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~~June 3130, 2010


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.)


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

170 Tracer Lane Waltham, Massachusetts 02451-1379 (Address of principal executive offices)

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. ~~Yes þ No o~~

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


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

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

The number of shares of the registrant’s common stock outstanding as of ~~May~~August 32, 2010 was 21,~~409~~512,~~000~~396.

UNICA CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED ~~March~~June 3130, 2010 Table of Contents

	Page
Part I — Financial Information	3	3
Item 1. Financial Statements (Unaudited)	3	3
Condensed Consolidated Balance Sheets as of March 31, 2010 and September 30, 2009	3
Condensed Consolidated Balance Sheets as of June 30, 2010 and September 30, 2009		3
Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2010 and 2009	4
Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2010 and 2009		4
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2010 and 2009	5
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2010 and 2009.		5
Notes to Condensed Consolidated Financial Statements	6	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35	35
Item 4. Controls and Procedures	36	35
Part II — Other Information	37	37
Item 1. Legal Proceedings	37	37
Item 1A. Risk Factors	37	37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37	37
Item 4. Submission of Matters to a Vote of Security Holders	37	37
Item 5. Other Information	37	37
Item 6. Exhibits	38	38
Exhibits	38	38
Signatures	39	39
EX-31.1 Certification of Chief Executive Officer pursuant to Section 302
EX-31.1
EX-31.2 Certification of Chief Financial Officer pursuant to Section 302
EX-31.2
EX-32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
EX-32.1

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,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	39,215		$	50,314
Accounts receivable, net of allowance for doubtful accounts of $350 and $361, respectively		20,359			16,514
Prepaid expenses and other current assets		5,814			4,731
Total current assets		65,388			71,559
Property and equipment, net		6,562			5,221
Acquired intangible assets, net		11,378			4,515
Goodwill		21,036			10,943
Deferred tax assets, long-term, net of valuation allowance		905			894
Other assets		843			749
Total assets	$	106,112		$	93,881
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	737		$	1,332
Accrued expenses		11,599			13,080
Deferred revenue		42,677			35,069
Total current liabilities		55,013			49,481
Long-term deferred revenue		3,399			1,250
Other long-term liabilities		337			337
Total liabilities		58,749			51,068
Commitments, contingencies, and guarantees (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; 21,710,000 shares issued and 21,294,000 shares outstanding at March 31, 2010; 21,254,632 shares issued and 20,758,131 shares outstanding at September 30, 2009		217			213
Additional paid-in capital		75,681			73,267
Accumulated deficit		(27,077	)		(29,209	)
Treasury stock, at cost		(1,920	)		(1,920	)
Accumulated other comprehensive income		462			462
Total stockholders’ equity		47,363			42,813
Total liabilities and stockholders’ equity	$	106,112		$	93,881

(In thousands, except share and per share data)


	June 30,			September 30,
	2010			2009
ASSETS
Current assets:

Cash and cash equivalents	$	43,102		$	50,314
Accounts receivable, net of allowance for doubtful accounts of $340 and $361, respectively		23,819			16,514
Prepaid expenses and other current assets		4,970			4,731

Total current assets		71,891			71,559

Property and equipment, net		7,340			5,221
Acquired intangible assets, net		10,883			4,515
Goodwill		20,801			10,943
Deferred tax assets, long-term, net of valuation allowance		905			894
Other assets		835			749

Total assets	$	112,655		$	93,881


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,131		$	1,332
Accrued expenses		13,966			13,080
Deferred revenue		42,781			35,069

Total current liabilities		57,878			49,481
Long-term deferred revenue		3,959			1,250
Other long-term liabilities		337			337

Total liabilities		62,174			51,068
Commitments, contingencies, and guarantees (Note 13)
Stockholders’ equity:
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; 21,916,000 shares issued and 21,500,000 shares outstanding at June 30, 2010; 21,254,632 shares issued and 20,758,131 shares outstanding at September 30, 2009		219			213
Additional paid-in capital		77,610			73,267
Accumulated deficit		(25,890	)		(29,209	)
Treasury stock, at cost		(1,920	)		(1,920	)
Accumulated other comprehensive income		462			462

Total stockholders’ equity		50,481			42,813

Total liabilities and stockholders’ equity	$	112,655		$	93,881

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,
	2010			2009			2010			2009
Revenue:
License	$	7,693		$	4,205		$	13,180		$	10,665
Maintenance and services		14,678			14,628			29,083			29,984
Subscription		6,579			4,423			11,815			8,701
Total revenue		28,950			23,256			54,078			49,350
Costs of revenue:
License		592			505			1,114			1,141
Maintenance and services		4,818			4,483			9,088			9,704
Subscription		2,260			1,037			4,225			2,050
Total cost of revenue		7,670			6,025			14,427			12,895
Gross profit		21,280			17,231			39,651			36,455
Operating expenses:
Sales and marketing		9,856			9,919			18,674			20,941
Research and development		5,083			4,970			9,152			10,416
General and administrative		4,469			3,932			8,723			7,889
Restructuring charges (credits)		(15	)		(6	)		16			748
Goodwill impairment charge		—			15,266			—			15,266
Amortization of acquired intangible assets		258			450			381			935
Transaction fees		150			—			297			—
Total operating expenses		19,801			34,531			37,243			56,195
Income (loss) from operations		1,479			(17,300	)		2,408			(19,740	)
Other income (loss):
Interest income, net		80			160			167			400
Other expense, net		(626	)		(483	)		(696	)		(1,600	)
Total other income (loss)		(546	)		(323	)		(529	)		(1,200	)
Income (loss) before income taxes		933			(17,623	)		1,879			(20,940	)
Provision for (benefit from) income taxes		565			(1,492	)		(253	)		(711	)
Net income (loss)	$	368		$	(16,131	)	$	2,132		$	(20,229	)
Net income (loss) per common share:
Basic	$	0.02		$	(0.77	)	$	0.10		$	(0.97	)
Diluted	$	0.02		$	(0.77	)	$	0.10		$	(0.97	)
Shares used in computing net income (loss) per common share:
Basic		21,174,000			20,841,000			21,045,000			20,886,000
Diluted		22,054,000			20,841,000			21,950,000			20,886,000

(In thousands, except share and per share data)


	Three Months Ended June 30,						Nine Months Ended June 30,
	2010			2009			2010			2009
Revenue:
License	$	7,363		$	4,359		$	20,543		$	15,024
Maintenance and services		15,462			16,594			44,545			46,738
Subscription		7,880			5,907			19,695			14,448

Total revenue		30,705			26,860			84,783			76,210
Costs of revenue:
License		652			396			1,766			1,537
Maintenance and services		5,110			5,383			14,198			15,154
Subscription		2,755			1,279			6,980			3,262

Total cost of revenue		8,517			7,058			22,944			19,953

Gross profit		22,188			19,802			61,839			56,257

Operating expenses:
Sales and marketing		10,146			11,216			28,820			32,157
Research and development		4,841			5,045			13,993			15,461
General and administrative		4,620			4,204			13,350			12,093
Restructuring charges		—			—			16			748
Goodwill impairment charge		—			—			—			15,266
Amortization of acquired intangible assets		290			122			671			1,057
Transaction fees		—			—			290			—

Total operating expenses		19,897			20,587			57,140			76,782

Income (loss) from operations		2,291			(785	)		4,699			(20,525	)
Other income (loss):
Interest income, net		34			103			201			503
Other income (expense), net		(727	)		210			(1,423	)		(1,390	)

Total other income (loss)		(693	)		313			(1,222	)		(887	)

Income (loss) before income taxes		1,598			(472	)		3,477			(21,412	)
Provision for (benefit from) income taxes		411			(180	)		158			(891	)

Net income (loss)	$	1,187		$	(292	)	$	3,319		$	(20,521	)

Net income (loss) per common share:
Basic	$	0.06		$	(0.01	)	$	0.16		$	(0.99	)

Diluted	$	0.05		$	(0.01	)	$	0.15		$	(0.99	)

Shares used in computing net income (loss) per common share:
Basic		21,423,000			20,708,000			21,171,000			20,780,000

Diluted		22,438,000			20,708,000			22,144,000			20,780,000

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,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	2,132		$	(20,229	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment		1,553			1,385
Amortization of capitalized software development costs		86			86
Amortization of acquired intangible assets		903			1,474
Goodwill impairment charge		—			15,266
Provision for bad debt		89			149
Share-based compensation expense		2,230			2,637
Foreign currency translation loss		241			153
Provision for (benefit from) deferred income taxes		(23	)		(1,435	)
Changes in operating assets and liabilities:
Accounts receivable		(3,634	)		1,631
Prepaid expenses and other current assets		(336	)		2,456
Other assets		(125	)		(110	)
Accounts payable		(556	)		(1,344	)
Accrued expenses		(1,284	)		(2,253	)
Deferred revenue		9,871			452
Net cash provided by operating activities		11,147			318
Cash flows from investing activities:
Purchases of property and equipment		(2,486	)		(900	)
Cash collected from license acquired in acquisition		72			77
Capitalization of software development costs		(355	)		(425	)
Cash paid for acquisitions, net of cash acquired		(19,181	)		—
Proceeds from sales and maturities of investments		—			11,310
Purchases of investments		—			(898	)
Increase in restricted cash		(106	)		(69	)
Net cash provided by (used in) investing activities		(22,056	)		9,095
Cash flows from financing activities:
Proceeds from issuance of common stock under stock option and employee stock purchase plans		904			355
Purchases of treasury shares		—			(912	)
Payment of withholding taxes in connection with settlement of restricted stock units		(771	)		(230	)
Net cash (used in) financing activities		133			(787	)
Effect of exchange rate changes on cash and cash equivalents		(323	)		(808	)
Net increase (decrease) in cash and cash equivalents		(11,099	)		7,818
Cash and cash equivalents at beginning of period		50,314			35,799
Cash and cash equivalents at end of period	$	39,215		$	43,617

(In thousands)


	Nine Months Ended June 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	3,319		$	(20,521	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property and equipment		2,388			1,994
Amortization of capitalized software development costs		131			139
Amortization of acquired intangible assets		1,362			1,825
Goodwill impairment charge		—			15,266
Provision for doubtful accounts		136			215
Share-based compensation expense		3,333			3,992
Foreign currency translation loss		575			226
Benefit from deferred income taxes		(51	)		(1,435	)
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(6,644	)		1,276
Prepaid expenses and other current assets		(71	)		1,774
Other assets		(178	)		449
Accounts payable		(136	)		(1,318	)
Accrued expenses		1,242			(1,145	)
Deferred revenue		10,617			155

Net cash provided by operating activities		16,023			2,892
Cash flows from investing activities:
Purchases of property and equipment		(3,750	)		(1,576	)
Cash collected from license acquired in acquisition		108			115
Capitalization of software development costs		(515	)		(575	)
Cash paid for acquisitions, net of cash acquired		(19,181	)		—
Proceeds from sales and maturities of investments		—			15,043
Purchases of investments		—			(898	)
Increase in restricted cash		(106	)		(69	)

Net cash provided by (used in) investing activities		(23,444	)		12,040

Cash flows from financing activities:
Proceeds from issuance of common stock under stock option and employee stock purchase plans		1,764			370
Purchases of treasury shares		—			(1,920	)
Payment of withholding taxes in connection with settlement of restricted stock units		(822	)		(308	)

Net cash provided by (used in) financing activities		942			(1,858	)
Effect of exchange rate changes on cash and cash equivalents		(733	)		(505	)

Net increase (decrease) in cash and cash equivalents		(7,212	)		12,569
Cash and cash equivalents at beginning of period		50,314			35,799

Cash and cash equivalents at end of period	$	43,102		$	48,368

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)~~

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 consolidated 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 fiscal year ended September 30, 2009, 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.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which included accounts receivable, accounts payable and accrued expenses, approximated their fair values at ~~March~~June 3130, 2010 and September 30, 2009, due to the short-term nature of these instruments.

2. Revenue Recognition

The Company sells its software products and services together in a multiple-element arrangement under perpetual and subscription agreements. The Company uses the residual method to recognize revenues from perpetual license 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 VSOE is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements. Each license arrangement requires that the Company analyze the individual elements in the transaction and determine the fair value of each undelivered element, which typically includes maintenance and services. Revenue is allocated 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, 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 perpetual license arrangements where maintenance is sold 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. A corresponding reduction in license revenue is made. The fair value of the professional services portion of perpetual license arrangements is based on the rates that are charged for these services when sold separately. If, in the Company’s 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.

Revenue for implementation services of perpetual software products that are not deemed essential to the functionality of the software products is recognized separately from license and subscription revenue. Generally these services are priced on a time-and-materials basis and recognized as revenue when 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 a software license 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 revenue is recognized.

If the Company were to determine that services are essential to the functionality of software in an arrangement, the license or subscription and services revenue from the arrangement would be recognized pursuant to the accounting for performance of construction-type contracts. In such cases, it is expected that the Company 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, 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 enters into subscription arrangements for term licenses that include, on a bundled basis, (a) the right to use its software for a specified period of time, (b) updates and upgrades to its software on a when and if available basis, and (c) technical support. In subscription arrangements for term licenses, where services are not deemed essential to the functionality of the software products, and fair value has not been established for the subscription element, revenue for both the subscription and services is recognized ratably over the term of the arrangement, once all services have commenced.

Subscription arrangements for on-demand services generally include: (a) a subscription fee for hosted services and technical support and (b) optional professional services for consulting, training and other services. Revenue related to subscription fees for on-demand services is recognized ratably over the term of the arrangement commencing at the point when the end-user is provided access to the underlying software. Revenue related to professional services is recognized ratably over the term of the arrangement commencing at the point when such services are delivered, provided that the end-user is given access to the underlying software.

For all of our software arrangements, the Company does not recognize revenue until it can determine that persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is considered probable. In making these judgments, the Company evaluates these criteria as follows:

• Evidence of an arrangement. For the majority of its arrangements, the Company considers a non-cancelable agreement to be persuasive evidence of an arrangement. In transactions below a certain dollar threshold ~~involving the sale of our Unica NetInsight product~~, the Company considers a purchase order signed by the customer to be persuasive evidence of an arrangement. • Delivery. The Company considers 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. The Company’s typical end-user license agreement does not include customer acceptance provisions. • Fixed or determinable fee. The Company considers 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, the Company recognizes revenue when the refund or adjustment right lapses. If the payments are due beyond the Company’s normal terms, it recognizes the revenue as amounts become due and payable or as cash is collected.

7 • Delivery. The Company considers 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. The Company’s typical end-user license agreement does not include customer acceptance provisions.

~~Table~~• ofFixed ~~Contents~~or determinable fee. The Company considers 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, the Company recognizes revenue when the refund or adjustment right lapses. If the payments are due beyond the Company’s normal terms, it recognizes the revenue as amounts become due and payable or as cash is collected.

•

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

When we license our software through an MSP or systems integrator, we begin to 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 us and the MSP or systems integrator and (b) all other revenue recognition criteria have been met.

In agreements with customers and MSPs, the Company provides a limited warranty that its 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, the Company 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.

3. Cash and Cash Equivalents and 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, and investments with maturities greater than 365 days as of the balance sheet date to be long-term investments. Unrealized gains (losses) on available-for-sale securities are recorded in accumulated other comprehensive income (loss) within stockholders’ equity.

The Company did not hold any investments as of ~~March~~June 3130, 2010 and September 30, 2009.

Effective October 1, 2008, the Company adopted an accounting pronouncement which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The pronouncement clarifies that fair value is an exchange price, representing the amount that would be received in an orderly transaction between market participants, upon the sale of an asset or a payment to transfer a liability (an exit price) in the principal or most advantageous market for such asset or liability. The adoption of this accounting pronouncement did not have a material effect on the Company’s consolidated financial statements for financial and non-financial assets and liabilities carried at fair value.

Valuation techniques used to measure fair value are required to maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance for fair value accounting describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1	-	Quoted prices in active markets for identical assets or liabilities.
Level 2	-	Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3	-	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques.

		Level 1 — Quoted prices in active markets for identical assets or liabilities.

		Level 2 — Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques.

The Company uses the market approach to measure the fair value of its financial assets by obtaining prices and other relevant information generated by market transactions involving identical or comparable assets. The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets, including investments and cash equivalents, at June 30, 2010:


			Fair Value Measurements
	Total Fair Value at		at Reporting Date Using
	June 30, 2010		Level 1		Level 2		Level 3
Money market funds	$	19,442	$	19,442	$	—	$	—


			Fair Value Measurements
	Total Fair Value at		at Reporting Date Using
	September 30, 2009		Level 1		Level 2		Level 3
Money market funds	$	37,444	$	37,444	$	—	$	—

Money market funds are included in cash and cash equivalents and are quoted at market equivalent rates.

table details the fair value measurements within the fair value hierarchy of the Company’s financial assets, including investments and cash equivalents, at March 31, 2010:

			Fair Value Measurements
			at Reporting Date Using
	Total Fair Value at
	March 31, 2010		Level 1		Level 2		Level 3
Money market funds	$	19,443	$	19,443	$	—	$	—

			Fair Value Measurements
			at Reporting Date Using
	Total Fair Value at
	September 30, 2009		Level 1		Level 2		Level 3
Money market funds	$	37,444	$	37,444	$	—	$	—

Money market funds are included in cash & cash equivalents and are quoted at market equivalent rates.

4. Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other than reported net income (loss), comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains and losses on available-for-sale investments.

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

	Three Months Ended					~~Six~~Nine Months Ended
	March 31,					March 31,
	June 30,					June 30,
	2010		2009			2010		2009
Net income (loss)	$	~~368~~1,187	$	(~~16,131~~292	)	$	23,~~132~~319	$	(20,~~229~~521	)
Other comprehensive income (loss), net of tax effects:
Change in unrealized gain on investments, net of tax		—		(2112	)		—		4836
Foreign currency translation adjustments		—		~~(134~~109	)		—		(~~188~~79	)
Other comprehensive income (loss)		—		~~(155~~97	)		—		(~~140~~43	)
Comprehensive income (loss)	$	~~368~~1,187	$	(~~16,286~~195	)	$	23,~~132~~319	$	(20,~~369~~564	)

5. Net Income (Loss) Per Common Share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income (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~~nine months ended ~~March~~June 3130, 2010 and 2009, the Company had only one class of security, common stock, outstanding.

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

	Three Months Ended					~~Six~~Nine Months Ended
	March 31,					March 31,
	June 30,					June 30,
	2010		2009			2010		2009
Net income (loss)	$	~~368~~1,187	$	(~~16,131~~292	)	$	23,~~132~~319	$	(20,~~229~~521	)
Weighted-average shares of common stock outstanding		21,~~174~~423,000		20,~~841~~708,000			21,~~045~~171,000		20,~~886~~780,000
Dilutive effect of common stock equivalents		~~880~~1,015,000		—			~~905~~973,000		—
Weighted-average shares used in computing diluted net loss per common share		22,054,000		20,841,000			21,950,000		20,886,000
Weighted-average shares used in computing diluted net income (loss) per common share		22,438,000		20,708,000			22,144,000		20,780,000
Basic net income (loss) per common share	$	0.0206		(0.7701	)	$	0.1016		(0.9799	)
Diluted net income (loss) per common share	$	0.0205	$	(0.7701	)	$	0.1015	$	(0.9799	)

9 Weighted-average common stock equivalents of 281,000 and 4,132,000 were excluded from the calculation of diluted net income (loss) per common share for the three months ended June 30, 2010 and 2009, respectively, as their inclusion would be anti-dilutive. Weighted-average common stock equivalents of 993,000 and 4,155,000 were excluded from the calculation of diluted net income (loss) per common share for the nine months ended June 30, 2010 and 2009, respectively, as their inclusion would be anti-dilutive.

Weighted-average common stock equivalents of 1,160,000 and 4,481,000 were excluded from the calculation of diluted net income (loss) per common share for the three months ended March 31, 2010 and 2009, respectively, as their inclusion would be anti-dilutive. Weighted-average common stock equivalents of 1,054,000 and 4,167,000 were excluded from the calculation of diluted net income (loss) per common share for the six months ended March 31, 2010 and 2009, respectively, as their inclusion would be anti-dilutive.

6. Acquisitions

Pivotal Veracity acquisition

On January 12, 2010, the Company acquired 100 percent of the equity in privately-held Pivotal Veracity, LLC (Pivotal Veracity), a provider of tools that enable companies to optimize the deliverability and reputation of their digital communications, for approximately $17,800 in cash. The acquisition of Pivotal Veracity provides expansion to the Company’s e-mail marketing capabilities. This acquisition was accounted for as a purchase transaction and the results of operations for the Company include the results of Pivotal Veracity beginning on the date of acquisition. ~~The following table summarizes the allocation of the purchase price for the~~ ~~acquisition:~~

The following table summarizes the allocation of the purchase price for the acquisition:

(in thousands)


Cash	$	369
Purchased receivables		1,039
Definite-lived intangibles		6,813
Goodwill		9,582

Total Assets	$	17,803


Liabilities
Current liabilities		3

Total Liabilities	$	3


Net assets acquired	$	17,800

The portion of the Pivotal Veracity purchase price allocated to intangible assets including trade name, technology, customer relationships, and non-competition agreements was determined by the Company. Goodwill of $9,582 is primarily attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of Pivotal Veracity. The goodwill is expected to be deductible for tax purposes. The following are the identifiable intangible assets acquired and their respective weighted average useful lives (table in thousands, except for years):

	Amount		Average Life
			(in years)
Trade name	$	55		2
Technology		1,686		8
Customer relationships		4,943		15
Non-competition agreements		129		5
Non-compete agreements		129		5
	$	6,813

The portion of the Pivotal Veracity purchase price allocated to purchased receivables reflects the fair value of future amounts due under customer contracts in effect as of the acquisition date less the fair value of Unica’s obligation to perform on such contracts.

10 For the three months ended June 30, 2010, the condensed consolidated results of the Company include $834 of revenue attributable to the acquisition of Pivotal Veracity.

For the three months ended March 31, 2010, the condensed consolidated results of the Company include $578 of revenue attributable to the acquisition of Pivotal Veracity.

MakeMeTop acquisition

On February 1, 2010, the Company acquired certain assets and customer contracts of the MakeMeTop business from Microchannel Ltd., a privately-held UK-based company, for $1,750 in cash. The MakeMeTop products allow online marketers to automate and optimize their keyword buys across search engines while also managing their bidding and reporting across multiple currencies and languages. The acquisition of MakeMeTop provides the expansion of the Company’s online and interactive marketing solutions to allow better optimization of customer placement in search engines globally. This acquisition was accounted for as a purchase transaction and the results of operations of the Company include the results of MakeMeTop beginning on the date of acquisition. The acquisition consisted of $1,025 in intangible assets and $725 in goodwill resulting in net assets acquired of $1,750.

The portion of the MakeMeTop purchase price allocated to intangibles including customer relationships, technology, and non-compete agreements was determined by the Company. The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the Company’s acquisition of MakeMeTop. The goodwill is expected to be deductible for tax purposes. The following are the identifiable intangible assets acquired and their respective weighted average useful lives (table in thousands, except for years):

	Amount		Average Life
			(in years)
Customer Relationships	$	440		10
Customer relationships	$	440		10
Non-Compete Agreements		52		4
Non-compete agreements		52		4
Technology		533		8
	$	1,025

~~For the three months ended March 31, 2010, revenue attributable to the acquisition of~~10 ~~MakeMeTop is immaterial to the condensed consolidated results of the Company.~~

For the three months ended June 30, 2010, revenue attributable to the acquisition of MakeMeTop is insignificant to the condensed consolidated results of the Company.

Pro Forma Results (unaudited)

The unaudited pro forma combined condensed results of the Company, giving effect to the acquisitions of Pivotal Veracity and MakeMeTop as if the acquisitions had occurred as of the beginning of each period presented, are not materially different from the as reported results of Unica Corporation for the periods presented in this Report on Form 10-Q.

7. Goodwill and Acquired Intangible Assets

The Company tests goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill may exceed its fair value. The Company determines fair value using the income approach as well as the market approach, and applies a weighting to the result of each approach. The income approach is based upon discounted cash flows estimated by management for each reporting unit, while the market approach uses trading and transaction multiples, for companies considered comparable to Unica, to estimate fair value. Reporting units are organized by operations with similar economic characteristics for which discrete financial information is available and regularly reviewed by management.

Unless changes in events or circumstances indicate that an impairment test is required, the Company will continue to test goodwill for impairment on an annual basis. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn in customers’ industries, increased competition, a significant reduction in the Company’s stock price for a sustained period, or a reduction of the Company’s market capitalization relative to net book value. There was no indication of impairment of goodwill during the ~~six~~nine months ended ~~March~~June 3130, 2010.

Intangible assets acquired in the Company’s acquisitions include goodwill, developed technology and customer contracts and related customer relationships, license agreement, trade name and non-compete agreements. 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 were as follows:

	Range of		Gross
	Useful Lives		Carrying		Accumulated			Net Book
	In Years		Value		Amortization			Value
As of March 31, 2010:
As of June 30, 2010:
Developed technology		1-8	$	8,918	$	(5,~~452~~622	)	$	3,~~466~~296
Customer contracts and related customer relationships		3-15		12,939		(6,~~187~~458	)		6,~~752~~481
License agreement		14		1,360		(~~420~~456	)		~~940~~904
Trade name		1-2		99		(5259	)		4740
Non-compete agreements		3-5		181		(819	)		~~173~~162
Total intangible assets			$	23,497	$	(12,~~119~~614	)	$	1110,~~378~~883
As of September 30, 2009:
Developed technology		1-8	$	6,699	$	(4,931	)	$	1,768
Customer contracts and related customer relationships		3-14		7,556		(5,821	)		1,735
License agreement		14		1,360		(348	)		1,012
Trade name		1		44		(44	)		—
Total intangible assets			$	15,659	$	(11,144	)	$	4,515

~~The following table describes changes to goodwill during the six months ended March 31, 2010:~~11

Balance as of September 30, 2009
Goodwill	$	26,209
Goodwill related to acquisition of Pivotal Veracity		9,582
Goodwill related to acquisition of MakeMeTop		725
Accumulated impairment losses		(15,266	)
		21,250
Foreign currency translation adjustments		(214	)
Balance as of March 31, 2010
Goodwill		36,302
Accumulated impairment losses		(15,266	)
	$	21,036

The ~~Company~~following ~~recorded~~table ~~amortization~~describes ~~expense~~changes ~~for~~to ~~acquired~~goodwill ~~intangible~~during ~~assets of $551 and $902 for~~ the ~~three~~nine ~~and six~~ months ended ~~March~~June 3130, 2010~~, respectively, and $678 and $1,474 for the three and~~: six months ended March 31, 2009, respectively. Amortization of developed technology, included as a component of cost of license revenue in the consolidated statements of operations, was $293 and $521 for the three and six months ended March 31, 2010, respectively, and $228 and $540 for the three and six months ended March 31, 2009.

Intangible assets are expected to be amortized over a weighted-average period of 4.66 years as follows:


Balance as of September 30, 2009
Goodwill	$	26,209
Goodwill related to acquisition of Pivotal Veracity		9,582
Goodwill related to acquisition of MakeMeTop		725
Accumulated impairment losses		(15,266	)

		21,250

Foreign currency translation adjustments		(449	)

Balance as of June 30, 2010
Goodwill		36,067
Accumulated impairment losses		(15,266	)

	$	20,801

Year ending September 30, 2010	$	982
2011		2,013
2012		1,843
2013		1,604
2014		1,394
2015 and thereafter		3,542
Total expected amortization	$	11,378

The Company recorded amortization expense for acquired intangible assets of $458 and $351 for the three months ended June 30, 2010 and 2009, respectively, and $1,362 and $1,825 for the nine months ended June 30, 2010 and 2009, respectively. Amortization of developed technology, included as a component of cost of license revenue in the condensed consolidated statements of operations, was $168 and $229 for the three months ended June 30, 2010 and 2009, respectively, and $691 and $768 for the nine months ended June 30, 2010 and 2009, respectively.

Intangible assets are expected to be amortized over a weighted-average period of 4.79 years as follows:


Year ending September 30, 2010	$	494
2011		2,030
2012		1,879
2013		1,629
2014		1,402
2015 and thereafter		3,449


Total expected amortization	$	10,883

8. Software Development Costs

The Company evaluates whether to capitalize or expense development costs of computer software to be sold in accordance with established accounting standards. 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 months ended ~~March~~June 3130, 2010 and 2009, $504 and $4218, respectively, of software development costs were capitalized. ~~During~~ During the ~~six~~nine months ended ~~March~~June 3130, 2010 and 2009, $5054 and $~~146~~164, respectively, of software ~~development~~ development costs were capitalized. Amortization expense during the three months ended ~~March~~June 3130, 2010 and 2009 was $4345 and $4953, respectively. Amortization expense during the ~~six~~nine months ended ~~March 31~~June 30, 2010 and 2009 was $86131 and $86139, respectively. The net book value of software development costs was $~~160~~119 and $196 at ~~March~~June 3130, 2010 and September 30, 2009, respectively.

The Company capitalizes certain costs of 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 costs are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, beginning when the software is ready for its intended use. 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 months ended ~~March~~June 3130, 2010 and 2009, $175 and $~~140~~133, respectively, of internal-use software costs were capitalized. During the ~~six~~nine months ended ~~March~~June 3130, 2010 and 2009, $~~357~~533 and $~~321~~454, respectively, of internal-use software costs were capitalized. Amortization expense during the three months ended ~~March~~June 3130, 2010 and 2009 was $67 and $0, respectively. Amortization expense during the ~~six~~nine months ended ~~March~~June 3130, 2010 and 2009 was $~~133~~200 and $0, respectively. The net book value of internal-use software costs was $1,~~108~~217 and $884 at ~~March~~June 3130, 2010 and September 30, 2009, respectively.

9. Accounting for Share-Based Compensation

The Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. In addition, the benefits of tax deductions in excess of recognized share-based compensation are reported as a financing activity rather than an operating activity in the statement of cash flows. This requirement reduces net operating cash flows and increases net financing cash flows, and only to the extent the benefit is realizable in the current period.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in the model and the resulting estimated fair value for option grants during the applicable period were as follows:


	Three Months ended						Nine Months ended
	June 30,						June 30,
	2010			2009			2010			2009
Dividend yield		—			—			—			—
Volatility		64	%		58	%		64	%		58	%
Risk-free interest rate		1.37	%		1.34	%	1.23% to 1.38%			1.11% to 1.53%
Weighted-average expected option term (in years)		4.1			4.1			4.1			4.1
Weighted-average fair value per share of options granted	$	4.94		$	1.21		$	3.48		$	1.38
Weighted-average fair value per share of restricted stock awards granted	$	9.92		$	4.77		$	7.09		$	4.17

The fair value of employee stock purchase plan (ESPP) awards is estimated on the date of grant using the Black- Scholes option pricing model. The assumptions used in the model and the resulting estimated fair value grants during the applicable period are as follows:

	Three Months ended						Nine Months ended
	June 30,						June 30,
	2010			2009			2010			2009
Dividend yield		—			—			—			—
Volatility		49	%		50	%		49	%		50	%
Risk-free interest rate		0.18	%		0.46	%		0.18%-0.26	%		0.46%-2.00	%
Weighted-average expected option term (in years)		0.5			0.5			0.5			0.5
Weighted-average fair value per share of options granted	$	2.37		$	1.28		$	2.10		$	1.98

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 June 30, 2010 and 2009 was $9.92 and $4.68, respectively, and for the nine months ended June 30, 2010 and 2009 was $7.05 and $4.43, respectively.

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

	Three Months Ended June 30,						Nine Months Ended June 30,
	2010			2009			2010			2009
Stock options	$	366		$	517		$	996		$	1,541
Restricted stock units		686			777			2,188			2,296
Employee stock purchase plan		51			61			149			155

Total share-based compensation	$	1,103		$	1,355		$	3,333		$	3,992

~~This~~ Cost ~~requirement~~of ~~reduces~~revenue ~~net~~and operating ~~cash flows~~expenses ~~and~~include ~~increases~~share-based ~~net~~compensation ~~financing~~expense ~~cash~~as ~~flows, and only to the extent the benefit is realizable in~~follows: ~~the current period.~~


	Three Months Ended June 30,				Nine Months Ended June 30,
	2010		2009		2010		2009
Cost of license revenue	$	6	$	7	$	19	$	37
Cost of maintenance and services revenue		111		251		689		726
Sales and marketing expense		426		615		982		1,657
Research and development expense		176		248		537		722
General and administrative expense		384		234		1,106		850

Total share-based compensation expense	$	1,103	$	1,355	$	3,333	$	3,992

	Three Months ended						Six Months ended
	March 31,						March 31,
	2010			2009			2010			2009
Dividend yield		—			—			—			—
Volatility		64	%		58	%		64	%		58	%
Risk-free interest rate		1.38	%		1.50	%	1.23% to 1.38%			1.11% to 1.53%
Weighted-average expected option term (in years)		4.1			4.1			4.1			4.1
Weighted-average fair value per share of options granted	$	3.91		$	0.87		$	3.41		$	1.39
Weighted-average fair value per share of restricted stock awards granted	$	8.57		$	4.84		$	6.95		$	4.14

The Company expects to record the unamortized portion of share-based compensation expense for existing stock options and restricted stock units outstanding at June 30, 2010, over a weighted-average period of 1.52 years, as follows:

The fair value of employee stock purchase plan (ESPP) awards is estimated on the date of grant using the Black- Scholes option pricing model. The assumptions used in the model and the resulting estimated fair value grants during the applicable period are as follows:


Year Ending September 30,
2010 (remainder)	$	1,277
2011		3,670
2012		2,697
2013		1,807
2014		589

Total unamortized share-based compensation	$	10,040

	Three Months ended						Six Months ended
	March 31,						March 31,
	2010			2009			2010			2009
Dividend yield		—			—			—			—
Volatility		49	%		50	%		49	%		50	%
Risk-free interest rate		0.18	%		0.46	%		0.26	%		2.00	%
Weighted-average expected option term (in years)		0.5			0.5			0.5			0.5
Weighted-average fair value per share of options granted	$	2.10		$	2.23		$	1.96		$	2.33

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, 2010 and 2009 was $5.83 and $4.84, respectively, and for the six months ended March 31, 2010 and 2009 was $6.81 and $4.43, respectively.

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

	Three Months Ended March 31,				Six Months Ended March 31,
	2010		2009		2010		2009
Stock options	$	248	$	500	$	630	$	1,025
Restricted stock units		831		830		1,502		1,520
Employee stock purchase plan		47		11		98		92
Total share-based compensation	$	1,126	$	1,341	$	2,230	$	2,637

Cost of revenue and operating expenses include share-based compensation expense as follows :

	Three Months Ended March 31,				Six Months Ended March 31,
	2010		2009		2010		2009
Cost of license revenue	$	10	$	13	$	13	$	30
Cost of maintenance and services revenue		331		258		578		475
Sales and marketing expense		240		519		556		1,042
Research and development expense		203		240		361		474
General and administrative expense		342		311		722		616
Total share-based compensation expense	$	1,126	$	1,341	$	2,230	$	2,637

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, 2010, over a weighted-average period of 2.01 years, as follows:

Year Ending September 30,
2010 (remainder)	$	2,343
2011		3,690
2012		2,706
2013		1,787
2014		583
Total unamortized share-based compensation	$	11,109

10. Equity Compensation Plans

Stock Options

In March 2005, the Board of Directors and stockholders approved the 2005 Stock Incentive Plan (the 2005 Plan). The 2005 Plan provides that the options shall be exercisable over a period not to exceed 10 years. The Board of Directors is responsible for the administration of the 2005 Plan 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 over a period of four years. The Company has reserved for issuance an aggregate of 1,500,000 shares of common stock under the 2005 Plan. In addition, a total of 367,000 shares then available under the 2003 stock option plan (the 2003 Plan) became available for grant under the 2005 Plan. An additional 5,009,000 shares were reserved under the 2005 Plan through October 1, 2009, in accordance with the provisions of the Plan, which require an annual increase of 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.

The following is a summary of the Company’s stock options activity, including related disclosures, during the ~~six~~nine months ended ~~March~~June 3130, 2010.

						Weighted
				Weighted		Average
				Average		Remaining	Aggregate
				Exercise		Contractual	Intrinsic
	Shares			Price		Term	Value(1)
Outstanding at September 30, 2009		2,463,000		$	5.40
Granted		~~596~~624,000			6.8195
Exercised		(~~134~~329,000	)		4.4742
Forfeited		(~~208~~255,000	)		6.5579
Outstanding at March 31, 2010		2,717,000			5.67	4.41 yrs	$	9,276
Outstanding at June 30, 2010		2,503,000			5.77	4.41 yrs	$	9,912
Exercisable at March 31, 2010		1,310,000			5.63	4.32 yrs	$	8,707
Exercisable at June 30, 2010		1,272,000			5.72	3.88 yrs	$	5,292
Options at March 31, 2010 vested and expected to vest		2,509,000			5.51	3.57 yrs	$	4,924
Options at June 30, 2010 vested and expected to vest		2,345,000			5.74	4.36 yrs	$	9,381

(1) The aggregate intrinsic value was calculated based on the positive difference between the closing price of the Company’s common stock on ~~March~~June 3130, 2010, the last trading day of the period, of $89.8958 per share, and the exercise price of the underlying options. The total intrinsic value of options exercised during the three and ~~six~~nine months ended ~~March~~June 3130, 2010 was $~~434~~1,023 and $~~518~~1,541, respectively. The total intrinsic value of options exercised during the three and ~~six~~nine months ended ~~March~~June 3130, 2009 was $1024 and $2448, respectively.

~~Restricted Stock Units~~14

~~The~~Restricted ~~Company~~Stock ~~issues restricted stock units (RSUs) as an additional form of equity~~Units 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 upon vesting. The fair value of the RSUs was calculated based upon the Company’s closing stock price on the date of grant, and the related share-based compensation expense is being recorded over the vesting period. 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, 2010 and the activity during the six months ended March 31, 2010.

				Weighted-
				Average
				Grant-Date
	Shares			Fair Value
Nonvested awards at September 30, 2009		1,268,000		$	6.68
Granted		595,000			6.95
Vested		(376,000	)		7.22
Forfeited		(114,000	)		7.88
Nonvested awards at March 31, 2010		1,373,000			6.55

The Company issues 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 upon vesting. The fair value of the RSUs was calculated based upon the Company’s closing stock price on the date of grant, and the related share-based compensation expense is being recorded over the vesting period. 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 June 30, 2010 and the activity during the nine months ended June 30, 2010.

The Company recorded $831 and $1,502 of share-based compensation expense related to RSUs for the three and six months ended March 31, 2010. As of March 31, 2010, there was unrecognized compensation cost related to RSUs totaling $7,294, net of estimated forfeitures, which will be recognized over a weighted-average period of 2.03 years.


				Weighted-
				Average
				Grant-Date
	Shares			Fair Value
Nonvested awards at September 30, 2009		1,268,000		$	6.68
Granted		625,000			7.09
Vested		(392,000	)		7.22
Forfeited		(166,000	)		6.68

Nonvested awards at June 30, 2010		1,335,000			6.47

The Company recorded $686 and $2,188, respectively of share-based compensation expense related to RSUs for the three and nine months ended June 30, 2010. As of June 30, 2010, there was unrecognized compensation cost related to RSUs totaling $8.9 million, net of estimated forfeitures, which will be recognized over a weighted-average period of 1.53 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 85% of the lower of the fair market value of the Company’s common stock at the beginning or end of the purchase period. The Company has reserved for issuance an aggregate of 1,000,000 shares of common stock for the ESPP. At ~~March~~June 3130, 2010, 571,000 shares were reserved for future issuance under the ESPP.

11. Restructuring Charges

During the three months ended December 31, 2008, the Company reduced its workforce by approximately 4% and recorded a restructuring charge of $754 for one-time termination benefits to employees. The following is a rollforward of the restructuring accrual for the ~~six~~nine months ended ~~March~~June 3130, 2010:

Restructuring accrual balance at September 30, 2009	$	128
Cash payments and foreign exchange impact		(128	)
Restructuring accrual balance at March 31, 2010	$	0
Restructuring accrual balance at June 30, 2010	$	0

In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic reduction of its workforce designed to streamline its organization and improve its corporate operating performance. The Company reduced its workforce by approximately 13% and recorded a restructuring charge of $2,289 for one-time termination benefits to employees.

The following is a rollforward of the accrual related to the restructuring initiated in the fourth quarter of fiscal 2009:

Restructuring accrual balance at September 30, 2009	$	1,865
Adjustment to severance related costs		15
Cash payments and foreign exchange impact		(1,~~834~~838	)
Restructuring accrual balance at March 31, 2010	$	46
Restructuring accrual balance at June 30, 2010	$	42

1615

12. ~~Commitments,~~Derivative ~~Contingencies~~Financial ~~and Guarantees~~Instruments

Foreign Currency Forward Contracts

During the three months ended June 30, 2010, the Company entered into foreign currency forward contracts to limit net foreign currency transaction gains and losses primarily related to non-U.S. dollar denominated accounts receivable. As of June 30, 2010, the Company had the following outstanding foreign currency forward contracts:


	Notional Amount
	(in U.S. Dollars)
Euro (EUR)	$	1,045

The Company’s foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the value of transactions and balances denominated in foreign currency, resulting from changes in foreign currency exchange rates. The Company enters into derivative transactions, specifically foreign currency forward contracts, to manage its exposure to fluctuations in foreign exchange rates that arise primarily from its foreign currency-denominated receivables.

Generally, the Company does not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings. Because the Company enters into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables are included in other expense, net. There were no net gains and losses on forward contracts, including realized and unrealized gains and losses, included in other income (expense), net, for the three and nine months ended June 30, 2010.

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. The Company accrues the estimated costs of settlement or damages when a loss is deemed probable and such costs are estimable. 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~~condensed ~~financial~~consolidated financial statements.

Guarantees

The Company evaluates estimated losses for guarantees at the end of each reporting period. 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.

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company typically agrees to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with claims relating to infringement of a U.S. patent, or any copyright or other intellectual property. Subject to applicable statutes of limitation, the term of these indemnification agreements is generally perpetual from the time of execution of the agreement. In certain situations the Company has agreed to indemnify its customers for losses incurred in connection with a breach of contract. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company carries insurance that covers certain third party claims relating to its services and could limit the Company’s exposure.

1314. 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.

For the three months ended ~~March~~June 3130, 2010, the Company recorded a tax provision of $~~565~~411. The provision primarily ~~related~~relates to income tax expense on ~~income~~profitable operations in foreign tax jurisdictions, ~~and~~foreign anwithholding ~~uncertain~~taxes, ~~tax~~and ~~position recorded~~the ineffect ~~connection~~of ~~with~~uncertain antax ~~ongoing~~provisions ~~audit~~that inreversed during athe ~~foreign jurisdiction~~period.

17 For the nine months ended June 30, 2010, the Company recorded a tax provision of $158. The tax provision included income tax expense related to our profitable operations in foreign jurisdictions, foreign withholding taxes, and an uncertain tax position in connection with an ongoing audit in a foreign jurisdiction. The tax expense was largely offset by a $1.3 million decrease of valuation allowance previously recorded against net operating loss deferred assets. Tax law changes in the U.S. increased the carryback period for certain net operating losses from two to five years. Prior to this change in tax law, the Company had recorded a full valuation allowance against the related deferred tax assets. The benefit was recorded as a result of this legislative change.

~~Table~~15. ofSegment ~~Contents~~Information

For the six months ended March 31, 2010, the Company recorded a tax benefit of $253. The tax benefit primarily related to the reversal of $1,318 of valuation allowance, previously recorded against certain deferred tax assets, due to the carryback of the Company’s 2009 net operating loss to fiscal 2004 and 2005 pursuant to the Worker, Homeownership, and Business Act, which was effective on November 6, 2009. Prior to this change in tax law, which increased the carryback period for certain net operating losses from two to five years, the Company had recorded a full valuation allowance against the related deferred tax assets. The tax benefit was largely offset by income tax expense related to our profitable operations in foreign tax jurisdictions, foreign withholding taxes, and an uncertain tax position recorded in connection with an ongoing audit in a foreign jurisdiction.

14. Segment Information

Accounting pronouncements, related to reporting and disclosures of operating segments of a business, require selected information 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 presents 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,

Three Months Ended June 30,

Nine Months Ended June 30,

2010

2009

2010

2009

United States

2019,~~848~~050

1519,~~402~~165

3756,~~515~~565

3150,~~737~~901

All Other

811,~~102~~655

7,~~854~~695

1628,~~563~~218

1725,~~613~~309

Total

2830,~~950~~705

2326,~~256~~860

5484,~~078~~783

4976,~~350~~210

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

	March 31,		September 30,
	June 30,		September 30,
	2010		2009
North America	$	67,~~399~~186	$	4,833
International		~~1,006~~989		1,~~138~~137
Total	$	78,~~405~~175	$	5,~~971~~970

1516. Recent Accounting Pronouncements

In September 2009, the Emerging Issues Task Force of the Financial Accounting Standards Board (FASB) issued authoritative guidance on revenue arrangements with multiple deliverables. This guidance provides another alternative for establishing fair value for a deliverable. When vendor-specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price for separate deliverables and allocate arrangement consideration using the relative selling price method. This guidance is effective ~~for~~in fiscal ~~years beginning after June 15~~2011, ~~2010,~~ and early adoption is permitted. The Company is currently evaluating the impact of this guidance on its financial position and results of operations.

In September 2009, the FASB issued authoritative guidance on software-enabled products. Under this guidance, tangible products that have software components that are essential to the functionality of the tangible product will be excluded from the software revenue recognition guidance. The new guidance includes factors to help companies determine what is essential to the functionality. Software-enabled products will now be subject to other revenue guidance and will follow the above new guidance for multiple deliverable arrangements. This guidance is effective in fiscal 2011, and early adoption is permitted. The Company is currently evaluating the impact of ~~this~~ this guidance on its financial position and results of operations.


*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.

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. Focused exclusively on the needs of marketers, Unica’s software delivers key capabilities to track and analyze online and offline customer behavior, generate demand and manage marketing processes, resources and assets. Our software 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, our suite of products 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. Our primary sales offices outside of the United States are in France, ~~the~~Germany, United Kingdom, Singapore and Australia. In addition, we have a research and development office in India. We have a worldwide installed base of over 1,500 companies in a wide range of industries. Our current customers operate principally in the financial services, retail, telecommunications, and travel and hospitality industries.

Management evaluates our financial condition and operating results based on many factors, including license revenue, subscription revenue, maintenance revenue, services revenue, costs of revenue, operating expenses, income from operations, cash flow from operations, total cash and cash equivalents and total liabilities. Management reviews these factors on an ongoing basis and measures them quarterly. In previous filings we have disclosed that license revenue has decreased due to longer sales cycles, delayed decision making and lack of commitment to large capital expenditures by our customers due to the macro-economic environment. Perpetual license sales require customers to commit upfront capital expenditures, and as such, they have been the most adversely affected during the downturn of the macro-economic environment. While perpetual license revenue has grown significantly on a sequential basis over the last two quarters and compared to the corresponding quarters in the prior year, given that the macro-economic environment has not returned to pre-recessionary levels, we continue to expect our visibility into future license revenue to be somewhat limited.

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 product 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; and (c) a services work order for implementation, training, consulting and reimbursable expenses. Subscription revenue is derived from arrangements ~~for our~~ ~~on-demand offerings and term licenses. On-demand arrangements typically include: (a) a subscription fee for~~

for our on-demand offerings and term licenses. On-demand arrangements typically include: (a) a subscription fee for hosted services and technical support and (b) optional professional services for consulting, training and other services. Term license arrangements typically include: (a) a subscription fee for bundled software and support for a fixed period and (b) a services work order ~~for~~ 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 Unica NetInsight product, licenses are generally priced based on the volume of traffic of a website. We recognize perpetual license revenue at the time of product delivery, provided all other revenue recognition criteria have been met. 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 sell maintenance on perpetual licenses 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 sell implementation services and training on a time-and-materials basis and generally 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 using a proportional performance method. For services and subscription fees combined into a single unit of accounting, where both are recognized ratably over the expected economic life of an arrangement, we report the services portion of these revenues separately based on vendor-specific objective evidence, or VSOE, of fair value for those services. 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 as an on-demand offering or as a term license. The software in a term license arrangement is either installed on the end-user customer’s premises or it is hosted by an MSP. Under a subscription agreement, we typically invoice the customer in annual or quarterly installments in advance.

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.

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) expenses for services provided by subcontractors for professional services and related out-of-pocket expenses.

Cost of subscription revenue includes (a) an allocation of labor related and overhead costs associated with technical support, documentation and professional services personnel, (b) costs associated with hosting-related activities, and (c) amortization of internal-use software costs.

Operating Expenses

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 expense related to a perpetual license, subscription or maintenance arrangement is recorded during the fiscal quarter in which it is earned.

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. During the three months ended ~~March~~June 3130, 2010 and 2009, $~~225~~179,000 and $~~182~~151,000 respectively, of software development costs were capitalized. During the ~~six~~nine months ended ~~March~~June 3130, 2010 and 2009, $~~407~~587,000 and $~~467~~618,000, respectively, of software development costs were capitalized.

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 activities, (b) accounting, legal and other professional fees, and (c) facilities and other related overhead.

Restructuring Charges. In the first quarter of fiscal 2009, the Company reduced its workforce by approximately 4% and recorded a restructuring charge of $754,000 for one-time termination benefits to employees. The strategic reduction of workforce was designed to streamline the Company’s organization and improve its corporate operating performance. In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic reduction of its workforce designed to streamline its organization and improve its corporate operating performance. In connection with this plan, in the fourth quarter of fiscal 2009, the Company reduced its workforce by approximately 13% and recorded a restructuring charge of $2.3 million for one-time termination benefits to employees.

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 as well as the amortization of trade names.

Share-Based Compensation. We account for share-based compensation awards by estimating the fair value of such employee awards and recording the related expense in the consolidated financial statements. We selected the Black-Scholes option-pricing model as the most appropriate fair-value model for our awards and recognize compensation cost on a straight-line basis over the requisite service period 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.

Revenue Recognition

We sell our software products and services together in a multiple-element arrangement under perpetual and subscription agreements. We use the residual method to recognize revenues from perpetual license 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 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. Revenue is allocated 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 maintenance is sold 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 customer arrangement. A corresponding reduction in license revenue is made. The fair value of the professional services portion of perpetual license arrangements is based on the rates that are charged 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.

Revenue for implementation services of perpetual software products that are not deemed essential to the functionality of the software products is recognized separately from license and subscription revenue. Generally these services are priced on a time-and-materials basis and recognized as revenue when 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 a software license arrangement, services revenue is deferred and recognized over the period of performance of the final undelivered element. We also defer the direct and incremental costs of providing the services and amortize those costs over the period revenue is recognized.

If we were to determine that services are essential to the functionality of software in an arrangement, the license or subscription and services revenue from the arrangement would be recognized pursuant to the accounting for performance of construction-type contracts. In such cases, it is expected 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, 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 arrangements for term licenses 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. In subscription arrangements for term licenses, where services are not deemed essential to the functionality of the software products, and fair value has not been established for the subscription element, revenue for both the subscription and services is recognized ratably over the term of the arrangement, once all services have commenced.

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 collection is considered 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 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 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.

•

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 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 collectability 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

The fair value of each option to purchase common stock 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. Computation of expected forfeitures is based on historical forfeiture rates of the Company’s stock options.

For options and other share-based compensation awards, we recognize 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.

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 and 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, trade names and acquired licenses that are being amortized over their estimated useful lives of one to 15 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, 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. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn in customers’ industries, increased competition, a significant reduction in the Company’s stock price for a sustained period or a reduction of our market capitalization relative to net book value. We evaluate impairment by comparing the estimated fair value of each reporting unit to its carrying value. We estimate fair value using the income approach as well as the market approach. The income approach is based upon discounted cash flows estimated by management for each reporting unit, while the market approach uses trading and transaction multiples, for companies considered comparable to Unica, to estimate fair value. 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.

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 of computer software to be sold or leased in accordance with established accounting standards. 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. We amortize software development costs over their estimated useful lives of two years. During ~~both~~ the three and ~~six~~nine months ended ~~March~~June 3130, 2010, $504,000 and $54,000 of software development costs were capitalized. During the three and ~~six~~nine months ended ~~March~~June 3130, 2009, $4218,000 and $~~146~~164,000, respectively, of software development costs were capitalized.

We capitalize certain costs of 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. We amortize internal-use software development costs over their estimated useful lives of three years. During the three and ~~six~~nine months ended ~~March~~June 3130, 2010, we capitalized $175,000 and $~~357~~533,000, respectively, of internal-use software development costs. During the three and ~~six~~nine months ended ~~March~~June 3130, 2009, $~~140~~133,000 and $~~321~~454,000, respectively, 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. Significant changes to these estimates could have a material impact on our effective tax rate. 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. 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 all or 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.

The accounting standards for income taxes require that deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The valuation allowance must be sufficient to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period under the tax laws. Based on the weight of all of the available evidence, we have determined that it is more likely than not that all of our U.S. federal and state deferred tax assets will not be realized and as a result we provide a full valuation allowance against all of our U.S. federal and state deferred tax assets. As a result, we have not recorded any tax benefit for the estimated U.S. federal and state tax net operating losses or research and development tax credits generated during fiscal 2010.

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. We accrue the estimated costs of settlement or damages when a loss is deemed probable and such costs are estimable. 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, trade names 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.

Results of Operations

Comparison of Three Months Ended ~~March~~June 3130, 2010 and 2009

Revenue

	Three Months Ended March 31,
	Three Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Percentage of					Percentage of			Period -to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	7,~~693~~363		2724	%	$	4,~~205~~359		1816	%	$	3,~~488~~004			8369	%
Maintenance and services:
Maintenance fees		11,~~242~~398		3937			1011,~~832~~098		4741			~~410~~300			43
Services		34,~~436~~064		1213			35,~~796~~496		1621			(~~360~~1,432	)		(926	)
Total maintenance and services		1415,~~678~~462		5150			1416,~~628~~594		6362			50(1,132	)		—(7	)
Subscription revenue		67,~~579~~880		2226			45,~~423~~907		1922			21,~~156~~973			4933
Total	$	2830,~~950~~705		100	%	$	2326,~~256~~860		100	%	$	53,~~694~~845			2414	%

Total revenue for the three months ended ~~March~~June 3130, 2010 was $2930.07 million, an increase of 2414%, or $53.78 million, from the three months ended ~~March~~June 3130, 2009. Total revenue increased as a result of higher license sales relating to our product suite as well as an increase in subscription revenue relating to sales of our on-demand products, partially offset by a decrease in services revenue.

Total license revenue for the three months ended March 31, 2010 was $7.7 million, an increase of 83%, or $3.5 million, from the three months ended March 31, 2009. This increase in license revenue was primarily attributable to higher sales of our product suite. Given that the macro-economic environment has not returned to pre-recessionary levels, we continue to expect our visibility into future license revenue to be somewhat limited.

~~Maintenance~~Total ~~fees~~license revenue ~~is associated with maintenance agreements in connection with sales of perpetual licenses to our existing installed customer base and to new customers. Maintenance fees revenue~~ for the three months ended ~~March~~June 3130, 2010 was $117.24 million, an increase of 469%, or $~~410~~3.0 million,~~000~~ from the three months ended ~~March~~June 3130, 2009. This increase in license revenue was primarily attributable to higher sales of our product suite. Given that the macro-economic environment has not returned to pre-recessionary levels, we continue to expect our visibility into future license revenue to be somewhat limited.

~~Services~~Maintenance fees revenue ~~for~~is ~~the~~associated ~~three~~with ~~months~~maintenance ~~ended~~agreements ~~March 31,~~in ~~2010~~connection ~~was~~with ~~$3.4 million,~~sales ~~a decrease~~ of ~~9%,~~ orperpetual ~~$360,000,~~licenses ~~from~~to ~~the~~our ~~three~~existing ~~months~~installed ~~ended~~customer ~~March 31,~~base ~~2009.~~and ~~The~~to ~~decrease~~new incustomers. ~~services~~Maintenance fees revenue ~~was primarily~~for the ~~result~~three ofmonths aended ~~delay in the recognition of services revenue~~June 30, ~~for~~2010 ~~certain multiple-element~~was ~~arrangements~~$11.4 million, ~~until~~an ~~the~~increase ~~commencement~~ of ~~the final undelivered element~~3%, ~~when~~or ~~such~~$300,000 ~~services~~from ~~revenue will be recognized over~~ the ~~remaining~~three ~~period~~months ofended ~~performance~~June 30, 2009.

~~Total~~Services ~~subscription~~ revenue for the three months ended ~~March~~June 3130, 2010 was $64.60 million, ~~an increase~~a decrease of 4926%, or $21.24 million, from the three months ended ~~March~~June 3130, 2009. The ~~increase~~decrease in ~~subscription~~ services revenue was primarily ~~attributable~~related to ~~higher~~the ~~sales~~recognition of ~~our~~$1.0 million ~~on-demand~~of ~~products.~~previously Wedeferred revenue, during the ~~anticipate~~three ~~that~~months ~~subscription~~ended June 30, 2009, upon termination of an arrangement with a customer. The decrease in services revenue ~~will~~was ~~continue~~also due to ~~increase~~the delay in ~~future~~the ~~quarters~~recognition asof weservices ~~enter~~revenue, ~~into~~for certain ~~additional~~multiple-element ~~subscription~~arrangements, ~~agreements~~until ~~and~~the ~~expand~~commencement ~~our~~of ~~on-demand~~the ~~product~~final ~~offerings~~undelivered element, when such services revenue will be recognized over the remaining period of performance.

Total subscription revenue for the three months ended June 30, 2010 was $7.9 million, an increase of 33%, or $2.0 million, from the three months ended June 30, 2009. The increase in subscription revenue was primarily attributable to higher sales of our on-demand products, including the impact of the Pivotal Veracity and MakeMeTop acquisitions which were closed during the second quarter of fiscal 2010. Subscription revenue from term licenses remained relatively unchanged from that of the corresponding quarter of the prior year. During the three months ended June 30, 2009, we recognized $1.4 million of previously deferred subscription revenue, relating to a term license, upon termination of an arrangement with a customer. We anticipate that subscription revenue will continue to increase in future quarters as we enter into additional subscription agreements and expand our on-demand product offerings.

Recurring Revenue

	Three Months Ended March 31,
	Three Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Percentage of					Percentage of			Period -to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Recurring revenue:
Maintenance fees	$	11,~~242~~398		3937	%	$	1011,~~832~~098		4741	%		~~410~~300			43	%
Subscription revenue		67,~~579~~880		2226			45,~~423~~907		1922			21,~~156~~973			4933
Total recurring revenue		1719,~~821~~278		6163			1517,~~255~~005		6663			2,~~566~~273			1713
License revenue		7,~~693~~363		2724			4,~~205~~359		1816			3,~~488~~004			8369
Services		34,~~436~~064		1213			35,~~796~~496		1621			(~~360~~1,432	)		(126	)
Total	$	2830,~~950~~705		100	%	$	2326,~~256~~860		100	%	$	53,~~694~~845			2414	%

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~~June 3130, 2010 was $1719.83 million, an increase of 1713%, or $2.63 million, from the three months ended ~~March~~June 3130, 2009. The increase in recurring revenue resulted from additional subscription revenue related to sales of our on-demand products. ~~Recurring~~ Recurring revenue as a percentage of total revenue was 6263% for the three months ended ~~March~~June 3130, 2010 ~~as compared to 66% for the three months ended March 31, 2009, which is primarily the result of license revenue increasing at a higher rate than that of subscription~~ and ~~maintenance revenue~~2009.

Revenue by Geography

	Three Months Ended March 31,
	Three Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Percentage of					Percentage of			Period -to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
North America	$	2119,~~648~~944		7565	%	$	1620,~~414~~090		7175	%	$	~~5,234~~(146	)		32—	%
International		710,~~302~~761		2535			6,~~842~~770		2925			~~460~~3,991			759	%
Total revenue	$	2830,~~950~~705		100	%	$	2326,~~256~~860		100	%	$	53,~~694~~845			2414	%

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~~For ~~revenue~~purposes ~~for~~of ~~North~~this ~~America~~discussion, ~~for~~we ~~the~~designate ~~three~~revenue ~~months~~by ~~ended~~geographic ~~March 31,~~regions ~~2010~~based ~~was~~on ~~$21.6 million,~~the anlocations ~~increase~~ of ~~32%,~~our ~~or $5~~customers.~~2 million,~~ ~~from the three months ended March 31, 2009. The increase in total revenue for~~ North America ~~was~~is ~~primarily~~comprised ~~related~~of torevenue ~~increases~~from inthe ~~license~~United ~~and~~States ~~subscription~~and ~~revenue~~Canada. ~~Total revenue for~~ International ~~for~~is ~~the~~comprised ~~three~~of ~~months~~revenue ~~ended~~from ~~March 31,~~the ~~2010~~rest ~~was $7.3 million, an increase~~ of ~~7%,~~the orworld. ~~$460,000,~~Depending ~~from~~on the ~~three~~timing of ~~months~~new ~~ended~~customer ~~March 31~~contracts, ~~2009. The increase in total~~ revenue ~~for~~mix ~~International~~from ~~was~~geographic ~~primarily~~region ~~related~~can tovary ~~increases~~widely infrom ~~license~~period ~~and subscription~~to ~~revenue, partially offset by a decrease in services revenue~~period.

Total revenue for North America for the three months ended June 30, 2010 was $19.9 million, which was relatively unchanged from that of the three months ended June 30, 2009. Total revenue for International for the three months ended June 30, 2010 was $10.7 million, an increase of 59%, or $4.0 million, from the three months ended June 30, 2009. The increase in total revenue for International was primarily related to increases in license and subscription revenue, partially offset by a decrease in services revenue.

Cost of Revenue and Gross Margin

	Three Months Ended March 31,
	Three Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Gross Margin on					Gross Margin on			Period-to-Period Change
			Related					Related						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	~~592~~652		9291	%	$	~~505~~396		8891	%	$	87256			1765	%
Maintenance and services		45,~~818~~110		67			45,~~483~~383		6968			~~335~~(273	)		7(5	)
Subscription		2,~~260~~755		6665			1,~~037~~279		7778			1,~~223~~476			~~118~~115
Total cost of revenue	$	78,~~670~~517		7472	%	$	67,~~025~~058		74	%	$	1,~~645~~459			2721	%

Cost of license revenue for the three months ended ~~March~~June 3130, 2010 was $~~592~~652,000, an increase of 1765%, or $87256,000 from the three months ended ~~March~~June 3130, 2009. The increase in cost of license revenue was primarily due to ~~(a) a $65,000 increase in amortization of acquired intangible assets, and (b)~~ an increase of $84227,000 in royalties. Royalties paid for third-party licensed technology represented 3 5% of total license revenue for the three months ended ~~March~~June 3130, 2010. 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 be between 1% and 45% of total license revenue. Gross margin on license revenue was 9291% both in the three months ended ~~March~~June 3130, 2010 ~~compared to 88% in the three~~and ~~months ended March 31,~~ 2009.

Cost of maintenance and services for the three months ended ~~March~~June 3130, 2010 was $45.81 million, a andecrease ~~increase~~ of 75%, or $~~335~~273,000, from the three months ended ~~March~~June 3130, 2009. The ~~increase~~decrease in cost of maintenance and services revenue was primarily due to (a) a $~~258~~144,000 ~~increase~~decrease in subcontractor costs, and (b) a $72140,000 ~~increase~~decrease in stock-based compensation cost. Gross margin on maintenance and services revenue was 67% for the three months ended ~~March~~June 3130, 2010, down from 6968% for the three months ended ~~March~~June 3130, 2009. ~~The decrease in gross margin primarily related to the decrease in the mix of maintenance revenue compared to service revenue.~~ 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.

Cost of subscription revenue for the three months ended ~~March~~June 3130, 2010 was $2.37 million, an increase of ~~118~~115%, or $1.25 million from the three months ended ~~March~~June 3130, 2009. The increase in cost of subscription revenue was primarily due to (a) an increase in labor-related expenses of $~~753~~759,000, (b) an increase of $~~239~~271,000 in depreciation and amortization expense, and (c) an increase in subcontractor costs of $~~143~~321,000.

Operating Expenses


	Three Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Percentage of					Percentage of			Period -to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Sales and marketing	$	10,146		33	%	$	11,216		42	%	$	(1,070	)		(10	)%
Research and development		4,841		16			5,045		19			(204	)		(4	)
General and administrative		4,620		15			4,204		16			416			10
Amortization of acquired intangible assets		290		1			122		—			168			138

Total operating expenses	$	19,897		65	%	$	20,587		77	%	$	(689	)		(3	)

~~Operating~~ Sales ~~Expenses~~and Marketing. Sales and marketing expense for the three months ended June 30, 2010 was $10.1 million, a decrease of 10%, or $1.0 million, from the three months ended June 30, 2009. The decrease was primarily the result of (a) a decrease in labor-related expenses of $1.0 million, (b) a reduction in share based compensation expense of $189,000, offset by (c) an increase in expenses related to marketing programs of $490,000. We expect quarterly sales and marketing expense to remain relatively unchanged in absolute dollars for the remainder of fiscal 2010.

	Three Months Ended March 31,
	2010						2009
				(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total						Percentage
	Amount			Revenue			Amount			Revenue			Amount			Change
Sales and marketing	$	9,856			34	%	$	9,919			43	%	$	(63	)		(1	)%
Research and development		5,083			18			4,970			21			113			2
General and administrative		4,469			15			3,932			17			537			14
Restructuring charges		(15	)		—			(6	)		—			(9	)		(150	)
Goodwill impairment charge		—			—			15,266			66			(15,266	)		(100	)
Amortization of acquired intangible assets		258			1			450			2			(192	)		(43	)
Acquisition related fees		150			1			—			—			150			100
Total operating expenses	$	19,801			69	%	$	34,531			149	%	$	(14,730	)		(43	)

Research and Development. Research and development expense for the three months ended June 30, 2010 was $4.8 million, a decrease of 4%, or $204,000, from the three months ended June 30, 2009. The decrease in research and development expense was primarily the result of (a) a $135,000 decrease in professional service expenses and share-based compensation expense. Capitalized software development costs were $179,000 and $151,000 during the three months ended June 30, 2010 and 2009, respectively. We expect quarterly research and development expense to remain relatively unchanged in absolute dollars for the remainder of fiscal 2010.

~~Sales~~General and ~~Marketing~~Administrative. ~~Sales~~General and ~~marketing~~administrative expense for the three months ended ~~March 31~~June 30, 2010 was $94.96 million, aan ~~decrease~~increase of 110%, or $63423,000, from the three months ended ~~March~~June 3130, 2009. The ~~decrease~~ increase in general and administrative expense was primarily the result of (a) a ~~decrease~~$593,000 increase in ~~expenses~~ labor-related toexpenses, ~~marketing~~offset ~~programs~~by ~~of $348,000,~~ (b) a ~~reduction~~decrease ~~in share based compensation expense~~ of $~~279~~148,000, ~~offset by (c) an increase~~ in ~~labor-related~~professional ~~expenses of $511,000~~fees. We expect quarterly ~~sales~~general and ~~marketing~~administrative expense to ~~increase~~ ~~slightly~~remain relatively unchanged in absolute dollars for the remainder of fiscal 2010.

~~Research~~Restructuring ~~and Development~~Charges. ~~Research~~In ~~and development expense for~~ the ~~three~~first ~~months~~quarter ~~ended March 31, 2010 was $5.1 million, an increase~~ of ~~2%,~~fiscal ~~or $113~~2009,~~000,~~ ~~from~~ the ~~three~~Company ~~months~~reduced ~~ended~~its ~~March 31,~~workforce ~~2009.~~by ~~The~~approximately ~~increase~~4% ~~in research~~ and ~~development~~recorded ~~expense~~a ~~was~~restructuring ~~primarily~~charge ~~the result~~ of ~~(a) a~~ $~~331~~754,000 ~~increase~~ infor ~~professional~~one-time ~~service~~termination benefits ~~expenses,~~to ~~offset~~employees. byThe ~~(b) a~~strategic ~~$37,000~~reduction ~~decrease~~ of ~~stock-based compensation~~workforce ~~expense.~~was ~~Capitalized~~designed ~~software~~to ~~development~~streamline ~~costs were $225,000 and $182,000 during~~ the ~~three~~Company’s ~~months~~organization ~~ended~~and ~~March 31,~~improve ~~2010~~its ~~and~~corporate ~~2009, respectively~~performance. WeThe ~~expect~~restructuring ~~quarterly~~accrual ~~research~~at ~~and~~June 30, ~~development~~2010 ~~expense~~was ~~to remain relatively unchanged in absolute dollars for the remainder of fiscal 2010~~$0.

~~General~~In ~~and~~the ~~Administrative.~~fourth ~~General~~quarter ~~and~~of ~~administrative~~fiscal ~~expense~~2009, ~~for~~ the ~~three~~Company ~~months~~approved ~~ended March 31,~~a ~~2010~~plan ~~was~~to ~~$4.5 million,~~implement ana ~~increase~~strategic reduction of ~~14%,~~its orworkforce ~~$537,000~~designed ~~from~~to ~~the~~streamline ~~three~~its ~~months~~organization ~~ended~~and ~~March~~improve its corporate ~~31,~~operating ~~2009~~performance. The ~~increase~~Company inreduced ~~general~~its ~~and~~workforce ~~administrative~~by ~~expense~~approximately ~~was~~13% ~~primarily~~and ~~the~~recorded ~~result~~a restructuring charge of ~~(a) a~~ $~~610,000~~2.3 million ~~increase~~for ~~in labor~~one-~~related~~time ~~expenses~~termination ~~and~~benefits ~~(b) an~~to ~~increase~~employees. The remaining accrual of $6742,000 inat ~~professional~~June 30, ~~fees.~~2010 ~~We expect~~is ~~quarterly~~expected ~~general and administrative expense~~ to ~~remain~~be ~~relatively~~paid ~~unchanged~~during inthe ~~absolute dollars~~first ~~for~~six ~~the~~months ~~remainder~~ of fiscal ~~2010~~ 2011.

In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic reduction of its workforce designed to streamline its organization and improve its corporate operating performance. The Company reduced its workforce by approximately 13% and recorded a restructuring charge of $2.3 million for one-time termination benefits to employees. The remaining accrual of $46,000 at March 31, 2010 is expected to be paid during fiscal 2010.

The following is a rollforward of the accrual related to the restructuring initiated in the fourth quarter of fiscal 2009 (in thousands):

Restructuring accrual balance at December 31, 2009	$	254
Adjustment to severance related costs		(15	)
Cash payments and foreign exchange impact		(193	)
Restructuring accrual balance at March 31, 2010	$	46
Adjustment to severance related costs		—
Cash payments and foreign exchange impact		(4	)
Restructuring accrual balance at June 30, 2010	$	42

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $290,000 and $122,000 for the three months ended June 30, 2010 and 2009, respectively. The reduction primarily relates to certain acquired intangible assets becoming fully amortized by the end of fiscal 2009.

Other Income


	Three Months Ended June 30,
	2010						2009
				(Dollars in thousands)
				Percentage of					Percentage of			Period -to-Period Change
				Total					Total						Percentage
	Amount			Revenue			Amount		Revenue			Amount			Change
Interest income, net	$	34			—		$	103		—		$	(69	)		(67	)%
Other expense, net		(727	)		(2	)%		210		1	%		(937	)		(446	)

Other income (expense), net	$	(693	)		(2	)%	$	313		1	%	$	(1,006	)		(321	)%

Interest income, net was $34,000 for the three months ended June 30, 2010, a decrease of $69,000 from the three months ended June 30, 2009. Interest income is generated from the investment of our cash balances, less related

~~Amortization~~bank ~~of Acquired Intangible Assets~~fees. ~~Amortization~~The ofdecrease ~~acquired~~in ~~intangible~~interest ~~assets was $258~~income,~~000~~ ~~and~~net ~~$450,000~~principally ~~for~~reflected ~~the~~lower ~~three~~invested ~~months~~cash balances ~~ended March 31, 2010~~ and ~~2009,~~lower ~~respectively.~~interest ~~The reduction~~rates ~~primarily~~on ~~relates~~invested tocash ~~certain acquired intangible assets becoming fully amortized by the end of fiscal 2009~~balances.

Other Income

	Three Months Ended March 31,
	2010						2009
	(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total						Percentage
	Amount			Revenue			Amount			Revenue			Amount			Change
Interest income, net	$	80			—		$	160			1	%	$	(80	)		(50	)%
Other expense, net		(626	)		(2	)%		(483	)		(2	%)		(143	)		(30	)
Other income (expense), net	$	(546	)		(2	)%	$	(323	)		(1	%)	$	(223	)		(69	)%

Interest income, net was $80,000 for the three months ended March 31, 2010, a decrease of $80,000 from the three months ended March 31, 2009. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower invested cash balances and lower interest rates on invested cash balances.

Other income (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 rates as compared to the corresponding period in the prior year.

Provision for Income Taxes

Three Months Ended March 31,

Three Months Ended June 30,

2010

2009

~~(Dollars in thousands)~~

(Dollars in thousands)

Percentage of

Period-to-Period Change

Income Before

Loss Before

Percentage

Amount

Income Taxes

Amount

Income Taxes

Amount

Change

~~(Dollars in thousands)~~

(Dollars in thousands)

Provision for (benefit from) income taxes

~~565~~411

6026

(~~1,492~~180

)

838

~~2,057~~591

~~138~~328

The provision for income taxes was $~~565~~411,000, or an effective tax rate of 6026%. for the three months ended ~~March~~June 3130, 2010, a $~~2.1 million~~591,000 change from the three months ended ~~March~~June 3130, 2009. The ~~tax~~ tax provision primarily relates to income tax expense on profitable operations in foreign tax jurisdictions, foreign withholding taxes, and anthe effect of uncertain tax ~~position~~provisions ~~recorded~~that ~~in connection with~~reversed anduring ~~ongoing~~the ~~audit in a foreign jurisdiction~~period.

For the three months ended ~~March~~June 3130, 2010, our effective tax rate was different from the federal statutory rate primarily due to the mix of jurisdictional earnings, foreign withholding taxes and the effect of uncertain tax ~~position~~positions recorded in the period. For the three months ended ~~March~~ June 3130, 2009, our effective tax rate was different from the federal statutory rate primarily due to the mix of jurisdictional earnings, foreign withholding taxes, and adjustments to our valuation allowance.

Comparison of Nine Months Ended June 30, 2010 and 2009

Revenue


	Nine Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Percentage of					Percentage of			Period -to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	20,543		24	%	$	15,024		20	%	$	5,519			37	%
Maintenance and services:
Maintenance fees		33,949		40			33,511		44			438			1
Services		10,596		13			13,227		17			(2,631	)		(20	)

Total maintenance and services		44,545		53			46,738		61			(2,193	)		(5	)
Subscription revenue		19,695		23			14,448		19			5,247			36

Total	$	84,783		100	%	$	76,210		100	%	$	8,573			11	%

Total revenue for the nine months ended June 30, 2010 was $84.8 million, an increase of 11% or $8.6 million, from the nine months ended June 30, 2009. Total revenue increased as a result of higher license sales relating to our product suite as well as an increase in subscription revenue relating to sales of our on-demand products, partially offset by a decrease in services revenue.

Total license revenue for the nine months ended June 30, 2010 was $20.5 million, an increase of 37%, or $5.5 million, from the nine months ended June 30, 2009. This increase in license revenue was primarily attributable to higher sales of our product suite.

Maintenance fees revenue is associated with maintenance agreements in connection with sales of perpetual licenses to our existing installed customer base and to new customers. Maintenance fees revenue for the nine months ended June 30, 2010 was $33.9 million, an increase of 1%, or $438,000 from the nine months ended June 30, 2009.

~~Comparison~~ Services ofrevenue ~~Six~~for ~~Months~~the ~~Ended~~nine ~~March~~months ended June 3130, 2010 ~~and~~was $10.6 million, a decrease of 20%, or $2.6 million, from the nine months ended June 30, 2009. The decrease in services revenue was primarily related to the recognition of $1.0 million of previously deferred revenue, during the nine months ended June 30, 2009, upon termination of an arrangement with a customer. The decrease in services revenue was also due to the delay in the recognition of services revenue, for certain multiple-element arrangements, until the commencement of the final undelivered element, when such services revenue will be recognized over the remaining period of performance.

~~Revenue~~ Total subscription revenue for the nine months ended June 30, 2010 was $19.7 million, an increase of 36%, or $5.2 million, from the nine months ended June 30, 2009. The increase in subscription revenue was primarily attributable to higher sales of our on-demand products, including the impact of the Pivotal Veracity and MakeMeTop acquisitions, which closed during the second quarter of fiscal 2010. The increase in subscription revenue also included an increase in revenue from term licenses. During the three months ended June 30, 2009, we recognized $1.4 million of previously deferred subscription revenue, relating to a term license, upon termination of an arrangement with a customer. We anticipate that subscription revenue will continue to increase in future quarters as we enter into additional subscription agreements and expand our on-demand product offerings.

	Six Months Ended March 31,
	2010					2009
	(Dollars in thousands)
			Percentage of					Percentage of			Period -to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	13,180		24	%	$	10,665		22	%	$	2,515			24	%
Maintenance and services:
Maintenance fees		22,552		42			22,414		45			138			1
Services		6,531		12			7,570		15			(1,039	)		(14	)
Total maintenance and services		29,083		54			29,984		60			(901	)		(3	)
Subscription revenue		11,815		22			8,701		18			3,114			36
Total	$	54,078		100	%	$	49,350		100	%	$	4,728			10	%

Total revenue for the six months ended March 31, 2010 was $54 million, an increase of 10% or $4.7 million, from the six months ended March 31, 2009. Total revenue increased as a result of higher license sales relating to our product suite as well as an increase in subscription revenue relating to sales of our on-demand products, partially offset by a decrease in service revenue.

Total license revenue for the six months ended March 31, 2010 was $13.2 million, an increase of 24%, or $2.5 million, from the six months ended March 31, 2009. This increase in license revenue was primarily attributable to higher sales of our product suite.

Maintenance fees revenue is associated with maintenance agreements in connection with sales of perpetual licenses to our existing installed customer base and to new customers. Maintenance fees revenue for the six months ended March 31, 2010 was $22.6 million, an increase of 1%, or $138,000 from the six months ended March 31, 2009.

Services revenue for the six months ended March 31, 2010 was $6.5 million, a decrease of 14%, or $1 million, from the six months ended March 31, 2009. The decrease in services revenue was primarily the result of a delay in the recognition of services revenue, for certain multiple-element arrangements, until the commencement of the final undelivered element, when such services revenue will be recognized over the remaining period of performance.

Total subscription revenue for the six months ended March 31, 2010 was $11.8 million, an increase of 36%, or $3.1 million, from the six months ended March 31, 2009. The increase in subscription revenue was primarily attributable to higher sales of our on-demand products. We anticipate that subscription revenue will continue to increase in future quarters as we enter into additional subscription agreements and expand our on-demand product offerings.

Recurring Revenue

	Six Months Ended March 31,
	Nine Months Ended June 30,
	2010					2009
	~~(Dollars in thousands)~~		(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Recurring revenue:
Maintenance fees	$	2233,~~552~~949		4240	%	$	2233,~~414~~511		4544	%		~~138~~438			1	%
Subscription revenue		1119,~~815~~695		2223			814,~~701~~448		1819			35,~~114~~247			36
Total recurring revenue		3453,~~367~~644		6463			3147,~~115~~959		63			35,~~252~~685			1012
License revenue		1320,~~180~~543		24			1015,~~665~~024		2220			25,~~515~~519			2437
Services		610,~~531~~596		1213			713,~~570~~227		1517			(~~901~~2,631	)		(320	)
Total	$	5484,~~078~~783		100	%	$	4976,~~350~~210		100	%	$	48,~~728~~573			1011	%

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 ~~six~~nine months ended ~~March~~June 3130, 2010 was $3453.46 million, an increase of 1012%, or $35.37 million, from the ~~six~~nine months ended ~~March~~June 3130, 2009. The increase in recurring revenue resulted from additional subscription revenue related to sales of our on-demand products. ~~Recurring~~ Recurring revenue as a percentage of total revenue was 6463% for the ~~six~~nine months ended ~~March~~June 3130, 2010 as ~~compared~~and ~~to 63% for the six months ended March 31,~~ 2009.

Revenue by Geography

	Six Months Ended March 31,
	Nine Months Ended June 30,
	2010					2009
	~~(Dollars in thousands)~~		(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
North America	$	3958,~~089~~907		7269	%	$	3353,~~556~~654		6870	%	$	5,~~533~~253			1610	%
International		1425,~~989~~876		2831			1522,~~794~~556		3230			~~(805~~3,320	)		(515	)%
Total revenue	$	5484,~~078~~783		100	%	$	4976,~~350~~210		100	%	$	48,~~728~~573			1011	%

Total revenue for North America for the ~~six~~nine months ended ~~March~~June 3130, 2010 was $3958.19 million, an increase of 1610%, or $5.53 million, from the ~~six~~nine months ended ~~March~~June 3130, 2009. The increase in total revenue for North America was primarily related to increases in license and subscription revenue. Total revenue for International for the ~~six~~nine months ended ~~March 31, 2010 was $15 million, a decrease~~ of 5%, or $805,000, from the six months ended March 31, 2009. The decrease in total revenue for International was primarily related to decreases in license and services revenue, partially offset by an increase in subscription revenue.

June 30, 2010 was $25.9 million, an increase of 15%, or $3.3 million, from the nine months ended June 30, 2009. The increase in total revenue for International was primarily related to increases in license and subscription revenue, partially offset by a decrease in services revenue.

Cost of Revenue and Gross Margin

	Six Months Ended March 31,
	Nine Months Ended June 30,
	2010					2009
	~~(Dollars in thousands)~~		(Dollars in thousands)
			Gross Margin on					Gross Margin on			Period-to-Period Change
			Related					Related						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	1,~~114~~766		9291	%	$	1,~~141~~537		8990	%	$	~~(27~~229	)		(215	)%
Maintenance and services		914,~~088~~198		6968			915,~~704~~154		68			(~~616~~956	)		(6	)
Subscription		46,~~225~~980		6465			23,~~050~~262		7677			23,~~175~~718			~~106~~114
Total cost of revenue	$	1422,~~427~~944		73	%	$	1219,~~895~~953		74	%	$	12,~~532~~991			1215	%

Cost of license revenue for the ~~six~~nine months ended ~~March~~June 3130, 2010 was $1.18 million, aan ~~decrease~~increase of 315%, or $27229,000 from the ~~six~~nine months ended ~~March~~June 3130, ~~2010~~2009. The ~~decrease~~increase in cost of license ~~revenue~~ revenue was primarily due to a $42342,000 ~~decrease~~increase in royalties, offset by a decrease of $97,000 in labor-related costs. Royalties paid for third-party licensed technology represented 34% of total license revenue for the ~~six~~nine months ended ~~March~~June 3130, 2010. 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 be between 1% and 45% of total license revenue. Gross margin on license revenue was 92 91% in the ~~six~~nine months ended ~~March~~June 3130, 2010 compared to 89 90% in the ~~six~~nine months ended ~~March~~June 3130, 2009.

Cost of maintenance and services for the ~~six~~nine months ended ~~March~~June 3130, 2010 was $914.12 million, a decrease of 6%, or $~~616~~956,000 from the ~~six~~nine months ended ~~March~~June 3130, 2009. The decrease in cost of maintenance and services revenue was primarily due to (a) a $~~911~~742,000 decrease in labor-related costs, and (b) a $~~106~~208,000 decrease in subcontractor costs. The reduction in labor-related and subcontractor costs was primarily related to an increase in deferred implementation expenses associated with arrangements when services revenue was also deferred. Gross margin on maintenance and services revenue was 6968% for the ~~six~~nine months ended ~~March~~June 3130, 2010, upand ~~from 68% for the six months ended March 31,~~ 2009. ~~The increase in gross margin primarily related to the increase in the mix of maintenance revenue compared to service revenue.~~ 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.

Cost of subscription revenue for the ~~six~~nine months ended ~~March~~June 3130, ~~2009~~2010 was $47.20 million, an increase of ~~106~~114%, or $23.27 million from the ~~six~~nine months ended ~~March~~June 3130, 2009. The increase in cost of subscription revenue was primarily due to (a) an increase in labor-related expenses of $1.2.0 million, (b) an increase in subcontractor costs of $~~322~~643,000 and (c) an increase of $~~424~~696,000 in depreciation expense.

Operating Expenses


	Nine Months Ended June 30,
	2010					2009
			(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Sales and marketing	$	28,820		34	%	$	32,157		42	%	$	(3,337	)		(10	)%
Research and development		13,993		16			15,461		20			(1,468	)		(9	)
General and administrative		13,350		16			12,093		16			1,257			10
Restructuring charges		16		—			748		1			(732	)		(98	)
Goodwill impairment charge		—		—			15,266		20			(15,266	)		(100	)
Amortization of acquired intangible assets		671		1			1,057		1			(386	)		(37	)
Acquisition related fees		290		—			—		—			290			100

Total operating expenses	$	57,140		67	%	$	76,782		100	%	$	(19,642	)		(26	)

Sales and Marketing. Sales and marketing expense for the nine months ended June 30, 2010 was $28.8 million, a decrease of 10%, or $3.3 million, from the nine months ended June 30, 2009. The decrease was primarily the result

~~Operating~~of ~~Expenses~~(a) a $1.4 million decrease in labor-related expenses due to decreased headcount as a result of the fourth quarter 2009 restructuring, (b) a reduction in share based compensation expense of $675,000.

	Six Months Ended March 31,
	2010					2009
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Sales and marketing	$	18,674		35	%	$	20,941		42	%	$	(2,267	)		(11	)%
Research and development		9,152		17			10,416		21			(1,264	)		(12	)
General and administrative		8,723		16			7,889		16			834			11
Restructuring charges		16		—			748		2			(732	)		(98	)
Goodwill impairment charge		—		—			15,266		31			(15,266	)		(100	)
Amortization of acquired intangible assets		381		1			935		2			(554	)		(59	)
Acquisition related fees		297		1			—		—			297			100
Total operating expenses	$	37,243		70	%	$	56,195		114	%	$	(18,952	)		(34	)

Research and Development. Research and development expense for the nine months ended June 30, 2010 was $14.0 million, a decrease of 9%, or $1.5 million, from the nine months ended June 30, 2009. The decrease in research and development expense was primarily the result of (a) a $2.1 million decrease in labor-related expenses, principally due to decreased headcount as a result of the fourth quarter 2009 restructuring, (b) a $185,000 decrease of stock based compensation expense, offset by (c) a $123,000 increase in professional services expenses.

~~Sales~~Capitalized ~~and~~software ~~Marketing.~~development ~~Sales~~costs ~~and~~were ~~marketing expense for the six months ended March 31, 2010 was~~ $~~18.7 million~~587,000 aand ~~decrease of 11%, or~~ $~~2.3 million~~618,000 ~~from~~during the ~~six~~nine months ended ~~March 31, 2009. The~~ ~~decrease was primarily the result of (a)~~June ~~a $1.1 million decrease in labor-related expenses due to decreased headcount as a result of the fourth quarter 2009 restructuring~~30, ~~(b) a~~2010 ~~decrease in expenses related to marketing programs of $588,000~~ and ~~(c) a reduction in share based compensation expense of $486~~2009,~~000~~ respectively.

~~Research~~General and ~~Development~~Administrative. ~~Research~~General and ~~development~~administrative expense for the ~~six~~nine months ended ~~March 31,~~June 30, 2010 was $913.24 million, aan ~~decrease~~increase of 1210%, or $1.3 million, from the ~~six~~nine months ended ~~March~~June 3130, 2009. The ~~decrease~~increase in ~~research~~general and ~~development~~administrative expense was primarily the result of (a) a $1.65 million ~~decrease~~increase in labor-related expenses, ~~principally due to decreased headcount as a result of the fourth quarter 2009 restructuring, and~~ (b) a $~~113~~255,000 ~~decrease~~increase ofin ~~stock~~ share-based compensation, ~~expense.~~offset ~~Capitalized~~by ~~software~~(c) a ~~development~~decrease ~~costs~~of ~~were~~ $~~407~~184,000 ~~and~~in ~~$467,000~~professional ~~during the six months ended March 31, 2010 and 2009, respectively~~fees.

~~General~~Restructuring ~~and Administrative~~Charges. ~~General~~In ~~and~~the ~~administrative~~first ~~expense~~quarter ~~for~~of fiscal 2009, the ~~six~~Company ~~months~~reduced ~~ended~~its ~~March~~workforce ~~31,~~by ~~2010~~approximately ~~was~~4% ~~$8.7 million,~~and anrecorded ~~increase~~a ofrestructuring ~~11%,~~charge orof $~~834~~754,000 ~~from~~for ~~the~~one-time ~~six~~termination benefits ~~months~~to ~~ended March 31, 2009~~employees. The ~~increase~~strategic inreduction ~~general~~of ~~and~~workforce ~~administrative expense~~ was ~~primarily~~designed ~~the~~to ~~result~~streamline ~~of (a) a $735,000~~the ~~increase~~Company’s inorganization ~~labor-related~~and ~~expenses,~~improve ~~(b) an~~its ~~increase~~corporate ofoperating ~~$161,000~~performance. inThe ~~professional~~restructuring ~~fees,~~accrual at ~~and (c)~~June ~~a $105~~30,~~000~~ ~~increase~~2010 inwas ~~share-based compensation expense~~$0.

~~Restructuring Charges.~~ In the ~~first~~fourth quarter of fiscal 2009, the Company ~~reduced~~approved a plan to implement a strategic reduction of its workforce designed to streamline its organization and improve its corporate operating performance. The Company reduced its workforce by approximately 413% and recorded a restructuring charge of $~~754,000~~2.3 million for one-time termination benefits to employees. The ~~strategic~~remaining accrual ~~reduction~~ of ~~workforce~~$42,000 ~~was~~at ~~designed~~June 30, to2010 ~~streamline~~is ~~the Company’s~~expected ~~organization~~to ~~and~~be ~~improve~~paid ~~its~~during ~~corporate~~the ~~performance.~~first ~~The~~six ~~restructuring~~months ~~accrual~~of ~~at March~~fiscal ~~31, 2010 was $0~~2011.

In the fourth quarter of fiscal 2009, the Company approved a plan to implement a strategic reduction of its workforce designed to streamline its organization and improve its corporate operating performance. The Company reduced its workforce by approximately 13% and recorded a restructuring charge of $2.3 million for one-time termination benefits to employees. The remaining accrual of $46,000 at March 31, 2010 is expected to be paid during fiscal 2010.

The following is a rollforward of the accrual related to the restructuring initiated in the fourth quarter of fiscal 2009 (in thousands):

Restructuring accrual balance at September 30, 2009	$	1,865
Adjustment to severance related costs		15
Cash payments and foreign exchange impact		(1,~~834~~838	)
Restructuring accrual balance at March 31, 2010	$	46
Restructuring accrual balance at June 30, 2010	$	42

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $~~381~~671,000 and $~~935,000~~1.1 million for the ~~six~~nine months ended ~~March~~June 3130, 2010 and 2009, respectively. The reduction primarily relates to certain acquired intangible assets becoming fully amortized during fiscal 2009.

Other Income


	Nine Months Ended June 30,
	2010						2009
				(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total						Percentage
	Amount			Revenue			Amount			Revenue			Amount			Change
Interest income, net	$	201			—	%	$	503			1	%	$	(302	)		(60	)%
Other expense, net		(1,423	)		(1	)%		(1,390	)		(2	)		(33	)		2

Other income (expense), net	$	(1,222	)		(1	)%	$	(887	)		(1	)%	$	(335	)		38	%

Interest income, net was $201,000 for the nine months ended June 30, 2010, a $302,000 decrease from the nine months ended June 30, 2009. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower invested cash balances and lower interest rates on invested cash balances.

Other Income

	Six Months Ended March 31,
	2010						2009
	(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total						Percentage
	Amount			Revenue			Amount			Revenue			Amount			Change
Interest income, net	$	167			—	%	$	400			1	%	$	(233	)		(58	)%
Other expense, net		(696	)		(1)	%		(1,600	)		(3	)		904			57
Other income (expense), net	$	(529	)		(1	)%	$	(1,200	)		(2	)%	$	671			56	%

Interest income, net was $167,000 for the six months ended March 31, 2010, a $233,000 decrease from the six months ended March 31, 2009. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower invested cash balances and lower interest rates on invested cash balances.

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

Provision for Income Taxes

Six Months Ended March 31,

Nine Months Ended June 30,

2010

2009

~~(Dollars in thousands)~~

(Dollars in thousands)

Percentage of

Period-to-Period Change

Income Before

Loss Before

Percentage

Amount

Income Taxes

Amount

Income Taxes

Amount

Change

(Dollars in thousands)

~~(Dollars in thousands)~~

Provision for (benefit from) income taxes

~~(253~~158

)

135

(~~711~~891

)

~~458~~1,049

64118

The tax ~~benefit~~provision ~~from~~for income taxes was $~~253~~158,000, or an effective tax rate of ~~(13)~~5%, for the ~~six~~nine months ended ~~March~~June 3130, 2010, a $~~458,000~~1.0 million change from the ~~six~~nine months ended ~~March~~June 3130, 2009. The tax ~~benefit~~provision ~~primarily~~included income tax expense related to our profitable operations in foreign jurisdictions, foreign withholding taxes, and an uncertain tax provision recorded in connection with an ongoing audit in a foreign jurisdiction. The tax expense was largely offset by a $1.3 million decrease of valuation allowance previously recorded against net operating loss deferred ~~tax~~ assets. The Worker, Homeownership, and Business Act, which was effective on November 6, 2009, increased the carryback period for certain net operating losses from two to five years. The benefit was recorded as a result of this legislative change. The tax benefit was partially offset by income tax expense related to our profitable operations in foreign tax jurisdictions, foreign withholding taxes, and an uncertain tax position recorded in connection with an ongoing audit in a foreign jurisdiction.

For the ~~six~~nine months ended ~~March~~June 3130, 2010, our effective tax rate was different from the federal statutory rate primarily due to the tax benefit recorded in conjunction with the net operating loss carryback, the mix of jurisdictional earnings and the uncertain tax position recorded in the period. For the ~~six~~nine months ended ~~March~~June 3130, 2009, our effective tax rate was different from the federal statutory rate primarily due to the mix of jurisdictional earnings, foreign withholding taxes, and adjustments to our valuation allowance.

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~~June 3130, 2010, our primary sources of liquidity consisted of our total cash and cash equivalents balance of $3943.21 million. As of ~~March~~June 3130, 2010, we had no outstanding debt.

Our cash and cash equivalents at ~~March~~June 3130, 2010 were held for working capital purposes and ~~were~~ were invested primarily in ~~overnight investments and~~ money market funds. We do not enter into investments for trading or speculative purposes. Restricted cash of $~~466~~448,000 at ~~March~~June 3130, 2010 was held in certificates of deposit as collateral for letters of credit related to the lease agreement for our corporate headquarters in Waltham, Massachusetts, our sales office in France and for our payroll credit facility in Australia. 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 June 30, 2010, we were in compliance with this internal policy.

Net cash provided by operating activities was $16.0 million in the nine months ended June 30, 2010, compared to net cash provided by operating activities of $2.9 million in the nine months ended June 30, 2009. Net income (loss) adjusted for non-cash expenses (including depreciation, amortization of acquired intangible assets and capitalized software development costs, share-based compensation, foreign currency translation loss and deferred tax provisions) increased to income of $11.2 million in the nine months ended June 30, 2010 from an income of $1.5 million in the nine months ended June 30, 2009, an increase of $9.7 million. Increases in deferred revenue as well as in accrued expenses increased our cash during the nine months ended June 30, 2010. These increases in operating

~~instruments.~~cash ~~The~~flow, ~~policy~~in ~~establishes~~the ~~maturity~~nine ~~limits~~months ended June 30, ~~liquidity~~2010, ~~requirements~~were ~~and~~offset ~~concentration~~by reductions of cash ~~limits~~from changes in accounts receivable, accounts payable, prepaid expenses, other current assets, and other assets. AtThe ~~March~~change in accounts receivable for the nine months ended June 3130, 2010, wewas primarily ~~were~~related into ~~compliance~~the ~~with~~timing ~~this~~of ~~internal~~new ~~policy~~perpetual license transactions.

~~Net~~Investing ~~cash provided by operating~~ activities ~~was~~used $1123.14 million inand ~~the~~provided ~~six months ended March~~$12.0 ~~31, 2010,~~million ~~compared~~of ~~to net~~ cash ~~provided by operating activities of $318,000~~ in the ~~six~~nine months ~~ended~~ ~~March 31,~~ended ~~2009. Net income (loss)~~June ~~adjusted for non-cash expenses (including depreciation~~30, ~~amortization~~ of2010 ~~acquired intangible assets~~ and ~~capitalized software development costs~~2009, ~~share-based compensation, foreign currency translation loss and deferred tax provisions) increased to income of $7~~respectively.~~2 million~~ inIn the ~~six~~nine months ended ~~March~~June 3130, 2010 ~~from a loss of $663~~,~~000~~ ~~in the six months ended March 31, 2009, an increase of~~ $73.98 million. ~~Increases in deferred revenue as well as in accounts~~of ~~payable increased our~~ cash ~~during~~was ~~the~~used ~~six~~for ~~months~~purchases ~~ended~~of ~~March 31,~~property ~~2010.~~and ~~These increases in operating cash flow~~equipment, inwhich ~~the~~primarily ~~six~~related ~~months~~to ~~ended~~purchases ~~March 31, 2010, were offset by reductions~~ of ~~cash from changes~~ incomputer ~~accounts~~equipment ~~receivable, accrued expenses,~~ and ~~prepaid~~software ~~expenses~~to ~~and~~support ~~other~~increased ~~current~~investment ~~assets. The change~~ in ~~accounts~~our ~~receivable~~on-demand ~~for~~offerings. ~~the~~$19.2 million, ~~six~~net ~~months~~of ~~ended~~cash ~~March 31~~acquired, ~~2010~~ was ~~primarily~~used to ~~related~~pay tofor the ~~timing~~ acquisitions of ~~new~~Pivotal ~~perpetual~~Veracity ~~license~~and ~~transactions~~MakeMeTop.

Investing activities used $22.1 million and provided $9.1 million of cash in the six months ended March 31, 2010 and 2009, respectively. In the six months ended March 31, 2010, $2.5 million of cash was used for purchases of property and equipment, which primarily related to purchases of computer equipment and software to support increased investment in our on-demand offerings. $19.2 million, net of cash acquired, was used to pay for the acquisition of Pivotal Veracity and MakeMeTop.

On January 12, 2010, we acquired by merger Pivotal Veracity LLC for $17.8 million in cash. On February 1, 2010, we acquired the paid search bid management business, MakeMeTop, from Microchannel Ltd. for $1.8 million in cash. The acquisitions were accounted for as purchase transactions, and as such the results of operations of Pivotal Veracity LLC and MakeMeTop were consolidated with the Company beginning on January 12, 2010 and February 1, 2010, respectively.

Our financing activities provided cash of $~~133~~942,000 and consumed $~~787,000~~1.9 million in the ~~six months~~nine months ended ~~March~~June 3130, 2010 and ~~March 31,~~ 2009, respectively. InDuring the ~~six~~nine months ended ~~March~~June 3130, 2010 and 2009, $~~771~~822,000 and $~~230~~308,000, respectively, was used to pay withholding taxes related to restricted stock units, ~~and~~ $0 and $~~912~~1.9 million,~~000,~~ respectively, was used to purchase shares of common stock under the Company’s share repurchase program, and $1.8 million and $370,000, respectively, was received from the issuance of common stock related to option exercises, and our employee stock purchase plan.

Contractual Obligations and Requirements

Our significant lease obligations relate to our corporate headquarters in Waltham, Massachusetts as well as our facility in the United Kingdom. Our contractual commitments as of June ~~March 31~~30, 2010 are not materially different from the amounts disclosed as of September 30, 2009 in ~~our~~ our fiscal 2009 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 2009, the FASB’s Emerging Issues Task Force issued authoritative guidance on revenue arrangements with multiple deliverables. This guidance provides another alternative for establishing fair value for a deliverable. When vendor-specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price for separate deliverables and allocate arrangement consideration using the relative selling price method. This guidance is effective in fiscal 2011, and early adoption is permitted. We are currently evaluating the impact of this guidance on our financial position and results of operations.

In September 2009, the FASB issued authoritative guidance on software-enabled products. Under this guidance, tangible products that have software components that are essential to the functionality of the tangible product will be excluded from the software revenue recognition guidance. The new guidance will include factors to help companies determine what is essential to the functionality. Software-enabled products will now be subject to other revenue guidance and will follow the above new guidance for multiple deliverable arrangements. This guidance is effective

~~cannot be determined, companies will be required to develop a best estimate of the selling~~in ~~price~~fiscal ~~for~~2011 ~~separate deliverables~~ and ~~allocate arrangement consideration using the relative selling price method. This guidance is effective October 1, 2010, and~~ early adoption is permitted. We are currently evaluating the impact of this guidance on our financial position and results of operations.

In September 2009, the FASB issued authoritative guidance on software-enabled products. Under this guidance, tangible products that have software components that are essential to the functionality of the tangible product will be excluded from the software revenue recognition guidance. The new guidance will include factors to help companies determine what is essential to the functionality. Software-enabled products will now be subject to other revenue guidance and will follow the above new guidance for multiple deliverable arrangements. This guidance is effective in fiscal 2011 and early adoption is permitted. We are currently evaluating the impact of this guidance on our financial position and results of operations.


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 enter into derivative transactions, specifically foreign currency forward contracts, to manage our exposure to fluctuations in foreign exchange rates that arise primarily from our foreign currency-denominated receivables. ~~For~~At ~~the three and six months ended March~~June 3130, 2010, we ~~did~~had ~~not enter~~$1.0 million ~~into~~in ~~any~~foreign ~~derivative~~currency ~~transactions~~forward contracts outstanding. There are certain non-U.S. Dollar denominated receivables where we have not entered into a foreign currency forward contract to mitigate the foreign currency exposure, which may create foreign currency exchange risks for us. Revenue denominated in currencies other than the U.S. dollar represented 23% and 3633% of total revenue in the ~~three~~nine months ended ~~March~~June 3130, 2010 and 2009, respectively.

As of ~~March~~June 3130, ~~2009~~2010, we had $89.21 million of receivables denominated in currencies other than the U.S. dollar. If the foreign exchange rates fluctuated by 10% as of ~~March~~June 3130, 2010, the fair value of our receivables denominated in currencies other than the U.S. dollar would have fluctuated by $~~823~~910,000. 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 accumulated other comprehensive income in stockholders’ equity.

Interest Rate Risk

At ~~March~~June 3130, 2010, we had unrestricted cash and cash equivalents of $3943.21 million. These amounts were invested primarily in money market funds ~~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 change in interest rates at ~~March 31~~June 30, 2010 would not have any material exposure to changes in fair value of our portfolio at ~~March 31~~June 30, 2010.

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~~June 3130, 2010 and September 30, 2009.


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 effective as of March 31, 2010.

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 effective as of June 30, 2010.

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~~June 3130, 2010, 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 for the year ended September 30, 2009, which was filed with the Securities and Exchange Commission on December 10, 2009.


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

The Share Repurchase Program was announced on December 1, 2008 and allowed for the repurchase of up to $5 million of common stock through December 1, 2009. As of ~~March~~June 3130, 2010, there were 416,000 shares held as treasury stock.


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

None.


Item 5.		Other Information

None.


Item 6.		*Exhibits*

EXHIBIT INDEX


Exhibit
Number		Description
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


#		Filed herewith

*		Management contract or compensatory plan or arrangement

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 10, 2010	/s/ Yuchun Lee
Date: August 5, 2010	/s/ Yuchun Lee
	Yuchun Lee
	Chief Executive Officer, President and Chairman
Date: May 10, 2010	/s/ Kevin P. Shone
Date: August 5, 2010	/s/ Kevin P. Shone
	Kevin P. Shone
	Senior Vice President and Chief Financial Officer [Principal Financial and Accounting Officer]

Filing Compare · UNICA CORP