- Quarterly Report (10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2009


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

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

(781) 839-8000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

The number of shares of the registrant’s common stock outstanding as of May 4, 2009 was 20,724,000.

UNICA CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED March 31, 2009
Table of Contents


	Page
Part I — Financial Information		3
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets as of March 31, 2009 and September 30, 2008		3
Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2009 and 2008		4
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2009 and 2008		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		39
Item 4. Controls and Procedures		40
Part II — Other Information		42
Item 1. Legal Proceedings		42
Item 1A. Risk Factors		42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 4. Submission of Matters to a Vote of Security Holders		43
Item 5. Other Information		43
Item 6. Exhibits		43
Exhibits		44
Signatures		45
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 OF CEO AND CFO

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,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	43,617		$	35,799
Short-term investments		4,107			11,482
Accounts receivable, net of allowance for doubtful accounts of $193 and $87, respectively		19,235			21,339
Purchased customer receivables		28			765
Prepaid expenses and other current assets		3,533			5,351

Total current assets		70,520			74,736
Property and equipment, net		4,602			4,781
Long-term investments		—			2,989
Purchased customer receivables, long-term		—			173
Acquired intangible assets, net		5,295			6,846
Goodwill		10,682			26,182
Deferred tax assets, long-term, net of valuation allowance		186			168
Other assets		1,355			1,034

Total assets	$	92,640		$	116,909

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,051		$	3,536
Accrued expenses		11,459			14,527
Deferred revenue		36,075			35,369

Total current liabilities		49,585			53,432
Long-term deferred revenue		1,198			1,733
Other long-term liabilities		473			1,738

Total liabilities		51,256			56,903
Commitments, contingencies, and guarantees (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value:
Authorized - 90,000,000 shares; 21,002,000 shares issued and 20,800,000 shares outstanding at March 31, 2009; 20,758,000 shares issued and outstanding at September 30, 2008		210			208
Additional paid-in capital		69,497			66,841
Accumulated deficit		(27,663	)		(7,435	)
Treasury stock, at cost		(912	)		—
Accumulated other comprehensive income		252			392

Total stockholders’ equity		41,384			60,006

Total liabilities and stockholders’ equity	$	92,640		$	116,909

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,
	2009			2008			2009			2008
Revenue:
License	$	4,205		$	11,635		$	10,665		$	22,780
Maintenance and services		14,628			16,092			29,984			30,681
Subscription		4,423			3,060			8,701			5,790

Total revenue		23,256			30,787			49,350			59,251
Costs of revenue:
License		505			828			1,141			1,587
Maintenance and services		4,483			6,637			9,704			12,430
Subscription		1,037			652			2,050			1,305

Total cost of revenue		6,025			8,117			12,895			15,322

Gross profit		17,231			22,670			36,455			43,929
Operating expenses:
Sales and marketing		9,919			12,626			20,941			24,387
Research and development		4,970			5,864			10,416			11,811
General and administrative		3,932			4,583			7,889			9,577
Restructuring charges (credits)		(6	)		(20	)		748			(286	)
Goodwill impairment charge		15,266			—			15,266			—
Amortization of acquired intangible assets		450			394			935			787

Total operating expenses		34,531			23,447			56,195			46,276

Loss from operations		(17,300	)		(777	)		(19,740	)		(2,347	)
Other income:
Interest income, net		160			390			400			843
Other expense, net		(483	)		(208	)		(1,600	)		(80	)

Total other income		(323	)		182			(1,200	)		763

Loss before income taxes		(17,623	)		(595	)		(20,940	)		(1,584	)
Benefit from income taxes		(1,492	)		(318	)		(711	)		(883	)

Net loss	$	(16,131	)	$	(277	)	$	(20,229	)	$	(701	)

Net loss per common share:
Basic	$	(0.77	)	$	(0.01	)	$	(0.97	)	$	(0.03	)

Diluted	$	(0.77	)	$	(0.01	)	$	(0.97	)	$	(0.03	)

Shares used in computing net loss per common share:
Basic		20,841,000			20,399,000			20,886,000			20,265,000

Diluted		20,841,000			20,399,000			20,886,000			20,265,000

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,
	2009			2008
Cash flows from operating activities:
Net loss	$	(20,229	)	$	(701	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of property and equipment		1,385			986
Amortization of capitalized software development costs		86			34
Amortization of acquired intangible assets		1,474			1,453
Goodwill impairment charge		15,266			—
Share-based compensation expense		2,637			3,281
Foreign currency translation loss		153			—
Excess tax benefits from share-based compensation		—			(130	)
Benefit from deferred income taxes		(1,435	)		(434	)
Changes in operating assets and liabilities:
Accounts receivable		1,780			(954	)
Prepaid expenses and other current assets		2,456			(2,552	)
Other assets		(110	)		332
Accounts payable		(1,344	)		1,407
Accrued expenses		(2,253	)		(360	)
Deferred revenue		452			991
Other long-term liabilities		—			444

Net cash provided by operating activities		318			3,797
Cash flows from investing activities:
Purchases of property and equipment		(900	)		(1,474	)
Cash collected from license acquired in acquisition		77			81
Capitalization of software development costs		(425	)		—
Proceeds from sales and maturities of investments		11,310			28,666
Purchases of investments		(898	)		(16,173	)
Increase in restricted cash		(69	)		—

Net cash provided by investing activities		9,095			11,100
Cash flows from financing activities:
Proceeds from issuance of common stock under stock option and employee stock purchase plans		355			959
Excess tax benefits from share-based compensation		—			130
Purchases of treasury shares		(912	)		—
Payment of withholding taxes in connection with settlement of restricted stock units		(230	)		(708	)

Net cash provided by (used in) financing activities		(787	)		381
Effect of exchange rate changes on cash and cash equivalents		(808	)		157

Net increase in cash and cash equivalents		7,818			15,435
Cash and cash equivalents at beginning of period		35,799			18,493

Cash and cash equivalents at end of period	$	43,617		$	33,928

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

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

(In thousands, except share and per share data)

1. Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring items, to fairly present the results of the interim periods in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP), have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to ensure the information presented is not misleading. These condensed financial statements should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2008, 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.

2. Revenue Recognition

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

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

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

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

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

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

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

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

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

In accordance with Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 01-14, Income Statement Characterization of Reimbursements Received for ‘Out of Pocket’ Expenses Incurred , the Company classifies reimbursements received for out-of-pocket expenses incurred as services revenue and classifies the related costs as cost of revenue. The amounts of reimbursable expenses included within revenue and cost of revenue were $151 and $425 for the three months ended March 31, 2009 and 2008, respectively, and $366 and $830 for the six months ended March 31, 2009 and 2008, respectively.

Subscription Revenue. Subscription service includes, for a bundled fee, (a) the right to use our software for a specified period of time, typically one year, (b) updates and upgrades to our software, and (c) technical support. Under a subscription agreement, the Company typically invoices the customer in annual or quarterly installments in advance. Since fair value of the separate elements in the subscription arrangement cannot be established, revenue of the entire arrangement is recognized ratably over the contractual term of the arrangement, commencing on the date at which all services under related work orders are completed.

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. The Company accounts for its investments in accordance with

Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company’s investments were classified as available-for-sale and were carried at fair market value at March 31, 2009 and September 30, 2008. Unrealized gains (losses) on available-for-sale securities are recorded in accumulated other comprehensive income (loss) within stockholders’ equity.

Investments were as follows:


	Amortized		Unrealized			Fair Market
	Cost		Gain (Loss)			Value
At March 31, 2009:
Corporate debentures and other securities		4,094		13			4,107

Total investments	$	4,094	$	13		$	4,107

At September 30, 2008:
Commercial paper	$	5,662	$	—		$	5,662
Certificates of deposit		500		—			500
Corporate debentures and other securities		8,344		(35	)		8,309

Total investments	$	14,506	$	(35	)	$	14,471

As of March 31, 2009, all investments had contractual maturities within one year. As of September 30, 2008, $11,482 of investments had contractual maturities within one year, while $2,989 of investments had contractual maturities within one to two years.

Effective October 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements , which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 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. In February 2008, the FASB issued Staff Position FAS No. 157-2, Partial Deferral of the Effective Date of Statement No. 157 (“FSP No. 157-2”). FSP No. 157-2 delays the effective date of SFAS No. 157 for non-financial assets and liabilities that are not measured or disclosed on a recurring basis until fiscal years beginning after November 15, 2008. To date, therefore, the Company has adopted the provisions of SFAS No. 157 only with respect to financial assets and liabilities. The adoption of SFAS No. 157 did not have a material effect on the Company’s consolidated financial statements for financial assets and liabilities carried at fair value. The Company is currently in the process of evaluating the impact of adopting SFAS No. 157 for non-financial assets and liabilities.

Valuation techniques used to measure fair value under SFAS No. 157 are required to maximize the use of observable inputs and minimize the use of unobservable inputs. SFAS No. 157 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.

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 March 31, 2009:


			Fair Value Measurements
	Total Fair Value at		at Reporting Date Using
	March 31, 2009		Level 1		Level 2		Level 3
Money market funds	$	31,316	$	31,316	$	—	$	—
Commercial paper		2,000		—		2,000		—
U.S. government agency obligations		3,042		—		3,042		—
Corporate debt obligations		1,065		758		307		—

	$	37,423	$	32,074	$	5,349	$	—

4. Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive Income , establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from 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 Months Ended
	March 31,						March 31,
	2009			2008			2009			2008
Net loss	$	(16,131	)	$	(277	)	$	(20,229	)	$	(701	)
Other comprehensive income, net of tax effects:
Change in unrealized losses on short-term investments		(21	)		(1	)		48			—
Foreign currency translation adjustments		(134	)		165			(188	)		228

Other comprehensive income (loss)		(155	)		164			(140	)		228

Comprehensive loss	$	(16,286	)	$	(113	)	$	(20,369	)	$	(473	)

5. Net Income (Loss) Per Common Share

The Company calculates net income (loss) per common share in accordance with SFAS No. 128, Earnings Per Share. 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 months ended March 31, 2009 and 2008, the Company had only one class of security, common stock, outstanding.

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


	Three Months Ended March 31,						Six Months Ended March 31,
	2009			2008			2009			2008
Net loss	$	(16,131	)	$	(277	)	$	(20,229	)	$	(701	)
Weighted-average shares of common stock outstanding		20,841,000			20,399,000			20,886,000			20,265,000
Dilutive effect of common stock equivalents		—			—			—			—

Weighted-average shares used in computing diluted net loss per common share		20,841,000			20,399,000			20,886,000			20,265,000

Basic net loss per common share	$	(0.77	)	$	(0.01	)	$	(0.97	)	$	(0.03	)
Diluted net loss per common share	$	(0.77	)	$	(0.01	)	$	(0.97	)	$	(0.03	)

Weighted-average common stock equivalents of 4,481,000 and 3,427,000 were excluded from the calculation of diluted net loss per common share for the three months ended March 31, 2009 and 2008, respectively, as their inclusion would be anti-dilutive. Weighted-average common stock equivalents of 4,167,000 and 3,499,000 were excluded from the calculation of diluted net income loss per common share for the six months ended March 31, 2009 and 2008, respectively, as their inclusion would be anti-dilutive.

6. 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 in accordance with the provisions of SFAS No. 142. As of September 30, 2008, the Company’s annual goodwill impairment test indicated there was no impairment for each of its three reporting units since the fair value of each reporting unit exceeded its carrying 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.

During the three months ended March 31, 2009, the Company changed the structure of its reporting units, which resulted in the Company having two remaining reporting units. Two previously separate reporting units were combined into one reporting unit. Given the change in reporting units as well as the decline in the Company’s market capitalization and overall operating results, the Company performed an interim impairment assessment of its goodwill at March 31, 2009 related to the three reporting units previously existing before the structure change. As part of this assessment, the Company applied a weighting to the income approach and the market approach of 60% and 40%, respectively, for two of the reporting units and 90% and 10%, respectively, for the remaining reporting unit. The weightings were determined based upon the degree of comparability of companies and acquisitions in the marketplace. As a result of the goodwill impairment assessment, during the three and six months ended March 31, 2009, the Company recorded a $15,266 charge relating to the impairment of goodwill. Of the $15,266 goodwill impairment charge, $5,662 related to goodwill from the acquisition of MarketingCentral LLC and 9,604 related to goodwill from the acquisition of Sane Solutions LLC. The Company also performed a subsequent impairment assessment on the newly combined reporting unit after the change in structure, which did not indicate a further impairment. The Company determined that its other long-lived assets, including definite-lived intangible assets, were not impaired.

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


	Range of		Gross
	Useful Lives		Carrying		Accumulated			Net Book
	In Years		Value		Amortization			Value
As of March 31, 2009:
Developed technology		1-8	$	6,699	$	(4,474	)	$	2,225
Customer contracts and related customer relationships		3-14		7,556		(5,575	)		1,981
License agreement		14		1,360		(271	)		1,089
Trade name		1		44		(44	)		—

Total intangible assets			$	15,659	$	(10,364	)	$	5,295

As of September 30, 2008:
Developed technology		1-8	$	6,699	$	(3,935	)	$	2,764
Customer contracts and related customer relationships		3-14		7,556		(4,640	)		2,916
License agreement		14		1,360		(194	)		1,166
Trade name		1		44		(44	)		—

Total intangible assets			$	15,659	$	(8,813	)	$	6,846

The following table describes changes to goodwill during the six months ended March 31, 2009:


Balance at September 30, 2008	$	26,182
Write-off of goodwill due to impairment		(15,266	)
Foreign currency translation adjustments		(234	)

Balance at March 31, 2009	$	10,682

The Company recorded amortization expense for acquired intangible assets of $678 and $1,474 for the three and six months ended March 31, 2009, respectively, and $727 and $1,453 for the three and six months ended March 31, 2008, respectively. Amortization of developed technology, included as a component of cost of license revenue in the consolidated statements of operations, was $228 and $540 for the three and six months ended March 31, 2009, respectively, and $333 and $666 for the three and six months ended March 31, 2008, respectively.

Acquired intangible assets are expected to be amortized as follows:


Year ending September 30, 2009 (remainder)	$	779
2010		1,201
2011		692
2012		585
2013 and thereafter		2,038

Total expected amortization	$	5,295

7. Software Development Costs

The Company evaluates whether to capitalize or expense software development costs in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed . The Company sells products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, the Company has concluded that technological feasibility is not established until the development stage of the product is nearly complete. The Company has defined technological feasibility as the completion of a working model. During the three months ended March 31, 2009 and 2008, $42 and $14, respectively, of software development costs were capitalized in accordance with SFAS No. 86. During the six months ended March 31, 2009 and 2008, $146 and $14, respectively, of software development costs were capitalized in accordance with SFAS No. 86. Amortization expense during the three months ended March 31, 2009 and 2008 was $49 and $17, respectively. Amortization expense during the six months ended March 31, 2009 and 2008 was $86 and $34, respectively. The net book value of software development costs was $231 and $171 at March 31, 2009 and September 30, 2008, respectively.

The Company capitalizes certain costs of software developed or obtained for internal use in accordance with American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use . The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, will be capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training cost are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, 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 31, 2009 and 2008, $140 and $20, respectively, of internal-use software costs were capitalized. During the six months ended March 31, 2009 and 2008, $321 and $20, respectively, of internal-use software costs were capitalized.

8. Accounting for Share-Based Compensation

On October 1, 2005, the Company adopted the provisions of SFAS No.123 (revised 2004), Share-Based Payment (SFAS No.123R), which requires the Company to recognize expense related to the fair value of share-based compensation awards. Management elected to use the modified prospective transition method as permitted by SFAS No.123R and therefore did not restate the Company’s financial results for prior periods. Under this transition method, share-based compensation expense for the three and six months ended March 31, 2009 and 2008 includes compensation expense for all share-based awards granted or modified on or after November 18, 2004 (the filing date for the initial registration statement for the Company’s initial public offering), based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

For options accounted for under SFAS No.123R, the Company recognizes compensation expense for stock option awards on a straight-line basis over the requisite service period of the award. In addition, SFAS No.123R requires the benefits of tax deductions in excess of recognized share-based compensation to be reported as a financing activity rather than an operating activity in the statement of cash flows. This requirement reduces net operating cash flows and increases net financing cash flows in periods after adoption, and only to the extent the benefit is realizable in the current period.

For options accounted for under SFAS No. 123R, 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 values of option grants during the applicable period were as follows:


	Three Months ended					Six Months ended
	March 31,					March 31,
	2009			2008		2009		2008
Dividend yield		—			—		—		—
Volatility		58	%		50%		58%		50%
Risk-free interest rate		1.50	%		2.45%	1.11% to 1.53%		2.45% to 4.16%
Weighted-average expected option term (in years)		4.1			3.5 to 4.1		4.1		3.5 to 4.1
Weighted-average fair value per share of options granted		0.87			$2.65		1.39		$2.96
Weighted-average fair value per share of restricted stock awards granted	$	4.84			$6.46		$4.14		$7.50

The assumptions used in the model and the resulting estimated fair values for the Company’s employee stock purchase plan during the applicable period were as follows:


	Three Months Ended March 31,						Six Months Ended March 31,
	2009			2008			2009		2008
Dividend yield		—			—			—		—
Volatility		50	%		50	%		50%	41% to 50%
Risk-free interest rate		0.46	%		2.12	%		0.46%-2.00%	2.12% to 3.49%
Weighted-average expected option term (in years)		0.5			0.5			0.5		0.5
Weighted-average fair value per share of options granted		2.23			2.44			2.33		2.48

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, 2009 and 2008 was $4.84 and $6.46, respectively, and for the six months ended March 31, 2009 and 2008 was $4.43 and $7.12, respectively.

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


	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2008		2009		2008
Stock options under SFAS No. 123R	$	500	$	544	$	1,025	$	1,234
Stock options under APB 25		—		15		—		27
Restricted stock units		830		891		1,520		1,938
Employee stock purchase plan		11		62		92		82

Total share-based compensation	$	1,341	$	1,512	$	2,637	$	3,281

Cost of revenue and operating expenses include share-based compensation expense as follows for the three and six months ended
March 31, 2009 and 2008:


	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2008		2009		2008
Cost of license revenue	$	13	$	11	$	30	$	23
Cost of maintenance and services revenue		258		208		475		405
Sales and marketing expense		519		483		1,042		1,137
Research and development expense		240		343		474		677
General and administrative expense		311		467		616		1,039

Total share-based compensation	$	1,341	$	1,512	$	2,637	$	3,281

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, 2009, over a weighted-average period of 1.92 years, as follows:


Year Ending September 30,
2009 (remainder)	$	2,815
2010		4,460
2011		3,265
2012		1,786
2013		444

Total unamortized share-based compensation	$	12,770

9. Equity Compensation Plans

Stock Options

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

In March 2005, the Company’s Board of Directors and stockholders approved the amended and restated 2003 Stock Option Plan, or the 2003 Plan, which provides for the grant of incentive and non-qualified stock options for the purchase of up to 1,312,000 shares of the Company’s common stock.

In March 2005, the Board of Directors and stockholders also approved the 2005 Stock Incentive Plan, or the 2005 Plan. The Company has reserved for issuance an aggregate of 1,500,000 shares of common stock under the 2005 Plan, plus 367,000 shares that were previously available for grant under the 2003 Plan immediately prior to the closing of the Company’s initial public offering and the number of shares subject to awards granted under the 2003 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased by the Company at the original issuance price pursuant to a contractual repurchase right. On October 1, 2008, an additional 1,038,000 shares were reserved under the 2005 Plan, in accordance with the provisions of the Plan, which require an annual increase of the shares reserved for issuance under the Plan equal to the lesser of (a) 5,000,000 shares of common stock, (b) 5% of the outstanding shares of common stock as of the opening of business on such date or (c) an amount determined by the Board of Directors.

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

Pursuant to the Company’s tender offer to exchange outstanding stock options, during the three months ended March 31, 2009, the Company exchanged options to purchase 950,000 shares of common stock for new options to purchase 633,000 shares of common stock with an exercise price of $4.84 per share. Terms of the offer allowed eligible option holders to exchange outstanding options with an exercise price greater than or equal to $10.00 per share for new options with an exercise price equal to the fair market value of common stock on the date of the exchange, at a ratio of two new options for three outstanding eligible options exchanged. The exchange was considered a modification under SFAS No. 123(R), and the incremental fair value of the new awards of $457 will be recorded over the related vesting period of the new stock option. At the date of grant, the vesting periods of the new stock options are between two to three years. Such option exchange activity is included in options forfeited and granted data in the table below.

The following is a summary of the Company’s stock options outstanding and exercisable as of March 31, 2009 and the stock option activity for all stock option plans during the six months ended March 31, 2009.


						Weighted
				Weighted		Average
				Average		Remaining	Aggregate
				Exercise		Contractual	Intrinsic
	Shares			Price		Term	Value(1)
Outstanding at September 30, 2008		2,452,000		$	8.85
Granted		1,463,000			4.43
Exercised		(14,000	)		3.23
Forfeited		(1,094,000	)		11.40

Outstanding at March 31, 2009		2,807,000			5.58	5.05 yrs	$	1,478

Exercisable at March 31, 2009		1,085,000			6.61	4.12 yrs	$	895

Options at March 31, 2009 vested and expected to vest		2,492,000			5.68	4.97 yrs	$	1,353


(1)		The aggregate intrinsic value was calculated based on the positive difference between the closing price of the Company’s common stock on March 31, 2009, the last trading day of the period, of $4.83 per share, and the exercise price of the underlying options. The total intrinsic value of options exercised during the three and six months ended March 31 2009 was $10 and $24, respectively. The total intrinsic value of options exercised during the three and six months ended March 31, 2008 was $1,399 and $1,666, respectively.

Restricted Stock Units

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

The following is a summary of the status of the Company’s restricted stock units as of March 31, 2009 and the activity during the six months ended March 31, 2009.


				Weighted-
				Average
				Grant-Date
	Shares			Fair Value
Nonvested awards at September 30, 2008		998,000		$	10.97
Granted		821,000			4.14
Vested		(221,000	)		10.43
Forfeited		(107,000	)		9.70

Nonvested awards at March 31, 2009		1,491,000			8.93

The Company recorded $830 and $1,520 of share-based compensation expense related to RSUs for the three and six months ended March 31, 2009, respectively. As of March 31, 2009, there was unrecognized compensation cost related to RSUs totaling $10,771, net of estimated forfeitures, which will be recognized over a weighted-average period of 2.02 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. On January 31, 2008, the Board of Directors approved an amendment to the ESPP. 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 on 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 31, 2009, 705,000 shares were reserved for future issuance under the ESPP.

10. Accounting for Sabbatical Leave

On October 1, 2007, the Company adopted the consensus reached in Emerging Issues Task Force (“EITF”) Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Accounting for Compensated Absences (“EITF 06-2”). EITF 06-2 provides recognition guidance on the accrual of employees’ rights to compensated absences under a sabbatical or other similar benefit arrangement. Prior to the adoption of EITF 06-2, the Company recorded a liability for sabbatical leave upon an employee vesting in the benefit, which occurred when an employee went on leave after completing a six-year service period. The adoption of EITF 06-2 resulted in an additional liability of $435, additional deferred tax assets of $161 and a reduction to retained earnings of $274 as of October 1, 2007.

During the three months ended December 31, 2008, the Company amended its sabbatical program by discontinuing sabbatical leave for employees who were eligible to receive such benefit after fiscal 2010. As a result of this amendment, the Company recorded a benefit of $27 and $182 to operating expenses during the three and six months ended March 31, 2009.

11. Restructuring Charges

On October 14, 2008, the Company approved a plan to implement a strategic reduction of its workforce designed to streamline its organization and improve its corporate performance. 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 months ended March 31, 2009:


Restructuring accrual balance at September 30, 2008	$	—
Provision for severance related costs		748
Cash payments and foreign exchange impact		(571	)

Restructuring accrual balance at March 31, 2009	$	177

12. Commitments, Contingencies and Guarantees

Contingencies

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

Warranties and Indemnifications

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

Guarantees

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

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

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.

13. 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.

The Company has historically recorded a deferred tax liability for tax deductible goodwill that is not amortized for financial statement purposes, but is assessed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill may exceed its fair value. During the three months ended March 31, 2009, the Company recorded a $15,266 goodwill impairment charge, resulting in the recording of a deferred tax asset of $5,631 for future deductible temporary differences related to goodwill. Because of the uncertainty of realizing the future benefit of this deferred tax asset, the Company recorded a full valuation allowance against the deferred tax asset created by the goodwill impairment charge. Concurrently, the Company recorded a $1,264 tax benefit, which resulted from the full reversal of the existing deferred tax liability that was previously recorded for temporary differences related to the goodwill impaired. For the three and six months ended March 31, 2009, our effective tax rate was lower than the federal statutory rate primarily due to this $1,264 tax benefit and secondarily due to the mix of jurisdictional earnings, foreign withholding taxes and adjustments in the Company’s valuation allowance. For the three and six months ended March 31, 2008, our effective tax rate is differed from the federal statutory rate primarily due to the mix of jurisdictional earnings and the tax impact of accounting for share-based compensation pursuant to the provisions of SFAS No. 123R.

14. Segment Information

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

Geographic Data

The following table 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,
	2009		2008		2009		2008
United States	$	15,402	$	19,518	$	31,737	$	37,451
All Other		7,854		11,269		17,613		21,800

Total	$	23,256	$	30,787	$	49,350	$	59,251

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


	March 31,		September 30,
	2009		2008
North America	$	5,051	$	7,905
International		1,092		1,240

Total	$	6,143	$	9,145

15. Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations . This statement establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The impact of the standard on our financial position and results of operations will be dependent upon the number of and magnitude of the acquisitions that are consummated once the standard is effective.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of Useful Life of Intangible Assets,” or FSP 142-3. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 “Goodwill and Other Intangible Assets,” or SFAS 142. FSP 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), “Business Combinations,” or SFAS 141(R), and other U.S generally accepted accounting principles, or GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently evaluating the effect that the adoption of FSP 142-3 will have on its results of operations and financial condition.

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. Our comprehensive set of integrated software modules is offered under the “Affinium” name and “MarketingCentral” names. 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, Affinium delivers a marketing “system of record” — a dedicated solution through which marketers capture, record and easily manage marketing activity, information and assets, rapidly design campaigns, and report on performance.

We sell and market our software primarily through our direct sales force as well as through alliances with marketing service providers (MSPs), resellers, distributors and systems integrators. In addition to reselling and deploying our products, MSPs offer a range of marketing program design, database development support, and execution services on an on-demand or outsourced basis. We also provide a full range of services to our customers, including implementation, training, consulting, maintenance and technical support, and customer success programs. We have sales offices across the United States, including at our headquarters in Waltham, Massachusetts. Our primary sales offices outside of the United States are in France, the United Kingdom and Singapore. In addition, we have a research and development office in India. We have a worldwide installed base of over 800 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. As noted below in Results of Operations, our license revenue has decreased significantly over the last two fiscal quarters due to, we believe, longer sales cycles, delayed decision making and lack of commitment to large capital expenditures by our customers as a result of the macro-economic environment. Conversely, our subscription revenue has grown, with one of the contributing factors being the lower upfront operating expense needed for a subscription license as compared to the higher upfront perpetual license capital expenditure. We expect to have diminished visibility into future license revenue and expect subscription revenue to be an attractive licensing model to our customers during this difficult economic environment.

Sources of Revenue

We derive revenue from software licenses, maintenance, services and subscriptions. License revenue is derived from the sale of software licenses for our Affinium offerings under perpetual software arrangements that typically include: (a) an end-user license fee paid for the use of our products in perpetuity; (b) an annual maintenance

arrangement that provides for software updates and upgrades and technical support; and (c) a services work order for implementation, training, consulting and reimbursable expenses. Subscription revenue is derived from subscription arrangements for our Affinium offerings that typically include: (a) a subscription fee for bundled software and support for a certain period and (b) a services work order for implementation, training, consulting and reimbursable expenses.

License Revenue

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

Maintenance and Services Revenue

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

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

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

Subscription Revenue

We also market our software under subscription arrangements, typically when our software is hosted either by us, with respect to our Affinium NetInsight and MarketingCentral products, or an MSP with respect to our other products. We have also licensed our Affinium NetInsight product under a subscription arrangement in a non-hosted environment. Subscription revenue includes, for a bundled fee, (a) the right to use our software for a specified period of time, typically one year, (b) updates and upgrades to our software, and (c) technical support. Under a subscription agreement, we typically invoice the customer in annual or quarterly installments in advance. Where fair value of the subscription element in an arrangement cannot be established, revenue is recognized ratably over the contractual term of the arrangement commencing on the date at which all services under related work orders are completed.

Cost of Revenue

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

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

Cost of subscription revenue includes the allocation of specific costs including labor-related and overhead costs associated with technical support, documentation and professional services personnel, as well as hosting-related activities.

Operating Expenses

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

Research and Development. Research and development expense consists primarily of (a) salaries, other labor related costs and share-based compensation related to employees working on the development of new products, enhancement of existing products, quality assurance and testing and (b) facilities and other related overhead. During the three and six months ended March 31, 2009, $182,000 and $467,000 of software development costs were capitalized. During the three and six months ended March 31, 2008, $34,000 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 personnel, (b) accounting, legal and other professional fees, and (c) facilities and other related overhead.

Restructuring Charges (Credits) . Restructuring charges reflect the restructuring plan initiated in the first quarter of fiscal 2009 to implement a strategic reduction in our workforce. These costs include salaries, severance and legal fees. Restructuring credits represent a reversal of a portion of the restructuring accrual upon final settlement with an employee.

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

Share-Based Compensation. We account for share-based compensation in accordance with SFAS No. 123R Share-Based Payment, which requires measurement of all employee share-based compensation awards using a fair-value method and the recording of the related expense in the consolidated financial statements. Staff Accounting Bulletin (SAB) No. 107 and No. 110 provide supplemental guidance for SFAS No. 123R. 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 license and subscription agreements. We use the residual method to recognize revenues from arrangements that include one or more elements to be delivered at a future date, when evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements based on vendor-specific objective evidence (VSOE) is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements. Each license arrangement requires that we analyze the individual elements in the transaction and determine the fair value of each undelivered element, which typically includes maintenance and services. We allocate revenue to each undelivered element based on its fair value, with the fair value determined by the price charged when that element is sold separately.

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

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

We generally enter into subscription agreements that include, on a bundled basis, (a) the right to use our software for a specified period of time, (b) updates and upgrades to our software on a when and if available basis and (c) technical support. In subscription arrangements, 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 longer of the term of the arrangement or the expected customer relationship period, once the software becomes available to the end-user.

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

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

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

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

•

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

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

Allowance for Doubtful Accounts

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

Share-Based Compensation

We account for share-based compensation under the provisions of SFAS No. 123R, which requires us to recognize expense related to the fair value of share-based compensation awards. Pursuant to SFAS 123R, the fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model, which requires us to make assumptions as to volatility, risk-free interest rate, expected term of the awards, and expected forfeiture rate. The computation of expected volatility is based on a study of historical volatility rates of comparable companies during a period comparable to the expected option term. The estimated risk-free interest rate is based on the U.S. Treasury risk-free interest rate in effect at the time of grant. The computation of expected option term is based on an average of the vesting term and the maximum contractual life of the Company’s stock options, as described in SAB 107 and SAB 110. Computation of expected forfeitures is based on historical forfeiture rates of the Company’s stock options.

For options and other awards accounted for under SFAS No. 123R, the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. In addition, certain tax effects of share-based compensation are reported as a financing activity rather than an operating activity in the statement of cash flows.

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

We review the carrying value of goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying value of goodwill may exceed its fair value. 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 by computing our expected future discounted operating cash flows based on historical trends, which we adjust to reflect our best estimate of future market and operating conditions. Actual results may differ materially from these estimates. The estimates we make in determining the fair value of each reporting unit involve the application of judgment, including the amount and timing of future cash flows, short- and long-term growth rates, and the weighted average cost of capital, which could affect the timing and size of any future impairment charges. Impairment of our goodwill could significantly affect our operating results and financial position.

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

Software Development Costs

We evaluate whether to capitalize or expense software development costs in accordance with SFAS No. 86. We sell products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, we have concluded that technological feasibility is not established until the development stage of the product is nearly complete. We define technological feasibility as the completion of a working model. We amortize software development costs, capitalized in accordance with SFAS No. 86, over their estimated useful lives of two years. During the three and six months ended March 31, 2009 $42,000 and $146,000, respectively, of software development costs were capitalized in accordance with SFAS No. 86. During the three and six months ended March 31, 2008, $14,000 of software development costs was capitalized in accordance with SFAS No. 86.

We capitalize certain costs of software developed or obtained for internal use in accordance with SOP 98-1, Accounting for the Costs of Corporate Software Developed or Obtained for Internal Use . The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, will be capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. During the three and six months ended March 31, 2009, we capitalized $140,000 and $321,000, respectively, of internal-use software development costs. During the three and six months ended March 31, 2008, $20,000 of internal use software development costs were capitalized.

Income Taxes

We are subject to income taxes in both the United States and foreign jurisdictions, and we use estimates in determining our provision for income taxes. 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. At March 31, 2009, our deferred tax assets consist primarily of state research and development tax credit carryforwards, foreign tax credit carryforwards and temporary differences relating primarily to share-based compensation expense and acquired intangible assets. We assess the likelihood that deferred tax assets will be realized, and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction.

FASB Statement No. 109, (“SFAS No. 109”) Accounting for Income Taxes , requires 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. We analyzed the likelihood of the realization of our deferred tax assets during the quarter ending March 31, 2009. Based on the weight of all of the available evidence, particularly the negative evidence associated with the uncertainty of accurately predicting future results in the current economic environment, we continue to provide a full valuation allowance against all of our U.S. federal and state deferred tax assets and against all of the deferred tax assets of our subsidiary in France. As a result of the valuation allowance recorded at March 31, 2009, we have not recorded a tax benefit for the loss before tax during three and six months ended March 31, 2009.

Contingencies

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

Valuation of Business Combinations

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

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

Results of Operations

Comparison of Three Months Ended March 31, 2009 and 2008

Revenue


	Three Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	4,205		18	%	$	11,635		38	%	$	(7,430	)		(64	)%
Maintenance and services:
Maintenance fees		10,832		47			10,741		35			91			1
Services		3,796		16			5,351		17			(1,555	)		(29	)

Total maintenance and services		14,628		63			16,092		52			(1,464	)		(9	)
Subscription revenue		4,423		19			3,060		10			1,363			45

Total	$	23,256		100	%	$	30,787		100	%	$	(7,531	)		(24	)%

Total revenue for the three months ended March 31, 2009 was $23.3 million, a decrease of 24%, or $7.5 million from the three months ended March 31, 2008. Total revenue decreased as a result of lower license sales relating to our Affinium product suite, partially offset by an increase in subscription revenue primarily related to the increased sales through our MSP channel and increased sales of our on-demand products.

Total license revenue for the three months ended March 31, 2009 was $4.2 million, a decrease of 64%, or $7.4 million from the three months ended March 31, 2008. This decrease in license revenue was primarily attributable to lower sales of our Affinium products, primarily related to delays in our sales cycles and cautious buying behavior on the part of our customers. We believe that the overall global macroeconomic environment has caused customers to re-evaluate spending on purchases of information technology assets. While we continue to see demand for our

products, selling cycles have nonetheless been extended and license revenue has decreased compared to the corresponding period in the prior year. Until we experience a positive change in the overall global macroeconomic environment, we anticipate sales cycles will continue to be delayed and license revenue will be lower than that of the corresponding period of the prior year.

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 three months ended March 31, 2009 was $10.8 million, an increase of 1%, or $91,000 from the three months ended March 31, 2008.

Services revenue for the three months ended March 31, 2009 was $3.8 million, a decrease of 29%, or $1.6 million from the three months ended March 31, 2008. The decrease in services revenue was primarily the result of a decline in revenue related to implementations from new license sales.

Total subscription revenue for the three months ended March 31, 2009 was $4.4 million, an increase of 45%, or $1.4 million from the three months ended March 31, 2008. The increase in subscription revenue was primarily attributable to higher sales of our on-demand products and increased sales through our MSP channel. 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, and as our customers may prefer subscription-based licenses during the difficult economic environment.

Recurring Revenue


	Three Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Recurring revenue:
Maintenance fees	$	10,832		47	%	$	10,741		35	%		91			1	%
Subscription revenue		4,423		19			3,060		10			1,363			45

Total recurring revenue		15,255		66			13,801		45			1,454			11
License revenue		4,205		18			11,635		38			(7,430	)		(64	)
Services		3,796		16			5,351		17			(1,555	)		(29	)

Total	$	23,256		100	%	$	30,787		100	%	$	(7,531	)		(24	%)

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

Recurring revenue for the three months ended March 31, 2009 was $15.3 million, an increase of 11%, or $1.5 million from the three months ended March 31, 2008. The increase in recurring revenue resulted from additional subscription revenue related to sales through our MSP channel and sales of our on-demand products. Recurring revenue as a percentage of total revenue was 66% for the three months ended March 31, 2009 as compared to 45% for the three months ended March 31, 2008, which is primarily the result of a change in the mix of subscription versus license revenue.

Revenue by Geography


	Three Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
North America	$	16,414		71	%	$	19,518		63	%	$	(3,104	)		(16	%)
International		6,842		29			11,269		37			(4,427	)		(39	%)

Total revenue	$	23,256		100	%	$	30,787		100	%	$	(7,531	)		(24	%)

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

Total revenue for North America for the three months ended March 31, 2009 was $16.4 million, a decrease of 16%, or $3.1 million from the three months ended March 31, 2008. The decrease in total revenue for North America was primarily related to a decrease in license revenue. Total revenue for International for the three months ended March 31, 2009 was $6.8 million, a decrease of 39%, or $4.5 million from the three months ended March 31, 2008.

Cost of Revenue and Gross Margin


	Three Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Gross Margin on					Gross Margin on			Period-to-Period Change
			Related					Related						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	505		88	%	$	828		93	%	$	(323	)		(39	%)
Maintenance and services		4,483		69			6,637		59			(2,154	)		(32	)
Subscription		1,037		77			652		79			385			59

Total cost of revenue	$	6,025		74	%	$	8,117		74	%	$	(2,092	)		(26	%)

Cost of license revenue for the three months ended March 31, 2009 was $505,000, a decrease of 39% or $323,000 from the three months ended March 31, 2008. The decrease in cost of license revenue was primarily due to (a) a $211,000 decrease in labor-related costs and (b) a $44,000 decrease in royalties. Royalties paid for third-party licensed technology represented 3% of total license revenue for the three months ended March 31, 2009. 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 3% of total license revenue. Gross margin on license revenue was 88% in the three months ended March 31 2009 compared to 93% in the three months ended March 31, 2008. The decrease in gross margin is primarily the result of decreased sales volume.

Cost of maintenance and services for the three months ended March 31, 2009 was $4.5 million, a decrease of 32%, or $2.2 million from the three months ended March 31, 2008. The decrease in cost of maintenance and services revenue was primarily due to (a) a $1.5 million decrease in labor-related costs and other direct consulting costs and (b) a $706,000 decrease in subcontractor costs. The reduction in labor-related and subcontractor costs was primarily related to a decrease of implementation services in connection with new license sales. Gross margin on maintenance and services revenue was 69% for the three months ended March 31, 2009, up from 59% for the three months ended March 31, 2008. 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. Gross margin on maintenance and services revenue is expected to remain relatively unchanged for the remainder of fiscal 2009.

Cost of subscription revenue for the three months ended March 31, 2009 was $1.0 million, an increase of 59%, or $386,000, from the three months ended March 31, 2008. The increase in cost of subscription revenue was primarily due to an increase in labor-related expenses, as well as an increase in hosting-related activities.

Operating Expenses


	Three Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Sales and marketing	$	9,919		43	%	$	12,626		41	%	$	(2,707	)		(21	%)
Research and development		4,970		21			5,864		19			(894	)		(15	)
General and administrative		3,932		17			4,583		15			(651	)		(14	)


	Three Months Ended March 31,
	2009						2008
	(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total					Percentage
	Amount			Revenue			Amount			Revenue			Amount		Change
Restructuring charges (credits)		(6	)		—			(20	)		—			14		70
Amortization of acquired intangible assets		450			2			394			1			56		14
Goodwill impairment charge		15,266			66	%		—			—			15,266		100

Total operating expenses	$	34,531			148	%	$	23,447			76	%	$	11,084		47	%

Sales and Marketing. Sales and marketing expense for the three months ended March 31, 2009 was $9.9 million, a decrease of 21%, or $2.7 million from the three months ended March 31, 2008. The decrease was primarily the result of a $3.1 million decrease in labor-related expenses due to decreased headcount and decreased commission expense due to a reduction in revenue. We expect quarterly sales and marketing expense to increase slightly in absolute dollars for the remainder of fiscal 2009.

Research and Development. Research and development expense for the three months ended March 31, 2009 was $5.0 million, a decrease of 15%, or $894,000, from the three months ended March 31, 2008. The decrease in research and development expense was primarily the result of (a) a $669,000 decrease in labor-related expenses, principally due to decreased headcount, (b) a $103,000 decrease in share-based compensation expense and (c) a $90,000 decrease in professional services expenses. Capitalized software development costs were $182,000 and $34,000 during the three months ended March 31, 2009 and 2008, respectively. We expect quarterly research and development expense to remain relatively unchanged in absolute dollars for the remainder of fiscal 2009.

General and Administrative. General and administrative expense for the three months ended March 31, 2009 was $3.9 million, a decrease of 14%, or $651,000, from the three months ended March 31, 2008. The decrease in general and administrative expense was primarily the result of (a) a $323,000 decrease in labor-related expenses, principally due to decreased headcount, (b) a $260,000 decrease in professional services fees and (c) a $156,000 decrease in share-based compensation expense. We expect quarterly general and administrative expense to remain relatively unchanged in absolute dollars for the remainder of fiscal 2009.

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 performance. The restructuring accrual at March 31, 2009 was $177,000, and is expected to be paid by the end of fiscal 2010.

The following is a rollforward of the restructuring accrual for the three months ended March 31, 2009:


Restructuring accrual balance at December 31, 2008	$	439,000
Provision (credit) for severance related costs		(6,000	)
Cash payments and foreign exchange impact		(256,000	)

Restructuring accrual balance at March 31, 2009	$	177,000

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $450,000 and $394,000 for the three months ended March 31, 2009 and 2008, respectively.

Goodwill impairment. During the three months ended March 31, 2009, we changed the structure of our reporting units, which resulted in us having two remaining reporting units. Two previously separate reporting units were combined into one reporting unit. Given the change in reporting units as well as the decline in our market capitalization and overall operating results, we performed an interim impairment assessment of our goodwill at March 31, 2009 related to the reporting units previously existing before the structure change. As part of this assessment, we applied a weighting to the income approach and the market approach of 60% and 40%, respectively, for two of the reporting units and 90% and 10%, respectively, for the remaining reporting unit. The weightings were determined based upon the degree of comparability of companies and acquisitions in the marketplace. As a result of the goodwill impairment assessment, during the three months ended March 31, 2009, we recorded a $15.3 million charge relating to the impairment of goodwill. Of the $15.3 million goodwill impairment charge, $5.7 million related to goodwill from the acquisition of MarketingCentral LLC and 9.6 million related to

goodwill from the acquisition of Sane Solutions LLC. We also performed a subsequent impairment assessment on the newly combined reporting unit after the change in structure, which did not indicate a further impairment. We determined that our other long-lived assets, including definite-lived intangible assets, were not impaired.

Other Income


	Three Months Ended March 31,
	2009						2008
	(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total						Percentage
	Amount			Revenue			Amount			Revenue			Amount			Change
Interest income, net	$	160			1	%	$	390			1	%	$	(230	)		(59	)%
Other expense, net		(483	)		(2	%)		(208	)		(1	)		(275	)		(132	)

Other income (expense), net	$	(323	)		(1	%)	$	182			—		$	(505	)		(277	)%

Interest income, net was $160,000 for the three months ended March 31, 2009, a $230,000 decrease from the three months ended March 31, 2008. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower interest rates on invested cash balances.

Other income (expense), net consisted primarily of foreign currency translation and transaction gains and losses.

Provision for (Benefit from) Income Taxes

Three Months Ended March 31,

2009

2008

(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)

Provision for (benefit from) income taxes

(1,492

)

(318

)

1,174


*		Not meaningful

Benefit from income taxes was $1.5 million or an effective tax rate of 8% for the three months ended March 31, 2009, a $1.2 million change from the three months ended March 31, 2008. During the three months ended March 31, 2009, we recorded a $15.3 million goodwill impairment charge, resulting in the recording of a deferred tax asset for future deductible temporary differences. Because of the uncertainty of realizing the benefit in the future of this deferred tax asset, we recorded a full valuation allowance against the net deferred tax asset created by the goodwill impairment charge. Concurrently, we recorded a $1.3 million tax benefit, which resulted from the full reversal of the existing deferred tax liability we had previously recorded for temporary differences related to the goodwill impaired. For the three months ended March 31, 2009, our effective tax rate was lower than the federal statutory rate primarily due to this $1.3 million tax benefit and secondarily due to the mix of jurisdictional earnings, foreign withholding taxes and adjustments in the Company’s valuation allowance. For the three months ended March 31, 2008, our effective tax rate was different from the federal statutory rate primarily due to the mix of jurisdictional earnings and the tax impact of accounting for share-based compensation pursuant to the provisions of SFAS No. 123R.

Comparison of Six Months Ended March 31, 2009 and 2008

Revenue


	Six Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	10,665		22	%	$	22,780		38	%	$	(12,115	)		(53	)%
Maintenance and services:
Maintenance fees		22,414		45			21,370		36			1,044			5
Services		7,570		15			9,311		16			(1,741	)		(19	)

Total maintenance and services		29,984		60			30,681		52			(697	)		(2	)
Subscription revenue		8,701		18			5,790		10			2,911			50


Total revenue	$	49,350		100	%	$	59,251		100	%	$	(9,901	)		(17	)%

Total revenue for the six months ended March 31, 2009 was $49.4 million, a decrease of 17% or $9.9 million from the six months ended March 31, 2008. Total revenue decreased as a result of lower license sales relating to our Affinium product suite, partially offset by an increase in subscription revenue primarily related to the increased sales through our MSP channel and increased sales of our on-demand products.

Total license revenue for the six months ended March 31, 2009 was $10.7 million, a decrease of 53% or $12.1 million from the six months ended March 31, 2008. This decrease in license revenue was primarily attributable to lower sales of our Affinium products, primarily related to delays in our sales cycles and cautious buying behavior on the part of our customers. We believe that the overall global macroeconomic environment has caused customers to re-evaluate spending on purchases of information technology assets. While we continue to see demand for our products, selling cycles have nonetheless been extended and license revenue has decreased compared to the corresponding period in the prior year. Until we experience a positive change in the overall global macroeconomic environment, we anticipate sales cycles will continue to be delayed and license revenue will be lower than that of prior periods.

Maintenance fees revenue for the six months ended March 31, 2009 was $22.4 million, an increase of 5%, or $1.0 million from the six months ended March 31, 2008. The increase primarily reflects additional maintenance fees on the sale of new licenses in fiscal 2008.

Services revenue for the six months ended March 31, 2009 was $7.6 million, a decrease of 19%, or $1.7 million from the six months ended March 31, 2008. The decrease in services revenue was primarily the result of a decline in revenue related to implementations from new license sales.

Total subscription revenue for the six months ended March 31, 2009 was $8.7 million, an increase of 50%, or $2.9 million from the six months ended March 31, 2008. The increase in subscription revenue was primarily attributable to higher sales of our on-demand products and increased sales through our MSP channel.

Recurring Revenue


	Six Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Recurring revenue:
Maintenance fees	$	22,414		45	%	$	21,370		36	%		1,044			5	%
Subscription revenue		8,701		18			5,790		10			2,911			50

Total recurring revenue		31,115		63			27,160		46			3,955			15

License		10,665		22			22,780		38			(12,115	)		(53	)


	Six Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
Services		7,570		15			9,311		16			(1,741	)		(19	)


Total revenue	$	49,350		100	%	$	59,251		100	%	$	(9,901	)		(17	)%

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

Recurring revenue for the six months ended March 31, 2009 was $31.1 million, an increase of 15%, or $4.0 million from the six months ended March 31, 2008. The increase in recurring revenue resulted (a) an increase in maintenance fees on sales of new licenses in fiscal 2008 and (b) additional subscription revenue related to sales through our MSP channel and sales of our on-demand products. Recurring revenues as a percentage of total revenue was 63% for the six months ended March 31, 2009 as compared to 46% for the six months ended March 31, 2008, which is primarily the result of a change in the mix of subscription versus license revenue.

Revenue by Geography


	Six Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
North America	$	33,556		68	%	$	37,451		63	%	$	(3,895	)		(10	)%
International		15,794		32			21,800		37			(6,006	)		(28	)


Total revenue	$	49,350		100	%	$	59,251		100	%	$	(9,901	)		(17	)%

Total revenue for North America for the six months ended March 31, 2009 was $33.6 million, a decrease of 10%, or $3.9 million from the six months ended March 31, 2008. The decrease in total revenue for North America was primarily related to a decrease in license revenue. Total revenue for International for the six months ended March 31, 2009 was $15.8 million, a decrease of 28%, or $6.0 million from the three months ended March 31, 2008.

Cost of Revenue


	Six Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Gross					Gross
			Margin on					Margin on			Period-to-Period Change
			Related					Related						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
License	$	1,141		89	%	$	1,587		93	%	$	(446	)		(28	)%
Maintenance and services		9,704		68			12,430		59			(2,726	)		(22	)
Subscription		2,050		76			1,305		77			745			57


Total cost of revenue	$	12,895		74	%	$	15,322		74	%	$	(2,427	)		(16	)%

Cost of license revenue for the six months ended March 31, 2009 was $1.1 million, a decrease of 28% or $446,000 from the six months ended March 31, 2008. The decrease in cost of license revenue was primarily due to (a) a $370,000 decrease in labor-related costs and (b) a $25,000 decrease in royalties. Royalties paid for third-party licensed technology represented 3% of total license revenue for the six months ended March 31, 2009. Royalties related to license revenue may fluctuate based on the mix of products we sell. We expect royalties paid for third-party licensed technology to remain between 1% and 3% of total license revenue. Gross margin on license revenue was 89% in the six months ended March 31, 2009 and 93% in the six months ended March 31, 2008.

Cost of maintenance and services for the six months ended March 31, 2009 was $9.7 million, a decrease of 22% or $2.7 million from the six months ended March 31, 2008. The decrease in cost of maintenance and services revenue was primarily due to (a) a $2.4 million decrease in labor-related costs and other direct consulting costs and (b) a $516,000 decrease in subcontractor costs. The reduction in labor-related and subcontractor costs was primarily related to a decrease of implementation services in connection with new license sales. Gross margin on maintenance and services revenue was 68% in the six months ended March 31, 2009, down from 59% for the six months ended March 31, 2008. The reduction in gross margin is primarily related to the increase in the mix of services revenue compared to maintenance 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 months ended March 31, 2009 was $2.1 million, an increase of 57%, or $745,000 from the six months ended March 31, 2008. The increase in cost of subscription revenue was primarily due to an increase in labor-related expenses, as well as an increase in hosting-related activities.

Operating Expenses


	Six Months Ended March 31,
	2009					2008
	(Dollars in thousands)
			Percentage of						Percentage of			Period-to-Period Change
			Total						Total						Percentage
	Amount		Revenue			Amount			Revenue			Amount			Change
Sales and marketing	$	20,941		42	%	$	24,387			41	%	$	(3,446	)		(14	)%
Research and development		10,416		21			11,811			20			(1,395	)		(12	)
General and administrative		7,889		16			9,577			16			(1,688	)		(18	)
Restructuring charges (credits)		748		2			(286	)		—			1,034			362
Amortization of acquired intangible assets		935		2			787			1			148			19
Goodwill impairment charge		15,266		31			—			—			15,266			100


Total operating expenses	$	56,195		114	%	$	46,276			78	%	$	9,919			21	%

Sales and Marketing. Sales and marketing expense for the six months ended March 31, 2009 was $20.9 million, a decrease of 14%, or $3.4 million from the six months ended March 31, 2008. The decrease was primarily a result of (a) a $3.7 million decrease in labor related due to decreased headcount and decreased commission expense due to a reduction in revenue and (b) a $95,000 decrease in share-based compensation expense.

Research and Development. Research and development expense for the six months ended March 31, 2009 was $10.4 million, a decrease of 12%, or $1.4 million from the six months ended March 31, 2008. The decrease in research and development was primarily a result of (a) a $1.3 million decrease in labor-related expenses, principally due to decreased personnel reflecting a decreased investment and development of our Affinium product suite and (b) a $203,000 decrease in share-based compensation expense. Capitalized software development costs were $467,000 and $34,000 during the six months ended March 31, 2009 and 2008, respectively. We expect quarterly research and development expense to remain relatively unchanged in absolute dollars for the remainder of fiscal 2009.

General and Administrative. General and administrative expense for the six months ended March 31, 2009 was $7.9 million, a decrease of 18%, or $1.7 million from the six months ended March 31, 2008. The decrease in general and administrative expense was primarily a result of (a) a $264,000 decrease in labor-related expenses and (b) a $1.0 million decrease in professional services fees primarily related to fees that we incurred during the six months ended March 31, 2008 in connection with the filing of our 2007 Annual Report on Form 10K.


Restructuring accrual balance at September 30, 2008	$	—
Provision for severance related costs		748,000
Cash payments and foreign exchange impact		(571,000	)

Restructuring accrual balance at March 31, 2009	$	177,000

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $935,000 and $787,000 for the six months ended March 31, 2009 and 2008.

Goodwill impairment . During the six months ended March 31, 2009, we changed the structure of our reporting units, which resulted in us having two remaining reporting units. Two previously separate reporting units were combined into one reporting unit. Given the change in reporting units as well as the decline in our market capitalization and overall operating results, we performed an interim impairment assessment of our goodwill at March 31, 2009 related to the reporting units previously existing before the structure change. As part of this assessment, we applied a weighting to the income approach and the market approach of 60%

and 40%, respectively, for two of the reporting units and 90% and 10%, respectively, for the remaining reporting unit. The weightings were determined based upon the degree of comparability of companies and acquisitions in the marketplace. As a result of the goodwill impairment assessment, during the six months ended March 31, 2009, we recorded a $15.3 million charge relating to the impairment of goodwill. Of the $15.3 million goodwill impairment charge, $5.7 million related to goodwill from the acquisition of MarketingCentral LLC and 9.6 million related to goodwill from the acquisition of Sane Solutions LLC. We also performed a subsequent impairment assessment on the newly combined reporting unit after the change in structure, which did not indicate a further impairment. We determined that our other long-lived assets, including definite-lived intangible assets, were not impaired.

Other Income


	Six Months Ended March 31,
	2009						2008
	(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total						Percentage
	Amount			Revenue			Amount			Revenue			Amount			Change
Interest income, net		400			1			843			1			(443	)		(53	)%
Other income (expense), net		(1,600	)		(3	)		(80	)		—			(1,680	)		(2100	)

Other Income	$	(1,200	)		(2	)%	$	763			1	%	$	(1,963	)		(257	)%

Interest income, net was $400,000 for the six months ended March 31, 2009, a $443,000 decrease from the six months ended March 31, 2008. Interest income is generated from the investment of our cash balances, less related bank fees. The decrease in interest income, net principally reflected lower interest rates on invested cash balances.

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

Benefit from Income Taxes


	Six Months Ended March 31,
	2009						2008
							(As Restated)
	(Dollars in thousands)
				Percentage of						Percentage of			Period-to-Period Change
				Loss Before						Loss Before					Percentage
				Income Taxes						Income Taxes			Amount		Change
	Amount						Amount
Benefit from income taxes	$	(711	)		3	%	$	(883	)		56	%	$	172		19	%

Benefit from income taxes was $711,000 or an effective tax rate of 3%, for the six months ended March 31, 2009, a $172,000 change from the six months ended March 31, 2008. During the six months ended March 31, 2009, we recorded a $15.3 million goodwill impairment charge, resulting in the recording of a deferred tax asset for future deductible temporary differences. Because of the uncertainty of realizing the future benefit of this deferred tax asset, we recorded a full valuation allowance against the net deferred tax asset created by the goodwill impairment charge. Concurrently, we recorded a $1.3 million tax benefit, which resulted from the full reversal of the existing deferred tax liability we had previously recorded for temporary differences related to the goodwill impaired. Offsetting this tax benefit is a provision relating to profitable operations in foreign tax jurisdictions and foreign withholding taxes. For the six months ended March 31, 2009, our effective tax rate was lower than the federal statutory rate primarily due to this $1.3 million tax benefit and secondarily due to the mix of jurisdictional earnings, foreign withholding taxes and adjustments in the Company’s valuation allowance. For the six months ended March 31, 2008, our effective tax rate was different from the federal statutory rate primarily due to the mix of jurisdictional earnings and the tax impact of accounting for share-based compensation pursuant to the provisions of SFAS No. 123R.

Liquidity and Capital Resources

Historically, we have financed our operations and met our capital requirements primarily through funds generated from operations and sales of our capital stock. As of March 31, 2009, our primary sources of liquidity consisted of our total cash and cash equivalents balance of $43.6 million and a short-term investments balance of $4.1 million. As of March 31, 2009, we had no outstanding debt.

Our cash and cash equivalents at March 31, 2009 were held for working capital purposes and were invested primarily in overnight investments, money market funds and commercial paper with maturities of less than ninety days. Our investments at March 31, 2009 consisted primarily of commercial paper, corporate bonds and government agency securities. We do not enter into investments for trading or speculative purposes. Restricted cash of $331,000 at March 31, 2009 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 March 31, 2009, we were in compliance with this internal policy.

Net cash provided by operating activities was $ 318,000 in the six months ended March 31, 2009, compared to net cash provided by operating activities of $3.8 million in the six months ended March 31, 2008. Net income (loss) adjusted for non-cash expenses (including depreciation, amortization of acquired intangible assets and capitalized software development costs, share-based compensation, goodwill impairment, foreign currency translation loss and deferred tax benefits) decreased to loss of 663,000 in the six months ended March 31, 2009 from income of $4.5 million in the six months ended March 31, 2008, a decrease of $5.2 million. An increase in accounts receivable and prepaid expenses and other current assets and a decrease in accounts payable and accrued expense consume cash during the six months ended March 31, 2009. These decreases in operating cash flow, in the six months ended March 31, 2009, were offset by sources of cash from changes in other assets and deferred revenue.

Investing activities provided $9.1 million and $11.1 million of cash in the six months ended March 31, 2009 and 2008, respectively. In the six months ended March 31, 2009, $900,000 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. In the six months ended March 31, 2008, purchases of property and equipment consumed $1.5 million.

Our financing activities consumed cash of $787,000 in the six months ended March 31, 2009 and provided $381,000 of cash in the six months ended March 31, 2008. In the six months ended March 31, 2009 and 2008, $230,000 and $708,000, respectively, was used to pay withholding taxes related to restricted stock units, and $912,000 and $0, respectively, was used to purchase shares of common stock under the Company’s share repurchase program.

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. Upon expiration of current headquarters operating leases in 2010, we expect to renew the existing lease, or contract for new leased facilities, at prevailing rates. Our contractual commitments as of March 31, 2009 are not materially different from the amounts disclosed as of September 30, 2008 in our fiscal 2008 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 December 2007, the FASB issued SFAS 141(revised 2007), Business Combinations (SFAS 141R). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The Company has not yet determined the impact, if any, of SFAS 141R on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, “Determination of Useful Life of Intangible Assets,” or FSP 142-3. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 “Goodwill and Other Intangible Assets,” or SFAS 142. FSP 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, “Business Combinations,” or SFAS 141R, and other U.S generally accepted accounting principles, or GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. The Company is currently evaluating the effect that the adoption of FSP 142-3 will have on its results of operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Foreign Currency Exchange Risk

Our operating results and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and the British pound sterling. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. Some of our agreements with foreign customers involve payments denominated in currencies other than the U.S. dollar, which may create foreign currency exchange risks for us. Revenue denominated in currencies other than the U.S. dollar represented 36% and 32% of total revenue in the six months ended March 31, 2009 and 2008, respectively.

As of March 31, 2009, we had $5.5 million of receivables denominated in currencies other than the U.S. dollar. If the foreign exchange rates fluctuated by 10% as of March 31, 2009, the fair value of our receivables denominated in currencies other than the U.S. dollar would have fluctuated by $547,000. 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 (loss) in stockholders’ equity.

Interest Rate Risk

At March 31, 2009, we had unrestricted cash and cash equivalents of $43.7 million and short-term investments of $4.1 million. These amounts were invested primarily in money market funds, commercial paper and corporate bonds, and are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We considered the historical volatility of short-term interest rates and determined that, due to the size and

duration of our investment portfolio, 100-basis-point change in interest rates at March 31, 2009 would result in an increase or decrease of approximately $477,000 of annual investment income.

Credit Risk

Our exposure to credit risk consists principally of accounts receivable and purchased customer receivables. We maintain reserves for potential credit losses which, on a historical basis, have been limited due to our ongoing credit review procedures and the general creditworthiness of our customer base. No customers accounted for greater than 10% of our accounts receivable balance at March 31, 2009 and September 30, 2008.

Item 4. Controls and Procedures

Effectiveness of Disclosure Controls and Procedures

An evaluation was performed by our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our “disclosure controls and procedures,” which are defined under SEC rules as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports it files under the Securities Exchange Act of 1934, or the Exchange Act, is recorded, processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decision regarding required disclosure. As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer have determined that our disclosure controls and procedures were not effective as of March 31, 2009 because of the material weakness cited below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As of March 31, 2009, we did not maintain effective controls to ensure the completeness and accuracy of deferred maintenance and subscription revenue, including the determination and reporting of deferred maintenance and subscription revenue balances as well as the recognition of maintenance and subscription revenue. Specifically, we did not:

	•		Properly perform an effective analysis of the maintenance and subscription deferred revenue balances to ensure that such balances were properly stated given the contractual terms of our customer arrangements and the related period of performance;

	•		Have controls and procedures in place to ensure that the relevant terms of customer contracts were input completely and accurately into our accounting system, both when a customer contract was initially executed and when a customer contract was amended;

	•		Have processes in place to ensure that control procedures relating to deferred maintenance and subscription revenue were communicated to newly hired personnel responsible for performing such control procedures; and

	•		Have controls and procedures in place to ensure that revenue was recognized in the appropriate period for customers where revenue was only to be recognized when collection occurred.

Additionally, this control deficiency could result in a misstatement of the aforementioned accounts and disclosures that would result in a material misstatement of our interim or annual consolidated financial statements and disclosures that would not be prevented or detected. Accordingly, as of March 31, 2009, our management has determined that this control deficiency constitutes a material weakness.

Remediation Plans for Material Weakness Related to the Accounting for Deferred Maintenance and Subscription Revenue

The Company is implementing enhancements to its internal control over financial reporting to address the material weakness described above and to provide reasonable assurance that errors and control deficiencies of this type will not recur. These steps include:

	•		The Company has begun to enhance its quarterly review of deferred maintenance and subscription revenue to ensure that ending balances are properly stated and that revenue recognized for a reporting period is complete and accurate;

	•		The Company has begun to utilize functionality in its accounting software that provides more controls in how contractual terms of customer arrangements are entered and maintained, as well as how maintenance and subscription revenue is tracked and reported; and

	•		The Company has begun to enhance its review of deferred revenue balances relating to customers where revenue is recognized when collection has occurred.

The Company believes it is taking the steps necessary to remediate this material weakness. The Company will continue to monitor the effectiveness of these procedures and will continue to make any changes that management deems appropriate.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2009, 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, 2008, which was filed with the Securities and Exchange Commission on December 15, 2008.

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

We sold an aggregate of 4,470,000 shares of our common stock, $0.01 par value, in our initial public offering pursuant to a registration statement on Form S-1 (File No. 333-120615) that was declared effective by the SEC on August 3, 2005. Our aggregate net proceeds totaled $38.5 million, consisting of net proceeds of $31.8 million from our sale of 3,750,000 shares in the firm commitment initial public offering and $6.7 million from our sale of 720,000 shares upon the exercise of an over-allotment option granted to the underwriters in the offering. We have used a portion of the proceeds to fund a $1.0 million redemption payment to the holders of our Series B Preferred Stock as of August 3, 2005, the $7.3 million purchase of certain assets and assumed liabilities of MarketSoft in December 2005, and the $21.8 million purchase of Sane in March 2006. With the exception of these payments, none of our net proceeds from the initial public offering have been applied. Pending such application, we have invested the remaining net proceeds in cash, cash equivalents and short-term investments, in accordance with our investment policy, in commercial paper, money-market mutual funds and municipal bonds. None of the remaining net proceeds were paid, directly or indirectly, to directors, officers, persons owning ten percent of more of our equity securities, or any of our other affiliates.

ISSUER PURCHASES OF EQUITY SECURITIES


					Total Number
					of Shares		Maximum Dollar
					Purchased as		Value of Shares
	Total Number		Average		Part of Publically		that May Yet Be
	of Shares		Price Paid		Announced		Purchased Under the
Period	Purchased (1)		Per Share		Program		Program
December 18, 2008 - January 31, 2009		72,000		4.29		72,000		4,691,000

February 1, 2009 - February 28, 2009		48,000		4.62		48,000		4,469,000

March 1, 2009 - March 31, 2009		82,000		4.57		82,000		4,095,000


Total		202,000		4.48		202,000		4,095,000


(1)		The Share Repurchase Program was announced on December 1, 2008 and allows for the repurchase of up to $5 million of common stock through June 1, 2009.

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

We held our 2009 Annual Meeting of Stockholders on February 26, 2009. Our shareholders approved each of the following proposals by the votes specified below.

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



Nominee	For		Withheld
Yuchun Lee		19,355,648		67,155
Bruce R. Evans		19,311,351		111,452
Gary E. Haroian		19,367,933		54,870

Proposal No. 2 – To approve a one-time stock option exchange program under which eligible employees, including our executive officers (except Yuchun Lee, our chief executive officer and chairman), would be able to elect to exchange outstanding stock options under the 2005 Stock Incentive Plan, as amended, for new lower-priced stock options.



For	Against	Abstain

11,549,717	2,263,534	23,222

Proposal No. 3 — The ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accountants for the fiscal year ending September 30, 2009.



For	Against	Abstain

19,376,773	37,856	8,174

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.