Unica 10Q Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2008


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

Commission File Number: 000-51461

Unica Corporation

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		04-3174345 (I.R.S. Employer Identification No.)

170 Tracer Lane
Waltham, Massachusetts 02451-1379
(Address of principal executive offices)
(781) 839-8000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesþ Noo

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


Large accelerated filero	Accelerated filerþ	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares of the registrant’s common stock outstanding as of May 5, 2008 was 20,565,000.

UNICA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2008
Table of Contents


	Page
Part I — Financial Information

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2008 and September 30, 2007		4
Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2008 and 2007		5
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2008 and 2007		6
Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3. Quantitative and Qualitative Disclosures About Market Risk		43

Item 4. Controls and Procedures		44

Part II — Other Information

Item 1. Legal Proceedings		45

Item 1A. Risk Factors		45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		45

Item 4. Submission of Matters to a Vote of Security Holders		46

Item 5. Other Information		46

Item 6. Exhibits		46

Signatures		47

Exhibits
EX-10.1 2005 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO & CFO

EXPLANATORY NOTE

On January 7, 2008, we restated our previously published financial data for the three and six months ended March 31, 2007. The restatement is set forth in our 2007 Annual Report on Form 10-K. The Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2007 and the Condensed Consolidated Statement of Cash Flows for the six months ended March 31, 2007 in this report are presented as restated. For information on the restatement and the impact of the restatement on our financial data for the quarter ended March 31, 2007, we refer you to, Note 14, Quarterly Financial Data (Unaudited), in our 2007 Annual Report on Form 10-K. We also refer you to Note 17, Restatement of Quarterly Financial Data, within this Quarterly Report on Form 10-Q.

PART I — Financial Information

Item 1. Financial Statements

UNICA CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	March 31,		September 30,
	2008		2007
ASSETS

Current assets:
Cash and cash equivalents	$	33,928	$	18,493
Short-term investments		7,121		19,614
Accounts receivable, net of allowance for doubtful accounts of $90 and $77, respectively		29,220		28,058
Purchased customer receivables		863		1,180
Deferred tax assets		565		565
Prepaid expenses and other current assets		10,181		7,288

Total current assets		81,878		75,198

Property and equipment, net		4,636		4,135
Purchased customer receivables, long-term		540		875
Acquired intangible assets, net		8,372		9,906
Goodwill		26,397		26,160
Deferred tax assets, long-term, net of valuation allowance		4,581		4,324
Other assets		754		750


Total assets	$	127,158	$	121,348


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,801	$	2,366
Accrued expenses		17,409		17,431
Short-term deferred revenue		37,325		34,946

Total current liabilities		58,535		54,743

Long-term deferred revenue		2,577		3,686
Other long-term liabilities		444		—

Total liabilities		61,556		58,429

Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value:
Authorized — 10,000,000 shares; no shares issued or outstanding at March 31, 2008 and September 30, 2007		—		—
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; issued and outstanding — 20,564,000 and 20,074,000 shares at March 31, 2008 and September 30, 2007, respectively		205		201
Additional paid-in capital		63,220		59,802
Retained earnings		1,609		2,578
Accumulated other comprehensive income		568		338

Total stockholders’ equity		65,602		62,919


Total liabilities and stockholders’ equity	$	127,158	$	121,348

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

UNICA CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)


	Three Months Ended March 31,					Six Months Ended March 31,
	2008			2007		2008			2007
				(As Restated)					(As Restated)
Revenue:
License	$	11,635		$	10,050	$	22,780		$	19,081
Maintenance and services		16,092			14,056		30,681			26,521
Subscription		3,060			2,191		5,790			4,493

Total revenue		30,787			26,297		59,251			50,095
Costs of revenue:
License		828			715		1,587			1,282
Maintenance and services		6,637			5,014		12,430			8,897
Subscription		652			168		1,305			317

Total cost of revenue		8,117			5,897		15,322			10,496

Gross profit		22,670			20,400		43,929			39,599
Operating expenses:
Sales and marketing		12,626			9,940		24,387			19,153
Research and development		5,864			5,395		11,811			10,391
General and administrative		4,583			3,992		9,577			7,931
Restructuring charges (credits)		(20	)		—		(286	)		1,244
Amortization of acquired intangible assets		394			393		787			786

Total operating expenses		23,447			19,720		46,276			39,505

Income (loss) from operations		(777	)		680		(2,347	)		94
Other income:
Interest income, net		390			524		843			1,000
Other income (expense), net		(208	)		5		(80	)		67

Total other income		182			529		763			1,067

Income (loss) before income taxes		(595	)		1,209		(1,584	)		1,161
Provision for (benefit from) income taxes		(318	)		146		(883	)		278

Net income (loss)	$	(277	)	$	1,063	$	(701	)	$	883

Net income (loss) per common share:
Basic	$	(0.01	)	$	0.05	$	(0.03	)	$	0.04

Diluted	$	(0.01	)	$	0.05	$	(0.03	)	$	0.04

Shares used in computing net income (loss) per common share:
Basic		20,399,000			19,809,000		20,265,000			19,724,000

Diluted		20,399,000			20,638,000		20,265,000			20,621,000

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

UNICA CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six Months Ended March 31,
	2008			2007
				(As Restated)
Cash flows from operating activities:
Net income (loss)	$	(701	)	$	883
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment and amortization of capitalized software		1,020			620
Amortization of acquired intangible assets		1,453			1,338
Share-based compensation charge		3,281			2,260
Excess tax benefits from share-based compensation		(130	)		(549	)
Deferred tax benefits		(434	)		(172	)
Changes in operating assets and liabilities:
Accounts receivable		(954	)		90
Prepaid expenses and other current assets		(2,552	)		(4,457	)
Other assets		332			537
Accounts payable		1,407			(695	)
Accrued expenses		(360	)		2,262
Deferred revenue		991			2,788
Other long-term liabilities		444			—

Net cash provided by operating activities		3,797			4,905
Cash flows from investing activities:
Purchase of property and equipment		(1,474	)		(1,276	)
Cash collected from license acquired in acquisition		81			—
Sales and maturities of short-term investments		28,666			13,404
Purchases of short-term investments		(16,173	)		(31,069	)

Net cash provided by (used in) investing activities		11,100			(18,941	)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock option and employee stock purchase plans		959			767
Excess tax benefits from share-based compensation		130			549
Payment of withholding taxes in connection with settlement of restricted stock units		(708	)		(465	)

Net cash provided by financing activities		381			851
Effect of exchange rate changes on cash and cash equivalents		157			89

Net increase (decrease) in cash and cash equivalents		15,435			(13,096	)
Cash and cash equivalents at beginning of period		18,493			30,051

Cash and cash equivalents at end of period	$	33,928		$	17,405

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

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

(In thousands, except share and per share data)

1. Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring items, to fairly present the results of the interim periods in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to ensure the information presented is not misleading. These condensed financial statements should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2007, and current reports on Form 8-K filed with the Securities and Exchange Commission. The interim period results are not necessarily indicative of the results to be expected for any subsequent interim period or for the full year.

The condensed consolidated statements of operations for the three and six months ended March 31, 2007 and the condensed consolidated statement of cash flows for the six months ended March 31, 2007 are presented as previously restated. For additional information on the restatement and the impact of the restatement on the condensed consolidated financial data, see Note 14, Quarterly Financial Data (unaudited), of the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2007 as well as Note 17, Restatement of Quarterly Financial Data, of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

2. Revenue Recognition

The Company derives revenue from software licenses, maintenance and services, and subscriptions. The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2,Software Revenue Recognition, as amended by SOP 98-9,Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. In accordance with these standards, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is deemed fixed or determinable and collection is deemed probable.

Generally, implementation services for the Company’s software products are not deemed essential to the functionality of the software products, and therefore services revenue is recognized separately from license revenue. When the Company determines that services are essential to the functionality of software in an arrangement, the license and services revenue from the arrangement would be recognized pursuant to SOP 81-1,Accounting for Performance of Construction-Type Contracts and Certain Production-Type Contracts. In such cases, the Company is required to make reasonably dependable estimates relative to the extent of progress toward completion by comparing the total hours incurred to the estimated total hours for the arrangement and, accordingly, would apply the percentage-of-completion method. If the Company were unable to make reasonably dependable estimates of progress towards completion, then it would use the completed-contract method, under which revenue is recognized only upon completion of the services. If total cost estimates exceed the anticipated revenue, then the estimated loss on the arrangement is recorded at the inception of the arrangement or at the time the loss becomes apparent.

The Company generally sells its software products and services together in a multiple-element arrangement under both perpetual license and subscription arrangements. When the Company enters into multiple-element perpetual license arrangements, the Company allocates the total fee among the various elements using the residual method. Under the residual method, revenue is recognized when vendor-specific objective evidence (VSOE) of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. Each multiple-element arrangement requires the Company to analyze the individual elements in the transaction and to estimate the fair value of each undelivered element, which typically includes maintenance and services.

The Company generally estimates the fair value of the maintenance portion of an arrangement based on the maintenance renewal price for that arrangement. In multiple-element arrangements where the Company sells maintenance for less than fair value, the Company defers the contractual price of the maintenance plus the difference between such contractual price and the fair value of maintenance over the expected life of the product. The Company makes a corresponding reduction in license revenue. The fair value of the professional services portion of the arrangement is based on the rates that the Company charges for these services when sold independently from a software license. If, in the Company’s judgment, evidence of fair value cannot be established for undelivered elements in a multiple element arrangement, the entire amount of revenue from the arrangement is deferred until evidence of fair value can be established, or until the elements for which evidence of fair value could not be established are delivered.

License Revenue.The Company licenses its software products on a perpetual basis. Licenses to use the Company’s products in perpetuity generally are priced based on (a) either a customer’s database size (including the number of contacts or channels) or a platform fee, and (b) a specified number of users. With respect to the Affinium NetInsight™ product, licenses are generally priced based on the volume of traffic of a website. Because implementation services for the software products are not deemed essential to the functionality of the related software, the Company recognizes perpetual license revenue at the time of product delivery, provided all other revenue recognition criteria have been met.

When the Company licenses its software on a perpetual basis through a marketing service provider (MSP) or systems integrator, the Company recognizes revenue upon delivery of the licensed software to the MSP or systems integrator only if (a) the customer of the MSP or systems integrator is identified in a written arrangement between the Company and the MSP or systems integrator and (b) all other revenue recognition criteria have been met pursuant to SOP 97-2.

Maintenance and Services.Maintenance and services revenue is generated from sales of (a) maintenance, including software updates and upgrades and technical support, associated with the sale of perpetual software licenses and (b) services, including implementation, training and consulting, and reimbursable travel.

Maintenance Fees.Maintenance is generally sold on an annual basis. There are two levels of maintenance, standard and premium, both of which generally are sold for a term of one year. With both of these maintenance levels, customers are provided with technical support and software updates and upgrades on a when and if available basis. With premium maintenance, customers are provided additional services such as emergency service response and periodic onsite utilization reviews. Revenue is deferred at the time the maintenance agreement is initiated and is recognized ratably over the term of the maintenance agreement.

Services.Implementation services include the installation of the Company’s software, identification and sourcing of legacy data, configuration of rules necessary to generate marketing campaigns and other general services for the software. A range of training services, including classroom, onsite, and web-based education and training are also provided. Generally these services are priced on a time-and-materials basis and recognized as revenue when the services are performed; however, in certain circumstances these services may be priced on a fixed-fee basis and recognized as revenue under the proportional performance method. In cases where VSOE of fair value does not exist for the undelivered elements in an arrangement, services revenue is deferred and recognized over the period of performance of the final undelivered element. The Company also defers the direct and incremental costs of providing the services and amortizes those costs over the period that revenue is recognized.

In accordance with Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 01-14,Income Statement Characterization of Reimbursements Received for ‘Out of Pocket’ Expenses Incurred, the Company classifies reimbursements received for out-of-pocket expenses incurred as services revenue and classifies the related costs as cost of revenue. The amounts of reimbursable expenses included within revenue and cost of revenue were $339 and $485 for the three months ended March 31, 2008 and 2007, respectively, and $657 and $780 for the six months ended March 31, 2008 and 2007, respectively.

Subscription Revenue.Subscription revenue includes, for a bundled fee, (a) the right to use the Company’s software for a specified period of time, typically one year, (b) updates and upgrades to software and (c) technical support. Customers are generally invoiced in annual or quarterly installments and are billed in advance of the subscription period. Revenue is recognized ratably over the contractual term of the arrangement.

3. Cash and Cash Equivalents and Short-Term Investments

The Company considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents. The Company invests the majority of its excess cash in overnight investments and money market funds of accredited financial institutions.

The Company considers all highly liquid investments with maturities of between 91 and 365 days as of the balance sheet date to be short-term investments. The Company accounts for its investments in accordance with Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities.The Company’s investments were classified as available-for-sale and were carried at fair market value at March 31, 2008 and September 30, 2007. Unrealized gains (losses) on available-for-sale securities are recorded in accumulated other comprehensive income (loss).

Short-term investments, all with contractual maturities within one year, were as follows:


	Amortized		Unrealized		Fair Market
	Cost		Gain (Loss)		Value
At March 31, 2008:
Commercial paper	$	6,255	$	—	$	6,255
Corporate debentures and other securities		865		1		866

Total short-term investments	$	7,120	$	1	$	7,121


At September 30, 2007:
Commercial paper	$	11,505	$	—	$	11,505
Corporate debentures and other securities		8,109		—		8,109

Total short-term investments	$	19,614	$	—	$	19,614

4. Comprehensive Income (Loss)

SFAS No. 130,Reporting Comprehensive Income, establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Other than reported net income (loss), comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains and losses on available-for-sale short-term investments.

The following table presents the calculation of comprehensive income (loss):


	Three Months Ended March 31,					Six Months Ended March 31,
	2008			2007		2008			2007
				(As Restated)					(As Restated)
Net income (loss)	$	(277	)	$	1,063	$	(701	)	$	883
Other comprehensive income, net of tax effects:
Change in unrealized losses on short-term investments		(1	)		—		—			—
Foreign currency translation adjustments		165			1		228			17

Other comprehensive income		164			1		228			17

Comprehensive income (loss)	$	(113	)	$	1,064	$	(473	)	$	900

5. Net Income (Loss) Per Common Share

The Company calculates net income (loss) per common share in accordance with SFAS No. 128,Earnings Per Share.Weighted-average shares of common stock outstanding consist of the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share gives effect to all dilutive securities, including stock options and restricted stock units using the treasury stock method. For the three and six months ended March 31, 2008 and 2007, the Company had only one class of security, common stock, outstanding.

The following table presents the calculation of basic and diluted net loss per common share:


	Three Months Ended March 31,					Six Months Ended March 31,
	2008			2007		2008			2007
				(As Restated)					(As Restated)
Net income (loss)		(277	)	$	1,063	$	(701	)	$	883
Weighted-average shares of common stock outstanding		20,399,000			19,809,000		20,265,000			19,724,000
Dilutive effect of common stock equivalents		—			829,000		—			897,000
Weighted-average shares used in computing diluted net income (loss) per common share		20,399,000			20,638,000		20,265,000			20,621,000
Basic net income (loss) per common share		(0.01	)	$	0.05		0.03		$	0.04
Diluted net income (loss) per common share		(0.01	)	$	0.05		0.03		$	0.04

Weighted-average common stock equivalents of 3,427,000 and 1,137,000 were excluded from the calculation of diluted net income (loss) per common share for the three months ended March 31, 2008 and 2007, respectively, as their inclusion would be anti-dilutive. Weighted-average common stock equivalents of 3,499,000 and 935,000 were excluded from the calculation of diluted net income (loss) per common share for the six months ended March 31, 2008 and 2007, respectively, as their inclusion would be anti-dilutive.

6. Acquisitions

For additional information on the acquisitions described below, see Unica’s 2007 Annual Report on Form 10-K, Note 3, “Acquisitions.”

MarketingCentral, L.L.C.

On July 12, 2007, the Company acquired by merger MarketingCentral L.L.C. (MarketingCentral), a software company located in Atlanta, Georgia. The purchase price was $12,919, which consisted of cash consideration of $12,500 and assumed liabilities and transaction-related costs of $419. This acquisition was accounted for as a purchase transaction in accordance with SFAS No. 141,Business Combinations. The results of operations of the Company include the results of MarketingCentral beginning on the date of the acquisition. The purchase price allocation is preliminary and is expected to be finalized before the end of fiscal 2008.

Sane Solutions, LLC

On March 22, 2006, the Company acquired Sane Solutions, L.L.C. (Sane), a privately-held provider of web analytics software for internet marketing, located in North Kingstown, Rhode Island. The purchase price was $28,818, which consisted of cash consideration of $21,774, assumed liabilities and transaction-related costs of $5,240, and 151,984 shares of common stock valued at $1,804 for accounting purposes or $11.87 per share. This acquisition was accounted for as a purchase transaction in accordance with SFAS No. 141. The results of Sane have been included in the Company’s financial statements from the date of acquisition.

MarketSoft Software Corporation

On December 20, 2005, the Company acquired certain assets and assumed certain liabilities of MarketSoft Software Corporation (MarketSoft), a software company formerly located in Lexington, Massachusetts. The purchase price was $7,875, which consisted of cash consideration of $7,258 and assumed liabilities and transaction-related costs of $617. This acquisition was accounted for as a purchase transaction in accordance with SFAS No. 141. The results of operations of the Company include the results of MarketSoft, beginning on the date of the acquisition.

Acquisition-Related Restructuring Costs

In accordance with EITF Issue No. 95-3,Recognition of Liabilities in Connection with a Purchase Business Combination,the Company recorded restructuring liabilities as part of the purchase price for Sane and MarketSoft in

the amount of $196 and $60, respectively. The acquisition-related restructuring liabilities included severance, relocation and related legal charges. The acquisition-related restructuring accrual was $20 at March 31, 2008 and September 30, 2007 and is expected to be paid during the remainder of fiscal 2008.

Pro Forma Results (Unaudited)

The unaudited pro forma combined condensed results of operations of Unica and MarketingCentral for the three and six months ended March 31, 2007 presented below give effect to the acquisition of MarketingCentral as if the acquisition had occurred as of the beginning of the period presented. MarketingCentral’s fiscal year end prior to the acquisition was December 31. The unaudited pro forma combined results of operations are not necessarily indicative of future results or the results that would have actually occurred had the acquisitions been consummated as of the beginning of the period presented.


	Three Months Ended		Six Months Ended
	March 31, 2007		March 31, 2007
Pro forma revenue	$	26,741	$	51,069
Pro forma net income		811		480
Pro forma net loss per common share:
Basic	$	0.04	$	0.02
Diluted	$	0.04	$	0.02

The above unaudited pro forma results include net amortization of acquired intangible assets from the MarketingCentral acquisition in the amount of $72,000 and $143,000 for the three and six months ended March 31, 2007, respectively. In addition, the unaudited pro forma results have been adjusted to reduce interest income earned by the Company on the cash paid for the acquisition. The Company estimated this interest income adjustment using an interest rate of 2.5%.

7. Goodwill and Acquired Intangible Assets

Intangible assets acquired in the Company’s acquisitions include goodwill, developed technology and customer contracts and related relationships. All of the Company’s acquired intangible assets, except goodwill, are subject to amortization over their estimated useful lives. A portion of the goodwill and acquired intangible assets is recorded in the accounts of a French subsidiary of the Company and, as such, is subject to translation at the currency exchange rates in effect at the balance sheet date. The components of acquired intangible assets, excluding goodwill are as follows:


	Range of		Gross
	Useful Lives		Carrying		Accumulated			Net Book
	In Years		Value		Amortization			Value
As of March 31, 2008:
Developed technology		1-8	$	6,699	$	(3,289	)	$	3,410
Customer contracts and related relationships		3-14		7,556		(3,853	)		3,703
License agreement		14		1,360		(113	)		1,247
Tradename		1		44		(32	)		12

Total intangible assets			$	15,659	$	(7,287	)	$	8,372


As of September 30, 2007:
Developed technology		1-8	$	6,699	$	(2,645	)	$	4,054
Customer contracts and related relationships		3-14		7,556		(3,067	)		4,489
License agreement		14		1,360		(31	)		1,329
Tradename		1		44		(10	)		34

Total intangible assets			$	15,659	$	(5,753	)	$	9,906

The following table describes changes to goodwill during the six months ended March 31, 2008:


Balance at September 30, 2007	$	26,160
Foreign currency translation		288
Other adjustments		(51	)

Balance at March 31, 2008	$	26,397

The Company recorded amortization expense for acquired intangible assets of $727 and $1,453 for the three and six months ended March 31, 2008, respectively, and $668 and $1,338 for the three and six months ended March 31, 2007, respectively. Amortization of developed technology in an amount of $333 and $666 was included as a component of cost of license revenue in the consolidated statements of operations for the three and six months ended March 31, 2008, respectively, and $275 and $552 for the three and six months ended March 31, 2007, respectively.

Intangible assets are expected to be amortized as follows:


Year ending September 30, 2008 (remainder)	$	1,525
2009		2,330
2010		1,201
2011		692
2012 and thereafter		2,624

Total expected amortization	$	8,372

8. Software Development Costs

The Company evaluates whether to capitalize or expense software development costs in accordance with SFAS No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The Company sells products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, the Company has concluded that technological feasibility is not established until the development stage of the product is nearly complete. The Company has defined technological feasibility as the completion of a working model. During the three and six months ended March 31, 2008, $14 of software development costs were capitalized in accordance with SFAS No. 86.

The Company capitalizes certain costs of software developed or obtained for internal use in accordance with American Institute of Certified Public Accountants Statement of Position 98-1,Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use. The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, will be capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training cost are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life. Management evaluates the useful lives of these assets on an annual basis and tests for impairments whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the three and six months ended March 31, 2008, $20 of internal-use software costs were capitalized.

9. Accounting for Share-Based Compensation

On October 1, 2005, the Company adopted the provisions of SFAS 123 (revised 2004),Share-Based Payment(SFAS 123(R)), which requires the Company to recognize expense related to the fair value of share-based compensation awards. Management elected to use the modified prospective transition method as permitted by SFAS 123(R) and therefore did not restate the Company’s financial results for prior periods. Under this transition method, share-based compensation expense for the three and six months ended March 31, 2008 and 2007 includes compensation expense for all share-based compensation awards granted or modified on or after November 18, 2004 (the filing date for the initial registration statement for the Company’s initial public offering), based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).

Under the provisions of SFAS 123(R), the value of these options will not be recorded in the statement of operations subsequent to the adoption of SFAS 123(R). Instead, the Company will continue to account for these options using Accounting Principles Board Opinion No. 25 (APB 25),Accounting for Stock Issued to Employees, and related Interpretations. The amount of unamortized pro forma deferred compensation at October 1, 2005, related to those minimum value awards was $920.

Prior to the adoption of SFAS 123(R), in accordance with APB 25, the Company recorded deferred share-based compensation resulting from the grant of employee stock options with an exercise price less than the fair value of common stock. Upon the adoption of SFAS 123(R) on October 1, 2005, the deferred share-based compensation balance was netted against additional paid-in capital on the consolidated balance sheet.

For options accounted for under SFAS 123(R), the Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. In addition, SFAS 123(R) requires the benefits of tax deductions in excess of recognized share-based compensation to be reported as a financing activity rather than an operating activity in the statements of cash flows. This requirement reduces net operating cash flows and increases net financing cash flows in periods after adoption.

For options accounted for under SFAS 123(R), the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used and the resulting estimated fair value for option grants during the applicable period are as follows:


	Three Months Ended March 31,						Six Months ended March 31,
	2008			2007			2008			2007
Dividend yield		—			—			—			—
Volatility		50	%		50	%		50	%	49% to 50%
Risk-free interest rate		2.45	%		4.49	%	2.45% to 4.16%			4.49% to 4.57%
Weighted-average expected option term (in years)		3.5 to 4.1			4.1			3.5 to 4.1			4.1
Weighted-average fair value per share of options granted	$	2.65		$	5.06		$	2.96		$	5.05
Weighted-average fair value per share of restricted stock awards granted	$	6.46		$	11.48		$	7.50		$	11.48

The assumptions used and the resulting estimated fair value for the Company’s employee stock purchase plan during the applicable period are as follows:


	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2008			2007			2008		2007
Dividend yield		—			—			—		—
Volatility		50	%		41	%	41% to 50%			41	%
Risk-free interest rate		2.12	%		4.07	%	2.12% to 3.49%			4.07	%
Weighted-average expected option term (in years)		0.5			0.5			0.5		0.5

The computation of expected volatility is based on a study of historical volatility rates of comparable companies during a period comparable to the expected option term. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury risk-free interest rate in effect at the time of grant. The computation of the expected option term is based on an average of the vesting term and the maximum contractual life of the Company’s stock options. Computation of expected forfeitures is based on historical forfeiture rates of the Company’s stock

options and restricted stock units. Share-based compensation charges will be adjusted in future periods to reflect the results of actual forfeitures and vesting.

The weighted-average exercise price of the options granted under the stock option plans for the three months ended March 31, 2008 and 2007 was $6.46 and $11.40, respectively, and for the six months ended March 31, 2008 and 2007 was $7.12 and $11.40, respectively.

Restricted stock units generally vest annually and are accounted for under SFAS No. 123(R). The share-based compensation charge per restricted stock unit is equal to the Company’s closing stock price at the grant date and is amortized on a straight-line basis over the vesting period of the restricted stock unit, net of estimated forfeitures.

The components of share-based compensation expense were as follows:


	Three Months ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
Stock options under SFAS 123(R)		544	$	543		1,234	$	1,073
Stock options under APB 25		15		19		27		45
Restricted stock units		891		619		1,938		1,106
Employee stock purchase plan		62		20		82		36

Total share-based compensation		1,512	$	1,201		3,281	$	2,260

Cost of revenue and operating expenses include share-based compensation expense as follows for the three and six months ended March 31, 2008 and 2007.


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
Cost of license revenue	$	11	$	—	$	23	$	—
Cost of maintenance and services revenue		208		109		405		198
Sales and marketing expense		483		379		1,137		654
Research and development expense		343		259		677		467
General and administrative expense		467		454		1,039		941

Total share-based compensation	$	1,512	$	1,201	$	3,281	$	2,260

The Company expects to record the unamortized portion of share-based compensation expense for existing stock options and restricted stock units outstanding at March 31, 2008, over a weighted-average period of 2.34 years, as follows:


Year ending September 30, 2008 (remainder)	$	3,158
2009		5,842
2010		4,444
2011		2,343
2012		362

Total unamortized share-based compensation	$	16,149

10. Equity Compensation Plans

Stock Options

In May 1997, the Company’s stockholders approved the amended and restated 1993 Stock Option Plan, or the 1993 Plan, which provides for the grant of incentive and non-qualified stock options for the purchase of up to 4,151,000 shares of the Company’s common stock. In connection with the adoption of the 2003 Stock Option Plan, a total of 138,000 shares then available under the 1993 Plan became available for grant under the 2003 Plan and no further option grants were permitted under the 1993 Plan.

In March 2005, the Company’s Board of Directors and stockholders approved the amended and restated 2003 Stock Option Plan, or the 2003 Plan, which provides for the grant of incentive and non-qualified stock options for the purchase of up to 1,312,000 shares of the Company’s common stock. In connection with the adoption of the 2005 Stock Incentive Plan, or the 2005 Plan, a total of 367,000 shares then available under the 2003 Plan became available for grant under the 2005 Plan and no further option grants were permitted under the 2003 Plan.

In March 2005, the Board of Directors and stockholders also approved the 2005 Stock Incentive Plan. The Company has reserved for issuance an aggregate of 1,500,000 shares of common stock under the 2005 Plan, plus the 367,000 shares available for grant under the 2003 Plan immediately prior to the closing of the Company’s initial public offering and the number of shares subject to awards granted under the 2003 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased by the Company at the original issuance price pursuant to a contractual repurchase right. On October 1, 2007, an additional 1,004,000 shares were reserved under the 2005 Plan, in accordance with the provisions of the Plan, which require an annual increase of the shares reserved for issuance under the Plan equal to the lesser of (a) 5,000,000 shares of common stock, (b) 5% of the outstanding shares of common stock as of the opening of business on such date or (c) an amount determined by the Board of Directors.

Officers, employees, directors and consultants of the Company are eligible to be granted stock options and awards under each of these plans. Incentive stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on the date of grant (not less than 110% of fair value in the case of holders of more than 10% of the Company’s stock). The 1993 Plan and 2003 Plan provide that the options shall be exercisable over a period not to exceed ten years. The 2005 Plan provides that the options shall be exercisable over a period not to exceed six years. The Board of Directors is responsible for administration of each of these Plans and determines the term of each option, the option exercise price, the number of shares for which each option is exercisable and the vesting period. Options generally vest under each of these Plans over a period of four to five years.

The following is a summary of the Company’s stock options outstanding and exercisable as of March 31, 2008 and the stock option activity for all stock option plans during the six months ended March 31, 2008.


						Weighted
				Weighted		Average
				Average		Remaining	Aggregate
				Exercise		Contractual	Intrinsic
	Shares			Price		Term	Value(1)
Outstanding at September 30, 2007		2,487,000		$	8.48
Granted		415,000			7.12
Exercised		(273,000	)		2.21
Forfeited		(89,000	)		11.10

Outstanding at March 31, 2008		2,540,000			8.84	5.40 yrs	$	2,306

Exercisable at March 31, 2008		1,322,000			7.63	5.43 yrs	$	2,165

Options at March 31, 2008 vested and expected to vest		2,265,000			8.64	5.41 yrs	$	2,281


(1)		The aggregate intrinsic value was calculated based on the positive difference between the closing price of the Company’s common stock on March 31, 2008, the last trading day of the period, of $6.80 per share and the exercise price of the underlying options. The total intrinsic value of options exercised during the three and six months ended March 31, 2008 was $1,399 and $1,666, respectively.

Restricted Stock Units

During fiscal 2006, the Company began issuing restricted stock units (RSUs) as an additional form of equity compensation to its employees and officers, pursuant to the Company’s stockholder-approved 2005 Plan. RSUs are restricted stock awards that entitle the grantee to an issuance of stock at a nominal cost upon vesting. RSUs generally vest over a four-year period and unvested RSUs are forfeited and canceled as of the date that employment terminates. RSUs are settled in shares of the Company’s common stock upon vesting.

The following is a summary of the status of the Company’s restricted stock units as of March 31, 2008 and the activity during the six months ended March 31, 2008.


	Shares
Nonvested awards at September 30, 2007		1,136,000
Granted		382,000
Vested		(253,000	)
Forfeited		(122,000	)

Nonvested awards at March 31, 2008		1,143,000

The Company recorded $891 and $1,938 of share-based compensation expense related to RSUs for the three and six months ended March 31, 2008, respectively. As of March 31, 2008, there was unrecognized compensation cost related to RSUs totaling $10,965, net of estimated forfeitures, which will be recognized over a weighted-average period of 2.43 years.

Employee Stock Purchase Plan

In March 2005, the Board of Directors and stockholders approved the 2005 Employee Stock Purchase Plan (ESPP) which is qualified under Section 423 of the Internal Revenue Code. The ESPP is available to all eligible employees, who, through payroll deductions, will be able to individually purchase shares of the Company’s common stock semi-annually at a price equal to 90% of the fair market value on the semi-annual purchase dates. The Company has reserved for issuance an aggregate of 1,000,000 shares of common stock for the ESPP. At March 31, 2008, 859,000 shares were reserved for future issuance under the ESPP. The Board of Directors, on January 31, 2008, approved an amendment to the terms listed above. Beginning with the purchase period ending August 14, 2008 the price at which employees will be able to purchase shares will be 85% of the lower of the fair market value of the Company’s common stock on the beginning or end of the purchase period.

11. Accounting for Sabbatical Benefit

On October 1, 2007, the Company adopted the consensus reached in Emerging Issues Task Force (“EITF”) Issue No. 06-2,Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Accounting for Compensated Absences(“EITF 06-2”). EITF 06-2 provides recognition guidance on the accrual of employees’ rights to compensated absences under a sabbatical or other similar benefit arrangement. Prior to the adoption of EITF 06-2, the Company recorded a liability for sabbatical leave upon an employee vesting in the benefit, which occurred when an employee went on leave after completing a six-year service period. Under EITF 06-2, the Company accrues an estimated liability for sabbatical leave over the requisite six-year service period, as employee services are rendered. The adoption of EITF 06-2 resulted in an additional liability of $435, additional deferred tax assets of $166 and a reduction to retained earnings of $269 as of October 1, 2007.

12. Restructuring Charges

In the fourth quarter of fiscal 2006, the Company initiated the restructuring of certain of its operations in France to realign its resources in that region. As a result of this initiative, the Company terminated several employees resulting in a restructuring charge for severance and related costs in fiscal 2006 and 2007. The cumulative expense recorded relating to the restructuring in France was $1,210.

The following is a roll forward of the accrual for the restructuring of certain operations in France:


Restructuring accrual balance at September 30, 2007	$	609
Reversal of accrual upon final settlement with employee		(286	)
Cash payment		(358	)
Foreign currency translation adjustment		35

Restructuring accrual balance at March 31, 2008	$	—

13. Commitments, Contingencies and Guarantees

Contingencies

From time to time and in the ordinary course of business, the Company may be subject to various claims, charges and litigation. In some cases, the claimants may seek damages, as well as other relief, which, if granted, could require significant expenditures. In accordance with SFAS No. 5,Accounting for Contingencies, the Company accrues the estimated costs of settlement or damages when a loss is deemed probable and such costs are estimable. In accordance with EITF Topic D-77,Accounting for Legal Costs Expected To Be Incurred In Connection With A Loss Contingency, the Company accrues for legal costs associated with a loss contingency when a loss is probable and such amounts are estimable. Otherwise, these costs are expensed as incurred. If the estimate of a probable loss or defense costs is a range and no amount within the range is more likely, the Company accrues the minimum amount of the range.

Warranties and Indemnifications

The Company’s software is typically warranted to perform in a manner consistent with the Company’s documentation under normal use and circumstances. The Company’s license agreements generally include a provision by which the Company agrees to defend its customers against third-party claims of intellectual property infringement under specified conditions and to indemnify them against any damages and costs awarded in connection with such claims. To date, the Company has not incurred any material costs as a result of such warranties and indemnities and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

Guarantees

The Company has identified the guarantees described below as disclosable in accordance with FASB Interpretation 45 (FIN 45),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. The Company evaluates estimated losses for guarantees under SFAS No. 5. The Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, the Company has not encountered material costs as a result of such obligations and has not accrued any liabilities related to such guarantees in its financial statements.

As permitted under Delaware law, the Company’s Certificate of Incorporation provides that the Company indemnify each of its officers and directors during his or her lifetime for certain events or occurrences that happen by reason of the fact that the officer or director is or was or has agreed to serve as an officer or director of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a Director and Officer insurance policy that limits its exposure and would enable the Company to recover a portion of certain future amounts paid.

14. Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is more likely than not that some portion of the deferred tax assets will not be realized.

During the three months ended December 31, 2007, the Massachusetts Department of Revenue completed its state income tax audit of the Company for fiscal years ended September 30, 2003 and 2004, which resulted in a tax refund. In addition, the Company had an established tax reserve in excess of the settled amount and, as such, the Company reversed the excess portion of the reserve. The tax refund and the adjustment to the tax reserve were recorded as discrete items and resulted in an income tax benefit of $129 during the three months ended December 31, 2007.

During the three months ended December 31, 2006, the “Tax Relief and Health Care Act of 2006” was enacted into law, thereby extending the research and development tax credit for qualified costs incurred after December 31, 2005. In accordance with this change in tax law, the Company recorded a tax benefit of $220 during the three months ended December 31, 2006 to recognize the benefit from qualified research and development costs incurred from January 1, 2006 through September 30, 2006. This was accounted for as a discrete item during the three months ended December 31, 2006. Also, the Company recorded a provision for state income taxes of $141 during the three months ended December 31, 2006 related to prior fiscal years and was included as part of the restatement of the financial data for the three months ended December 31, 2006 (see Note 16 to the condensed consolidated financial statements). Our effective tax rate, before discrete items, on a quarterly or annual basis, varies from statutory rates primarily due to the mix in jurisdictional earnings and losses.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company adopted the provisions of FIN 48 on October 1, 2007. As of the date of adoption, the Company had unrecognized tax benefits of $1,060 and did not record any cumulative effect adjustment to retained earnings as a result of adopting FIN 48. During the three months ended December 31, 2007, the Company reversed $64 of reserves related to the completion of its state income tax audit for fiscal years ended September 30, 2003 and

2004. There were no material changes to the Company’s unrecognized tax benefits during the three months ended March 31, 2008.

Of the $1,060 of unrecognized tax benefits as of October 1, 2007, $690 would impact the effective tax rate if recognized. The Company had approximately $69 of accrued interest and penalties included in its unrecognized tax benefits. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense.

The tax years 2002 through 2007 remain open to examination by various taxing authorities in the jurisdictions in which the Company operates. The Company is currently under audit in the United States by The Internal Revenue Service (IRS) for the fiscal 2005 tax year, with all tax years prior to 2005 closed.

15. Segment Information

SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information of those segments to be presented in interim financial reports issued to stockholders. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.

Geographic Data

The following table includes revenue from unaffiliated customers by geographic region and is determined based on the locations of customers.


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
North America	$	19,518	$	20,259	$	37,451	$	39,312
International		11,269		6,038		21,800	$	10,783

Total	$	30,787	$	26,297	$	59,251	$	50,095

The following table includes information about the Company’s long-lived assets by geographic region:


	March 31,		September 30,
	2008		2007
North America	$	41,261	$	42,362
International		4,019		3,788

Total	$	45,280	$	46,150

16. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Where applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB deferred the implementation of SFAS No. 157 for certain non-financial assets and liabilities for fiscal years beginning after November 15, 2008. The Company is analyzing the expected impact from adopting this statement on its financial statements, but currently does not believe its adoption will have a significant impact on the financial position or results of operations of the Company.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, which allows companies the option to measure financial assets or liabilities at fair value and include unrealized gains and losses in net income rather than equity. This becomes available when the Company adopts SFAS 157, which will be fiscal year 2009. The Company is analyzing the expected impact from adopting this statement on its financial statements, but currently does not believe its adoption will have a significant impact on the financial position or results of operations of the Company.

In December 2007, the FASB issued SFAS No. 141(revised 2007),Business Combinations. SFAS No. 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS No. 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The Company has not yet determined the impact, if any, of SFAS 141R on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51(“SFAS 160”). SFAS NO. 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The Company has not yet determined the impact, if any, of SFAS No. 160 on its consolidated financial statements.

17. Restatement of Quarterly Financial Data

On December 20, 2007, the Company and the Audit Committee of the Board of Directors of the Company concluded that prior quarter restatement of its previously issued unaudited condensed consolidated financial data for the three and six months ended March 31, 2007 was necessary. The restatement is set forth in the Company’s 2007 Annual Report on Form 10-K. The errors were primarily the result of errors in recording its state income tax provision, and also errors in recording its state sales tax liabilities and receivables, the timing of recording revenue on certain revenue arrangements, and the timing of recording a purchase accounting entry. In addition, the Company identified errors originating in periods prior to fiscal 2007 which primarily related to errors in recording its state income tax provision and its state sales tax liabilities and receivables as well as errors in the timing of recording revenue on certain revenue arrangements. These prior fiscal period errors individually and in the aggregate were not material to the financial results for previously issued annual financial statements or previously issued interim financial data prior to fiscal 2007.

In the restatement, the Company has recorded corrections relating to fiscal 2007 in the quarter in which each error originated and the Company has recorded corrections relating to fiscal periods prior to fiscal 2007 in the quarter ended December 31, 2006. As detailed on the tables below, the recorded corrections included:

State Income Tax

During the year ended September 30, 2007, the Company reviewed its income tax nexus position in certain states and it was determined that the Company had underaccrued for state income taxes in periods prior to fiscal 2007. The Company recorded a tax liability to these states of $141 which related to prior fiscal years. The $141 adjustment was recorded during the quarter ended December 31, 2006.

Sales Tax

As a result of the Company’s review of sales tax nexus, the Company identified that it had understated liabilities related to state sales tax in certain states. The Company has determined that related receivables from customers were also understated. For the quarter ended December 31, 2006, the Company corrected its balance sheet to record a liability of $2.8 million relating to state sales tax and related penalties and interest owed to the state tax authorities, primarily relating to prior years. The Company also recorded a customer receivable of $2.8 million for the quarter ended December 31, 2006, which represents amounts to be invoiced and collected from customers relating to state sales tax, which primarily relates to prior years. The Company recorded a receivable allowance of $125 for the estimated state sales tax and related penalties and interest that are not expected to be collected.

Revenue

The Company identified several errors related to the timing of recording revenue on certain agreements. The impact of all revenue related adjustments resulted in an increase in previously reported revenue during the quarters ended December 31, 2006 and March 31, 2007 of $109 and $263, respectively. Of the adjustment recorded in the quarter ended December 31, 2006, $7 related to prior periods. The significant corrections included:

	•		The Company acquired Sane on March 22, 2006. The contract terms for certain Sane web-based license arrangements granted the customer a fifteen day evaluation period to accept the product. The Company historically recognized revenue for the license at the time of sale instead of after the fifteen day evaluation period. The Company made the correction in the quarter ended December 31, 2006 to recognize the revenue from these transactions at the expiration of the fifteen day period.

	•		For a specific maintenance customer for which revenue should have been recognized when payments were received, the Company recognized revenue in a quarter subsequent to receipt of cash.

	•		On certain customer maintenance contracts, the Company had incorrectly amortized deferred maintenance revenue.

	•		On a particular non-standard subscription agreement, the Company amortized revenue over the incorrect period.

Acquisition Costs

The Company identified an error related to purchase accounting for legal fees of $115 directly related to an acquisition that were inappropriately charged as expense in the quarter ended June 30, 2007 rather than capitalized as a cost of the acquisition in fiscal 2006.

Other

The restatement of the Company’s unaudited condensed consolidated financial data for the quarters ended December 31, 2006 and March 31, 2007 also include corrections for other identified errors. Such adjustments primarily relate to (i) fixed assets eligible for capitalization that were initially expensed; (ii) amortization and depreciation for certain fixed assets; (iii) an increase in pension liability related to a foreign subsidiary and (iv) corrections to certain accrual accounts. The net impact of restating all other operating expense related adjustments was a decrease in reported operating expenses of approximately $122 during the three months ended December 31, 2006, of which $7 related to prior years, and an increase in previously reported operating expenses during the three months ended March 31, 2007 of approximately $16.

As described above, there were certain errors that originated in periods prior to fiscal 2007 which reduced net income in fiscal 2007 by $151 ($10 of income before taxes and $141 relating to the provision for income taxes); the Company has recorded the cumulative effect of such errors in the quarter ended December 31, 2006. The net cumulative effect of the errors that originated prior to fiscal 2007 was not material individually or in the aggregate to any previously issued financial statements.

The restatement had no effect on previously reported cash balances and the adjustments to correct errors were not material individually or in aggregate to the previously issued balance sheets or statements of cash flows for each of the quarterly periods.

The following tables set forth the effects of correcting the errors described above for the quarter ended March 31, 2007.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)


	Three Months Ended March 31, 2007							Six Months Ended March 31, 2007
	As reported		Adjustments			As Restated		As reported			Adjustments			As Restated
Revenue:
License	$	10,014		36		$	10,050	$	19,195			(114	)	$	19,081
Maintenance and services		13,821		235			14,056		26,120			401			26,521
Subscription		2,199		(8	)		2,191		4,408			85			4,493

Total revenue		26,034		263			26,297		49,723			372			50,095


Costs of revenue:
License		715		—			715		1,282			—			1,282
Maintenance and services		5,014		—			5,014		8,907			(10	)		8,897
Subscription		168		—			168		317			—			317

Total cost of revenue		5,897		—			5,897		10,506			(10	)		10,496


Gross profit		20,137		263			20,400		39,217			382			39,599

Operating expenses:
Sales and marketing		9,940		—			9,940		19,185			(32	)		19,153
Research and development		5,345		50			5,395		10,421			(30	)		10,391
General and administrative		3,990		2			3,992		7,877			54			7,931
Restructuring charges		—		—			—		1,244			—			1,244
Amortization of acquired intangible assets		393		—			393		786			—			786

Total operating expenses		19,668		52			19,720		39,513			(8	)		39,505


Income (loss) from operations		469		211			680		(296	)		390			94
Other income, net		529		—			529		1,067			—			1,067

Income before income taxes		998		211			1,209		771			390			1,161

Provision for (benefit from) income taxes		85		61			146		(2	)		280			278

Net income	$	913	$	150		$	1,063	$	773		$	110		$	883


Net income per common share:
Basic	$	0.05				$	0.05	$	0.04					$	0.04

Diluted	$	0.04				$	0.05	$	0.04					$	0.04

Shares used in computing net income per common share:
Basic		19,809,000					19,809,000		19,724,000						19,724,000

Diluted		20,638,000					20,638,000		20,621,000						20,621,000

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share and per share data)


	March 31, 2007
	As Reported		Adjustments			As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	17,405	$	—		$	17,405
Short-term investments		27,200		—			27,200
Accounts receivable, net of allowance for doubtful accounts of $181		26,227		—			26,227
Purchased customer receivables		1,030		—			1,030
Deferred tax assets, net of valuation allowance		656		—			656
Prepaid expenses and other current assets		3,454		2,907			6,361

Total current assets		75,972		2,907			78,879
Property and equipment, net		2,853		59			2,912
Purchased customer receivables, long-term		1,227		—			1,227
Acquired intangible assets, net		5,944		—			5,944
Goodwill		20,214		115			20,329
Deferred tax assets, long-term, net of valuation allowance		3,170		—			3,170
Other assets		637		—			637

Total assets	$	110,017	$	3,081		$	113,098


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,939		—		$	1,939
Accrued expenses		12,484		3,343			15,827
Short-term deferred revenue		33,564		(372	)		33,192

Total current liabilities		47,987		2,971			50,958
Long-term deferred revenue		3,648		—			3,648

Total liabilities		51,635		2,971			54,606
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value:
Authorized — 10,000,000 shares; no shares issued or outstanding at December 31, 2007 and September 30, 2006		—		—			—
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; issued and outstanding — 19,875,000 shares at March 31, 2007 and September 30, 2006, respectively		199					199
Additional paid-in capital		55,076					55,076
Retained earnings		2,854		110			2,964
Accumulated other comprehensive income		253					253

Total stockholders’ equity		58,382		110			58,492

Total liabilities and stockholders’ equity	$	110,017	$	3,081		$	113,098

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Six Months Ended March 31, 2007
	As Reported			Adjustments			As Restated
Cash flows from operating activities:
Net income (loss)	$	773		$	110		$	883
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment		679			(59	)		620
Amortization of acquired intangible assets		1,338			—			1,338
Share-based compensation		2,260			—			2,260
Excess tax benefits from share-based compensation		(549	)		—			(549	)
Deferred tax benefits		(172	)		—			(172	)
Changes in operating assets and liabilities:
Accounts receivable		90			—			90
Prepaid expenses and other current assets		(1,550	)		(2,907	)		(4,457	)
Other assets		537			—			537
Accounts payable		(695	)		—			(695	)
Accrued expenses		(966	)		3,228			2,262
Deferred revenue		3,160			(372	)		2,788

Net cash provided by operating activities		4,905			—			4,905


Cash flows from investing activities:
Purchases of property and equipment		(1,276	)		—			(1,276	)
Sales and maturities of short-term investments		13,404			—			13,404
Purchases of short-term investments		(31,069	)		—			(31,069	)

Net cash used in investing activities		(18,941	)		—			(18,941	)


Cash flows from financing activities:
Proceeds from the issuance of common stock under stock option and employee stock purchase plans		767			—			767
Excess tax benefits from share-based compensation		549			—			549
Common stock repurchased under employee stock plans		(465	)		—			(465	)

Net cash provided by financing activities		851			—			851

Effect of exchange rate changes on cash and cash equivalents		89			—			89

Net decrease in cash and cash equivalents		(13,096	)		—			(13,096	)
Cash and cash equivalents at beginning of period		30,501			—			30,501

Cash and cash equivalents at end of period	$	17,405		$	—		$	17,405

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

Cautionary Statement

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q. We believe that this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. When used herein, the words “believes,” “anticipates,” “plans,” “expects,” “estimates” and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect management’s current opinions and are subject to certain risks and uncertainties that could cause results to differ materially from those stated or implied. We assume no obligation to update this information.

Restatement of Quarterly Financial Data

The condensed consolidated statements of operations and cash flows for the three and six months ended March 31, 2007 are presented as restated in this Quarterly Report on Form 10-Q. For additional information on the restatement and the impact of the restatement on the condensed consolidated financial data, we refer you to Note 14, Quarterly Financial Data (unaudited), of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2007 as well as Note 17, Restatement of Quarterly Financial Data, of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Overview

We are a global provider of enterprise marketing management, or EMM, software designed to help businesses increase their revenues and improve the efficiency and measurability of their marketing operations. Our comprehensive set of integrated software modules is offered under the “Affinium” name. Focused exclusively on the needs of marketers, Unica’s Affinium^® software delivers key capabilities to track and analyze online and offline customer behavior, generate demand and manage marketing processes, resources and assets. Affinium streamlines the entire marketing process for relationship, brand and Internet marketing — from analysis and planning, to budgeting, production management, execution and measurement. As the most comprehensive EMM suite on the market, Affinium delivers a marketing “system of record” — a dedicated solution through which marketers capture, record and easily manage marketing activity, information and assets; rapidly design campaigns; and report on performance.

We sell and market our software primarily through our direct sales force as well as through alliances with marketing service providers (MSPs), resellers, distributors and systems integrators. In addition to reselling and deploying our products, MSPs offer a range of marketing program design, database development support, and execution services on an on-demand or outsourced basis. We also provide a full range of services to our customers, including implementation, training, consulting, maintenance and technical support, and customer success programs. We have sales offices across the United States, including at our headquarters in Waltham, Massachusetts, as well as in the United Kingdom, France, Singapore, Belgium, Germany, Spain, Australia, the Netherlands and Korea, and also have sales personnel located in Canada and Thailand. In addition, we have a research and development office in India. More than 600 companies depend on Unica for their enterprise marketing management solution. Our current customers operate principally in the financial services, retail, telecommunications, and travel and hospitality industries.

Sources of Revenue

We derive revenue from software licenses, maintenance, services and subscriptions. License revenue is derived from the sale of software licenses for our Affinium offerings under perpetual software arrangements that typically include: (a) an end-user license fee paid for the use of our products in perpetuity; (b) an annual maintenance arrangement that provides for software updates and upgrades and technical support; (c) a services work order for implementation, training, consulting and reimbursable expenses. Subscription revenue is derived from subscription arrangements for our Affinium offerings that typically include: (a) a subscription fee for bundled software and support for a certain period and (b) a services work order for implementation, training, consulting and reimbursable expenses.

License Revenue

Perpetual Licenses.Licenses to use our software products in perpetuity generally are priced based on (a) either a customer’s database size (including number of database records) or a platform fee and (b) a specified number of users. With respect to our Affinium NetInsight TM product, licenses are generally priced based on the volume of traffic of a website. We generally recognize perpetual license revenue at the time of product delivery, provided all other revenue recognition criteria have been met, pursuant to the requirements of Statement of Position (SOP) 97-2,Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2,Software Revenue Recognition with Respect to Certain Transactions. When we license our software on a perpetual basis through an MSP or systems integrator, we recognize revenue upon delivery of the licensed software to the MSP or systems integrator only if (a) the customer of the MSP or systems integrator is identified in a written arrangement between the MSP or systems integrator and us and (b) all other revenue recognition criteria have been met.

Maintenance and Services Revenue

Maintenance and services revenue is generated from sales of (a) maintenance, including software updates and upgrades and technical support associated with the sale of perpetual software licenses and (b) services, including implementation, training, consulting, and reimbursable travel.

Maintenance.We generally sell maintenance with respect to perpetual licenses on an annual basis that includes technical support and software updates and upgrades on a when and if available basis. Revenue is deferred at the time the maintenance agreement is initiated and is recognized ratably over the term of the maintenance agreement.

Services.We generally sell implementation services and training on a time-and-materials basis and recognize revenue when the services are performed, however in certain circumstances, these services may be priced on a fixed-fee basis and recognized as revenue under the proportional performance method. Services revenue also includes billable travel, lodging and other out-of-pocket expenses incurred as part of delivering services to our customers.

Subscription Revenue

We also market our software under subscription arrangements, typically when our software is hosted either by us, with respect to our Affinium NetInsight and MarketingCentral products, or an MSP with respect to our other products. We have also licensed our Affinium NetInsight product under a subscription arrangement in a non-hosted environment. Subscription revenue includes, for a bundled fee, (a) the right to use our software for a specified period of time, typically one year, (b) updates and upgrades to our software, and (c) technical support. Under a subscription agreement, we typically invoice the customer in annual or quarterly installments in advance. Revenue is recognized ratably over the contractual term of the arrangement commencing on the date at which all services under related work orders are completed.

Cost of Revenue

Cost of license revenue for perpetual license agreements consists primarily of (a) salaries, other labor related costs and share-based compensation related to documentation personnel, (b) facilities and other related overhead, (c) third-party royalties for licensed technology incorporated into our current product offerings, (d) amortization of acquired developed technology and (e) amortization of capitalized software development costs under Statement of Financial Accounting Standards (SFAS) No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed.

Cost of maintenance and services revenue consists primarily of (a) salaries, other labor-related costs, share-based compensation, facilities and other overhead related to professional services and technical support personnel and (b) cost of services provided by subcontractors for professional services, travel, lodging and other out-of-pocket expenses.

Cost of subscription revenue includes the allocation of specific costs including labor-related and overhead costs associated with technical support and documentation personnel, labor-related and overhead costs associated with maintenance of the software acquired from Marketing Central and other hosting-related activities.

Operating Expenses

Sales and Marketing. Sales and marketing expense consists primarily of (a) salaries, other labor related costs and share-based compensation related to sales and marketing personnel, (b) commissions and bonuses, (c) travel, lodging and other out-of-pocket expenses, (d) marketing programs, such as trade shows and advertising, and (e) facilities and other related overhead. The total amount of commissions earned for a perpetual license, subscription or maintenance arrangement are recorded as expense when revenue recognition for that arrangement commences.

Research and Development.Research and development expense consists primarily of (a) salaries, other labor related costs and share-based compensation related to employees working on the development of new products, enhancement of existing products, quality assurance and testing and (b) facilities and other related overhead. Prior to fiscal 2007, all of our research and development costs have been expensed as incurred as all costs potentially capitalizable were insignificant to the consolidated financial statements. During the three and six months ended March 31, 2008, $34,000 of software development costs were capitalized. During the three and six months ended March 31, 2007, software development costs eligible for capitalization were immaterial.

General and Administrative. General and administrative expense consists primarily of (a) salaries, other labor-related costs and share-based compensation related to general and administrative personnel, (b) accounting, legal and other professional fees, and (c) facilities and other related overhead.

Restructuring Charges. Restructuring expense reflects the restructuring, initiated in the fourth quarter of fiscal 2006, of certain of our operations in France to realign our resources in that region. These costs include salaries, severance and legal fees.

Amortization of Acquired Intangible Assets. Cost of revenue includes the amortization of developed core technology acquired in our recent acquisitions. Operating expenses include the amortization of acquired customer contracts and related customer relationships and tradenames.

Share-Based Compensation. Cost of revenue and operating expenses have historically included share-based compensation expense to the extent the fair value of our common stock exceeds the exercise price of stock options granted to employees on the date of grant (intrinsic value method) under Accounting Principles Board (APB) 25. On October 1, 2005, we adopted SFAS No. 123(R),Share-Based Payment, which requires measurement of all employee share-based compensation awards using a fair-value method and the recording of the related expense in the consolidated financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting related to the income tax effects and disclosure regarding the cash flow effects resulting from share-based payment arrangements. In January 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107, and in December 2007 SAB No. 110, which provide supplemental implementation guidance for SFAS No. 123(R). We selected the Black-Scholes option-pricing model as the most appropriate fair-value method for our awards and recognize compensation cost, net of estimated forfeitures, on a straight-line basis over the requisite service periods of the awards.

Application of Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The application of GAAP requires that we make estimates that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates.

For a detailed explanation of our significant accounting policies, refer to our Annual Report on Form 10-K for the year ended September 30, 2007.

Revenue Recognition

We generally sell our software products and services together in a multiple-element arrangement under perpetual license and subscription agreements. We use the residual method to recognize revenues from arrangements that include one or more elements to be delivered at a future date, when evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements based on vendor-specific objective evidence (VSOE) is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements. Each license arrangement requires that we analyze the individual elements in the transaction and determine the fair value of each undelivered element, which typically includes maintenance and services. We allocate revenue to each undelivered element based on its fair value, with the fair value determined by the price charged when that element is sold separately.

For perpetual license agreements, we generally estimate the fair value of the maintenance portion of an arrangement based on the maintenance renewal price for that arrangement. In multiple-element perpetual license arrangements where we sell maintenance for less than fair value, we defer the contractual price of the maintenance plus the difference between such contractual price and the fair value of maintenance over the expected life of the product. We make a corresponding reduction in license revenue. The fair value of the professional services portion of perpetual license arrangements is based on the rates that we charge for these services when sold separately. If, in our judgment, evidence of fair value cannot be established for the undelivered elements in a multiple-element arrangement, the entire amount of revenue from the arrangement is deferred until evidence of fair value can be established, or until the elements for which evidence of fair value could not be established are delivered.

Generally, implementation services for our software products are not deemed essential to the functionality of the software products, and therefore services revenue is recognized separately from license revenue. If we were to determine that services are essential to the functionality of software in an arrangement, the license and services revenue from the arrangement would be recognized pursuant to SOP 81-1,Accounting for Performance of Construction-Type Contracts and Certain Production-Type Contracts. In such cases, we expect that we would be able to make reasonably dependable estimates relative to the extent of progress toward completion by comparing the total hours incurred to the estimated total hours for the arrangement and, accordingly, we would apply the percentage-of-completion method. If we were unable to make reasonably dependable estimates of progress towards completion, then we would use the completed-contract method, under which revenue is recognized only upon completion of the services. If total cost estimates exceed the anticipated revenue, then the estimated loss on the arrangement is recorded at the inception of the arrangement or at the time the loss becomes apparent.

We generally enter into subscription agreements that include, on a bundled basis, (a) the right to use our software for a specified period of time, (b) updates and upgrades to our software on a when and if available basis and (c) technical support. Fees paid in connection with a subscription agreement are recognized as revenue ratably over the term of the arrangement, typically one year.

For all of our software arrangements, we do not recognize revenue until we can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and we deem collection to be probable. In making these judgments, we evaluate these criteria as follows:

	•		Evidence of an arrangement.For the majority of our arrangements, we consider a non-cancelable agreement signed by us and the customer to be persuasive evidence of an arrangement. In transactions below a certain dollar threshold, we consider a purchase order signed by the customer to be persuasive evidence of an arrangement.

	•		Delivery.We consider delivery to have occurred when a CD or other medium containing the licensed software is provided to a common carrier or, in the case of electronic delivery, the customer is given electronic access to the licensed software. Our typical end-user license agreement does not include customer acceptance provisions.

	•		Fixed or determinable fee.We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our normal payment terms. If the fee is subject to refund or adjustment, we recognize the revenue when the refund or adjustment right lapses. If the payments are due beyond our normal terms, we recognize the revenue as amounts become due and payable or as cash is collected.

•

Collection is deemed probable. Customers are evaluated for creditworthiness through our credit review process at the inception of the arrangement. Collection is deemed probable if, based upon our evaluation, we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we cannot conclude that collection is probable, we defer the revenue and recognize the revenue upon cash collection.

In our agreements with customers and MSPs, we provide a limited warranty that our software will perform in a manner consistent with our documentation under normal use and circumstances. In the event of a breach of this limited warranty, we must repair or replace the software or, if those remedies are insufficient, provide a refund. These agreements generally do not include any other right of return or any cancellation clause or conditions of acceptance.

Allowance for Doubtful Accounts

In addition to our initial credit evaluations at the inception of arrangements, we regularly assess our ability to collect outstanding customer invoices and in so doing must make estimates of the collectibility of accounts receivable. We provide an allowance for doubtful accounts when we determine that the collection of an outstanding customer receivable is not probable. We specifically analyze accounts receivable and historical bad debts experience, customer creditworthiness, and changes in our customer payment history when evaluating the adequacy of the allowance for doubtful accounts. If any of these factors change, our estimates may also change, which could affect the level of our future provision for doubtful accounts.

Share-Based Compensation

We historically have granted stock options at exercise prices that equaled the fair value of our common stock as of the date of grant. Prior to August 3, 2005, because there had been no public market for our common stock, the board determined the fair value of our common stock by considering a number of factors, including our operating and financial performance, the pricing of sales of convertible preferred stock to third parties, the rights and preferences of securities senior to common stock and trends in the broad market for software and other technology stocks.

On October 1, 2005, we adopted the provisions of SFAS No. 123(R), which requires us to recognize expense related to the fair value of share-based compensation awards. We elected to use the modified prospective transition method as permitted by SFAS No. 123(R) and therefore have not restated our financial results for prior periods. Under this transition method, share-based compensation expense includes compensation expense for all share-based compensation awards granted on or after November 18, 2004 (the filing date for the initial registration statement for our initial public offering), based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Pursuant to SFAS No. 123(R), the fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model, which requires us to make assumptions as to volatility, risk-free interest rate, expected term of the awards, and expected forfeiture rate. The computation of expected volatility is based on a study of historical volatility rates of comparable companies during a period comparable to the expected option term. The estimated risk-free interest rate is based on the U.S. Treasury risk-free interest rate in effect at the time of grant. The computation of expected option term is based on an average of the vesting term and the maximum contractual life of the Company’s stock options, as described in SAB No. 107 and SAB No. 110. Computation of expected forfeitures is based on historical forfeiture rates of the Company’s stock options.

The fair value of options granted prior to November 18, 2004, was calculated using the minimum value method, pursuant to SFAS 123 and the related pro forma expense was shown in a footnote to the consolidated financial statements. Under the provisions of SFAS 123(R), the value of these options will not be recorded in the statement of operations subsequent to the adoption of SFAS 123(R). Instead, we will continue to account for these options using APB 25. The amount of unamortized pro forma compensation expense at October 1, 2005 related to those minimum value awards was $920,000.

For options and other awards accounted for under SFAS 123(R), the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. In addition, certain tax effects of share-based compensation are reported as a financing activity rather than an operating activity in the statement of cash flows.

As of March 31, 2008, we had outstanding stock options of 2,540,000 and non-vested restricted stock awards of 1,143,000. On October 1, 2007, an additional 1,004,000 shares were reserved under the 2005 Stock Incentive Plan (the 2005 Plan), in accordance with the provisions of the 2005 Plan, which requires an annual increase of the shares reserved for issuance under the 2005 Plan equal to the lesser of (a) 5,000,000 shares of common stock, (b) 5% of the outstanding shares of common stock as of the opening of business on such date or (c) an amount determined by the Board.

Goodwill, Other Intangible Assets and Long-Lived Assets

Goodwill represents the excess of the purchase price over the fair value of net assets associated with various acquisitions from fiscal 2003 through fiscal 2007. In accordance with SFAS No. 142,Goodwill and Other Intangible Assets, goodwill is not subject to amortization. We allocated a portion of each purchase price to intangible assets, including customer contracts and related customer relationships, developed technology, tradenames and acquired licenses that are being amortized over their estimated useful lives of one to fourteen years. We also allocated a portion of each purchase price to tangible assets and assessed the liabilities to be recorded as part of the purchase price. The estimates we made in allocating each purchase price to tangible and intangible assets, and in assessing liabilities recorded as part of the purchase, involved the application of judgment and the use of estimates, which could significantly affect our operating results and financial position.

We review the carrying value of goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may exceed its fair value. We evaluate impairment by comparing the estimated fair value of each reporting unit to its carrying value. We estimate fair value by computing our expected future discounted operating cash flows based on historical trends, which we adjust to reflect our best estimate of future market and operating conditions. Actual results may differ materially from these estimates. The estimates we make in determining the fair value of each reporting unit involve the application of judgment, including the amount and timing of future cash flows, short- and long-term growth rates, and the weighted average cost of capital, which could affect the timing and size of any future impairment charges. Impairment of our goodwill could significantly affect our operating results and financial position. Based on our most recent assessment, there were no goodwill impairment indicators.

In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, we continually evaluate whether events or circumstances have occurred that indicate that the estimated remaining useful life of our long-lived assets, including intangible assets, may warrant revision or that the carrying value of these assets may be impaired. Any write-downs are treated as permanent reductions in the carrying amount of the assets. We must use judgment in evaluating whether events or circumstances indicate that useful lives should change or that the carrying value of assets has been impaired. Any resulting revision in the useful life or the amount of an impairment also requires judgment. Any of these judgments could affect the timing or size of any future impairment charges. Revision of useful lives or impairment charges could significantly affect our operating results and financial position.

Software Development Costs

We evaluate whether to capitalize or expense software development costs in accordance with SFAS No. 86. We sell products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, we have concluded that technological feasibility is not established until the development stage of the product is nearly complete. We define technological feasibility as the completion of a working model. During the three and six months ended March 31, 2008 and 2007 $14,000 and $0, respectively, of software development costs were capitalized in accordance with SFAS No. 86.

We capitalize certain costs of software developed or obtained for internal use in accordance with American Institute of Certified Public Accountants Statement of Position 98-1,Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use. The costs incurred in the preliminary stages of development are

expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, will be capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. During the three and six months ended March 31, 2008, $20,000 of internal use software development costs were capitalized.

Income Taxes

We are subject to income taxes in both the United States and foreign jurisdictions, and we use estimates in determining our provision for income taxes. Deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we estimate tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. At March 31, 2008, our deferred tax assets consisted primarily of state research and development tax credit carryforwards, foreign tax credit carryforwards and temporary differences relating primarily to share-based compensation expense and acquired intangible assets. We assess the likelihood that deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction.

Contingencies

From time to time and in the ordinary course of business, we may be subject to various claims, charges and litigation. In some cases, the claimants may seek damages, as well as other relief, which, if granted, could require significant expenditures. In accordance with SFAS No. 5,Accounting for Contingencies, we accrue the estimated costs of settlement or damages when a loss is deemed probable and such costs are estimable. In accordance with EITF Topic D-77,Accounting for Legal Costs Expected To Be Incurred In Connection With A Loss Contingency, we accrue for legal costs related to a loss contingency when a loss is probable and such amounts are estimable. Otherwise, these costs are expensed as incurred. If the estimate of a probable loss or defense costs is a range and no amount within the range is more likely, we accrue the minimum amount of the range.

Valuation of Business Combinations

We record intangible assets acquired in business combinations under the purchase method of accounting. We allocate the amounts we pay for each acquisition to the assets we acquire and liabilities we assume based on their fair values at the date of acquisition. We then allocate the purchase price in excess of net tangible assets acquired to identifiable intangible assets, including developed technology, customer contracts and related customer relationships, tradenames and in-process research and development. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill. The use of alternative purchase price allocations and alternative estimated useful life assumptions could result in different intangible asset amortization expense in current and future periods.

The valuation of in-process research and development represents the estimated fair value at the dates of acquisition related to in-process projects. Our in-process research and development represents the value of in-process projects that have not yet reached technological feasibility and have no alternative future uses as of the date of acquisition. We expense the value attributable to these in-process projects at the time of the acquisition.

Results of Operations

Comparison of Three Months Ended March 31, 2008 and 2007

Revenue


	Three Months Ended March 31,
	2008					2007
						(As Restated)
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
License	$	11,635		38	%	$	10,050		38	%	$	1,585		16	%
Maintenance and services:
Maintenance fees		10,741		35			10,025		38			716		7
Services		5,351		17			4,031		15			1,320		33

Total maintenance and services		16,092		52			14,056		53			2,036		14
Subscription revenue		3,060		10			2,191		9			869		40


Total	$	30,787		100	%	$	26,297		100	%	$	4,490		17	%

Total revenue for the three months ended March 31, 2008 was $30.8 million, an increase of 17%, or $4.5 million from the three months ended March 31, 2007. Total revenue increased as a result of higher international sales of our Affinium product suite, an increase in professional services revenue, and higher subscription revenue primarily related to the Marketing Central acquisition.

Total license revenue for the three months ended March 31, 2008 was $11.6 million, an increase of 16%, or $1.6 million from the three months ended March 31, 2007. This increase in license revenue was primarily attributable to higher sales of our Affinium products in international markets, primarily Europe and Asia.

Maintenance fees revenue is associated with maintenance agreements in connection with perpetual license agreements from our existing installed customer base and the sale of new perpetual licenses. Maintenance fees revenue for the three months ended March 31, 2008 was $10.7 million, an increase of 7%, or $716,000 from the three months ended March 31, 2007. The increase primarily reflects maintenance fees from the sale of new licenses in fiscal 2007. Maintenance revenue is expected to increase at a lower rate in fiscal 2008 given the lower growth rate in license revenue in fiscal 2007 (11% in fiscal 2007 versus 34% in fiscal 2006).

Services revenue for the three months ended March 31, 2008 was $5.4 million, an increase of 33%, or $1.3 million from the three months ended March 31, 2007. The increase in services revenue was primarily the result of growth in the number of implementation services performed in Europe and Asia related to new license agreements.

Total subscription revenue for the three months ended March 31, 2008 was $3.1 million, an increase of 40%, or $869,000 from the three months ended March 31, 2007. This increase in subscription revenue was primarily attributable to the impact of the MarketingCentral acquisition and to a lesser extent sales of Affinium NetInsight products. We anticipate that subscription revenue will continue to increase in future years as we enter into additional subscription agreements and expand our on-demand product offerings.

Recurring Revenue


	Three Months Ended March 31,
	2008					2007
						(As Restated)
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
Recurring revenue:
Maintenance fees	$	10,741		35	%	$	10,025		38	%		716		7	%
Subscription revenue		3,060		10			2,191		9			869		40

Total recurring revenue		13,801		45			12,216		47			1,585		13
License revenue		11,635		38			10,050		38			1,585		16
Services		5,351		17			4,031		15			1,320		33


Total	$	30,787		100	%	$	26,297		100	%	$	4,490		17	%

We generate recurring revenue from both maintenance and subscription arrangements, which is recognized ratably over the contractual term of the arrangement or agreement.

Recurring revenue for the three months ended March 31, 2008 was $13.8 million, an increase of 13%, or $1.6 million from the three months ended March 31, 2007. The increase in recurring revenue resulted from (a) an increase in subscription installed customer base primarily attributable to the impact of the MarketingCentral acquisition (b) maintenance fees on sales of new licenses and (c) additional subscription revenue related to sales of Affinium NetInsight products. Recurring revenues as a percentage of total revenue was 45% for the three months ended March 31, 2008 as compared to 47% for the three months ended March 31, 2007.

Revenue by Geography


	Three Months Ended March 31,
	2008					2007
								(As Restated)
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
North America	$	19,518		63	%	$	20,259		77	%	$	(741	)		(4	)%
International		11,269		37			6,038		23			5,231			87	%


Total revenue	$	30,787		100	%	$	26,297		100	%	$	4,490			17	%

For purposes of this discussion, we designate revenue by geographic regions based on the locations of our customers. North America is comprised of revenue from the United States and Canada. International is comprised of revenue from the rest of the world. Depending on the timing of new customer contracts, revenue mix from geographic region can vary widely from period to period.

Total revenue for North America for the three months ended March 31, 2008 was $19.5 million, a decrease of 4%, or $741,000 from the three months ended March 31, 2007. The decrease was primarily due to decreased license revenue, which was partially offset by increased subscription and professional services revenue. The increase in international revenue was primarily due to increased license sales in both Europe and Asia, which is reflective of our increased market presence in these regions.

Cost of Revenue and Gross Margin


	Three Months Ended March 31,
	2008					2007
								(As Restated)
	(Dollars in thousands)
			Gross Margin on					Gross Margin on			Period-to-Period Change
			Related					Related					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
License	$	828		93	%	$	715		93	%	$	113		16	%
Maintenance and services		6,637		59			5,014		64			1,623		32
Subscription		652		79			168		92			484		288


Total cost of revenue	$	8,117		74	%	$	5,897		78	%	$	2,220		38	%

Cost of license revenue for the three months ended March 31, 2008 was $828,000, an increase of 16% or $113,000 from the three months ended March 31, 2007. The increase in cost of license revenue was primarily due to an increase in labor related costs. Royalties paid for third-party licensed technology represented 2% of total license revenue for the three months ended March 31, 2008. Royalties related to license revenue may fluctuate based on the mix of products we sell. We expect royalties paid for third-party licensed technology to remain between 1% and 2% of total license revenue. Gross margin on license revenue was 93% in the three months ended March 31, 2008, which is in line with that in the three months ended March 31, 2007. We expect gross margin on license revenue for the remainder of fiscal 2008 to remain relatively unchanged.

Cost of maintenance and services for the three months ended March 31, 2008 was $6.6 million, an increase of 32%, or $1.6 million from the three months ended March 31, 2007. The increase in cost of maintenance and services revenue was primarily due to (a) a $864,000 increase in labor related costs to support increased customer implementations and a growing installed customer base (b) a $313,000 increase in subcontractor costs also related to increased customer implementations and (c) a $110,000 increase in share-based compensation. Gross margin on maintenance and services revenue was 59% for the three months ended March 31, 2008, down from 64% for the three months ended March 31, 2007. The reduction in gross margin primarily related to the increase in professional service related costs. Gross margin on maintenance and services revenue fluctuates based on the mix of revenues from services and maintenance and the degree to which we use subcontractor services. Gross margin on maintenance and service revenue is expected to increase slightly for the remainder of fiscal 2008.

Cost of subscription revenue for the three months ended March 31, 2008 was $652,000, an increase of 288%, or $484,000, from the three months ended March 31, 2007. The increase in cost of subscription revenue was due to an increase in labor-related expenses, primarily related to the impact of the MarketingCentral acquisition and the increase cost in hosting-related activities.

Operating Expenses


	Three Months Ended March 31,
	2008						2007
							(As Restated)
	(Dollars in thousands)
				Percentage of					Percentage of			Period-to-Period Change
				Total					Total						Percentage
	Amount			Revenue			Amount		Revenue			Amount			Change
Sales and marketing	$	12,626			41	%	$	9,940		38	%	$	2,686			27	%
Research and development		5,864			19			5,395		21			469			9
General and administrative		4,583			15			3,992		15			591			15
Restructuring charges (credits)		(20	)		—			—		—			(20	)		n/m
Amortization of acquired intangible assets		394			1			393		1			1			—

Total operating expenses	$	23,447			76	%	$	19,720		75	%	$	3,727			19	%

Sales and Marketing.Sales and marketing expense for the three months ended March 31, 2008 was $12.6 million, an increase of 27%, or $2.7 million from the three months ended March 31, 2007. The increase was primarily the result of (a) a $2.3 million increase in labor-related expenses including commissions due to increased headcount and higher revenues (b) a $162,000 increase in marketing programs resulting from increased promotional activity and (c) a $104,000 increase in share-based compensation expense. We expect sales and marketing expense to continue to increase in absolute dollars and to remain relatively unchanged as a percentage of total revenue over the remaining quarters of fiscal 2008.

Research and Development.Research and development expense for the three months ended March 31, 2008 was $5.9 million, an increase of 9%, or $469,000, from the three months ended March 31, 2007. The increase in research and development expense was primarily the result of (a) a $220,000 increase in labor-related expenses, principally due to an increase in personnel as we continue our investment and development of our Affinium product suite and (b) a $84,000 increase in share-based compensation expense. We expect research and development expense to continue to increase slightly in absolute dollars, but decrease slightly as a percentage of total revenue over the remaining quarters of fiscal 2008.

General and Administrative.General and administrative expense for the three months ended March 31, 2008 was $4.6 million, an increase of 15%, or $591,000, from the three months ended March 31, 2007. The increase in general and administrative expense was primarily the result of (a) a $ 478,000 increase in labor-related expenses in order to support the overall growth of the Company and (b) a $94,000 increase in professional services fees primarily related to legal fees and tax related services. We expect general and administrative expense to continue to increase slightly in absolute dollars, but decrease slightly as a percentage of total revenue over the remaining quarters of fiscal 2008.

Restructuring charges.In the fourth quarter of fiscal 2006, we initiated the restructuring of certain of our operations in France to realign our resources in that region. As a result of this initiative, we terminated several employees resulting in a restructuring charge and accrual of $1.2 million for severance and related costs in the first quarter of fiscal 2007. During the three months ended March 31, 2008, we reversed a portion of the restructuring accrual and recorded a benefit of $20,000 to the statement of operations.

Amortization of Acquired Intangible Assets.Amortization of acquired intangible assets was $394,000 and $393,000 for the three months ended March 31, 2008 and 2007 respectively.

Other Income


	Three Months Ended March 31,
	2008						2007
	(Dollars in thousands)
				Percentage of					Percentage of			Period-to-Period Change
				Total					Total						Percentage
	Amount			Revenue			Amount		Revenue			Amount			Change
Interest income, net	$	390			1	%	$	524		2	%	$	(134	)		(26	)%
Other income, net		(208	)		(1	)%		5		—			(213	)		(4260	%)

Other Income	$	182			—		$	529		2	%	$	(347	)		(66	)%

Interest income, net was $390,000 for the three months ended March 31, 2008, a $134,000 decrease from the three months ended March 31, 2007. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower interest rates in invested cash balances.

Other income, net consisted primarily of foreign currency translation and transaction gains and losses. The change in other income, net was primarily driven by unfavorable foreign currency exchange rates.

Provision for (Benefit from) Income Taxes

Three Months Ended March 31,

2008

2007

(As Restated)

(Dollars in thousands)

Percentage of

Income Before

Period-to-Period Change

Provision for

Percentage

Amount

Income Taxes

Amount

Income Taxes

Amount

Change

(Dollars in thousands)

Provision for (benefit from) income taxes

(318

)

146

(464

)

*n/m


*		Not meaningful.

Benefit from income taxes was $318,000, or an effective tax rate of 53%, for the three months ended March 31, 2008, a $464,000 change from the three months ended March 31, 2007. The change in the provision for (benefit from) income taxes principally reflects the $1.8 million increase in our loss before income taxes. During the three months ended March 31, 2008 and 2007, our effective tax rate is different from the statutory tax rate due to the tax impact of accounting for share-based compensation pursuant to the provisions of SFAS 123(R) and changes in the mix of jurisdictional earnings.

At September 30, 2007, we had available foreign net operating loss carryforwards of $170,000 that do not expire, against which we have a full valuation allowance, U.S. foreign tax credit carryforwards of $163,000 that expire through 2010, state research and development credit carryforwards of $354,000 that begin to expire in 2012, against which we have a full valuation allowance and state net operating loss carryforwards of $2.1 million that expire at various dates through 2027. The extent to which we can benefit from our deferred tax assets in future years will depend on the amount of taxable income we generate.

Comparison of Six Months Ended March 31, 2008 and 2007

Revenue


	Six Months Ended March 31,
	2008					2007
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
License	$	22,780		38	%	$	19,081		38	%	$	3,699		19	%
Maintenance and services:
Maintenance fees		21,370		36			19,485		39			1,885		10
Services		9,311		16			7,036		14			2,275		32

Total maintenance and services		30,681		52			26,521		53			4,160		16
Subscription revenue		5,790		10			4,493		9			1,297		29


Total revenue	$	59,251		100	%	$	50,095		100	%	$	9,156		18	%

Total revenue for the six months ended March 31, 2008 was $59.3 million, an increase of 18% or $9.2 million from the six months ended March 31, 2007. Total revenue increased as a result of higher international sales of our Affinium product suite, an increase in professional services revenue and higher subscription revenue primarily related to the Marketing Central acquisition.

Total license revenue for the six months ended March 31, 2008 was $22.8 million, an increase of 19% or $3.7 million from the six months ended March 31, 2007. This increase in license revenue was primarily attributable to higher sales of our Affinium products in international markets, primarily Europe and Asia.

Maintenance fees revenue for the six months ended March 31, 2008 was $21.4 million, an increase of 10%, or $1.9 million from the six months ended March 31, 2007. The increase primarily reflects additional maintenance fees on the sale of new licenses in fiscal 2007. Maintenance revenue is expected to increase at a lower rate in fiscal 2008 given the lower growth rate in license revenue in fiscal 2007 (11% in fiscal 2007 versus 34% in fiscal 2006).

Services revenue for the six months ended March 31, 2008 was $9.3 million, an increase of 32%, or $2.3 million from the six months ended March 31, 2007. This increase in services revenue was primarily the result of growth in the number of implementation services performed in Europe and Asia related to new license agreements.

Total subscription revenue for the six months ended March 31, 2008 was $5.8 million, an increase of 29%, or $1.3 million from the six months ended March 31, 2007. This increase in subscription revenue was primarily attributable to the impact of the MarketingCentral acquisition and to a lesser extent sales of Affinium NetInsight products. We anticipate that subscription revenue will continue to increase in future years as we enter into additional subscription agreements and expand our on-demand product offerings.

Recurring Revenue


	Six Months Ended March 31,
	2008					2007
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
Recurring revenue:
Maintenance fees	$	21,370		36	%	$	19,485		39	%		1,885		10	%
Subscription revenue		5,790		10			4,493		9			1,297		29

Total recurring revenue		27,160		46			23,978		48			3,182		13

License		22,780		38			19,081		38			3,699		19
Services		9,311		16			7,036		14			2,275		32


Total revenue	$	59,251		100	%	$	50,095		100	%	$	9,156		18	%

We generate recurring revenue from both maintenance and subscription arrangements, which are recognized ratably over the contractual term of the arrangement or agreement.

Recurring revenue for the six months ended March 31, 2008 was $27.2 million, an increase of 13%, or $3.2 million from the six months ended March 31, 2007. The increase in recurring revenue resulted from (a) an increase in subscription installed customer base primarily attributable to the impact of the MarketingCentral acquisition (b) additional maintenance fees on sales of new licenses and (c) additional subscription revenue related to sales of Affinium NetInsight products. Recurring revenues as a percentage of total revenue was 46% for the six months ended March 31, 2008 as compared to 48% for the six months ended March 31, 2007.

Revenue by Geography


	Six Months Ended March 31,
	2008					2007
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
North America	$	37,451		63	%	$	39,312		78	%	$	(1,861	)		(5	)%
International		21,800		37			10,783		22			11,017			102


Total revenue	$	59,251		100	%	$	50,095		100	%	$	9,156			18	%

Total revenue for North America for the six months ended March 31, 2008 was $37.5 million, a decrease of 5%, or $1.9 million from the three months ended March 31, 2007. The decrease was primarily due to decreased license revenue which was partially offset by increased subscription and professional services revenue. The increase in international revenue was primarily due to increased license sales in both Europe and Asia which is reflective of our increased market presence in these regions.

Cost of Revenue


	Six Months Ended March 31,
	2008					2007
	(Dollars in thousands)
			Gross					Gross
			Margin on					Margin on			Period-to-Period Change
			Related					Related					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
License	$	1,587		93	%	$	1,282		93	%	$	305		24	%
Maintenance and services		12,430		59			8,897		66			3,533		40
Subscription		1,305		77			317		93			988		312


Total cost of revenue	$	15,322		74	%	$	10,496		79	%	$	4,826		46	%

Cost of license revenue for the six months ended March 31, 2008 was $1.6 million, an increase of 24% or $305,000, from the six months ended March 31, 2007. The increase in cost of license revenue was primarily due to (a) a $155,000 increase in labor related costs and (b) a $39,000 increase in royalties. Royalties paid for third-party licensed technology represented 2% of total license revenue for the six months ended March 31, 2008. Royalties related to license revenue may fluctuate based on the mix of products we sell. We expect royalties paid for third-party licensed technology to remain between 1% and 2% of total license revenue. Gross margin on license revenue was 93% in the six months ended March 31, 2008, which remains the same as compared to the six months ended March 31, 2007. We expect gross margin on license revenue during the remainder of fiscal 2008 to remain relatively unchanged from the current period.

Cost of maintenance and services for the six months ended March 31, 2008 was $12.4 million, an increase of 40% or $3.5 million from the six months ended March 31, 2007. The increase in cost of maintenance and services revenue was primarily due to (a) a $2.6 million increase in labor related costs to support increased customer implementations and a growing installed customer base (b) a $216,000 increase in subcontractor costs and (c) a $230,000 increase in share-based compensation. Gross margin on maintenance and services revenue was 59% in the six months ended March 31, 2008, down from 66% for the six months ended March 31, 2007. The reduction in gross margin is primarily related to the increase in professional service related costs. Gross margin on maintenance and services revenue fluctuates based on the mix of revenues from services and maintenance and the degree to which we use subcontractor services. Gross margin on maintenance and service revenue is expected to increase slightly for the remainder of fiscal 2008.

Cost of subscription revenue for the six months ended March 31, 2008 was $1.3 million, an increase of 312%, or $988,000 from the six months ended March 31, 2007. The increase in cost of subscription revenue was due to an increase in labor-related expenses, primarily related to the impact of the MarketingCentral acquisition and the increase cost in hosting-related activities.

Operating Expenses


	Six Months Ended March 31,
	2008						2007
	(Dollars in thousands)
				Percentage of					Percentage of			Period-to-Period Change
				Total					Total						Percentage
	Amount			Revenue			Amount		Revenue			Amount			Change
Sales and marketing	$	24,387			41	%	$	19,153		38	%	$	5,234			27	%
Research and development		11,811			20			10,391		21			1,420			14

General and administrative		9,577			16			7,931		16			1,646			21
Restructuring charges		(286	)		—			1,244		2			(1,530	)		(123	)
Amortization of acquired intangible assets		787			1			786		2			1			—


Total operating expenses	$	46,276			78	%	$	39,505		79	%	$	6,771			17	%

Sales and Marketing.Sales and marketing expense for the six months ended March 31, 2008 was $24.4 million, an increase of 27%, or $5.2 million from the six months ended March 31, 2007. The increase was primarily a result of (a) a $3.9 million increase in labor related expenses including commissions due to increased headcount and higher revenues (b) a $288,000 increase in marketing programs resulting from increased promotional activity and (c) a $482,000 increase in share-based compensation expense. We expect sales and marketing expense to continue to increase in absolute dollars, and to increase slightly as a percentage of total revenue during the remainder of fiscal 2008.

Research and Development.Research and development expense for the six months ended March 31, 2008 was $11.8 million, an increase of 14%, or $1.4 million from the six months ended March 31, 2007. The increase in research and development was primarily a result of (a) a $915,000 increase in labor related expenses, principally due to increased personnel reflecting an increased investment and development of our Affinium product suite and (b) a $211,000 increase in share-based compensation expense. We expect research and development expense to increase slightly in absolute dollars, but decrease slightly as a percentage of total revenue over the remaining quarters of fiscal 2008.

General and Administrative.General and administrative expense for the six months ended March 31, 2008 was $9.6 million, an increase of 21%, or $1.6 million from the six months ended March 31, 2007. The increase in general and administrative expense was primarily a result of (a) a $1.1 million increase in labor-related expenses in order to support the overall growth of the Company, (b) a $463,000 increase in professional services fees primarily related to the filing of our fiscal 2007 Annual Report on Form 10-K and increased legal fees and tax related services, and (c) a $99,000 increase in share-based compensation expense. We expect general and administrative expense to continue to increase slightly in absolute dollars, but will decrease slightly as a percentage of total revenue during the remainder of fiscal 2008.

Restructuring charges.In the fourth quarter of fiscal 2006, we initiated the restructuring of certain of our operations in France to realign our resources in that region. As a result of this initiative, we terminated several employees resulting in a restructuring charge and accrual of $1.2 million for severance and related costs in the first quarter of fiscal 2007. During the six months ended March 31, 2008, we reversed a portion of the restructuring accrual and recorded a benefit of $286,000 to the statement of operations upon final settlement with an employee.

Amortization of Acquired Intangible Assets.Amortization of acquired intangible assets was $1.5 million and $1.3 million for the six months ended March 31, 2008 and 2007, respectively.

Other Income


	Six Months Ended March 31,
	2008						2007
	(Dollars in thousands)
				Percentage of					Percentage of			Period-to-Period Change
				Total					Total						Percentage
	Amount			Revenue			Amount		Revenue			Amount			Change
Interest income, net		843			1			1,000		2			(157	)		(16	)
Other expense, net		(80	)		—			67		—			(147	)		(219	)


Income before income taxes	$	763			1	%	$	1,067		2	%	$	(304	)		(28	)%

Interest income, net was $843,000 for the six months ended March 31, 2008, a $157,000 decrease from the six months ended March 31, 2007. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower interest rates on invested cash balances.

Other expense, net consisted primarily of foreign currency translation and transaction gains and losses. The change in other expense, net was primarily driven by unfavorable foreign currency exchange rate as compared to the corresponding period in the prior year.

Provision for (benefit from) Income Taxes

Six Months Ended March 31,

2008

2007

(Dollars in thousands)

Percentage of

Income Before

Period-to-Period Change

Provision for

Percentage

Amount

Income Taxes

Amount

Income Taxes

Amount

Change

Provision for (benefit from) income taxes

(883

)

278

(1,161

)

n/m


*		Not meaningful.

Benefit from income taxes was $883,000, or an effective tax rate of 56%, for the six months ended March 31, 2008, a $1.2 million change from the six months ended March 31, 2007. The change in the provision for (benefit from) income taxes principally reflects the $2.7 million increase in our loss before income taxes, offset by a discrete item in the amount of $220,000 recorded in the three months ended December 31, 2006. During the six months ended March 31, 2008 and 2007, our effective tax rate is different from the statutory tax rate due to the tax impact of accounting for share-based compensation pursuant to the provisions of SFAS 123(R), changes in the mix of jurisdictional earnings and the discrete items noted below.

During the three months ended December 31, 2007, the Massachusetts Department of Revenue completed its state income tax audit of the Company for fiscal years ended September 30, 2003 and 2004, which resulted in a tax refund. The Company had an established tax reserve in excess of the settled amount and, as such, the Company reversed the excess portion of the reserve. The tax refund and the adjustment to the tax reserve were recorded as discrete items and resulted in an income tax benefit of $129 during the three months ended December 31, 2007.

During the three months ended December 31, 2006, the “Tax Relief and Health Care Act of 2006” was enacted, thereby extending the research and development tax credit for qualified costs incurred after December 31, 2005. In accordance with this change in tax law, we recorded a tax benefit of $220,000 during the three months ended December 31, 2006 to recognize the benefit from qualified research and development costs incurred from January 1, 2006 through September 30, 2006. This was accounted for as a discrete item during the three months ended December 31, 2006.

At September 30, 2007, we had available foreign net operating loss carryforwards of $712,000 that do not expire, against which we have a full valuation allowance, and foreign tax credit carryforwards of $163,000 that expire through 2015. We have no U.S. net operating loss carryforwards. The extent to which we can benefit from our deferred tax assets in future years will depend on the amount of taxable income we generate.

Liquidity and Capital Resources

Historically, we have financed our operations and met our capital requirements primarily through funds generated from operations and sales of our capital stock. As of March 31, 2008, our primary sources of liquidity consisted of our total cash and cash equivalents balance of $33.9 million, and our short-term investments balance of $7.1 million. As of March 31, 2008, we had no outstanding debt.

Our cash and cash equivalents at March 31, 2008 were held for working capital purposes and were invested primarily in overnight investments, money market funds and commercial paper with maturities of less than ninety days. Our short-term investments at March 31, 2008 consisted primarily of commercial paper and corporate bonds. We do not enter into investments for trading or speculative purposes. Restricted cash of $264,000 at March 31, 2008 was held in a certificate of deposit as collateral for a letter of credit related to the lease agreement for our corporate headquarters in Waltham, Massachusetts, and for our sales office in France. Short-term investments are made in accordance with our corporate investment policy, as approved by our Board of Directors. The primary objective of this policy is the preservation of capital. Investments are limited to high quality corporate debt, money market funds and similar instruments. The policy establishes maturity limits, liquidity requirements and concentration limits. At March 31, 2008, we were in compliance with this internal policy.

Net cash provided by operating activities was $3.8 million in the six months ended March 31, 2008, compared to net cash provided by operating activities of $4.9 million in the six months ended March 31, 2007. Net income adjusted for non-cash expenses (including depreciation, amortization of intangible assets, share-based compensation and deferred tax benefits) increased to $4.5 million in the six months ended March 31, 2008 from $4.4 million in the six months ended March 31, 2007, an increase of $100,000. Increases in deferred revenue, accounts payable provided additional sources of cash. These increases in operating cash flow in the six months ended March 31, 2008 were offset by increases in accounts receivable, prepaid expenses and other current assets.

Investing activities provided $11.1 million and consumed $18.9 million of cash in the six months ended March 31, 2008 and 2007, respectively. In the six months ended March 31, 2008, $1.5 million of cash was used for purchases of property and equipment which primarily related to purchases of computer equipment and software to support increased headcount and increased investment in our on-demand business. In the six months ended March 31, 2007, net purchases of short-term investments consumed $31.1 million and purchases of property and equipment consumed $1.3 million.

Our financing activities provided cash of $381,000 and $851,000 for the six months ended March 31, 2008 and 2007, respectively. In the six months ended March 31, 2008 and 2007, $708,000 and $465,000, respectively, was used to pay withholding taxes related to restricted stock units.

Contractual Obligations and Requirements.

Our only significant lease obligation relates to our corporate headquarters in Waltham, Massachusetts. Upon expiration of current operating leases in 2009, we expect to renew the existing lease, or contract for new leased facilities, at prevailing rates. Our contractual commitments as of March 31, 2008 are not materially different from the amounts disclosed as of September 30, 2007 in our fiscal 2007 Annual Report on Form 10-K.

We believe that our current cash, cash equivalents, and marketable securities will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. Long-term cash requirements, other than normal operating expenses, are anticipated for the continued development of new products, financing anticipated growth and the possible acquisition of businesses, software products or technologies complementary to our business. On a long-term basis or to complete acquisitions in the short term, we may require additional external financing through credit facilities, sales of additional equity or other financing arrangements. There can be no assurance that such financing can be obtained on favorable terms, if at all.

Off-Balance-Sheet Arrangements

We do not have any special purpose entities or off-balance sheet financing arrangements.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS 157,Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Where applicable, SFAS 157 simplifies and codifies related guidance within generally accepted accounting principles. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB deferred the implementation of SFAS No. 157 for certain non-financial assets and liabilities for fiscal years beginning after November 15, 2008. The Company is analyzing the expected impact from adopting this statement on its financial statements, but currently does not believe its adoption will have a significant impact on the financial position or results of operations of the Company.

In February 2007, the FASB issued SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities, which allows companies the option to measure financial assets or liabilities at fair value and include unrealized gains and losses in net income rather than equity. This becomes available when the Company adopts SFAS 157, which will be fiscal year 2009. The Company is analyzing the expected impact from adopting this statement on its financial statements, but currently does not believe its adoption will have a significant impact on the financial position or results of operations of the Company.

In December 2007, the FASB issued SFAS 141(revised 2007),Business Combinations(SFAS 141R). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The Company has not yet determined the impact, if any, of SFAS 141R on its consolidated financial statements.

In December 2007, the FASB issued SFAS 160,Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51(SFAS 160). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests (NCI) and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The Company has not yet determined the impact, if any, of SFAS 160 on its consolidated financial statements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

Our operating results and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and the British pound sterling. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. Some of our agreements with foreign customers involve payments denominated in currencies other than the U.S. dollar, which may create foreign currency exchange risks for us. Revenue denominated in currencies other than the U.S. dollar represented 32% of total revenue in the six months ended March 31, 2008, 18% in fiscal 2007 and 16% in fiscal 2006.

As of March 31, 2008, we had $9.2 million of receivables denominated in currencies other than the U.S. dollar. If the foreign exchange rates fluctuated by 10% as of March 31, 2008, the fair value of our receivables denominated in currencies other than the U.S. dollar would have fluctuated by $920,000. In addition, our subsidiaries have intercompany accounts that are eliminated in consolidation, but that expose us to foreign currency exchange rate exposure. Exchange rate fluctuations on short-term intercompany accounts are reported in other income (expense). Exchange rate fluctuations on long-term intercompany accounts, which are invested indefinitely without repayment terms, are recorded in other comprehensive income (loss) in stockholders’ equity.

Interest Rate Risk

At March 31, 2008, we had unrestricted cash and cash equivalents totaling $33.9 million and short-term investments totaling $7.1 million. These amounts were invested primarily in money market funds, commercial paper and corporate bonds, and are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We considered the historical volatility of short-term interest rates and determined that, due to the size and duration of our investment portfolio, a 100-basis-point increase in interest rates would not have any material exposure to changes in the fair value of our portfolio at March 31, 2008. Declines in interest rates, however, would reduce future investment income.

Credit Risk

Our exposure to credit risk consists principally of accounts receivable and purchased customer receivables. We maintain reserves for potential credit losses which, on a historical basis, have been limited due to our ongoing credit review procedures and the general creditworthiness of our customer base. No customers accounted for greater than 10% of our accounts receivable balance at March 31, 2008 and September 30, 2007.

Item 4.Controls and Procedures

Effectiveness of Disclosure Controls and Procedures

An evaluation was performed by our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our “disclosure controls and procedures,” which are defined under SEC rules as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports it files under the Securities Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decision regarding required disclosure. As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer have determined that our disclosure controls and procedures were not effective as of March 31, 2008 because of the material weakness cited below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As of March 31, 2008, we did not have effective controls over the accounting for taxes, including the determination and reporting of state income taxes, state sales taxes, deferred tax assets and the income tax provision. Specifically, we did not properly evaluate the realizability of a state tax benefit and related deferred tax assets and we did not perform an effective analysis to ensure the completeness and accuracy of our state sales taxes and income taxes. This control deficiency resulted in the misstatement of the aforementioned accounts and disclosures and in the restatement of our interim consolidated financial data for fiscal 2007. Additionally, this control deficiency could result in a misstatement of the aforementioned accounts and disclosures that would result in a material misstatement of our interim or annual consolidated financial statements and disclosures that would not be prevented or detected. Accordingly, as of March 31, 2008, our management has determined that this control deficiency constitutes a material weakness.

Remediation Plans for Material Weakness Related to the Accounting for Taxes

The material weakness described above could have a significant impact on our internal control over financial reporting. Specifically, the absence of strong controls around the accounting for taxes could result in errors in the tax provision reported in a given period or errors in the deferred tax assets reported as of a certain date, and such errors could be material.

We have commenced plans to implement enhancements to our internal control over financial reporting to address the material weakness described above and to provide reasonable assurance that errors and control deficiencies of this type will not recur. These steps include:

	•		We will enhance our quarterly review of tax-related assets and liabilities, as well as the effective tax rate, to ensure the proper recognition of taxes payable and the deferred tax assets and liabilities. Such reviews will be performed by personnel with an appropriate level of tax expertise; and

	•		We will ensure that all relevant personnel involved in tax transactions, through additional resources and training, understand and apply the proper recognition and accounting of tax-related assets and liabilities.

We believe we are taking the steps necessary to remediate this material weakness. We will continue to monitor the effectiveness of these procedures and will continue to make any changes that management deems appropriate.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II — Other Information

Item 1.Legal Proceedings

We are not currently a party to any material litigation and we are not aware of any pending or threatened litigation against us that could have a material adverse effect on our business, operating results or financial condition. The industry in which we operate is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. As a result, we may be involved in various legal proceedings from time to time that arise in the ordinary course of business.

Item 1A.Risk Factors

There has been no material change in the Company’s reported risk factors since the filing of the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on January 7, 2008.

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

We sold an aggregate of 4,470,000 shares of our common stock, $0.01 par value, in our initial public offering pursuant to a registration statement on Form S-1 (File No. 333-120615) that was declared effective by the SEC on August 3, 2005. Our aggregate net proceeds totaled $38.5 million, consisting of net proceeds of $31.8 million from our sale of 3,750,000 shares in the firm commitment initial public offering and $6.7 million from our sale of 720,000 shares upon the exercise of an over-allotment option granted to the underwriters in the offering. We have used a

portion of the proceeds to fund a $1.0 million redemption payment to the holders of our Series B Preferred Stock as of August 3, 2005, the $7.3 million purchase of certain assets and assumed liabilities of MarketSoft in December 2005, and the $21.8 million purchase of Sane in March 2006. With the exception of these payments, none of our net proceeds from the initial public offering have been applied. Pending such application, we have invested the remaining net proceeds in cash, cash equivalents and short-term investments, in accordance with our investment policy, in commercial paper, money-market mutual funds and municipal bonds. None of the remaining net proceeds were paid, directly or indirectly, to directors, officers, persons owning ten percent of more of our equity securities, or any of our other affiliates.

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

We held our 2008 Annual Meeting of Stockholders on March 6, 2008. Our shareholders approved each of the following proposals by the votes specified below.

Proposal No. 1 — The election of two nominees as Class III directors to the Board of Directors for a term of three years.


Nominee	For		Against
Aron Ain		17,023,547		121,219
Robert Schechter		15,799,804		1,344,962

Proposal No. 2 — The ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accountants for the fiscal year ending September 30, 2008.


For	Against	Abstain
17,105,059	31,826	7,880

Item 5. Other Information

None.

Item 6.Exhibits

EXHIBIT INDEX


Exhibit
Number		Description
10.1		2005 Employee Stock Purchase Plan, as amended

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.


		UNICA CORPORATION

Date: May 12, 2008		/s/ Yuchun Lee Yuchun Lee
		Chief Executive Officer, President and Chairman

Date: May 12, 2008		/s/ Ralph A. Goldwasser Ralph A. Goldwasser
		Senior Vice President and Chief Financial Officer
		[Principal Financial Officer]

Date: May 12, 2008		/s/ Kevin R. Thimble Kevin R. Thimble
		Vice President and Corporate Controller
		[Principal Accounting Officer]

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Unica (UNCA) Inactive 10-QQuarterly report

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