial amounts of damages in settlement or upon the determination of any of these types of claims, and incur damage to the reputation of Descartes and our products. The likelihood of such claims and the amount of damages we may be required to pay may increase as our customers increasingly use our services and products for critical business functions, or rely on our services and products as the systems of record to store data for use by other customer applications. Although we carry general liability and directors and officers insurance, our insurance may not cover potential claims, or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

We could be exposed to business risks in our international operations that could cause our operating results to suffer.

While our headquarters are in North America, we currently have direct operations in both Europe and China. We anticipate that these international operations will continue to require significant management attention and financial resources to localize our services and products for delivery in these markets, to develop compliance expertise relating to international regulatory agencies, and to develop direct and indirect sales and support channels in those markets. We face a number of risks associated with conducting our business internationally that could negatively impact our operating results. These risks include, but are not limited to:

• Longer collection time from foreign clients, particularly in the Asia Pacific region;

• Difficulty in repatriating cash from certain foreign jurisdictions;

• Language barriers, conflicting international business practices, and other difficulties related to the management and administration of a global business;

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• Difficulties and costs of staffing and managing geographically disparate direct and indirect operations;

• Currency fluctuations and exchange and tariff rates;

• Multiple, and possibly overlapping, tax structures and a wide variety of foreign laws;

• Trade restrictions;

• The need to consider characteristics unique to technology systems used internationally;

• Economic or political instability in some markets; and

• Other risk factors set out in this report.

We may not remain competitive. Increased competition could seriously harm our business.

The market for supply chain technology is highly competitive and subject to rapid technological change. We expect that competition will increase in the future. To maintain and improve our competitive position, we must continue to develop and introduce in a timely and cost effective manner new products, product features and network services to keep pace with our competitors. We currently face competition from a large number of specific entrants, some of which are focused on specific industries, geographic regions or other components of markets we operate in.

Current and potential competitors include supply chain application software vendors, customers that undertake internal software development efforts, value-added networks and business document exchanges, enterprise resource planning software vendors, regulatory filing companies, and general business application software vendors. Many of our current and potential competitors may have one or more of the following relative advantages:

• Longer operating history;

• Greater financial, technical, marketing, sales, distribution and other resources;

• Lower cost structure and more profitable operations;

• Superior product functionality and industry-specific expertise;

• Greater name recognition;

• Broader range of products to offer;

• Better performance;

• Larger installed base of customers;

• Established relationships with existing customers or prospects that we are targeting; and/or

• Greater worldwide presence.

Further, current and potential competitors have established, or may establish, cooperative relationships and business combinations among themselves or with third parties to enhance their products, which may result in increased competition. In addition, we expect to experience increasing price competition and competition surrounding other commercial terms as we compete for market share. In particular, larger competitors or competitors with a broader range of services and products may bundle their products, rendering our products more expensive and/or less functional. As a result of these and other factors, we may be unable to compete successfully with our existing or new competitors.

If we are unable to generate broad market acceptance of our services, products and pricing, serious harm could result to our business.

We currently derive substantially all of our revenues from our supply chain services and products and expect to do so in the future. Broad market acceptance of these types of services and products, and their related pricing, is therefore critical to our future success. The demand for, and market acceptance of, our services and products is subject to a high level of uncertainty. Some of our services and products are often considered complex and may involve a new approach to the conduct of business by our customers. The market for our services and products may weaken, competitors may develop superior services and products, or we may fail to develop acceptable services and products to address new market conditions. Any one of these events could have a material adverse effect on our business, results of operations and financial condition.

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Our success and ability to compete depends upon our ability to secure and protect patents, trademarks and other proprietary rights.

We consider certain aspects of our internal operations, our products, services and related documentation to be proprietary, and we primarily rely on a combination of patent, copyright, trademark and trade secret laws and other measures to protect our proprietary rights. Patent applications or issued patents, as well as trademark, copyright, and trade secret rights, may not provide adequate protection or competitive advantage and may require significant resources to obtain and defend. We also rely on contractual restrictions in our agreements with customers, employees, outsourced developers and others to protect our intellectual property rights. There can be no assurance that these agreements will not be breached, that we have adequate remedies for any breach, or that our patents, copyrights, trademarks or trade secrets will not otherwise become known. Moreover, the laws of some countries do not protect proprietary intellectual property rights as effectively as do the laws of the US and Canada. Protecting and defending our intellectual property rights could be costly regardless of venue. Through an escrow arrangement, we have granted some of our customers a contingent future right to use our source code for software products solely for internal maintenance services. If our source code is accessed through an escrow, the likelihood of misappropriation or other misuse of our intellectual property may increase.

Claims that we infringe third-party proprietary rights could trigger indemnification obligations and result in significant expenses or restrictions on our ability to provide our products or services.

Competitors and other third-parties have claimed, and in the future may claim, that our current or future services or products infringe their proprietary rights or assert other claims against us. Many of our competitors have obtained patents covering products and services generally related to our products and services, and they may assert these patents against us. Such claims, whether with or without merit, could be time consuming and expensive to litigate or settle and could divert management attention from focusing on our core business.

As a result of such a dispute, we may have to pay damages, incur substantial legal fees, suspend the sale or deployment of our services and products, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would increase our expenses and could decrease the functionality of our services and products, which would make our services and products less attractive to our current and/or potential customers. We have agreed in some of our agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties. If we are required to make payments pursuant to these indemnification agreements, it could have a material adverse effect on our business, results of operations and financial condition.

Our results of operations may vary significantly from quarter to quarter and therefore may be difficult to predict or may fail to meet investment community expectations.

Our results of operations may vary from quarter to quarter in the future due to a variety of factors, many of which are outside of our control. Such factors include, but are not limited to:

• The termination of any key customer contracts, whether by the customer or by us;

• Recognition and expensing of deferred tax assets;

• Legal costs incurred in bringing or defending any litigation with customers and third-party providers, and any corresponding judgments or awards;

• Legal and compliance costs incurred to comply with Canadian and US regulatory requirements;

• Fluctuations in the demand for our services and products;

• Price and functionality competition in our industry;

• Timing of acquisitions and related costs;

• Changes in legislation and accounting standards;

• Fluctuations in foreign currency exchange rates;

• Our ability to satisfy contractual obligations in customer contracts and deliver services and products to the satisfaction of our customers; and

• Other risk factors discussed in this report.

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Although our revenues may fluctuate from quarter to quarter, significant portions of our expenses are not variable in the short term, and we may not be able to reduce them quickly to respond to decreases in revenues. If revenues are below expectations, this shortfall is likely to adversely and/or disproportionately affect our operating results.

Our common share price has in the past been volatile and may also be volatile in the future.

The trading price of our common shares has in the past been subject to wide fluctuations and may also be subject to fluctuation in the future. This may make it more difficult for you to resell your common shares when you want at prices that you find attractive. Increases in our common share price may also increase our compensation expense pursuant to our existing director, officer and employee compensation arrangements. Fluctuations in our common share price may be caused by events unrelated to our operating performance and beyond our control. Factors that may contribute to fluctuations include, but are not limited to:

• Revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;

• Changes in recommendations or financial estimates by industry or investment analysts;

• Changes in management or the composition of our board of directors;

• Outcomes of litigation or arbitration proceedings;

• Announcements of technological innovations or acquisitions by us or by our competitors;

• Introduction of new products or significant customer wins or losses by us or by our competitors;

• Developments with respect to our intellectual property rights or those of our competitors;

• Fluctuations in the share prices of other companies in the technology and emerging growth sectors;

• General market conditions; and

• Other risk factors set out in this report.

If the market price of our common shares drops significantly, shareholders could institute securities class action lawsuits against us, regardless of the merits of such claims. Such a lawsuit could cause us to incur substantial costs and could divert the time and attention of our management and other resources from our business.

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