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To answer this question you need to understand a little about the dymamics of the software applications market.

Point one. Developing large, complex software systems and building up a service and support organisation involves enormous up-front costs. The money comes later, with a steady revenue stream from a large installed base of customers using the software and paying licence and support fees. Therefore it is quite normal for software companies to operate in the red for their their first few years.

Point two. The reason why the gamble on huge up-front costs can pay off in a big way is that application software markets tend to be winner takes (nearly) all. A typical software market has one clear market leader making huge amounts of money, and maybe a couple of reasonably strong second tier players who have profitable niches but make nowhere near as much as the leader. Classic examples are desktop operating systems - Microsoft the clear winner, Apple a distant second. Or Oracle in databases.

Epiphany seems to be strongly positioned - it has a good product, excellent management and backing, is growing its installed base faster than most of its competitors, and is closer to breaking even than analysts expected. It's a good company, but is it positioned to become a mini Microsoft or Oracle? I personlly wouldn't bet on it. As you correctly point out, it's still not making money. It also operates in a very turbulent and fiercely competitive sector where it isn't even clear yet what the eventual software categories are going to be, let alone the winners in those categories.

The questions you need to ask yourself are (a) do I believe Epiphany will eventually make money? and more specifically (b) do I believe Epiphany will, within a reasonably foreseeable period of time, make (for example, based on curent market caps) at least 1/8 as much money as Siebel? 1/50 as much money as Microsoft? 1/40 as much as Wal-mart? ....

If you can't answer those questions to your own satisfaction, based on what you know about the company and the market it operates in, then you didn't make a foolish decision in buying the shares. You took a gamble and you may or may not get lucky.
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