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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended September 30, 2007


or
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 incorporation or organization)		(I.R.S. Employer Identification No.)

170 Tracer Lane

Waltham, Massachusetts 02451-1379

(Address of principal executive offices)

(781) 839-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 par value per share

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 31, 2007 was approximately $124,115,823, based on the last reported sale price of the common stock on The Nasdaq Global Market on March 31, 2007.

The number of shares of the registrant’s common stock outstanding as of December 7, 2007 was 20,210,975.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the registrant’s definitive Proxy Statement for the registrant’s 2008 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days of the registrant’s fiscal year ended September 30, 2007, are incorporated by reference into Part III of this Annual Report on Form 10-K. With the exceptions of the portions of the Proxy Statement expressly incorporated by reference herein, such document shall not be deemed filed with this Annual Report on Form 10-K.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by forward-looking words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “may,” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition, or state other “forward-looking” information. We believe that it is important to communicate our future expectation to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including those factors described in “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Readers should not place undue reliance on our forward-looking statements, and we assume no obligation and do not intend to update any forward-looking statements.

References to “the Company,” “registrant,” “we,” “us,” “our,” and similar pronouns refer to Unica Corporation and its consolidated subsidiaries.

PART I


Item 1.	*Business*

Overview

Unica Corporation was incorporated in Massachusetts in December 1992 and reincorporated in Delaware in June 2003. We are a leading provider of software and services used to automate marketing processes. Our comprehensive set of integrated software modules is offered under the “Affinium^®” name. Focused exclusively on the needs of marketers, Unica’s Affinium software streamlines the marketing process for direct, Internet and brand marketing — from analysis and planning, to budgeting, production management, execution and measurement. As one of the most comprehensive Enterprise Marketing Management (EMM) suites 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. Our Affinium solution is designed to benefit our customers by increasing their revenue and profitability, improving their visibility to marketing activity, and strengthening their marketing investment accountability.

Our software products can be licensed on a perpetual or subscription basis, and can be deployed either at the customer’s location (“on premise deployment model”) or managed as a remotely hosted solution by our Marketing Services Providers (MSPs) or, for certain products, by Unica (“On-demand” software as a service deployment model). Our software uses an open, scalable and flexible product architecture with built-in data access functionality, which facilitates rapid implementation and deployment in any deployment model.

Our worldwide, installed base consists of over 600 customers in a wide range of industries, including financial services, insurance, retail, telecommunications, and travel and hospitality. Our customers include the top ten retail banks in the U.S., fourteen of the twenty largest global diversified financial services providers, three of the top five U.S. telecommunications providers, four of the top five global automotive manufacturers, and seven of the top twenty U.S. retailers, as well as numerous large and medium-sized companies across other industries. We offer our software primarily through our direct sales force, as well as through alliances with MSPs, resellers, distributors and systems integrators. We also provide a full range of services to our customers, including implementation, training, consulting, maintenance and technical support, best practices, and customer success programs. In addition to reselling and deploying our products, MSPs and systems integrators also offer a range of marketing program design, support, and execution services on an on-demand or outsourced basis.

Available Information

Our website address is www.unica.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (SEC). Our reports filed with the SEC are also available at the SEC’s website at www.sec.gov. Our Code of Conduct, and any amendments to our Code of Conduct, are also available on our website. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.

Industry Background

U.S. spending on media communications is expected to reach $942 million in 2007 and grow at an annual compound rate of 6.7% through 2011, making it the third fastest growing sector of the U.S. economy. Despite the significant investments in media advertising, promotions, direct marketing activities, Internet advertising and other marketing services, most businesses have not fully automated their marketing functions or developed capabilities to measure and continually improve results. Other business functions, such as sales, manufacturing, logistics and finance, have implemented comprehensive software applications to automate workflow, business processes, information management and measurement. Marketing organizations, however, typically continue to rely on a combination of manual processes, internally developed software programs, and desktop office productivity software such as graphics packages, word processing and spreadsheets to conduct marketing activities limiting their ability to effectively manage, track and measure results or improve productivity.

Changing Market Dynamics

Powerful trends are reshaping businesses, driving the need for more robust software applications that can meet the changing needs of marketing organizations:

Increase in marketing complexity. The proliferation of media — particularly the rapid growth in Internet usage, the number of radio, cable and satellite television channels, text messaging, user-generated content, blogs and online gaming — has changed the concept of “mass media” and is requiring marketers to understand, use and measure a broader and more complex marketing mix to reach consumers. The buying process itself has also become cross-channel, as consumers increasingly research decisions on the Internet but then purchase in-store and vice-versa. Forrester Research, Inc. estimates that almost $400 billion of store sales — or 16% of total retail sales — are directly influenced by the Internet as consumers research products online and purchase them offline. This figure is expected to grow at a compound annual growth rate of 17% over the next five years, resulting in more than $1 trillion of store sales by 2012. We believe marketers must use technology to understand buyers’ cross-channel behavior and harness this trend.

At the same time, demographic changes are leading businesses to develop separate products and services to target distinct groups of consumers, rather than simply developing a single product or service to be marketed broadly to a large, but not necessarily homogeneous audience. Businesses now must implement more frequent and diversified marketing programs, often targeted to the individual consumer, with the ability for offers to be varied based on real-time data from the Internet, call center and other interactive channels.

Growth in consumer power. The balance of power in the marketplace has been shifting from businesses to consumers. Consumers today exercise unprecedented control over the marketing and buying process through the use of new technologies, such as Internet ad blockers, digital video recorders, email filters, RSS (Really Simple Syndication) feeds and consumer-generated online content and reviews. With today’s technology, consumers can quickly research pricing, read peer and expert reviews and take advantage of unlimited choices in product options, as well as determine how, when, and what marketing they receive. Moreover, recent privacy regulations, such as national and local “do not call” registries and anti-spam legislation, permit consumers to opt out of specific marketing channels and restrict businesses from using personal information for specified marketing purposes. This power-shift requires marketers to

be more adept at understanding individual consumer preferences and needs, and puts increasing pressure on marketers to adopt technology to automatically gather and analyze this data, and deliver marketing communications to meet customer expectations.

Proliferation of consumer data. Businesses have access to increasingly large quantities of consumer data that can be used to enhance the effectiveness of marketing operations. Information about consumer preferences, attributes and buying patterns is more readily available as a result of:


	•	the automation of sales force and call center operations using customer relationship management (CRM), applications and back-office operations using enterprise resource planning (ERP) systems;

	•	the increased use of the Internet and other media channels that enhance the two-way flow of information between businesses and consumers; and

	•	the improved availability of consumer data aggregated by credit agencies and other vendors.

Marketing organizations are now able to capture these growing volumes of consumer data because of significant technological advances, including improvements in computing power, network bandwidth and storage. Organizations that use this information to better understand and serve customers derive significant competitive advantage.

Marketing accountability. Business management trends such as Six Sigma and regulations such as the Sarbanes-Oxley Act of 2002 have increased focus on process, productivity and accountability across all facets of a business. Marketing departments, often wielding large discretionary budgets, have come under increasing pressure to track spending, processes and approvals, as well as to justify investments.

To respond to these fundamental trends, businesses must reorient their practices around customer attributes, preferences and behaviors. Marketing organizations must transform their organizations to better capture customer information, deliver more precise and relevant communications, and measure and justify the effectiveness of their marketing activities in generating revenue. Marketers cannot effectively meet these demands using manual processes, internally developed software programs and desktop productivity software. We believe they cannot continue to succeed without leveraging all of the consumer data at their disposal and integrating the customer experience across channels.

Enterprise Marketing Management

EMM solutions helps businesses manage the complexities and processes of marketing and achieve customer-relevancy, all while driving revenue growth, cost efficiencies, and accountability. With EMM solutions, marketers can manage the end-to-end process of marketing, from analysis to planning, creative production management, execution and measurement. EMM solutions contain unique capabilities to help marketers manage this process for all aspects of marketing including brand, direct and Internet marketing. EMM does this in three key ways:


	•	Analytics — enabling marketers to sift through massive quantities of customer data to better understand, anticipate and respond to customer behaviors and needs, with improved targeting and relevant marketing. Examples include identifying products or services customers are most likely to buy next, pinpointing customers who are likely to stop buying and discovering new market segments. In addition, analytics allow marketers to track and measure marketing program effectiveness for continuous improvement.

	•	Automation — enabling marketers to more rapidly respond to customer activities and trends, reduce time to market and encapsulate best practices for higher productivity. For example, with our EMM solutions, an organization can establish an automated routine for identifying incomplete Internet transactions and reaching out to customers via email with offers to entice them to complete the online purchase, application, or activation.

	•	Workflow and resource management — allowing marketers to consistently manage plans, projects, budgets, people, and assets. By providing a shared, common workspace for marketers in which


		marketers articulate objectives, plans, work steps and resources needed, teams ensure that activities are aligned, track project status and hand-offs, and document processes for auditing and improvement. Templates enable repeatable processes that save time, speed learning and provide consistency. Digital asset repositories ensure that marketers only use approved content and minimize duplication. Special capabilities for resource management enable marketers to better plan and manage the work of human resources — whether those are internal resources or outside contractors and agencies.

Combined, these capabilities create a “marketing system of record,” a dedicated solution through which marketers capture, record and manage marketing activity, information and assets, rapidly design campaigns, and report on performance. This system of record is critical to support process documentation, improvement and productivity and to enable marketers to manage the growing complexity of the marketplace.

In response to changing market dynamics and the availability of comprehensive marketing software suites, such as ours, marketing executives are increasingly acknowledging a need for EMM. According to Forrester Research, a significant, and growing, majority of marketers — 83% — agree that they need a more comprehensive and integrated application suite in order to increase their effectiveness.

Based on this growing need for EMM software, a sizable market opportunity has developed for providers that can offer a comprehensive EMM solution. Forrester forecasts that the worldwide market for enterprise marketing platforms, including software license and maintenance revenues, will grow from just more than $1.7 billion in 2007 to just under $5.5 billion in 2013. Forrester expects this market to grow at a healthy rate, just under 20% annually, until 2013.

Unica’s Enterprise Marketing Management Solution; The Affinium Suite

We believe our EMM suite, Affinium, is the most comprehensive solution available on the market today. With capabilities that are both broad and deep, Affinium meets the needs of marketers in mid-sized to large enterprises in nearly any industry, from business-to-consumer to business-to-business markets. Our Affinium suite provides capabilities to improve all facets of marketing including brand-oriented initiatives designed to increase market awareness and providing customers and prospects with the best offer in real-time as they shop on the web or through a call center agent. Affinium automates execution and workflow, and captures key data and information, across five core marketing processes, providing a closed-loop marketing cycle and delivering increased marketing effectiveness and measurability.

Analysis. Affinium offers predictive, customer and web analytics, as well as integrated capabilities for contact optimization. With these capabilities, marketers can analyze large volumes of consumer and business data to better understand customer behavior, preferences and attributes; predict future customer behaviors and then target marketing programs more precisely. Analytics answer key questions such as, “Who are my most valuable customers and how can I attract more?,” “Which content on my website is most effective at generating leads?,” “What is the best offer to show this customer while they are on my website?,” and “Which direct mail incentive is most effective?” Affinium provides this critical information for understanding customer buying behavior and preferences across all channels (web sites, stores, etc.) so that marketers can plan and execute marketing initiatives that generate higher response rates and engender customer loyalty. With consumers demanding increasing personalization in order to hear marketing messages, strong analytics are critical to marketing success. Our offerings also deliver extensive historical and predictive analysis capabilities to evaluate marketing results, and improve marketing strategies and tactics.

Planning. With the planning capability of Affinium, marketing organizations articulate their marketing plans and budgets in a shared repository that is accessible to the entire organization and used to drive all marketing activity. With Affinium, marketing teams can collaboratively plan strategies, budget projects, develop best practice templates, assign resources, and create automated and centralized calendars. This leads to tighter alignment between tactical projects, such as specific campaigns, and strategic objectives. Non-aligned and duplicate projects are immediately visible and can be rejected or adjusted to ensure marketing dollars are optimally invested. The web-based planning enables easy roll up of project plans against budgets and strategic objectives, providing visibility to executive management, and making it easier for marketing groups to stay within budget constraints.

Design and Production Management. Affinium helps manage the steps, workflow, resources and assets associated with approved plans and projects. Collaborative tools such as project-tracking templates, automated notifications and alerts on upcoming action items or project status, and automated approval routing and online mark-up of creative materials enable marketers to manage the marketing process with their teams, agency partners, legal departments, management, and others. Digital asset repositories keep track of asset status and ensure the use of the latest approved versions of materials, minimizing re-work and documenting process compliance. Vendor management creates a history of activity that allows diverse marketing teams to quickly find vendors for new projects.

Execution. Affinium is used to automate individual interactions with customers and prospects as well as manage Internet and mass communications. Using Affinium’s event-detection, cross-channel campaign management and lead management capabilities, marketers put customer insight into action with outbound, inbound (websites, call centers, ATMs, etc.) and event-based marketing. Based on analytics and rules established by the marketer, Affinium automates the process for determining what and how to market to each customer or prospective customer and delivers those communications across channels including email, direct mail, call centers, websites and other channels. Without this kind of technology it is impossible to deliver truly personalized communications to 10’s or 100’s of thousands and certainly not to millions of individual customers.

Closed-loop Measurement. Affinium automates processes for tracking responses and results of marketing initiatives, as well as analyzing and reporting those results. Because of its open architecture, Affinium is able to access customer responses and other results data from across an organization’s business systems and allow marketers to easily establish rules for linking results to the marketing initiatives that created them. Affinium provides built-in reporting, dashboards, and automated report distribution capabilities to foster visibility, accountability and improved decision-making about marketing investments. With its unique integration of web analytics, Affinium gives marketers the ability to look at results across channels, in the aggregate or at an individual customer level.

We believe the following key attributes differentiate our Affinium offerings:

Comprehensive “system of record” for the marketing organization. Our comprehensive set of integrated software modules provides broad functionality. Affinium is the only solution to offer web and customer analytics, event-based and real-time campaign management, optimization, lead management, and marketing resource management — to drive more precise, productive and measurable marketing across brand, Internet and relationship marketing activities. We also provide a full range of services to our customers, including implementation, training, consulting, maintenance and technical support, and customer success programs.

“Any-premise” deployment and leveraging of existing data sources. Our open, scalable and flexible product architecture and built-in data access functionality allow our Affinium offerings to be implemented and deployed quickly, enhancing a customer’s return on investment. By leveraging our Universal Data Interconnect (UDI) technology, our products work with a customer’s multiple pre-existing data sources and scale from small business-to-business scenarios, to implementations with hundreds of millions of customer records. In addition, our Affinium architecture and flexible deployment models allow customers to implement our software, either on-premise or on-demand. The software modules of the Affinium suite can be implemented all at once, individually or incrementally, providing organizations with flexibility to meet their needs and budgets.

Integrated web and customer analytics. Our Affinium offerings incorporate advanced analytics that track and integrate on and off-line customer behavior to facilitate customer segmentation, one-to-one communication optimization and predictive modeling. Our integrated offerings place extensive web, historical and predictive customer analytics capabilities in the hands of marketing professionals, rather than statisticians. Marketers can use Affinium to more easily share their analytical insights with their customer service and sales organizations, as well as throughout the rest of the enterprise. By being able to “self-serve” their analytic needs, marketers can get to market sooner and improve the effectiveness of their marketing campaigns.

In addition to the differentiation of our offerings, we believe we are differentiated from our competitors due to the following factors:

Exclusive focus on marketing organizations and EMM solutions. Our executive management, product development, sales, marketing and service teams focus exclusively on understanding the needs of marketers and providing marketing organizations with EMM solutions. We believe this focus provides a competitive advantage, as we have developed significant marketing domain expertise and have designed solutions specifically tailored for marketing organizations, covering the full marketing process from analysis to planning, execution and measurement across all of the channels marketers use to engage their customers. As a result, our Affinium offerings fit the varied and distributed nature of marketing organizations, allowing information and work to be shared among corporate groups, regional field marketers, external agencies and other service providers while improving accountability and measurability.

Market leadership recognition and customer endorsement. Unica is a recognized leader in marketing software solutions. We have been named the winner of CRM Magazine’s CRM Market Leader Awards for Marketing Automation for the last four consecutive years. In addition, Unica was named to the Visionaries Quadrant in Gartner’s Magic Quadrant for EMM, 2Q07. Unica has earned this reputation based on the strength of its software solution and as a result of its commitment to customer success. Historically, more than ninety percent of our customers renew their software maintenance on an annual basis.

Our Strategy

Unica’s mission is to “Power the Success of Every Marketing Organization.” Our objective is to be the leading global provider of EMM technology. To achieve this goal, we are pursuing the following strategies:

Maintain product leadership in the marketing domain. We intend to build upon our product and technology leadership by continuing to invest in research and development to expand our EMM offerings and increase the functionality of our current offerings. In spite of the growing awareness of and need for complete and integrated EMM solutions, the purchasing of marketing solutions remains fragmented within many large corporations, with the Internet marketing group acting independently from the direct marketing or marketing communications teams. Unica expects to maintain market leadership through our solutions designed to meet the needs of specific marketing challenges and teams, such as Internet marketing, while attempting to lead the market to the converged EMM solution that we believe is currently emerging. Thus, we intend to continue to deepen capabilities within our offerings, such as real-time marketing, while continuing to expand the breadth of our capabilities to meet the needs of more organizations.

Offer flexible deployment options. To meet the needs of the widest number of potential customers, we will continue to offer our solutions for on-premise and on-demand deployments, both through our partners and directly from Unica. We believe this strategy lets us address the entire market for EMM, from the largest enterprises to the smallest, and provides a competitive advantage by enabling our customers to continue to leverage our solutions even as their needs change.

Expand customer relationships. Our commitment to customer success and high annual renewal rates affords us an opportunity to continually deepen and expand our existing customer relationships. Expansion typically occurs in three ways: licensing additional capacity as our customers grow their marketing teams and as they expand automation throughout their organizations; the sale of new modules such as web analytics, lead management or real-time recommendation capabilities; and penetration into subsidiaries and business divisions within large enterprises. In addition, we believe our close relationships with our customers provide us with valuable insights into the challenges that are creating demand for additional EMM solutions and enable us to deliver products that better meet marketers’ needs.

Penetrate new markets and market segments. The market for EMM solutions is in its early stages. According to Gartner, Inc.’s “Hype Cycle for CRM Marketing Applications, 2007,” dated June 27, 2007,

only one to five percent of the target market has currently adopted EMM. We intend to continue to penetrate verticals in which we are already strong but for which there remains room for growth, reach into new industries and vertical markets and expand geographically through investments in direct sales and partners.

Leverage strategic alliances. We have developed strategic relationships with MSPs and systems integrators around the world in order to increase distribution of our products, supplement and extend our EMM offerings, and enhance market awareness of our company and offerings. We will continue to leverage our sales and service resources by expanding our relationships with our existing MSPs and systems integrators. We will selectively seek alliance opportunities with additional MSPs, systems integrators, and distributors particularly in countries outside the United States, to complement or expand our business by offering configuration and integration support, data management, and strategic marketing services. In addition, we will expand and introduce new alliance programs with other complementary service and solution providers, such as third-party providers of Internet marketing services, as part of our Internet Marketing and Marketing Resource Management Alliance programs.

Selectively pursue strategic acquisitions. To complement and accelerate our internal growth, we intend to pursue acquisitions of businesses, technologies and products that will complement our existing operations. For example, the acquisition of Marketic by Unica France in May 2003 has provided us with additional customers and a base of operations in Europe. Our acquisitions of MarketSoft Software Corporation and Sane Solutions in 2006 enabled us to introduce new capabilities for event-based marketing, lead management and web analytics, enhancing capabilities for our customers to track and analyze cross-channel customer behavior and deliver more targeted and precise communications to their consumers through nearly any channel, including sales and partner channels. Finally, our acquisition of MarketingCentral in July 2007 has provided us with a leading on-demand marketing resource management solution.

Products

Our software offerings provide marketing organizations with a comprehensive set of integrated modules that enable marketers to manage the end-to-end process of marketing, from analysis to planning, production management, execution and measurement. Through this functionality, our Affinium offerings can help businesses increase their revenues and improve the efficiency and measurability of their marketing operations.

Our software offerings are collectively referred to as Affinium and consist of six top-level modules: Campaign, Plan, Detect, Leads, NetInsight, Model, MarketingCentral and Insight. The modular design of our Affinium offerings provides our customers with flexibility to deploy all of our offerings at once or to implement our software products individually or incrementally. By deploying multiple Affinium modules, a business can, for example, coordinate and measure all of its direct marketing operations, act upon analytically generated insights, and prepare consolidated reports that facilitate the evaluation and dissemination of marketing program results. Moreover, we have designed our Affinium modules to be integrated with each other. In addition, through our open and flexible product architecture, we enable data integration with existing third-party enterprise applications as well as migration from previous EMM implementations. As a result, our software allows marketing objects, such as customer segment definitions, digital assets, offers, customer treatment strategies and other marketing content, to be created once and then shared throughout a business, thereby increasing productivity, re-use, and consistency across multiple channels, and creating the marketing system of record. The consistent user interface across all of the Affinium modules reduces training costs and speeds user adoption.

Affinium Campaign allows marketing organizations to easily create, test and execute customer interaction strategies across outbound and inbound touch points using a common graphical user interface. Marketers can quickly create powerful marketing campaign logic using graphical flowcharts. Reusable campaign templates can be adapted to deliver personalized acquisition, retention, cross-selling and other treatment strategies through outbound channels such as direct mail, email, telemarketing and the web. Marketers can use Affinium Campaign to test customer interaction strategies by iteratively changing customer selection criteria,

promotional offer materials or personalized digital marketing appearances, and then evaluate the effectiveness of each strategy before executing a program. We also offer several optional modules to extend Affinium Campaign’s capabilities, to include electronic messaging of personalized email and mobile text messages, real-time marketing analysis of recent interactions and historical patterns, optimization analysis and a centralized repository of marketing campaigns.

Affinium Plan provides marketing operations and resource management capabilities that help marketers define, coordinate, monitor, control and measure marketing program activities. Affinium Plan provides visibility into all marketing initiatives, thereby enabling businesses to improve their consistent use of best practices and execution, decision-making, management and overall productivity for those initiatives. We also offer three optional modules within Affinium Plan that provide the ability to centrally store marketing plans, track and analyze results of marketing plans, create, review, approve and store digital files and manage marketing budgets and expenses.

Affinium Detect uses patented event-detection technology to efficiently monitor high volumes of transactional data to identify significant changes in behavior over time that signal a need to interact with a customer for sales or service opportunities. Affinium Detect is able to identify changes specific to each customer such as unusually high deposits in a bank account, significant decreases in purchases at a retailer, or changes in calling patterns that might indicate customer attrition for a mobile phone operator. Customers can develop their own rules or use the over 150 pre-packaged events and alerts offered with the software. Once detected, other modules within the Affinium Suite, such as Affinium Campaign or Affinium Leads can act on the events and marketing opportunities identified by Affinium Detect.

Affinium Leads enables marketers to better manage the qualification, enrichment, distribution and maturation of leads between marketing activities and multiple sales channels such as telesales, channel partners, and field sales for higher closure rates and greater revenue. Affinium Leads helps automate the analysis, prioritization and distribution of leads based on easily defined business rules that can incorporate sophisticated analytics, regional overlays, product group hierarchies and channel partners. These leads can be managed within Affinium’s own interface or routed to existing contact management software or sales force automation systems. In addition, the application provides the capability to report on lead status and results so that managers can take action to improve closure rates, and marketers can gain a more comprehensive view of which programs drive the most valuable leads. In addition, we offer optional modules of Affinium Leads that provide the ability to manage and track lead referrals across lines of business and a contact management capability.

Affinium NetInsight collects, analyzes and reports on website activity. It offers an open relational database backend with a fully extensible data schema, easy-to-configure custom dashboards and reports, and is available both in on-premise and on-demand deployments. Using Affinium NetInsight, marketers can analyze whether their websites and Internet marketing are meeting the needs of their customers and driving the behaviors desired. For example, marketers can uncover ways to increase purchase or lead conversion, encourage customer self-service, or improve performance of paid search-engine marketing. With Unica’s open architecture, web data is integrated with offline purchase and customer activity to increase the ability to measure cross-channel effectiveness, such as the influence of the web on in-store purchases.

Affinium Insight provides powerful analytics for marketing performance management and cross-channel customer analysis through an easy-to-use, visually intuitive interface designed specifically for marketers. It allows marketers to select and focus on the data most relevant to them with flexible, visual exploration, unlimited drilling and seamless integration to Affinium Campaign to analyze, understand and fully leverage the cross-channel buying experience and the performance of their marketing efforts.

Affinium Model enables marketing organizations to automate the creation of accurate predictive models to determine customer response propensities, recognize customers at risk of attrition, identify significant customer behaviors, analyze customer attributes and preferences, discover cross-selling opportunities, and forecast customer value. Accurate models can be developed and deployed quickly to target likely responders to a particular marketing offer. The results of Affinium Model, such as model scoring, can be integrated into ongoing marketing operations using Affinium Campaign and Affinium Campaign Optimize.

MarketingCentral/AgencyCentral is an on-demand marketing resource management (MRM) solution, providing capabilities that help marketers define, coordinate, monitor, control and measure marketing program activities. Unlike a traditional installed software solution, MarketingCentral’s on-demand architecture means it is entirely accessible from any web browser with internet access and does not requires the customer to provide any computer hardware or do any software installation on their own equipment. Further, MarketingCentral has more straight-forward configuration options than a more complex MRM solution, making it easy and fast for customers to set the software up and begin using it.

Services

We provide a full range of services to our customers through four principal services groups:

Professional Services. Our professional services group provides implementation, training and consulting services to our customers, MSPs, systems integrators and other alliance partners. Implementation services include the installation of our software, identification and sourcing of legacy data, configuration of rules necessary to generate marketing campaigns, distribute leads and manage marketing processes, creation of reports, and other general services for our software. We offer customers, MSPs and systems integrators a full range of training and education services, including classroom, onsite and web-based training. We also offer a variety of consulting services to existing customers (such as process design and best practice services) to help them use their licensed Affinium software more broadly and efficiently.

Maintenance and Technical Support. We provide maintenance on a centralized basis from our headquarters in Waltham, Massachusetts. We provide technical support on a centralized basis from our headquarters in the United States and on a regional basis from centers in the United Kingdom, France and India. We currently offer 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 online access to our customer support database, technical support and software updates and upgrades. With premium maintenance, customers are provided additional services such as emergency service response and periodic onsite utilization reviews.

On-demand and Managed Infrastructure Services. For our Affinium NetInsight and MarketingCentral products, we offer a range of software on-demand and management services from fully-hosted, multi-tenant deployments to infrastructure management. Unica provides everything needed to quickly implement Affinium solutions. We can host part or all of a solution in our facility allowing customers to reduce IT costs and free up resources to focus on core business activities, while gaining the reliability, security, and scalability they require. In addition, we offer consultative services to our hosted customers, such as best practices for website and Internet marketing measurement, report development, and marketing process development.

Customers

We have a worldwide installed base of over 600 companies in a broad range of industries. A significant number of these companies sublicense our products from MSPs, as described under “Alliances — Marketing Service Providers” below. See Note 13 to our consolidated financial statements for geographic data regarding our revenue from customers located outside of the United States.

We target our sales and marketing efforts to a wide variety of industries, focusing on marketing executives and the IT staff that support them. We have focused our sales efforts to date principally on the financial services, insurance, media, retail and telecommunications industries as these industries include significant numbers of businesses with large numbers of customers and prospects.

No single customer accounted for 10% or more of our total revenue in fiscal 2007, 2006 or 2005.

Sales and Marketing

We sell and market our software primarily through our direct sales force and in conjunction with MSPs, systems integrators and distributors. In addition to our headquarters in Waltham, Massachusetts, we have sales offices in several U.S. cities. Outside the United States, we maintain sales offices in France, the United Kingdom, Singapore, Belgium, the Netherlands, Germany, Spain, Australia and Korea, and also have sales personnel located in Canada and Thailand.

Sales. Our direct sales force, which consists of account executives, subject matter experts, technical pre-sales engineers, inside sales account development representatives, alliance partner managers and sales management is responsible for the worldwide sale of our products to businesses across multiple industries and is organized into named account, geographic, product and channel focus.

Marketing. Our marketing activities consist of a variety of programs designed to generate sales leads and build awareness of our company and our EMM offerings. These activities include traditional product marketing functions, such as production of both hardcopy and digital product and company promotional material, gathering of customer and partner input for new product features, and creation of solution demonstrations. We build awareness of our company and generate sales leads through Internet marketing, such as blogs, search engine marketing and display ads; trade shows; seminars; direct mail; customer and partner events; and limited print advertising.

Alliances

We enter into alliances with MSPs, systems integrators and distributors to acquire new customers and to provide existing customers with a full spectrum of implementation services and training support, customer data management, and marketing program design and support. An MSP or systems integrator participated in selling or deploying Affinium software in a significant number of our perpetual and subscription license agreements in fiscal 2007. Our alliance strategy enables us to become part of a total marketing solution for businesses and provides the potential, through referrals and co-marketing opportunities, to expand our contacts with prospects in new and existing markets. We will seek alliance opportunities with additional MSPs, systems integrators and distributors, particularly in additional countries outside the United States, that can complement or expand our business by offering configuration and integration support, data management and strategic marketing services.

Marketing Service Providers. MSPs offer a range of data services, marketing program design, support, and execution services on an on-demand or outsourced basis. We selectively establish and maintain relationships with MSPs to resell and deploy our products. Current significant MSPs include Acxiom, Epsilon and Harte Hanks as well as other MSPs in North America, EMEA and Asia Pacific. We enter into subscription arrangements with MSPs with respect to the Affinium offerings being used, and the MSPs then enter into sublicenses of those offerings with their own clients.

Systems Integrators. Our relationships with systems integrators allow us to leverage our business model by selectively subcontracting or outsourcing integration and configuration services, thereby enabling us to focus our resources on additional sales of software licenses. Systems integrators also serve to provide us with leads for new business and bundle our products into joint industry or solution offerings. Our systems integrators help their customers develop strategies for implementing our EMM offerings, provide implementation support, and offer assistance with ongoing measurement and process improvement. Strategic systems integrators include Accenture and IBM as well as a number of specialist providers and regional systems integrators in and outside the United States.

Distributors. We have relationships with select distributors outside of the U.S. In addition to representing us in their local markets and selling our solutions, our distributors also typically offer systems integration and consulting services, and may also serve as an MSP in their local markets. We currently use distributors in Latin American, Japan, the U.K. and Israel.

Technology

Our product design philosophy is to deliver products that scale to meet the information processing volumes and computational complexity of sophisticated global marketers, while providing marketing process flexibility and software usability to meet the needs of marketing organizations across a range of industries, company sizes and marketing skill sets. Key elements of our technology include:


	•	Software Architecture. Our products have been developed using a logical multi-tier Internet architecture consisting of presentation, application logic and data management layers. Our products are highly scalable, enabling expansion at each tier, support of large databases and a large number of users.

	•	Powerful Data Access. Our UDI technology enables Affinium offerings to access and adapt easily to multiple existing marketing data sources, such as data warehouses and files, without requiring data replication or imposing proprietary data structures. UDI uses software wizards to guide the data mapping and access configuration to enable data-level integration without programming. UDI allows marketing organizations to dynamically access and manipulate all available levels of marketing data within campaigns for more accurate targeting and on-the-fly data aggregation and computations.

	•	Advanced Analytics and Optimization. Our Affinium offerings provide a broad range of integrated analytics, including analytical processing, data visualization, automated data mining and optimization algorithms. We have developed a number of analytic capabilities that enable rapid performance of sophisticated analytic processes to improve the productivity of marketers and the efficiency of marketing programs.

	•	Interoperability. Affinium applications are based on the Java 2 Enterprise Edition, or J2EE, development framework. Affinium applications can be integrated with other standards-compliant applications, including .NET-based applications using standards-based Application Programming Interfaces (API’s). The Java platform is deployable and readily supported on most software and hardware platforms

	•	Technology Relationships. We have formed relationships with vendors of software and hardware technologies to help ensure that our products are compatible with industry standards and to take advantage of current and emerging technologies. In particular, we maintain relationships, and support operating systems for platforms from companies such as Hewlett-Packard, IBM, Microsoft, Netezza, Oracle and Sun Microsystems. These companies may provide us with early releases of new products and, in some cases, access to technical resources to facilitate compatibility with their products.

Research and Development

Our research and development organization is responsible for designing, developing, enhancing and supporting our software products, performing product testing and quality assurance activities, and ensuring the compatibility of our products with third-party hardware and software products. Our research and development organization is divided into teams consisting of development engineers, product managers, quality assurance engineers, technical writers and technical support staff. We employ advanced software development tools, including automated testing, performance monitoring, source code control and defect tracking systems.

Our research and development expense totaled $22.0 million in fiscal 2007, $17.1 million in fiscal 2006, and $11.5 million in fiscal 2005.

Competition

The market for EMM software, which has emerged only in recent years, is intensely competitive, evolving rapidly and highly fragmented. We believe the following factors are the principal methods of competition in the EMM market:


	•	marketing focus and domain expertise;

	•	product functionality, performance and reliability;

	•	breadth and depth of product offerings;


	•	ability to offer integrated solutions, especially for Internet and traditional marketing;

	•	services organization and post-sale support;

	•	total cost of ownership;

	•	large and reference-able customer base;

	•	time to market;

	•	product architecture, scalability and flexible deployment options; and

	•	price.

We believe our products compete with the following:


	•	Internally developed solutions based on horizontal workflow applications and desktop software

	•	CRM and other enterprise application vendors such as Siebel, a division of Oracle

	•	Infrastructure software, including data warehousing and business intelligence tools, from providers such as SAS and Teradata

	•	EMM software products from a number of privately-held vendors such as Aprimo

	•	Web analytics and Internet marketing products from Omniture and WebTrends

We believe we effectively compete against these solutions in a number of ways, including: our market focus and domain expertise which make our solutions better suited to marketers’ needs, our open-architecture and flexible deployment options which facilitate more rapid deployment and lower cost of ownership, the breadth and depth of our solutions which solve more marketing challenges and which facilitate successful cross-channel marketing, and the analytic capabilities of our solutions which we believe help marketers deliver more effective marketing and achieve higher return on investment.

Intellectual Property

Our success will depend in part on our ability to protect our intellectual property and to avoid infringement of the intellectual property of third parties. We rely on a combination of patents, trademarks, copyrights and trade secret laws in the United States and other jurisdictions, as well as contractual provisions and licenses, to protect our proprietary rights and brands.

As of September 30, 2007, we had five issued U.S. patents and had nineteen pending U.S. patent applications. We file applications for patents on certain inventions in the United States, and in each case consider whether filing for protection in selected foreign jurisdictions is appropriate. We evaluate ideas and inventions for patent protection with a team of engineers, product managers and internal counsel, in consultation with our outside patent counsel. These issued patents and pending patent applications relate to various systems and methods, including offer management, lead management, data mining, modeling, and optimization. The issued patents we own will expire in 2018. We anticipate filing more patent applications in the ordinary conduct of our business.

“Unica” is a registered trademark in the United States, the European Union, Korea, Japan, China, Singapore, Australia and Norway. “Affinium” is registered as a trademark in the United States, Japan and the European Union. “NetTracker,” “Ask NetTracker” and “My NetTracker” are registered trademarks in the United States. The “Unica & Design” (Unica with the crescent) mark is registered in the United States. We also hold trademarks and service marks identifying certain product and service offerings. We seek to protect our source code for our software, documentation and other written materials under trade secret and copyright laws. We also pursue foreign copyrights, trademarks and service marks where applicable and necessary. Although we typically consider whether filing for patent protection in foreign jurisdictions is appropriate, to date we have not pursued patent protection in any foreign countries.

We have incorporated third-party licensed technology into our current product offerings. Royalties paid for this third-party licensed technology represented 2% of total revenue in fiscal 2007, 2% of total revenue in fiscal 2006, and 1% of total revenue in fiscal 2005, and we expect this percentage to remain relatively constant for the foreseeable future.

Employees

As of September 30, 2007, we had a total of 501 employees, consisting of 144 employees in sales and marketing, 204 employees in research and development, 96 employees in services groups, and 57 employees in general and administrative functions. A total of 137of those employees were located outside of the United States.

From time to time we also employ independent contractors and temporary employees to support our operations. None of our employees is subject to a collective bargaining agreement. We have never experienced a work stoppage and believe that our relations with our employees are good.

Item 1A. Risk Factors

The following discussion highlights certain risks which may affect future operating results. These are the risks and uncertainties we believe are most important for our existing and potential stockholders to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.

If the market for enterprise marketing management software does not develop as we anticipate, our revenue may decline or fail to grow and we may incur operating losses.

We derive, and expect to continue to derive, all of our revenue from providing EMM software and services. The market for EMM software is relatively new and still evolving, and it is uncertain whether these products will achieve and sustain high levels of demand and market acceptance.

Some businesses may be reluctant or unwilling to implement EMM software for a number of reasons, including failure to perceive the need for improved marketing processes and lack of knowledge about the potential benefits that EMM software may provide. Even if businesses recognize the need for improved marketing processes, they may not select EMM software such as ours because they previously have made investments in internally developed solutions or marketing or infrastructure software. Some businesses may elect to improve their marketing processes through software obtained from their existing enterprise software providers, whose products are designed principally to address one or more functional areas other than marketing. These enterprise products may appeal to customers that wish to limit the number of software vendors on which they rely and the number of different types of software used to run their businesses.

If businesses do not perceive the benefits of EMM software, the EMM market may not continue to develop or may develop more slowly than we expect, either of which would significantly adversely affect our revenue and profitability. Because the market for EMM software is developing and the manner of its development is difficult to predict, we may make errors in predicting and reacting to relevant business trends, which could harm our operating results.

Our quarterly and annual revenue and other operating results can be difficult to predict and can fluctuate substantially, which may result in volatility in the price of our common stock.

Our quarterly and annual revenue and other operating results have varied in the past and are likely to continue to vary significantly from quarter to quarter and year to year. This variability may lead to volatility in our stock price as equity research analysts and investors respond to these quarterly and annual fluctuations. These fluctuations are due to numerous factors, including:


	•	the timing and size of our licensing transactions;


	•	the mix of perpetual licenses and subscription arrangements;

	•	lengthy and unpredictable sales cycles;

	•	patterns of capital spending and changes in budgeting cycles by our customers;

	•	the timing of development, introduction and market acceptance of new products or product enhancements by us or our competitors;

	•	the timing of acquisitions of businesses and products by us or our competitors;

	•	product and price competition;

	•	the mix of higher-margin license revenue and lower-margin service revenue;

	•	software defects or other product quality problems;

	•	our ability to hire, train and retain sufficient sales, service and other personnel;

	•	the geographical mix of our sales, together with fluctuations in currency exchange rates;

	•	fluctuations in economic and financial market conditions;

	•	resolution of litigation, claims and other contingencies;

	•	expenses related to litigation, claims and other contingencies; and

	•	complexity of the accounting rules that govern revenue recognition.

Because of quarterly fluctuations, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful. Moreover, our operating results may not meet our announced guidance or expectations of equity research analysts or investors, in which case the price of our common stock could decrease significantly.

In addition, our expense levels are based, in significant part, on our expectations as to future revenue and are largely fixed in the short term. As a result, we may be unable to adjust spending in a timely manner to compensate for any unexpected shortfall in revenue. Furthermore, we intend to increase our operating expenses as we expand our product development, sales and marketing, and administrative organizations. The timing of these increases and the rate at which new personnel become productive will affect our operating results, and, in particular, we may incur operating losses in the event of an unexpected delay in the rate at which development or sales personnel become productive. Any such revenue shortfall, and the resulting decrease in operating income or increase in operating loss, could lead to volatility in the price of our common stock.

The delay or cancellation of one or more large transactions may adversely affect our quarterly or annual revenue.

Large license transactions from time to time account for a substantial amount of our license revenue in a fiscal quarter. If a potential customer does not enter into a large transaction that we anticipate in a certain quarter, or if we are unable to recognize license revenue from that transaction in the quarter, our revenue may decline or fail to grow at the rate expected and we may incur operating losses in that quarter. Moreover, a significant portion of each quarter’s license revenue historically has come from transactions agreed upon in the final month of the quarter. Therefore, even a short delay in the consummation of an agreement may cause our revenue to fall below our announced guidance or expectations of equity research analysts or investors for a quarter.

If we fail to develop or acquire new software products or enhance existing products, we will not be able to achieve our anticipated level of growth.

We must introduce new software products and enhance existing products in order to meet our business plan, keep pace with technological developments, satisfy increasing customer requirements, increase awareness of EMM software generally and of our company and products in particular, and maintain our competitive

position. Any new products we develop may not be introduced in a timely manner and may not achieve market acceptance sufficient to generate significant revenue. Furthermore, we expect other companies to develop and market new products that will compete with, and may reduce the demand for, our products. We cannot assure you that we will be successful in developing or otherwise acquiring, marketing and licensing new products or product updates and upgrades that meet changing industry standards and customer demands, or that we will not experience difficulties that could delay or prevent the successful development, marketing and licensing of these products. If we are unable to develop or acquire new products successfully, to enhance our existing products, or to position or price our products to meet market demand, we may not be able to achieve our anticipated level of growth and our revenue and other operating results would be adversely affected.

In addition, because our software products are intended to operate on a variety of hardware and software platforms, we must continue to modify and enhance our products to keep pace with changes in these platforms. Any inability of our products to operate effectively with existing or future hardware and software platforms could reduce the demand for our products, result in customer dissatisfaction and limit our revenue.

A substantial majority of our perpetual license revenue is derived from our Affinium Campaign software, and a decline in sales of licenses of this software could materially adversely affect our operating results.

Sales of licenses of our Affinium Campaign software have historically accounted for a substantial portion of our revenues. We expect to continue to derive a substantial portion of our license revenue for the foreseeable future from current and future versions of our Affinium Campaign software, and our operating results will depend significantly upon the level of demand for this software. Demand for our Affinium Campaign software may decline due to a number of factors, including increased market penetration by our competitors’ products or slower growth in the EMM market than we anticipate. If demand for our Affinium Campaign software decreases significantly, our operating results will be adversely affected and we may incur operating losses.

If we fail to protect our proprietary rights and intellectual property adequately, our business and prospects may be harmed.

Our success depends in large part on our proprietary technology. We rely on a combination of patents, trademarks, copyrights, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our software products and services. We cannot assure you that these protections will be adequate to prevent our competitors from copying or reverse-engineering our products, or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. As of September 30, 2007, we had five issued U.S. patents and nineteen pending U.S. patent applications. We may, however, be unable to obtain additional patent protection in the future. In addition, any current or future patents issued to us may not provide us with any competitive advantages, or may be challenged by third parties. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Accordingly, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property. Furthermore, we cannot be sure that steps we take to protect our proprietary rights will prevent misappropriation of our intellectual property.

In addition, effective patent, trademark, copyright, service mark and trade secret protection may not be available to us in every country in which our software products are available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. To date, we have applied for a limited number of patents outside of the United States. Therefore, to the extent that we continue to increase our international selling activities, our exposure to unauthorized copying and use of our products and proprietary information will continue to increase.

We have incorporated third-party licensed technology into our current product offerings. Royalties paid for this third-party licensed technology have historically ranged from 1% to 2% of license revenue and we

expect this percentage to remain relatively constant for the foreseeable future. If these technology providers were no longer to allow us to use these technologies for any reason, we may be required to:


	•	identify, license and integrate equivalent technology from another source;

	•	rewrite the technology ourselves; or

	•	rewrite portions of our software to accommodate the change or no longer use the technology.

Any one of these outcomes could delay further sales or the implementation of our products, impair the functionality of our products, delay new product introductions, result in our substituting inferior or more costly technologies into our products, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new products, and we cannot assure you that we could license that technology on commercially reasonable terms or at all. Because of the relative immateriality of this third-party licensed technology as well as the availability of alternative equivalent technology, we do not expect that our inability to license this technology in the future would have a material adverse affect on our business or operating results. Our inability to license this technology could adversely affect our ability to compete.

We have entered into agreements with many of our customers, MSPs and systems integrators that require us to maintain the source code of our software products in escrow. These agreements typically provide that these parties will have limited, nonexclusive rights to use the source code under certain circumstances in which we are unable or unwilling to provide product support, including in the event of our bankruptcy. We may be unable, however, to control the actions of our customers, MSPs and systems integrators that have entered into these agreements, and our business may be harmed if one or more customers, MSPs or systems integrators use the source code for purposes other than those permitted by the escrow provisions.

Competition from EMM, enterprise application and infrastructure software, as well as from internally developed solutions, could adversely affect our ability to sell our software products and related services and could result in pressure to price our products in a manner that reduces our margins.

The market for EMM software, which has emerged only in recent years, is intensely competitive, evolving and fragmented. Our software products compete with software developed internally by businesses as well as software offered by commercial competitors. Our principal commercial competition consists of:


	•	vendors of software products addressing a range or portion of the EMM market;

	•	vendors of customer relationship management and other enterprise application software; and

	•	providers of infrastructure software.

We expect additional competition from other established and emerging companies as the EMM market continues to develop and expand. We also expect competition to increase as a result of software industry consolidation, including through a merger or partnership of two or more of our competitors, and the entrance of new competitors in the EMM market. Many of our current and potential competitors have larger installed bases of users, longer operating histories and greater name recognition than we have. In addition, many of these companies have significantly greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to respond more quickly to new or emerging technologies and changes in customer demands and to devote greater resources to the development, promotion and sale of their products than we can.

Competition could seriously impede our ability to sell additional software products and related services on terms favorable to us. Businesses may continue to enhance their internally developed solutions, rather than investing in commercial software such as ours. Our current and potential commercial competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, if these competitors develop products with similar or superior functionality to our products, we may need to decrease the prices for our products in order to remain competitive. If we are unable to maintain our current product, services and maintenance pricing due to competitive pressures, our margins

will be reduced and our operating results will be negatively affected. We cannot assure you that we will be able to compete successfully against current or future competitors or that competitive pressures will not materially adversely affect our business, financial condition and operating results.

If we do not maintain and strengthen our strategic alliance relationships, our ability to generate revenue and manage expenses could be adversely affected.

We believe that our ability to increase revenue from our software products and manage our expenses depends in part upon our maintaining and strengthening our existing strategic alliance relationships and our developing new strategic alliance relationships, particularly in additional countries outside the United States. We rely on established, nonexclusive relationships with a variety of MSPs and systems integrators for marketing, licensing, implementing and supporting our products. Although many aspects of our strategic alliance relationships are contractual in nature, important aspects of these relationships depend on the continued cooperation between the parties. Divergence in strategy, change in focus, competitive product offerings, potential contract defaults, and changes in ownership or management of an MSP or systems integrator may interfere with our ability to market, license, implement or support our products with that party, which in turn could harm our business. Some of our competitors may have stronger relationships with our MSPs and systems integrators than we do, and we have limited control, if any, as to whether MSPs and systems integrators implement our products rather than our competitors’ products or whether they devote resources to market and support our competitors’ products rather than our offerings. In addition, MSPs typically have available their own internally developed applications that they may choose to offer and support in lieu of our software offerings.

We may not be able to maintain our strategic alliance relationships or attract sufficient additional MSPs and systems integrators that have the ability to market, sell, implement or support our products effectively, particularly in additional countries outside the United States. If we are unable to leverage our sales resources through our strategic alliance relationships with MSPs, we may need to hire and train additional qualified sales personnel. Similarly, if we cannot leverage our services resources through our strategic alliance relationships with systems integrators, we may incur additional costs associated with providing services. We cannot assure you, however, that we will be able to hire additional qualified sales or service personnel in these circumstances, and our failure to do so may restrict our ability to generate revenue or implement our products on a timely basis. Even if we are successful in hiring additional qualified sales or service personnel, we will incur additional costs and our operating results, including our gross margins, may be adversely affected.

If we fail to retain our chief executive officer or other key personnel or if we fail to attract additional qualified personnel, we will not be able to achieve our anticipated level of growth and our operating results could be adversely affected.

Our future success depends upon the continued service of our executive officers and other key sales, marketing, service, engineering and technical staff. The loss of the services of our executive officers and other key personnel would harm our operations. In particular, Yuchun Lee, our co-founder, chief executive officer, president and chairman, is critical to the management of our business and operations, as well as to the development of our strategic direction. None of our officers or key personnel is bound by an employment agreement, and we do not maintain key person life insurance on any of our employees. In addition, our future success will depend in large part on our ability to attract a sufficient number of highly qualified personnel, and there can be no assurance that we will be able to do so. Competition for qualified personnel in the software industry is intense, and we compete for these personnel with other software companies that have greater financial, technical, marketing, service and other resources than we do. If we fail to retain our key personnel and to attract new personnel, we will not be able to achieve our anticipated level of growth and our operating results could be adversely affected.

Our international operations expose us to additional business risks, and failure to manage these risks may adversely affect our business and operating results.

We maintain sales offices in France, the United Kingdom, Singapore, Belgium, the Netherlands, Germany, Spain, Australia and Korea. In addition, we have a research and development office in India. Revenue from customers located outside of North America accounted for $27.3 million, or 27% of total revenue, in fiscal 2007, $17.4 million, or 21% of total revenue, in fiscal 2006 and $13.3 million, or 21% of total revenue, in fiscal 2005. Our international operations are subject to a number of risks and potential costs, including:


	•	lack of local recognition of our branding, which may require that we spend significant amounts of time and money to to build brand identity;

	•	difficulty in establishing, staffing and managing international operations;

	•	difficulty in establishing and maintaining strategic alliance relationships;

	•	internationalization of our products to meet local customs or the needs of local marketing organizations;

	•	different pricing environments;

	•	longer accounts receivable payment cycles and other collection difficulties;

	•	compliance with multiple, conflicting, and changing laws and regulations, including employment, tax, trade, privacy, and and data protection laws and regulations;

	•	laws and business practices, which may vary from country to country and may favor local competitors;

	•	limited protection of intellectual property in some countries outside of the United States; and

	•	political and economic instability.

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. These fluctuations could negatively affect our operating results and could cause our net income or loss to vary from quarter to quarter. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.

Our failure to manage the risks associated with our international operations effectively could limit the future growth of our business and adversely affect our operating results. We may in the future further expand our existing international operations by, for example, entering additional international markets. We may be required to make a substantial financial investment and expend significant management efforts in connection with any such international expansion.

New accounting standards or interpretations of existing accounting standards could adversely affect our operating results.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Certain factors have in the past and may in the future cause us to defer recognition for license fees beyond delivery. For example, the inclusion in our software arrangements of customer acceptance testing, specified upgrades or other material non-standard terms could require the deferral of license revenue beyond delivery. Because of these factors and other specific requirements under accounting principles generally accepted in the United States for software revenue recognition, we must have very precise terms in our software arrangements in order to recognize revenue when we initially deliver software or perform services. Negotiation of mutually acceptable terms and conditions can extend our sales cycle, and we may accept terms and conditions that do not permit revenue recognition at the time of delivery.

Our business continues to grow rapidly in size and complexity which may affect our ability to effectively comply with new and existing regulations affecting our business.

We anticipate that we will continue to grow in size and complexity. We recognize that the regulatory environment affecting our business, particularly regulations relating to accounting standards and principles and regulations relating to the Sarbanes-Oxley Act compliance related to our internal controls, continues to become more complex and burdensome. We may not be able to scale our business infrastructure in a way that will allow us to comply with such regulations or comply with such regulations in a timely manner and, in particular, there is a risk that we will not be able to effectively remedy material internal control weaknesses or may have new material control weaknesses in the future. Material control weaknesses or our inability to be compliant with regulations may have a direct negative effect on our long and short term stock performance and may require us to devote significant resources in response to compliance or remedial measures.

If the material weakness in our internal control over financial reporting that we have identified is not remedied effectively, it could result in a material misstatement in our financial statements not being prevented or detected and could adversely affect investor confidence in the accuracy and completeness of our financial statements, and could have an adverse effect on the trading price of our common stock.

Through, in part, the documentation, testing and assessment of our internal control over financial reporting pursuant to the rules promulgated by the SEC under Section 404 of the Sarbanes-Oxley Act of 2002 and Item 308 of Regulation S-K, management has concluded that we did not maintain effective controls over the accounting for taxes, including the determination and reporting of state income taxes, state sales taxes, deferred tax assets and the income tax provision. Specifically we did not properly evaluate the realizability of a state tax benefit and related deferred tax assets and we did not perform an effective anlaysis to ensure the completeness and accuracy of our state sales taxes and income taxes. Management has determined that this control deficiency represented a material weakness as of September 30, 2007. This material weakness and our remediation plans are described further in Item 9A-Controls and Procedures in this Annual Report on Form 10-K.

Prior to the elimination of this material weakness, there remains risk that the controls on which we currently rely will fail to be sufficiently effective, which could result in a material misstatement of our financial position or results of operations and require a restatement of our financial statements. In addition, even if we are successful in strengthening our controls and procedures, such controls and procedures may not be adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements or SEC reporting. Any material weakness or the unsuccessful remediation thereof could have a material adverse effect on reported results of operations and financial condition, as well as impair our ability to meet our quarterly and annual reporting requirements in a timely manner.

Our inability to sustain our historical maintenance renewal rates and pricing would adversely affect our operating results.

We generate maintenance fees revenue from sales of maintenance associated with licensed software. We generally sell maintenance on an annual basis. In each of the last three fiscal years, customers have renewed maintenance arrangements at a renewal rate of approximately 90%. We cannot assure you that we will succeed in sustaining this rate of maintenance renewals. Moreover, we are facing competitive and other pressures to reduce the pricing of our maintenance arrangements. If we fail to sustain our historical level of maintenance renewals or our historical pricing, our maintenance fees revenue and total revenue would decrease and our operating results would be adversely affected.

If we fail to manage our expanding operations effectively, we may not be able to achieve our anticipated level of growth and our operating results could be adversely affected.

During the last two fiscal years, we significantly expanded our operations. We anticipate that further expansion of our infrastructure and headcount will be required to achieve planned expansion of our software offerings, projected increases in our customer base, and anticipated growth in the number and complexity of

software implementations. Our expansion has placed, and will continue to place, a significant strain on our management, sales, services, development and financial infrastructure. In particular, we must further expand and improve our accounting, management and operational controls and our reporting systems and procedures. Our future success will depend in part upon our ability to expand our infrastructure and manage our continuing operational growth effectively.

Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.

Our software products are complex and may contain undetected defects or errors. We have not suffered significant harm from any defects or errors to date, but we have from time to time found defects in our products and we may discover additional defects in the future. We may not be able to detect and correct defects or errors before releasing products. Consequently, we or our customers may discover defects or errors after our products have been implemented. We have in the past issued, and may in the future need to issue, corrective releases of our products to correct defects or errors. The occurrence of any defects or errors could result in:


	•	lost or delayed market acceptance and sales of our products;

	•	delays in payment to us by customers;

	•	product returns;

	•	injury to our reputation;

	•	diversion of our resources;

	•	legal claims, including product liability claims, against us;

	•	increased service and warranty expenses or financial concessions; and

	•	increased insurance costs.

Defects and errors in our software products could result in an increase in service and warranty costs or claims for substantial damages against us. Our license agreements with our customers typically contain provisions designed to limit our liability for defects and errors in our products and damages relating to such defects and errors, but these provisions may not be enforced by a court or otherwise effectively protect us from legal claims. Our liability insurance may not be adequate to cover all of the costs resulting from these legal claims. Moreover, we cannot assure you that our current liability insurance coverage will continue to be available on acceptable terms or that the insurer will not deny coverage as to any future claim. The successful assertion against us of one or more large claims that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse affect on our business and operating results. Furthermore, even if we succeed in the litigation, we are likely to incur substantial costs and our management’s attention will be diverted from our operations.

We intend to increase the amount of revenue that we derive from subscription arrangements, which may cause our quarterly revenue and other operating results to fail to meet expectations.

We generate recurring revenue from agreements to license our offerings on a subscription basis, both directly and through MSPs that provide outsourcing and on-demand solutions. Our subscription arrangements typically have a license period of one year, although the license periods may range from three to thirty-six months. We intend to seek to increase the percentage of our total revenue derived under the subscription model in order to diversify our revenue stream and generally provide us with greater revenue predictability in the long term. Since revenue from a subscription arrangement is recognized ratably over the contractual term of the arrangement rather than upon product delivery, a greater shift than anticipated from perpetual license agreements towards subscription arrangements will result in our recognizing less revenue in the initial quarters of the license period. Similarly, a decline in new or renewed subscription arrangements in any one quarter will

not necessarily be fully reflected in the revenue for that quarter and may negatively affect our revenue in future quarters. Differences in the mix of our perpetual license revenue and our subscription fees revenue could cause our operating results for a quarter to vary from our announced guidance or expectations of equity research analysts or investors, which could result in volatility in the price of our common stock.

Privacy and security concerns, including evolving government regulation in the area of consumer data privacy, could adversely affect our business and operating results.

The effectiveness of our software products relies on our customers’ storage and use of data concerning their customers, including financial, personally identifying and other sensitive data. Our customers’ collection and use of these data for consumer profiling may raise privacy and security concerns and negatively impact the demand for our products and services. We have implemented various features intended to enable our customers to better comply with privacy and security requirements, such as opt-out messaging and checking, the use of anonymous identifiers for sensitive data, and restricted data access, but these security measures may not be effective against all potential privacy concerns and security threats. If a breach of customer data security were to occur, our products may be perceived as less desirable, which would negatively affect our business and operating results.

In addition, governments in some jurisdictions have enacted or are considering enacting consumer data privacy legislation, including laws and regulations applying to the solicitation, collection, processing and use of consumer data. This legislation could reduce the demand for our software products if we fail to design or enhance our products to enable our customers to comply with the privacy and security measures required by the legislation. Moreover, we may be exposed to liability under existing or new consumer data privacy legislation.

Intellectual property litigation and infringement claims may cause us to incur significant expenses or prevent us from selling our software products.

The software industry is characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. From time to time, we receive claims that our software products or business infringe or misappropriate the intellectual property of third parties. For example, in fiscal year 2006 we settled a lawsuit with NetRatings, Inc. relating to the alleged patent infringement of our NetTracker software, a product we acquired as part of our acquisition of Sane Solutions, LLC (Sane).

We cannot assure you that in the future other third parties will not assert that our technology violates their intellectual property rights or that we will not be the subject of a material intellectual property dispute. EMM software developers may become increasingly subject to infringement claims as the number of commercially available EMM software products increases and the functionality of these products further overlaps.

Regardless of the merit of any particular claim that our technology violates the intellectual property rights of others, responding to such claims may require us to:


	•	incur substantial expenses and expend significant management efforts;

	•	pay damages;

	•	cease making, licensing or using products that are alleged to incorporate the intellectual property of others;

	•	enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies; and

	•	expend additional development resources to redesign our products.

We may also be required to indemnify customers, MSPs or systems integrators for their use of the intellectual property associated with the current suit or for other third-party products that are incorporated into

our products and that infringe the intellectual property rights of others. If we are unable to resolve our legal obligations by settling or paying an infringement claim or a related indemnification claim as described above, we may be required to refund amounts that we had received under the contractual arrangement with the customers, MSPs or systems integrators.

In addition, from time to time there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. We use a limited amount of open source software in our products and may use more open source software in the future. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software.

We may enter into acquisitions that may be difficult to integrate, disrupt our business, dilute stockholder value or divert management attention.

We intend to continue to pursue acquisitions of businesses, technologies and products that will complement our existing operations. On December 20, 2005, we acquired certain assets of MarketSoft Software Corporation and on March 22, 2006, we acquired Sane, as further described in Note 3 to our consolidated financial statements. Most recently, on July 12, 2007, we acquired MarketingCentral L.L.C., as described in Note 3 to our consolidated financial statements. We cannot assure you that these acquisitions or any acquisition we make in the future will provide us with the benefits we anticipated in entering into the transaction. Acquisitions are typically accompanied by a number of risks, including:


	•	difficulties in integrating the operations and personnel of the acquired companies;

	•	maintenance of acceptable standards, controls, procedures and policies;

	•	potential disruption of ongoing business and distraction of management;

	•	impairment of relationships with employees and customers as a result of any integration of new management and other personnel;

	•	inability to maintain relationships with customers of the acquired business;

	•	difficulties in incorporating acquired technology and rights into products and services;

	•	failure to achieve the expected benefits of the acquisition;

	•	unexpected expenses resulting from the acquisition;

	•	potential unknown liabilities associated with acquired businesses;

	•	unanticipated expenses related to acquired technology and its integration into existing technology; and

	•	litigation.

In addition, acquisitions may result in the incurrence of debt, restructuring charges and large one-time write-offs, such as write-offs for acquired in-process research and development costs. Acquisitions may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges. Furthermore, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted and earnings per share may decrease.

From time to time, we may enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations could result in diversion of management time and significant out-of-pocket costs. If we fail to evaluate and execute acquisitions properly, we may not be able to achieve our anticipated level of growth and our business and operating results could be adversely affected.

We will continue to incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

We will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and the NASDAQ Stock Market, or NASDAQ, has imposed various new requirements on public

companies, including requiring changes in corporate governance practices. Our management and other personnel will need to continue to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, commencing in fiscal 2006, we began system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our compliance with Section 404 requires that we continue to incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and have engaged outside accounting and advisory services with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

Risks Relating to Ownership of Our Common Stock

The price of our common stock may be volatile.

The trading market for our common stock may fluctuate substantially. These fluctuations could cause our investors to lose part or all of any investment in shares of our common stock. The following factors, most of which are outside of our control, could cause the market price of our common stock to decrease significantly:


	•	loss of any of our major customers;

	•	departure of key personnel;

	•	variations in our annual or quarterly operating results;

	•	announcements by our competitors of significant contracts, new products or product enhancements, acquisitions, distribution partnerships, joint ventures or capital commitments;

	•	changes in governmental regulations and standards affecting the software industry and our products, including implementation of additional regulations relating to consumer data privacy;

	•	decreases in financial estimates by equity research analysts;

	•	sales of common stock or other securities by us in the future;

	•	decreases in market valuations of software companies;

	•	fluctuations in stock market prices and volumes; and

	•	damages, settlements, legal fees and other costs related to litigation, claims and other contingencies.

In the past, securities class action litigation often has been initiated against a company following a period of volatility in the market price of the company’s securities. If class action litigation is initiated against us, we will incur substantial costs and our management’s attention will be diverted from our operations. All of these factors could cause the market price of our stock to decline, and our investors may lose some or all of any investment.

If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our stock could decline if one or more equity research analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

Future sales of our common stock by existing stockholders could cause our stock price to decline.

If our existing stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our stockholders might sell shares of common stock could also depress the market price of our common stock. A decline in the price of shares of our common stock could impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities, and may cause our investors to lose part or all of any investment in our shares of common stock.

Our directors and executive officers will continue to have substantial control over us and could limit the ability of stockholders to influence the outcome of key transactions, including a change in control.

We anticipate that our executive officers and directors and entities affiliated with them will, in the aggregate, continue to beneficially own a substantial portion of our outstanding common stock in the near term. In particular, Yuchun Lee, our co-founder, chief executive officer, president and chairman, beneficially owned approximately 23% of our outstanding common stock as of September 30, 2007. Our executive officers, directors and affiliated entities, if acting together, would be able to control or influence significantly all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other significant corporate transactions. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and may affect the market price of our common stock.

Our corporate documents and Delaware law make a takeover of our company more difficult, which may prevent certain changes in control and limit the market price of our common stock.

Our charter and by-laws and Section 203 of the Delaware General Corporation Law contain provisions that might enable our management to resist a takeover of our company. These provisions might discourage, delay or prevent a change in the control of our company or a change in our management. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. The existence of these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Some provisions in our charter and by-laws may deter third parties from acquiring us, which may limit the market price of our common stock.


Item 1B.	*Unresolved Staff Comments*

None.


Item 2.	*Properties*

Our operations are conducted in leased facilities. We lease approximately 72,000 square feet of office space in Waltham, Massachusetts pursuant to a lease agreement that expires in April 2009. This facility serves as our corporate headquarters. Personnel located at this facility include members of our senior management team, software research and development team, consulting personnel, technical support personnel, product marketing and management personnel, sales personnel, and finance and administration personnel.

We also lease office space in Paris, France; Pune, India; Uxbridge, England; Singapore; Brussels, Belgium; Munich, Germany; Madrid, Spain; Melbourne, Australia and Seoul, Korea. Our aggregate rent

expense was $3.0 million in fiscal 2007. For more information about our lease commitments, see Note 7 to our consolidated financial statements, Commitments and Contingencies.


Item 3.	*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. However, 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 4.	*Submission of Matters to a Vote of Security Holders*

No matters were submitted to a vote of our security holders through solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended September 30, 2007.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Stock Market Information

Our common stock is listed on The Nasdaq Global Market under the trading symbol UNCA. The following table sets forth the high and low sales prices of our common stock, as reported by The Nasdaq Global Market, for each quarterly period within our two most recent fiscal years:


	High		Low

Fiscal 2006
First quarter	$	12.80	$	9.77
Second quarter	$	15.13	$	11.10
Third quarter	$	13.38	$	7.86
Fourth quarter	$	10.76	$	8.39
Fiscal 2007
First quarter	$	14.20	$	9.70
Second quarter	$	14.10	$	10.86
Third quarter	$	17.98	$	12.26
Fourth quarter	$	15.99	$	9.50

The closing sale price of our common stock, as reported by The Nasdaq Global Market, was $9.69 on December 7, 2007.

Holders

As of December 7, 2007 there were approximately 113 stockholders of record of our common stock based on the records of our transfer agent.

Dividends

We did not declare or pay any cash dividends on our common stock during the two most recent fiscal years. We currently intend to retain earnings, if any, to fund the development and growth of our business and do not anticipate paying other cash dividends on our common stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, cash needs and growth plans.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

We did not sell any unregistered securities during the fiscal year ended September 30, 2007. 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 form 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, the $21.8 million purchase of Sane in March 2006 and the $12.5 million purchase of MarketingCentral in July 2007. 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 or more of our equity securities, or any of our other affiliates.


Item 6.	*Selected Financial Data*

The selected consolidated financial data set forth below as of September 30, 2007 and for the year ended September 30, 2007 are derived from our financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and included elsewhere in this Annual Report. The selected consolidated financial data set forth below as of September 30, 2006 and for the years ended September 30, 2006 and 2005 are derived from our financial statements audited by Ernst & Young LLP, an independent registered public accounting firm, and included elsewhere in this Annual Report. The selected consolidated financial data as of September 30, 2005, 2004 and 2003 and for the years ended September 30, 2004 and 2003 are derived from our audited financial statements not included in this Annual Report.

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements, the related notes and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report. The historical results are not necessarily indicative of the results to be expected for any future period.


	Year Ended September 30,
	2007			2006			2005			2004		2003
	(In thousands, except per share data)

Consolidated Income Statement Data:
Revenue:
License	$	38,970		$	35,023		$	26,198		$	22,278	$	16,731
Maintenance and services		54,318			40,876			32,697			23,870		13,969
Subscription		8,955			6,512			4,653			2,567		608

Total revenue		102,243			82,411			63,548			48,715		31,308
Costs of revenue:
License		2,782			1,924			854			637		292
Maintenance and services		18,958			13,854			10,554			8,003		4,633
Subscription		692			429			228			122		21

Total cost of revenue		22,432			16,207			11,636			8,762		4,946

Gross profit		79,811			66,204			51,912			39,953		26,362
Operating expenses:
Sales and marketing		41,068			33,446			26,802			22,971		15,378
Research and development		22,034			17,085			11,466			8,333		4,981
General and administrative		16,362			11,549			6,927			4,206		3,090
Restructuring charges		1,244			255			—			—		—
In-process research and development		—			4,037			—			—		218
Amortization of acquired intangible assets		1,572			1,109			460			433		162

Total operating expenses		82,280			67,481			45,655			35,943		23,829

Income (loss) from operations		(2,469	)		(1,277	)		6,257			4,010		2,533
Interest income, net		2,056			2,047			660			173		155
Other income (expense), net		108			(57	)		(67	)		50		(40	)

Income before income taxes		(305	)		713			6,850			4,233		2,648
Provision (benefit) for income taxes		(801	)		37			2,329			769		170

Net income	$	496		$	676		$	4,521		$	3,464	$	2,478

Net income (loss) per common share:
Basic	$	0.02		$	0.04		$	(0.03	)	$	0.18	$	0.11

Diluted	$	0.02		$	0.03		$	(0.03	)	$	0.16	$	0.10

Shares used in computing net income (loss) per common share:
Basic		19,857			19,267			11,342			9,420		9,111

Diluted		20,782			20,235			11,342			10,829		10,243

For the year ended September 30, 2005, net loss applicable to common stockholders and net loss per share reflect a special one-time preferred stock dividend of $3.1 million and a redemption payment of $1.0 million in August 2005 in connection with our initial public offering. In addition, as a result of the net loss applicable to common stockholders, shares used in computing diluted net loss per common share excludes 1,456,133 weighted-average shares of common stock issuable upon exercise of outstanding stock options, as the effect of including those shares would be anti-dilutive.

In the preceding table, cost of revenue and operating expenses include share-based compensation expense as follows:


	Year Ended September 30,
	2007		2006		2005		2004		2003
	(In thousands)

Shared-based compensation expense:
Cost of maintenance and services revenue	$	590	$	273	$	94	$	24	$	—
Sales and marketing expense		1,706		776		171		40		—
Research and development expense		1,151		678		68		30		—
General and administrative expense		2,073		1,291		120		17		—

Total share-based compensation expense	$	5,520	$	3,018	$	453	$	111	$	—


	As of September 30,
	2007		2006		2005		2004			2003
	(In thousands)

Consolidated Balance Sheet Data:
Cash and cash equivalents	$	18,493	$	30,501	$	43,754	$	23,773		$	16,535
Short-term investments		19,614		9,537		16,172		—			—
Working capital		20,455		23,923		45,298		11,107			5,496
Total assets		121,348		104,647		81,604		42,414			26,726
Total deferred revenue		38,632		33,886		24,634		20,290			10,835
Indebtedness, including current potion		—		—		—		—			510
Redeemable preferred stock		—		—		—		15,364			14,355
Total stockolders’ equity (deficit)		62,919		54,607		46,373		(1,558	)		(4,726	)


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this Annual Report. This Annual Report on Form 10-K contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements by forward-looking words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “may,” or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition, or state other “forward-looking” information. We believe that it is important to communicate our future expectation to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned that all forward-looking statements involved risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including those factors described in “Risk Factors” in Item 1A on this Annual Report on Form 10-K. Readers should not place undue reliance on our forward-looking statements, and we assume no obligation and do not intend to update any forward-looking statements.

Our fiscal year ends on September 30. References to fiscal 2007, 2006 or 2005, for example, refer to the fiscal year ended September 30, unless otherwise indicated.

Restatement of Fiscal 2007 Quarterly Financial Data

As further described in Note 14 to the consolidated financial statements, the Company has restated its unaudited condensed consolidated financial data for each of the first three quarters in fiscal 2007.

Overview

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

Our software products can be licensed on a perpetual or subscription basis, and can be deployed either at the customer’s location (“on premise deployment model”) or managed as a remotely hosted solution by our Marketing Services Providers (MSPs) or, for certain products, by Unica (“on-demand” software as a service deployment model). Our software uses an open, scalable and flexible product architecture with built-in data access functionality, which facilitates rapid implementation and deployment in any deployment model.

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

Our strategy for long-term sustained growth in our revenue and net income is focused on maintaining our market and technological leadership in the EMM market. We derive, and expect to continue to derive, all of our revenue from providing EMM software and services both from on premise and on-demand models, and in particular we expect to derive a substantial majority of our license revenue for the foreseeable future from current and future versions of our Affinium software. In order to execute our strategy successfully, we must increase awareness of EMM software generally and of our company and products in particular. The market for EMM software is relatively new and still evolving, and our success will depend to a substantial extent on the willingness of businesses to implement EMM software. We intend to introduce new software products and enhance existing products in order to keep pace with technological developments, satisfy increasing customer requirements and maintain our competitive position.

In order to succeed, we also must expand the depth and number of our customer relationships. We will continue our efforts to expand our worldwide installed base by adding direct sales personnel, particularly in territories around the world where we have or are targeting key accounts, and by selectively entering into alliance relationships with additional MSPs and systems integrators, particularly in additional countries outside the United States. At the same time, we will increase our efforts to license additional currently available and newly developed Affinium modules to our existing customers, which license only a portion of our offerings.

We intend to increase our recurring revenue on an absolute dollar basis, which we generate from ongoing maintenance agreements to support our software, as well as from agreements to license our offerings on a

subscription basis primarily through MSPs that provide outsourcing and on-demand solutions using Affinium software and also through our direct sales force.

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 offerings that typically include: (a) a subscription fee for bundled software and support for a fixed 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 NetInsightTM product, licenses are generally priced based on the volume of traffic and complexity of a website. We generally recognize perpetual license revenue at the time of product delivery, provided all other revenue recognition criteria have been met, pursuant to the requirements of Statement of Position, or 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 on perpetual licenses on an annual basis that includes technical support and software updates and upgrades on a when and if available basis. Revenue is deferred at the time the maintenance agreement is initiated and is recognized ratably over the term of the maintenance agreement.

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

Subscription Revenue

We also market our software under subscription arrangements. 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 on a when and if available basis, and (c) technical support. Subscriptions are sold directly by Unica and through MSPs. Under a subscription agreement, we typically invoice the customer in annual or quarterly installments in advance. Revenue is recognized ratably over the contractual term of the arrangement commencing on the date at which all services under related work orders are completed.

Cost of Revenue

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

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

Cost of subscription revenue includes the allocation of specific costs including labor-related costs associated with technical support and documentation personnel, and related overhead.

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. Historically, all of our research and development costs have been expensed as incurred as all costs potentially capitalizable were insignificant to the consolidated financial statements. During the year ended September 30, 2007, we capitalized $136,000 related to software development costs incurred, which will be amortized over the expected lives of the products.

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

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

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

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

We recognized share-based compensation expense of $5.5 million and $3.0 million in 2007 and 2006, respectively, a significant component of which was the result of the adoption of SFAS 123(R). Utilizing a different option pricing model, or different assumptions, however, may have resulted in a different expense.

The components of share-based compensation expense for the years ended September 30, 2007 and 2006 are as follows:


	2007		2006
	(In thousands)

Stock options under SFAS 123(R)	$	2,426	$	1,733
Stock options under APB 25		82		152
Restricted stock units		2,937		1,093
Employee stock purchase plan		75		40

Total share-based compensation	$	5,520	$	3,018

Payments to Preferred Stockholders

We paid a one-time cash dividend of approximately $10.8 million after the completion of our initial public offering on August 2, 2005. The dividend was paid to persons who held our stock as of August 3, 2005, which was one day after the date on which we entered into the underwriting agreement for our initial public offering. Approximately $3.1 million of this amount was paid to our preferred stockholders. In addition, we paid, immediately after the completion of the initial public offering, an aggregate of $1.0 million to our Series B preferred stockholders in accordance with our charter. The total of $4.1 million paid to our preferred stockholders reduced income attributable to common stockholders and the related net income per share amounts in the fourth quarter and year-ended September 30, 2005.

Acquisition

On December 20, 2005, we entered into an Asset Purchase Agreement with MarketSoft Software Corporation (MarketSoft), a provider of lead management and event-detection software and services, pursuant to which we acquired certain assets of MarketSoft in exchange for $7.3 million in cash, as well as transaction costs and the assumption of specified liabilities of MarketSoft. The acquisition was accounted for as a purchase transaction in accordance with Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and our operating results therefore include the results of MarketSoft beginning on the acquisition date.

On March 22, 2006, we completed our acquisition of Sane Solutions, LLC (Sane), a privately-held provider of web analytics software for internet marketing. The merger consideration consisted of $21.8 million in cash, 151,984 shares of our common stock valued at $1.8 million, which were deposited into an escrow account to secure certain indemnification obligations of the former members of Sane, and assumed liabilities and transaction costs of $5.1 million. Pursuant to the merger agreement, we granted restricted stock unit awards for an aggregate of 88,293 shares of our common stock to specified employees of Sane. The acquisition was accounted for as a purchase transaction in accordance with SFAS 141, and our operating results therefore include the results of Sane beginning on the acquisition date.

On July 12, 2007, we completed our acquisition of MarketingCentral, LLC (MarketingCentral), a provider of web-based marketing management solutions. The merger consideration consisted of $12.5 million in cash, as well as transaction costs and the assumption of liabilities of MarketingCentral. The acquisition was accounted for as a purchase transaction in accordance with SFAS 141, and our operating results therefore include the results of MarketingCentral beginning on the acquisition date.

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.

Our significant accounting policies are described in Note 2 to our consolidated financial statements. We believe that the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

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

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

Generally, implementation services for our software products are not deemed essential to the functionality of the software products, and therefore services revenue is recognized separately from license and subscription 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. Fees paid in connection with a subscription agreement are recognized as revenue ratably over the term of the arrangement, typically one year.

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


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

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

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

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

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

Allowance for Doubtful Accounts

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

Share-Based Compensation

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

On October 1, 2005, we adopted the provisions of SFAS 123(R), which requires us to recognize expense related to the fair value of share-based compensation awards. We elected to use the modified prospective transition method as permitted by SFAS 123(R) and therefore have not restated our financial results for prior periods. Under this transition method, share-based compensation expense for the years ended September 30, 2007 and 2006 includes compensation expense for all share-based compensation awards granted on or after November 18, 2004 (the filing date for the initial registration statement for our initial public offering), based

on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Pursuant to SFAS 123(R), the fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model, which requires us to make assumptions as to volatility, risk-free interest rate, expected term of the awards, and expected forfeiture rate. The computation of expected volatility for the years ended September 30, 2007 and 2006 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. Computation of expected forfeitures is based on historical forfeiture rates of the Company’s stock options.

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

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

As of September 30, 2007, we had outstanding stock options of 2,487,000 and non-vested restricted stock awards of 1,136,000. On October 1, 2007, an additional 1,004,000 shares were reserved under the 2005 Stock Incentive Plan (the 2005 Plan), in accordance with the provisions of the 2005 Plan, which requires an annual increase of the shares reserved for issuance under the 2005 Plan equal to the lesser of (a) 5,000,000 shares of common stock, (b) 5% of the outstanding shares of common stock as of the opening of business on such date or (c) an amount determined by the Board.

Goodwill, Other Intangible Assets and Long-Lived Assets

Goodwill represents the excess of the purchase price over the fair value of net assets associated with various acquisitions from fiscal 2003 through fiscal 2007. In accordance with SFAS 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 14 years. We also allocated a portion of each purchase price to tangible assets and assessed the liabilities to be recorded as part of the purchase price. The estimates we made in allocating each purchase price to tangible and intangible assets, and in assessing liabilities recorded as part of the purchase, involved the application of judgment and the use of estimates, which could significantly affect our operating results and financial position.

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

In accordance with SFAS 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 86. We sell products in a market that is subject to rapid technological change, new product development and changing customer needs. Accordingly, we have concluded that technological feasibility is not established until the development stage of the product is nearly complete. We define technological feasibility as the completion of a working model. During the years ended September 30, 2007, 2006 and 2005, we have capitalized $136,000, $0 and $0, respectively, of software development costs.

Costs of software applications developed or obtained for internal use that are incurred during the applications’ development stages are capitalized in accordance with SOP No. 98-1, Accounting for the Costs of Computer Software Developed of Obtained for Internal Use.

Income Taxes

We are subject to income taxes in both the United States and foreign jurisdictions, and we use estimates in determining our provision for income taxes. Deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we estimate tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. At September 30, 2007, our deferred tax assets consisted primarily of state research and development tax credit carryforwards, foreign tax credit carryforwards and temporary differences relating primarily to stock 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. During fiscal 2007, we recorded a full valuation allowance against deferred tax assets associated with excess state tax credits, resulting in no tax benefit for the fiscal year. See Note 14 to the consolidated financial statements for further discussion of this matter as well as the restated condensed consolidated financial data for each of the first three quarters in fiscal 2007. We also generated certain foreign income and utilized certain foreign net operating loss carryforwards which resulted in the reduction of a portion of our valuation allowance, and a tax benefit in the current period. During fiscal 2006, we adjusted certain foreign deferred tax assets and associated valuation allowance, resulting in no tax benefit for that period. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of business.

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 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.

As a result of the Sane acquisition, we recorded an in-process research and development charge of $4.0 million associated with the web analytics product as the future benefit was dependent on continued research and development activity and the asset had no alternative future use as of the acquisition date. We used the income approach to determine the fair values of the in-process research and development. This approach determines fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value at a risk-adjusted discount rate, which we determined was approximately 31%. We estimated that we would complete development of the in-process project in the third quarter of fiscal 2006, at which point material cash inflows would commence. In arriving at the value of the in-process project, we considered, among other factors, the in-process project’s stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. We completed development in June 2006, incurring approximately $450,000 of product development costs.

Results of Operations

Comparison of Years Ended September 30, 2007 and 2006

Revenue


	Year Ended September 30,
	2007					2006
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

License revenue	$	38,970		38	%	$	35,023		42	%	$	3,947		11	%
Maintenance and services revenue:
Maintenance fees		39,989		39			30,586		37			9,403		31
Services		14,329		14			10,290		13			4,039		39

Total maintenance and services revenue		54,318		53			40,876		50			13,442		33
Subscription Revenue		8,955		9			6,512		8			2,443		38

Total revenue	$	102,243		100	%	$	82,411		100	%	$	19,832		24	%

Total revenue for fiscal 2007 was $102.2 million, an increase of 24%, or $19.8 million, from fiscal 2006. Total revenue increased as a result of increased maintenance fees on the sale of licenses, higher sales of our

Affinium product suite through license and subscription agreements and an increase in revenue from implementation and training services.

License revenue for fiscal 2007 was $39.0 million, an increase of 11%, or $3.9 million, from fiscal 2006. This increase in license revenue was attributable to higher sales of our Affinium products in international markets, primarily Europe and Asia.

Maintenance fees revenue is associated with renewal agreements from our existing installed customer base and maintenance agreements in connection with the sale of new perpetual licenses. Maintenance fees revenue for fiscal 2007 was $40.0 million, an increase of 31%, or $9.4 million, from fiscal 2006. The increase primarily reflects additional maintenance fees on the sale of licenses during fiscal 2006 and, to a lesser extent, additional maintenance fees on the sale of licenses during fiscal 2007. Maintenance revenue is expected to increase at a lower rate in 2008 given the lower growth rate in license revenue in 2007 (11% in 2007 versus 34% in 2006).

Services revenue for fiscal 2007 was $14.3 million, an increase of 39%, or $4.0 million, from fiscal 2006. This increase in services revenue resulted from growth in the number of implementation and training services in both North America and Europe related to new licenses.

Subscription revenue for fiscal 2007 was $9.0 million, an increase of 38%, or $2.4 million, from fiscal 2006. Subscription revenue is primarily derived from agreements established through MSPs. We anticipate that subscription revenue will continue to increase in future years as we enter into additional subscription agreements and expand our on-demand product offerings.

Recurring Revenue


	Year Ended September 30,
	2007					2006
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

Maintenance fees	$	39,989		39	%	$	30,586		37	%	$	9,403		31	%
Subscription fees		8,955		9			6,512		8			2,443		38

Total recurring revenue		48,944		48			37,098		45			11,846		32
Perpetual license		38,970		38			35,023		43			3,947		11
Services		14,329		14			10,290		12			4,039		39

Total revenue	$	102,243		100	%	$	82,411		100	%	$	19,832		24	%

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

Recurring revenue for fiscal 2007 was $48.9 million, an increase of 32%, or $11.8 million, from fiscal 2006. The increase in recurring revenue resulted from (a) additional maintenance fees on the sale of licenses during fiscal 2006 and, to a lesser extent, additional maintenance fees on the sale of new licenses during fiscal 2007; and (b) additional subscription agreements through our MSP partners. Recurring revenue as a percent of total revenue was 48% for fiscal 2007, up from 45% for fiscal 2006.

Revenue by Geography


	Year Ended September 30,
	2007					2006
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

North America	$	74,953		73	%	$	64,969		79	%	$	9,984		15	%
International		27,290		27	%		17,442		21			9,848		56	%

Total revenue	$	102,243		100	%	$	82,411		100	%	$	19,832		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 and 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 fiscal 2007 was $75.0 million, an increase of 15%, or $10.0 million, from fiscal 2006. The increase was primarily related to growth in maintenance revenues and professional services.

Total revenue for our International business for fiscal 2007 was $27.3 million, an increase of 56%, or $9.8 million, from fiscal 2006. The increase was a result of strong license sales of our Affinium product primarily in Europe and Asia.

Cost of Revenue


	Year Ended September 30,
	2007					2006
			Gross Margin					Gross Margin			Period-to-Period Change
			on Related					on Related					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
						(Dollars in thousands)

License	$	2,782		93	%	$	1,924		95	%	$	858		45	%
Maintenance and services		18,958		65			13,854		66			5,104		37
Subscription		692		92			429		93			263		61

Total cost of revenue	$	22,432		78	%	$	16,207		80	%	$	6,225		38	%

Cost of license revenue for fiscal 2007 was $2.8 million, an increase of 45%, or $858,000, from fiscal 2006. The increase in cost of license revenue was primarily due to (a) a $367,000 increase in labor related costs; and (b) a $228,000 increase in royalties. Royalties paid for third-party licensed technology represented 2% of total license revenue for fiscal 2007. Royalties related to license revenue may fluctuate based on the mix of products sold in any given fiscal year. We expect royalties paid for third-party licensed technology to remain between 1% and 2% of total license revenue. Gross margin on license revenue was 93% in fiscal 2007, down from 95% in fiscal 2006. The decrease primarily related to the increase in royalties paid to third-parties for licensed technology as well as the increase in labor related costs. We expect gross margin on license revenue in fiscal 2008 to remain relatively comparable to fiscal 2007.

Cost of maintenance and services for fiscal 2007 was $19.0 million, an increase of 37%, or $5.1 million, from fiscal 2006. The increase in cost of maintenance and services revenue was primarily due to (a) a $3.4 million increase in labor related costs; and (b) a $1.3 million increase in expenses related to sub-contractor fees for implementation services. Gross margin on maintenance and services revenue was 65% in fiscal 2007, relatively unchanged from fiscal 2006. Gross margin on maintenance and services revenue fluctuates based on the mix of revenues from services and maintenance and the degree to which we

subcontract services arrangements. We expect gross margin on maintenance and services revenue in fiscal 2008 to remain relatively comparable to fiscal 2007.

Cost of subscription revenue for fiscal 2007 was $692,000, an increase of 61%, or 263,000, from fiscal 2006. The increase in cost of subscription revenue was primarily due to an increase in labor related expenses and royalties related to higher subscription revenue. Gross margin on subscription revenue was 92% in fiscal 2007 a decrease from 93% in fiscal 2006 primarily due to increased royalties.

Operating Expenses


	Year Ended September 30,
	2007					2006
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total						Percentage
	Amount		Revenue			Amount		Revenue			Amount			Change
	(Dollars in thousands)

Sales and marketing	$	41,068		40	%	$	33,446		41	%	$	7,622			23	%
Research and development		22,034		22			17,085		21			4,949			29
General and administrative		16,362		16			11,549		14			4,813			42
Restructuring charges		1,244		1			255		—			989			388
In-process research and development		—		—			4,037		5			(4,037	)		(100	)
Amortization of acquired intangible assets		1,572		2			1,109		1			463			42

Total operating expenses	$	82,280		80	%	$	67,481		82	%	$	14,799			22	%

Sales and Marketing. Sales and marketing expense for fiscal 2007 was $41.1 million, an increase of 23%, or $7.6 million, from fiscal 2006. The increase was primarily the result of (a) a $5.1 million increase in labor related expenses, including increased commission expenses due to additional sales employees hired during fiscal 2007 and higher revenues subject to commissions; (b) a $974,000 increase in marketing programs relating to promotional activity and new product introductions; and (c) a $931,000 increase in share-based compensation expense. Sales and marketing expense is expected to increase in fiscal 2008 at a rate comparable to that of fiscal 2007.

Research and Development. Research and development expense for fiscal 2007 was $22.0 million, an increase of 29%, or $4.9 million, from fiscal 2006. The increase in research and development was primarily the result of (a) a $3.6 million increase in labor related expenses, principally due to additional personnel related to increased investment in our Affinium product suite; (b) a 473,000 increase in share-based compensation expense; and (c) a $351,000 increase in professional services. Research and development expense is expected to increase in fiscal 2008 at a lower rate than that of fiscal 2007.

General and Administrative. General and administrative expense for fiscal 2007 was $16.4 million, an increase of 42%, or $4.8 million, from fiscal 2006. The increase in general and administrative expense was primarily the results of (a) a $2.9 million increase in labor related expenses due to increased headcount as we continue to build infrastructure to support our growth; (b) a $781,000 increase in share-based compensation expenses; (c) a 430,000 increase in professional services costs; and (d) a $285,000 increase in depreciation expense. General and administrative expense is expected to increase in fiscal 2008 at a lower rate than that of fiscal 2007.

Restructuring charges. In the fourth quarter of fiscal 2006, we initiated the restructuring of certain of our operations in France to realign our resources in that region. As a result of this initiative, we terminated several employees resulting in a restructuring charge and accrual of $255,000 for severance and related costs in the fourth quarter of fiscal 2006 and an additional charge of $1.2 million during fiscal 2007.

In-Process Research and Development. Operating expenses for fiscal 2006 includes a $4.0 million in-process research and development charge associated with the acquisition of Sane. Technological feasibility had

not been established, nor was there an alternative future use for certain of the technology under development. We completed development in June 2006 as we had originally expected when determining the fair value of the project, incurring approximately $450,000 of product development costs. We believe the estimated in-process research and development amount represents the fair value at the date of acquisition and does not exceed the amount a third party would pay for the project.

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $1.6 million for fiscal 2007, an increase of 42%, or $463,000 from fiscal 2006. The increase primarily relates to a full year of amortization during fiscal 2007 on the intangible assets relating to the Sane and MarketSoft acquisitions as compared to partial year amortization during fiscal 2006.

Other Income


	Year Ended September 30,
	2007					2006
			Percentage of						Percentage of			Period-to-Period Change
			Total						Total					Percentage
	Amount		Revenue			Amount			Revenue			Amount		Change
						(Dollars in thousands)

Interest income, net	$	2,056		2	%		2,047			2	%	$	9		—
Other income (expense), net		108		—			(57	)		—			165		289

Total other income	$	2,164		2	%	$	1,990			2	%	$	174		9	%

Interest income, net was $2.1 million for fiscal 2007, relatively unchanged from fiscal 2006. Interest income is generated from the investment of our cash balances, less related bank fees.

Other income (expense), net consisted of foreign currency translation and transaction gains and losses, as well as other miscellaneous income and charges. The change in other expense, net was primarily driven by more favorable foreign currency exchange rates.

Provision for Income Taxes

Year Ended September 30,

2007

2006

Percentage of

Income

Before

Provision for

Period-to-Period Change

Income

Percentage

Amount

Taxes

Amount

Taxes

Amount

Change

(Dollars in thousands)

Provision (benefit) for income taxes

(801

)

263

(838

)

n/m*

Benefit for income taxes was $801,000 for fiscal 2007, a $838,000 increase in benefit from fiscal 2006. This change principally reflects the $1.0 million difference in income (loss) before income taxes during fiscal 2007, the reduction of a portion of the valuation allowance related to foreign operations and research and development credits. Also, the Company recorded a provision for state income taxes of $141,000 during fiscal 2007 related to prior fiscal years. For further description of this matter, see Note 14 to the consolidated financial statements.

At September 30, 2007, we had available foreign net operating loss carryforwards of $170,000 that do not expire, against which we have a full valuation allowance, U.S. foreign tax credit carryforwards of $163,000 that expire through 2010 and state net operating loss carryforwards of $2.1 million that expire at various dates through 2027. The extent to which we can benefit from our deferred tax assets in future years will depend on the amount of taxable income we generate. Our effective tax rate may fluctuate on a quarterly basis due to the volatility caused by the tax impact related to accounting for share-based compensation pursuant to the provisions of SFAS 123(R), changes in tax laws, change in the mix of jurisdictional earnings, revisions to estimates or discrete items.

Comparison of Years Ended September 30, 2006 and 2005

Revenue


	Year Ended September 30,
	2006					2005
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

License revenue	$	35,023		42	%	$	26,198		41	%	$	8,825		34	%
Maintenance and services revenue:
Maintenance fees		30,586		37			23,508		37			7,078		30
Services		10,290		13			9,189		14			1,101		12

Total maintenance and services revenue		40,876		50			32,697		51			8,179		25
Subscription revenue		6,512		8			4,653		8			1,859		40

Total revenue	$	82,411		100	%	$	63,548		100	%	$	18,863		30	%

Total revenue for fiscal 2006 was $82.4 million, an increase of 30%, or $18.9 million, from fiscal 2005. Total revenue increased as a result of higher sales of our Affinium product suite, the $8.1 million impact of sales of new products obtained in recent acquisitions, and additional maintenance fees on the sale of licenses.

License revenue for fiscal 2006 was $35.0 million, an increase of 34%, or $8.8 million, from fiscal 2005. This increase in license revenue was attributable to approximately $5.7 million in license revenue from the sale of products obtained in recent acquisitions and from higher sales of our Affinium products.

Maintenance fees revenue is associated with maintenance agreements in connection with the sale of new perpetual licenses and maintenance renewal agreements from our existing installed customer base. Maintenance fees revenue for fiscal 2006 was $30.6 million, an increase of 30%, or $7.1 million from fiscal 2005. The increase primarily reflects additional maintenance fees on the sale of licenses during 2005 and, to a lesser extent, additional maintenance fees on the sale of licenses during 2006.

Services revenue for fiscal 2006 was $10.3 million, an increase of 12%, or $1.1 million, from fiscal 2005. This increase in services revenue resulted from a $1.0 million increase in consulting activity in Europe and an approximate $600,000 increase in consulting services in North America related to assumed contracts from recent acquisitions, offset by an overall decline in North America consulting. The decline in North America consulting services was due to a greater amount of such services being performed by our partners.

Subscription revenue for fiscal 2006 was $6.5 million, an increase of 40%, or $1.9 million, from fiscal 2005. Subscription revenue is primarily derived from agreements established through MSPs.

Recurring Revenue


	Year Ended September 30,
	2006					2005
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

Total subscription fees	$	6,512		8	%	$	4,654		7	%	$	1,858		40	%
Maintenance fees		30,586		37			23,509		37			7,077		30

Total recurring revenue		37,098		45			28,163		44			8,935		32
Perpetual license		35,023		42			26,196		41			8,827		34
Services		10,290		13			9,189		15			1,101		12

Total revenue	$	82,411		100	%	$	63,548		100	%	$	18,863		30	%

We generate recurring revenue from both subscription and maintenance agreements, which is recognized ratably over the life of the agreement.

Recurring revenue for fiscal 2006 was $37.1 million, an increase of 32%, or $8.9 million from fiscal 2005. The increase in recurring revenue resulted from additional maintenance fees on sales of new licenses, reflecting an increase in our installed customer base, and increased subscription revenue from additional sales through our MSP partners.

Revenue by Geography


	Year Ended September 30,
	2006					2005
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

North America	$	64,969		79	%	$	50,239		79	%	$	14,730		29	%
International		17,442		21			13,309		21			4,133		31

Total revenue	$	82,411		100	%	$	63,548		100	%	$	18,863		30	%

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 and International is comprised of revenue from the rest of the world. In fiscal 2006, International revenue increased at a slightly higher rate than North America due to expanded sales distribution in Europe. Depending on the timing of new customer contracts, revenue mix from geographic region can vary widely from period to period.

Cost of Revenue


	Year Ended September 30,
	2006					2005
			Gross Margin					Gross Margin			Period-to-Period Change
			on Related					on Related					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

License	$	1,924		95	%	$	854		97	%	$	1,070		125	%
Maintenance and services		13,854		66			10,554		68			3,300		31
Subscription		429		93			228		95			201		88

Total cost of revenue	$	16,207		80	%	$	11,636		82	%	$	4,571		39	%

Cost of license revenue for fiscal 2006 was $1.9 million, an increase of 125% from fiscal 2005. The increase in cost of license revenue was primarily due to (a) an increase of $675,000 in amortization of developed technology acquired from Sane and MarketSoft; (b) a $289,000 increase in royalties relating to the higher license revenue and the mix of products sold in fiscal 2006; and (c) a $251,000 increase in labor related costs. Royalties paid for third-party licensed technology represented 2% of total license revenue for fiscal 2006, up from 1% in fiscal 2005. Royalties related to license revenue may fluctuate based on the mix of products we sell. We expect royalties paid for third-party licensed technology to remain between 1% and 2% of total license revenue. Gross margin on license revenue was 95% in fiscal 2006, down from 97% in fiscal 2005. The decrease was the result of the increase in amortization of developed technology and the increase in royalties paid to third-parties for licensed technology.

Cost of maintenance and services for fiscal 2006 was $13.9 million, an increase of 31% from fiscal 2005. The increase in cost of maintenance and services revenue was primarily due to (a) a $2.4 million increase in labor related costs, including $179,000 of incremental share-based compensation expense; (b) a $356,000 increase in overall facilities costs and (c) a $158,000 increase in outside professional services support. Gross margin on maintenance and services revenue was 67% in fiscal 2006, down from 69% in fiscal 2005. Gross margin on maintenance and services revenue fluctuates based on the mix of revenues from services and maintenance.

Operating Expenses


	Year Ended September 30,
	2006					2005
			Percentage of					Percentage of			Period-to-Period Change
			Total					Total					Percentage
	Amount		Revenue			Amount		Revenue			Amount		Change
	(Dollars in thousands)

Sales and marketing	$	33,446		41	%	$	26,802		42	%	$	6,644		25	%
Research and development		17,085		21			11,466		18			5,619		49
General and administrative		11,549		14			6,927		11			4,622		67
Restructuring charges		255		—			—		—			255		n/m*
In-process research and
development		4,037		5			—		—			4,037		n/m*
Amortization of acquired intangible assets		1,109		1			460		1			649		141

Total operating expenses	$	67,481		82	%	$	45,655		72	%	$	21,826		48	%


*		Not meaningful.

Sales and Marketing. Sales and marketing expense for fiscal 2006 was $33.4 million, an increase of 25%, or $6.6 million from fiscal 2005. The increase was primarily the result of increased labor related expenses of $6.3 million, including increased commission expenses of $1.3 million related to the higher revenues in fiscal 2006 and $605,000 of incremental share-based compensation expense.

Research and Development. Research and development expense for fiscal 2006 was $17.1 million, an increase of 49%, or $5.6 million from fiscal 2005. The increase in research and development was primarily the result of (a) a $4.6 million increase in labor related expenses, principally due to increased personnel related to increased investment in our Affinium product suite, including $2.5 million in expenses related to the employees from recent acquisitions and an increase of $610,000 of incremental share-based compensation expense, and (b) an increase of $775,000 due to higher facilities costs.

General and Administrative. General and administrative expense for fiscal 2006 was $11.5 million, an increase of 67%, or $4.6 million from fiscal 2005. The increase in general and administrative expense was primarily the results of (a) a $2.5 million increase in labor related expenses, including $1.2 million of incremental share-based compensation expense, and (b) $1.6 million in public company related costs, including

increased audit fees, costs of compliance with the Sarbanes-Oxley Act and higher directors and officers insurance expense.

Restructuring charges. In the fourth quarter of fiscal 2006, we initiated the restructuring of certain of our operations in France to realign our resources in that region. As a result of this initiative, the Company has terminated several employees resulting in a restructuring charge and accrual of $255,000 for severance and related costs in the fourth quarter of fiscal 2006.

In-Process Research and Development. The $4.0 million in-process research and development charge associated with the Sane acquisition primarily consists of an acquired web analytics product that was in development at the acquisition date. The amount was recorded as in-process research and development and charged to expense at the acquisition date as the future benefit is dependent on continued research and development activity and the asset has no alternative future use as of the acquisition date.

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $1.1 million for fiscal 2006, an increase of $649,000 over fiscal 2005. The increase in amortization of intangible assets was related primarily to the two acquisitions we made in fiscal 2006.

Other Income


	Year Ended September 30,
	2006						2005
				Percentage of						Percentage of			Period-to-Period Change
				Total						Total					Percentage
	Amount			Revenue			Amount			Revenue			Amount		Change
	(Dollars in thousands)

Interest income, net	$	2,047			2	%	$	660			1	%	$	1,387		210	%
Other expense, net		(57	)		—			(67	)		—			10		15

Total other income	$	1,990			2	%	$	593			1	%	$	1,397		236	%

Interest income, net was $2.0 million for fiscal 2006, a $1.4 million increase from fiscal 2005. Interest income is generated from the investment of our cash balances, less related bank fees. The increase in interest income, net principally reflected higher cash balances available for investment, resulting from proceeds from our initial public offering less net cash used for acquisitions, and, to a lesser extent, higher interest rates.

Other expense, net consisted of foreign currency translation and transaction gains and losses, as well as other miscellaneous income and charges. The change in other expense, net was primarily driven by more favorable foreign currency exchange rates.

Provision for Income Taxes

Year Ended September 30,

2006

2005

Percentage of

Income

Before

Provision for

Period-to-Period Change

Income

Percentage

Amount

Taxes

Amount

Taxes

Amount

Change

(Dollars in thousands)

Provision for income taxes

2,329

(2,292

)

(98

Provision for income taxes was $37,000 for fiscal 2006, a $2.3 million decrease from fiscal 2005. The $2.3 million decrease in the provision for income taxes principally reflects the $6.1 million decrease in our income before income taxes, as well as other discrete events in 2006 which lowered our tax provision. In February 2006, the United States Internal Revenue Service completed its audit of Unica Corporation for fiscal years ended September 30, 2003 and 2004. We had established tax reserves in excess of the ultimate settled amounts and, as a result of the settlement, reversed the excess portion of the related income tax reserves during the quarter ended March 31, 2006. This was accounted for as a discrete item and resulted in an income

tax benefit of $75,000. During the quarter ended June 30, 2006, we determined that certain estimated liabilities to taxing authorities were no longer probable due to the expiration of the statute of limitations on the related tax positions. We therefore reversed this portion of the related tax reserves, which was accounted for as a discrete item and resulted in an income tax benefit of $90,000 during the quarter ended June 30, 2006. An additional tax benefit of $72,000 was recorded in the quarter ended June 30, 2006 relating to the adjustment of the estimated tax provision computed for the fiscal year ended September 30, 2005, based upon amounts included in the actual tax returns filed in June 2006. These were accounted for as discrete items and cumulatively resulted in an income tax benefit of $237,000 in 2006. As a result of these items our effective tax rate for the year ended September 30, 2006 was 5.2%.

At September 30, 2006, we had available foreign net operating loss carryforwards of $712,000 that do not expire, against which we have a full valuation allowance, and foreign tax credit carryforwards of $163,000 that expire through 2010. We have no U.S. net operating loss carryforwards. The extent to which we can benefit from our deferred tax assets in future years will depend on the amount of taxable income we generate. Our effective tax rate may fluctuate on a quarterly basis due to the volatility caused by the tax impact related to accounting for share-based compensation pursuant to the provisions of SFAS 123(R), changes in tax laws, change in the mix of jurisdictional earnings, or discrete items.

Liquidity and Capital Resources

Historically, we have financed our operations and met our capital expenditure requirements primarily through funds generated from operations and sales of our capital stock. As of September 30, 2007, our primary sources of liquidity consisted of our total cash and cash equivalents balance of $18.5 million, and our short-term investments balance of $19.6 million. As of September 30, 2007, we had no outstanding debt.

Our cash and cash equivalents at September 30, 2007 were held for working capital purposes and were invested primarily in commercial paper with maturities of less than ninety days. Our short-term investments at September 30, 2007 consisted primarily of commercial paper and corporate bonds. We do not enter into investments for trading or speculative purposes. Restricted cash of $260 at September 30, 2007 was held in a certificate of deposit as collateral for a letter of credit related to the lease agreement for our corporate headquarters in Waltham, Massachusetts, and for our sales office in France. Short-term investments are made in accordance with our corporate investment policy, as approved by our Board of Directors. The primary objective of this policy is the preservation of capital. Investments are limited to high quality corporate debt, money market funds and similar instruments. The policy establishes maturity limits, liquidity requirements and concentration limits. At September 30, 2007, we were in compliance with this internal policy.

Net cash provided by operating activities was $10.7 million in fiscal 2007, $7.4 million in 2006 and $9.7 million in 2005. Net income adjusted for non-cash charges (including depreciation, amortization, shared-based compensation and deferred tax benefits) and in-process research and development increased to $8.0 million in 2007 from $6.8 million in 2006, an increase of $1.2 million. Sources of cash were increases in deferred revenue, net of increases in accounts receivables from customers, as well as increases in accounts payable and accrued expenses. These increases in operating cash flow in 2007 were offset by increases in prepaid expenses and other assets. The major driver for the increase in accounts receivable was the timing of significant license transactions in the fourth quarter of 2007. The increase in prepaid expenses and other current assets relates to prepayments made for income taxes and amounts due from customers relating to state sales tax.

Investing activities consumed $25.3 million, $23.1 million and $17.3 million of cash in 2007, 2006 and 2005, respectively. In 2007, sales and maturities of short term investments generated $49.0 million of cash, which was offset by $11.9 million of net cash used for the acquisition of MarketingCentral, $59.1 million for the purchase of short-term investments and $3.2 million of cash used for purchases of property and equipment, net of acquisitions. In 2006, sales and maturities of short term investments generated $25.0 million of cash, which was offset by $28.3 million of net cash used for acquistions, $18.4 million for the purchase of short term investments and $1.4 million of cash used for purchases of property and equipment, net of acquisitions In

2005, net purchases of short-term investments consumed $16.2 million of cash and purchases of property and equipment consumed $1.2 million of cash.

Our financing activities generated cash of $2.3 million, $2.4 million and $27.6 million in fiscal 2007, 2006 and 2005, respectively. In fiscal 2007, $2.8 million of cash was generated by exercises of stock options and related tax benefits, and by the issuance of shares under the Employee Stock Purchase Plan. This was offset by $566,000 of payments relating to withholding taxes in connection with the settlement of restricted stock units. In fiscal 2006, $2.4 million of cash was generated by exercises of stock options and related tax benefits, and by the issuance of shares under the Employee Stock Purchase Plan. In fiscal 2005, $38.5 million of net proceeds were generated from the issuance of common stock in our initial public offering, $936,000 of cash was generated by exercises of stock options, offset by a one time dividend of $11.8 million.

Requirements

Capital Expenditures. We make capital expenditures primarily to acquire computer and other equipment, software, furniture and leasehold improvements to support the growth of our business. Our capital expenditures totaled $3.2 million in fiscal 2007, $1.4 million in fiscal 2006 and $1.2 million in fiscal 2005, and related primarily to software used for internal purposes and computer equipment. We expect capital expenditures in fiscal 2008 to remain relatively consistent with the increase in fiscal 2007. We are not currently party to any purchase contracts related to future capital expenditures.

Contractual Obligations and Requirements. The following table sets forth our commitments to settle contractual obligations in cash after September 30, 2007:


									2012 and
	2008		2009		2010		2011		Beyond		Total
	(In thousands)

Operating leases as of September 30, 2007	$	2,689	$	1,788	$	149	$	36	$	—	$	4,662
Open vendor purchase obligations	$	1,172	$	316	$	65	$	—	$	—	$	1,553

Our only significant lease obligation relates to our corporate headquarters in Waltham, Massachusetts. Upon expiration of current operating leases in 2009, we expect to renew the existing lease, or contract for new leased facilities, at prevailing rates.

Acquisitions. On December 20, 2005, we entered into the Purchase Agreement with MarketSoft Software Corporation, pursuant to which we acquired certain assets of MarketSoft for a total purchase price of $8.0 million, which included $7.3 million in cash, transaction costs and the assumption of specified liabilities of MarketSoft. On March 22, 2006, we acquired Sane Solutions LLC for a total purchase price of $28.7 million, which included $21.8 million in cash, $1.8 million in common stock, and the assumption of specified liabilities. On July 12, 2007 we acquired Marketing Central L.L.C. for a total purchase price of $12.9 million including cash, transaction costs and assumed liabilities.

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 following the date of this Annual Report. 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.

Recent Accounting Pronouncements

In September 2006, the SEC issued SAB 108, Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements” which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment.

We adopted SAB 108 as of October 1, 2005 and had applied its provisions using the cumulative effect transition method which required us to reverse $510,000 of excess allowance for doubtful accounts for uncorrected errors. The excess allowance for doubtful accounts as of September 30, 2003 was approximately $410,000 and had accumulated over several years. The excess allowance for doubtful accounts increased by approximately $80,000 and $20,000 during the years ended September 30, 2004 and 2005, respectively. The excess allowance for doubtful accounts was the result of our business practice, which started in the fiscal year ended September 30, 1998, to record a general provision to protect against future loss exposure. These errors had not previously been material to any of those prior periods when measured using the roll-over method. We recorded this cumulative effect adjustment net of tax, resulting in a decrease to short-term deferred tax assets of $201,000. As a result, the net adjustment was recorded as an increase to retained earnings as of October 1, 2005 of $309,000.

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

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

In September 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in companies’ financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” and provides guidance on financial statement recognition and disclosure for tax positions taken or expected to be taken on a tax return. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition whereby companies must determine whether it is more likely than not that a tax position will be sustained upon examination. The second step is measurement whereby a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 also provides guidance on derecognition of recognized tax benefits, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The guidance of FIN 48 is applicable for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 at the beginning of fiscal 2008. The Company is in the process of evaluating whether the adoption of FIN 48 will have a material effect on the Company’s financial position, results of operations or cash flows.

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, we will adopt this

standard in fiscal 2010. We have not yet determined the impact, if any, of SFAS 141R on our consolidated financial statements.

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

Impact of Inflation

We believe that our revenue and results of operations have not been significantly impacted by inflation during the past three fiscal years. We do not believe that our revenue and results of operations will be significantly impacted by inflation in future periods.


Item 7A.	*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 22% of total revenue in fiscal 2007, 16% in fiscal 2006 and 14% in fiscal 2005.

As of September 30, 2007, we had $10.2 million of receivables denominated in currencies other than the U.S. dollar. If the foreign exchange rates fluctuated by 10% as of September 30, 2007, the fair value of our receivables denominated in currencies other than the U.S. dollar would have fluctuated by $1.0 million. In addition, our subsidiaries have intercompany accounts that are eliminated in consolidation, but that expose us to foreign currency exchange rate exposure. Exchange rate fluctuations on short-term intercompany accounts are reported in other income (expense). Exchange rate fluctuations on long-term intercompany accounts, which are invested indefinitely without repayment terms, are recorded in other comprehensive income (loss) in stockholders’ equity.

Interest Rate Risk

At September 30, 2007, we had unrestricted cash and cash equivalents totaling $18.5 million and short-term investments totaling $19.6 million. These amounts were invested primarily in money market funds, commercial paper and corporate bonds, and are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We considered the historical volatility of short-term interest rates and determined that, due to the size and duration of our investment portfolio, a 100-basis-point increase in interest rates would not have any material exposure to changes in the fair value of our portfolio at September 30, 2007. Declines in interest rates, however, would reduce future investment income.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Unica Corporation

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, redeemable preferred stock, stockholders’ (deficit) equity and comprehensive income, and cash flows present fairly, in all material respects, the financial position of Unica Corporation and its subsidiaries at September 30, 2007, and the results of their operations and their cash flows for the year ended September 30, 2007 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to the accounting for taxes existed as of that date. 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 the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the accompanying Management’s Report on Internal Control Over Financial Reporting. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2007 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in fiscal 2006.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

January 7, 2008

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

Unica Corporation

We have audited the accompanying consolidated balance sheet of Unica Corporation and subsidiaries as of September 30, 2006, and the related consolidated statements of income, redeemable preferred stock, stockholders’ (deficit) equity and comprehensive income, and cash flows for each of the two years in the period ended September 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Unica Corporation and subsidiaries at September 30, 2006, and the consolidated results of their operations and their cash flows for each of the two years in the period ended September 30, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, on October 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, which requires the Company to recognize expense related to the fair value of share-based compensation awards. Also, as discussed in Notes 2 and 16 to the consolidated financial statements, effective October 1, 2005, the Company adopted the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, pursuant to which the Company recorded a cumulative effect adjustment to opening retained earnings.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts

December 13, 2006

UNICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	September 30,
	2007		2006

ASSETS
Current assets:
Cash and cash equivalents	$	18,493	$	30,501
Short-term investments		19,614		9,537
Accounts receivable, net of allowance for doubtful accounts of $77 and $141, respectively		28,058		26,252
Purchased customer receivables		1,180		1,030
Deferred tax assets, net of valuation allowance		565		655
Prepaid expenses and other current assets		7,288		1,682

Total current assets		75,198		69,657
Property and equipment, net		4,135		2,226
Purchased customer receivables, long-term		875		1,731
Acquired intangible assets, net		9,906		7,282
Goodwill		26,160		20,106
Deferred tax assets, long-term, net of valuation allowance		4,324		2,999
Other assets		750		646

Total assets	$	121,348	$	104,647


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,366	$	2,620
Accrued expenses		17,431		13,534
Short-term deferred revenue		34,946		29,580

Total current liabilities		54,743		45,734
Long-term deferred revenue		3,686		4,306

Total liabilities		58,429		50,040
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value:
Authorized — 10,000,000 shares; no shares issued or outstanding at September 30, 2006 and 2005		—		—
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; issued and outstanding — 20,074,455 and 19,600,444 shares at September 30, 2007 and 2006, respectively		201		196
Additional paid-in capital		59,802		52,094
Retained earnings		2,578		2,082
Accumulated other comprehensive income		338		235

Total stockholders’ equity		62,919		54,607

Total liabilities and stockholders’ equity	$	121,348	$	104,647

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

UNICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(In thousands, except share and per share data)


	Year Ended September 30,
	2007			2006			2005

Revenue:
License	$	38,970		$	35,023		$	26,198
Maintenance and services		54,318			40,876			32,697
Subscription		8,955			6,512			4,653

Total revenue		102,243			82,411			63,548
Costs of revenue:
License		2,782			1,924			854
Maintenance and services		18,958			13,854			10,554
Subscription		692			429			228

Total cost of revenue		22,432			16,207			11,636

Gross profit		79,811			66,204			51,912
Operating expenses:
Sales and marketing		41,068			33,446			26,802
Research and development		22,034			17,085			11,466
General and administrative		16,362			11,549			6,927
Restructuring charges		1,244			255			—
In-process research and development		—			4,037			—
Amortization of acquired intangible assets		1,572			1,109			460

Total operating expenses		82,280			67,481			45,655

Income (loss) from operations		(2,469	)		(1,277	)		6,257
Other income:
Interest income, net		2,056			2,047			660
Other income (expense), net		108			(57	)		(67	)

Total other income		2,164			1,990			593
Income (loss) before income taxes		(305	)		713			6,850
Provision (benefit) for income taxes		(801	)		37			2,329

Net income	$	496		$	676		$	4,521

Net income (loss) per common share:
Basic	$	0.02		$	0.04		$	(0.03	)

Diluted	$	0.02		$	0.03		$	(0.03	)

Shares used in computing net income (loss) per common share:
Basic		19,856,702			19,267,319			11,342,468

Diluted		20,782,484			20,234,995			11,342,468

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

UNICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS’ (DEFICIT) EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006 AND 2005
(In thousands, except share data)


	Series A						Series B
	Redeemable						Redeemable						Common Stock										Accumulated
	Convertible						Convertible								$0.01		Additional						Other			Total
	Preferred Stock						Preferred Stock								Par		Paid-In			Retained			Comprehensive			Stockholders’			Comprehensive
	Shares			Value			Shares			Value			Shares		Value		Capital			Earnings			Income			(Deficit) Equity			Income
Balance at September 30, 2004		74,811		$	9,488			1,635,799		$	5,876			9,597,259	$	96	$	725		$	(2,583	)	$	204		$	13,806
Net income																					4,521						4,521		$	4,521
Exercise of stock options														752,281		7		929									936
Accretion of Series A redeemable convertible preferred stock					505																(505	)					—
Accretion of Series B redeemable convertible preferred stock											336										(336	)					—
Conversion of redeemable convertible preferred stock into common stock		(74,811	)		(9,993	)		(1,635,799	)		(6,212	)		4,082,967		41		16,164									—
Dividend paid																		(11,823	)								(11,823	)
Issuance of common stock in initial public offering, net of issuance costs of $6,177														4,470,000		45		38,479									38,524
Stock-based compensation																		453									453
Foreign currency translation adjustment																								(43	)		(43	)		(43	)
Change in unrealized gain (loss) on available-for-sale securities																								(1	)		(1	)		(1	)

Comprehensive income																													$	4,477

Balance at September 30, 2005		—			—			—			—			18,902,507		189		44,927			1,097			160			46,373
Net income																					676						676		$	676
Impact of adopting SAB 108, net of tax																					309						309
Exercise of stock options														513,346		5		1,198									1,203
Tax benefit on options exercised																		882									882
Issuance of common stock for employee stock purchase plan														32,607				267									267
Stock-based compensation																		3,018									3,018
Issuance of common stock in acquisition														151,984		2		1,802									1,804
Foreign currency translation adjustment																								74			74			74
Change in unrealized gain (loss) on available-for-sale securities																								1			1			1

Comprehensive income																													$	751

Balance at September 30, 2006		—			—			—			—			19,600,444		196		52,094			2,082			235			54,607
Net income																					496						496			496
Exercise of stock options														320,754		3		1,261									1,264
Tax benefit on options exercised																		950									950
Issuance of common stock for employee stock purchase plan														60,866		1		626									627
Vesting of restricted stock units														92,391		1		(568	)								(567	)
Stock-based compensation																		5,439									5,439
Foreign currency translation adjustment																								104			104			104
Change in unrealized gain (loss) on available-for-sale securities																								(1	)		(1	)		(1	)

Comprehensive income																													$	599

Balance at September 30, 2007		—		$	—			—		$	—			20,074,455	$	201	$	59,802		$	2,578		$	338		$	62,919

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

UNICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended September 30,
	2007			2006			2005
	(In thousands)

Cash flows from operating activities:
Net income	$	496		$	676		$	4,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		1,428			1,102			787
Amortization of capitalized software		10			—			—
Amortization of acquired intangible assets		2,709			1,785			460
In-process research and development charge		—			4,037			—
Share-based compensation charge		5,520			3,018			453
Deferred tax benefits		(1,152	)		(2,929	)		(468	)
Excess tax benefits from share-based compensation		(950	)		(880	)		—
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed:
Accounts receivable, net		(387	)		(9,377	)		(3,865	)
Prepaid expenses and other current assets		(5,161	)		(526	)		1,103
Other assets		935			269			(79	)
Accounts payable		(292	)		845			(195	)
Accrued expenses		3,404			535			2,557
Deferred revenue		4,120			8,815			4,466

Net cash provided by operating activities		10,680			7,370			9,740
Cash flows from investing activities:
Purchases of property and equipment, net of acquisitions		(3,200	)		(1,371	)		(1,236	)
Capitalization of software development costs		(136	)		—			—
Net cash paid for acquisitions		(11,920	)		(28,286	)		—
Cash collected from license acquired in acquisition		31			—			—
Sales and maturities of short-term investments		48,974			25,044			3,400
Purchases of short-term investments		(59,053	)		(18,403	)		(19,573	)
Increase in restricted cash		—			(103	)		144

Net cash used in investing activities		(25,304	)		(23,119	)		(17,265	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		—			—			38,524
Proceeds from issuance of common stock under stock option and employee stock purchase plans		1,891			1,470			936
Tax benefit related to exercised stock options		950			882			—
Payment of withholding taxes in connection with settlement of restricted stock units		(566	)		—			—
Payment of dividend		—			—			(11,823	)

Net cash provided by financing activities		2,275			2,352			27,637
Effect of exchange rate changes on cash and cash equivalents		341			144			(131	)

Net (decrease) increase in cash and cash equivalents		(12,008	)		(13,253	)		19,981
Cash and cash equivalents at beginning of period		30,501			43,754			23,773

Cash and cash equivalents at end of period	$	18,493		$	30,501		$	43,754

Supplemental disclosure of cash flow information:
Income taxes paid	$	2,067		$	1,706		$	1,677

Supplemental disclosure of non-cash investing and financing activities:
Accretion of preferred stock dividends	$	—		$	—		$	841

Conversion of redeemable convertible preferred stock into common stock	$	—		$	—		$	16,205

Issuance of common stock for acquisition	$	—		$	1,804		$	—

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

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share data)


1.	Nature of Business

Unica Corporation (the “Company”) is a leading global provider of Enterprise Marketing Management (EMM) software. Focused exclusively on the needs of marketers, Unica’s Affinium^® software delivers key EMM capabilities, including: web and customer analytics, demand generation, and marketing resource management. Affinium streamlines the entire marketing process for brand, relationship and internet marketing — from planning and budgeting to project management, execution and measurement.

The Company has a worldwide installed base serving a wide range of industries, including financial services, insurance, retail, telecommunications, and travel and hospitality. The Company offers software primarily through a direct sales force, as well as through alliances with marketing service providers (MSPs), distributors, and systems integrators. In addition, the Company provides a full range of services to customers, including implementation, training, consulting, maintenance and technical support, and customer success programs.


2.	Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company’s fiscal year end is September 30. References to 2007, 2006 or 2005 mean the fiscal year ended September 30, unless otherwise indicated.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Subscription revenue, which previously was allocated between license and maintenance revenue, and the related costs of revenue, are now separately identified in the consolidated statements of income. All prior year amounts have been reclassified to conform to the current year presentation.

The following table reconciles the current revenue presentation and the previous presentation:


	Current Presentation						Previous Presentation
	Year Ended September 30,						Year Ended September 30,
	2007		2006		2005		2006		2005

Revenue:
License	$	38,970	$	35,023	$	26,198	$	39,621	$	29,343
Maintenance and services		54,318		40,876		32,697		42,790		34,205
Subscription		8,955		6,512		4,653		—		—

Total revenue	$	102,243	$	82,411	$	63,548	$	82,411	$	63,548

The following table reconciles the current cost of revenue presentation and the previous presentation:


	Current Presentation						Previous Presentation
	Year Ended September 30,						Year Ended September 30,
	2007		2006		2005		2006		2005

Cost of revenue:
License	$	2,782	$	1,924	$	854	$	2,175	$	957
Maintenance and services		18,958		13,854		10,554		14,032		10,679
Subscription		692		429		228		—		—

Total cost of revenue	$	22,432	$	16,207	$	11,636	$	16,207	$	11,636

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (US GAAP) requires the Company to make estimates, judgments and assumptions that affect the 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. Actual results could differ from those estimates, judgments and assumptions. Examples include estimates of loss contingencies, acquisition accounting valuations, software development costs eligible for capitalization, amortization and depreciation period estimates, the potential outcome of future tax consequences of events that have been recognized in the financial statements or tax returns, estimating the fair value of the Company’s reporting units and assumptions used in the valuation of share-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate.

Acquisition Accounting

The purchase price of each acquired business is allocated to the assets acquired and liabilities assumed, if any, at their respective fair value on the date of acquisition. Any excess purchase price over the amounts allocated to the assets acquired and liabilities assumed is recorded as goodwill.

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 and subscription revenue. When the Company determines 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, the Company is required to make reasonably dependable estimates relative to the extent of progress toward completion by comparing the total hours incurred to the estimated total hours for the arrangement and, accordingly, would apply the percentage-of-completion method. If the Company were unable to make reasonably dependable estimates of progress towards completion, then it would use the completed-contract method, under which revenue is recognized only upon completion of the services. If total cost estimates exceed the anticipated revenue, then the estimated loss on the arrangement is recorded at the inception of the arrangement or at the time the loss becomes apparent.

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

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

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

License Revenue. The Company licenses its software products on a perpetual basis. Licenses to use the Company’s products in perpetuity generally are priced based on (a) either a customer’s database size (including the number of contacts or channels) or a platform fee, and (b) a specified number of users. With respect to the Affinium NetInsight product, licenses are generally priced based on the volume of traffic and complexity 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 an 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 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 reimbursed expenses included within revenue and cost of revenue were $1,363, $1,002 and $1,066 for the years ended September 30, 2007, 2006 and 2005, respectively.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

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

Cost of Revenue

Cost of license revenue, for both perpetual licenses and subscription arrangements, consists primarily of (a) salaries, benefits and share-based compensation related to documentation personnel, (b) facilities and other related overhead, (c) amortization of acquired developed technology, (d) amortization of capitalized software development costs under Statement of Financial Accounting Standards (SFAS) 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, and (e) third-party royalties. Cost of maintenance and services revenue consists primarily of (a) salaries, benefits and share-based compensation related to professional services and technical support personnel, (b) billable and non-billable travel, lodging and other out-of-pocket expenses, (c) facilities and other related overhead, and (d) cost of services provided by subcontractors for professional services. Cost of subscription revenue includes the allocation of specific costs including labor-related costs associated with technical support and documentation personnel, and related overhead.

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 acquisitions. In accordance with SFAS 142, Goodwill and Other Intangible Assets, goodwill is not subject to amortization. The Company allocated a portion of each purchase price to intangible assets, including customer contracts and developed technology that are being amortized over their estimated useful lives of three to fourteen years. The Company also allocates a portion of each purchase price to tangible assets and assesses the liabilities to be recorded as part of the purchase price.

The Company reviews 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. The Company evaluates impairment by comparing the estimated fair value of each reporting unit to its carrying value. The Company estimates fair value by computing expected future discounted operating cash flows based on historical trends, which are adjusted to reflect the Company’s best estimate of future market and operating conditions. Actual results may differ materially from these estimates. The estimates made 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 goodwill could significantly affect operating results and financial position. Based on the Company’s most recent assessment, there were no goodwill impairment indicators.

In accordance with (SFAS) 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its 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. Based on this evaluation, the Company believes that, as of each of the balance sheet dates presented, none of the Company’s long-lived assets, including intangible assets, were impaired.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Software Development Costs

The Company evaluates whether to capitalize or expense software development costs in accordance with SFAS 86. The Company sells products in a market that is subject to rapid technological change, new product development and changing customer needs. The Company defines technological feasibility as the completion of a working model. For the year ended September 30, 2007, the Company capitalized $136 of software development costs. The net book value of capitalized software development costs at September 30, 2007 was $126. Software development costs eligible for capitalization during the years ended September 30, 2006 and 2005 were not material.

Costs of software applications developed or obtained for internal use that are incurred during the applications’ development stages are capitalized in accordance with SOP 98-1, Accounting for the Costs of Computer Software Developed of Obtained for Internal Use. Costs eligible for capitalization during the years ended September 30, 2007, 2006 and 2005 were immaterial.

Advertising and Promotional Expense

Advertising and promotional expense is expensed as incurred, as such efforts have not met the direct-response criteria required for capitalization. Advertising expense for the years ended September 30, 2007, 2006 and 2005 was $427, $348 and $144, respectively.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated in accordance with SFAS 52, Foreign Currency Translation.

The functional currency of the Company’s foreign subsidiaries in the United Kingdom, Singapore and India is the U.S. dollar. Accordingly, all assets and liabilities of these foreign subsidiaries are remeasured into U.S. dollars using the exchange rates in effect at the balance sheet date, except for property and equipment, which are remeasured into U.S. dollars at historical rates. Revenue and expenses of these foreign subsidiaries are remeasured into U.S. dollars at the average rates in effect during the year. Any differences resulting from the remeasurement of assets, liabilities and operations of the United Kingdom, Singapore and India subsidiaries are recorded within other income (expense) in the consolidated income statement. During the years ended September 30, 2007, 2006 and 2005, remeasurement adjustments were a net gain of $200, $72 and a net loss of $16, respectively.

The functional currency of the Company’s foreign subsidiary in France is the Euro. Accordingly, all assets and liabilities of the French subsidiary are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Revenue and expenses of the French subsidiary are translated to U.S. dollars using the average rates in effect during the period. Any differences resulting from the translation of assets, liabilities and operations of the French subsidiary are recorded within stockholders’ equity as other comprehensive income.

Any gains or losses resulting from foreign currency transactions, including the translation of intercompany balances, are recorded in other income (expense) in the consolidated income statement. During the year ended September 30, 2007, the net foreign currency transaction loss was $91. During the years ended September 30, 2006 and 2005, foreign currency transaction gains and losses were not material.

Cash and Cash Equivalents

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.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Investments

Short-term investments are made in accordance with the Company’s corporate investment policy, as approved by its Board of Directors. The primary objective of this policy is preservation of capital. Investments are limited to high quality corporate debt, commercial paper, municipal bonds and similar instruments. The policy establishes maturity limits, liquidity requirements and concentration limits. At September 30, 2007, the Company was in compliance with this internal policy.

The Company considers all highly liquid investments with original maturities of greater than 90 days at the time of purchase to be short-term investments. The Company accounts for its investments in accordance with SFAS 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 September 30, 2007 and 2006. Unrealized gains (losses) on available-for-sale securities are recorded in accumulated other comprehensive income. The Company reviews all investments for reductions in fair value that are considered other than temporary. When such reductions occur, the cost of the investment is adjusted to fair value through other income (loss) on the consolidated income statement. Gains and losses are calculated on the basis of specific identification.

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


	Amortized		Unrealized		Fair Market
	Cost		Gain		Value

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

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

At September 30, 2006:
Commercial paper	$	4,795	$	—	$	4,795
Corporate debentures and other securities		4,741		1		4,742

Total short-term investments	$	9,536	$	1	$	9,537

In 2007 and 2006, no realized gains or losses on short-term investments were recognized.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially expose the Company to concentration of credit risk primarily consist of cash and cash equivalents, short-term investments, trade accounts receivable and purchased customer receivables. The Company maintains its cash and cash equivalents and short-term investments with accredited financial institutions. Short-term investments are investment grade, interest-earning securities, and are diversified by type and industry. The Company does not have a concentration of credit or operating risk in any one industry or any one geographic region within or outside of the United States. The Company reviews the credit history of its customers (including its resellers) before extending credit. The Company establishes its allowances based upon factors including the credit risk of specific customers, historical trends, and other information.

No customers accounted for greater than 10% of the accounts receivable balance at September 30, 2007. One customer accounted for 15% of the accounts receivable balance at September 30, 2006.

No customer accounted for more than 10% of the Company’s total revenue in any of the years ended September 30, 2007, 2006 and 2005.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable, purchased customer receivables and accounts payable, approximated their fair values at September 30, 2007 and 2006, due to the short-term nature of these instruments.

Comprehensive Income

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

Net Income (Loss) Per Share

The Company calculates net income (loss) per share in accordance with SFAS 128, Earnings Per Share, as clarified by EITF Issue No. 03-6, Participating Securities and the Two Class Method under FASB Statement No. 128, Earnings per Share (EITF 03-6). EITF 03-6 clarified the use of the “two-class” method of calculating earnings per share as originally prescribed in SFAS 128. Effective for periods beginning after March 31, 2004, EITF 03-6 provides guidance on how to determine whether a security should be considered a “participating security” for purposes of computing earnings per share and how earnings should be allocated to a participating security when using the two-class method for computing earnings per share. The Company has determined that its redeemable preferred stock represents a participating security, and therefore has applied the provisions of EITF 03-6 for the years ended September 30, 2005 and 2004, the periods in which the redeemable preferred stock was outstanding.

Under the two-class method, basic net income (loss) per share for the year ended September 30, 2005 was computed by dividing the net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding for the fiscal period. Diluted net income (loss) per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method. The Company allocates net income first to preferred stockholders based on dividend rights under the Company’s charter and then to preferred and common stockholders, pro rata, based on ownership interests. Net losses are not allocated to preferred stockholders. For the year ended September 30, 2005, the application of the two-class method is more dilutive than the if-converted method. Diluted net income (loss) per share gives effect to all potentially dilutive securities, including stock options using the treasury stock method. For the years ended September 30, 2007 and 2006, the Company had only one class of security, common stock, outstanding.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share is as follows:


	Year Ended September 30,
	2007		2006		2005

Numerator:
Net income	$	496	$	676	$	4,521

Allocation of net income:
Basic:
Accretion of preferred stock dividends	$	—	$	—	$	841
Special one-time dividend and redemption payment		—		—		4,062
Undistributed net income allocated to preferred stockholders		—		—		—

Net income applicable to preferred stockholders		—		—		4,903
Net income (loss) applicable to common stockholders		496		676		(382	)

Net income	$	496	$	676	$	4,521

Diluted:
Accretion of preferred stock dividends	$	—	$	—	$	841
Special one-time dividend and redemption payment		—		—		4,062
Undistributed net income allocated to preferred stockholders		—		—		—

Net income applicable to preferred stockholders		—		—		4,903
Net income (loss) applicable to common stockholders		496		676		(382	)

Net income	$	496	$	676	$	4,521

Denominator:
Weighted-average shares of common stock outstanding		19,856,702		19,267,319		11,342,468
Effect of potentially dilutive shares		925,782		967,676		—

Shares used in computing diluted net income (loss) per common share		20,782,484		20,234,995		11,342,468

Calculation of net income (loss) per share:
Basic:
Net income (loss) applicable to common stockholders	$	496	$	676	$	(382	)

Weighted average shares of common stock outstanding		19,856,702		19,267,319		11,342,468

Net income (loss) per common share	$	0.02	$	0.04	$	(0.03	)

Diluted:
Net income (loss) applicable to common stockholders	$	496	$	676	$	(382	)

Shares used in computing diluted net income (loss) per common share		20,782,484		20,234,995		11,342,468

Net income (loss) per common share		0.02	$	0.03	$	(0.03	)

The number of potentially dilutive shares in the table above was computed using the treasury stock method for all periods presented. As a result of this method, common stock equivalents of 1,104,462, 981,851 and 104,587 were excluded from the determination of potentially dilutive shares for the years ended

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

September 30, 2007, 2006 and 2005, respectively, due to their anti-dilutive effect. An additional 1,456,133 common stock equivalents were excluded in fiscal 2005 as a result of the Company’s net loss in that period.

For the year ended September 30, 2005, net loss applicable to common stockholders and net loss per share reflect a special one-time preferred stock dividend of $3,062 and a redemption payment of $1,000 in August 2005 in connection with the Company’s initial public offering.

In connection with the Company’s adoption of SFAS No. 123(R), the calculation of assumed proceeds used to determine the diluted weighted average shares outstanding under the treasury stock method in fiscal 2007 and 2006 was adjusted by tax windfalls and shortfalls associated with all of the Company’s outstanding stock awards. Windfalls and shortfalls are computed by comparing the tax deductible amount of outstanding stock awards to their grant date fair values and multiplying the result by the applicable statutory tax rate. A positive result creates a windfall, which increases the assumed proceeds and a negative result creates a shortfall, which reduces the assumed proceeds.

Accounting for Share-Based Compensation

On October 1, 2005, the Company adopted the provisions of SFAS 123 (revised 2004), Share-Based Payment (SFAS 123(R), which requires the Company to recognize expense related to the fair value of share-based compensation awards. Management elected to use the modified prospective transition method as permitted by SFAS 123(R) and therefore has not restated the Company’s financial results for prior periods. Under this transition method, share-based compensation expense for the year ended September 30, 2007 and 2006 includes compensation expense for all share-based compensation awards granted on or after November 18, 2004 (the filing date for the initial registration statement for the Company’s initial public offering), based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).

The fair value of options granted prior to November 18, 2004, was calculated using the minimum value method, pursuant to SFAS 123 and the related pro forma expense was shown in a footnote to the consolidated financial statements. Under the provisions of SFAS 123(R), the value of these options will not be recorded in the statement of operations subsequent to the adoption of SFAS 123(R). Instead, the Company will continue to account for these options using Accounting Principles Board (APB) Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related Interpretations. The amount of unamortized pro forma deferred compensation at October 1, 2005, related to those minimum value awards was $920.

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

Prior to the adoption of SFAS 123(R), the Company applied SFAS No. 123, amended by SFAS No. 148, Accounting for Share-Based Compensation — Transition and Disclosure (SFAS 148), which allowed companies to apply the existing accounting rules under APB 25. Pursuant to APB 25, the Company accounted for its share-based awards to employees using the intrinsic-value method, under which compensation expense was measured on the date of grant as the difference between the fair value of the Company’s common stock and the option exercise price multiplied by the number of options granted.

During fiscal 2005, in accordance with APB 25, the Company recorded deferred share-based compensation resulting from the grant of employee stock options with an exercise price less than the fair value of common stock. As of September 30, 2007, the Company had $28 of deferred share-based compensation remaining to be amortized which is expected to be amortized during fiscal 2008. Upon the adoption of

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

SFAS 123(R) on October 1, 2005, the deferred share-based compensation balance was netted against additional paid-in capital in the consolidated balance sheet.

For the year ended 2005, had the Company’s stock option grants to employees been determined based on the fair value at the grant dates, as prescribed by SFAS No. 123, the Company’s net income and net loss per share would have been as follows:


	Year Ended
	September 30,
	2005

Numerator:
Net income, as reported	$	4,521
Less: pro forma stock-based compensation expense under SFAS No. 123, net of tax		(256	)

Pro forma net income	$	4,265

Allocation of net income:
Basic
Pro forma net income applicable to preferred stockholders	$	4,902
Pro forma net loss applicable to common stockholders		(637	)

Pro forma net income	$	4,265

Diluted:
Pro forma net income applicable to preferred stockholders	$	4,902
Pro forma net loss, applicable to common stockholders		(637	)

Pro forma net income	$	4,265

Net loss per common share:
Basic:
As reported	$	(0.03	)

Pro forma	$	(0.06	)

Diluted:
As reported	$	(0.03	)

Pro forma	$	(0.06	)

The above reconciliation excludes any awards issued prior to November 18, 2004, as such awards had previously been valued using the minimum value method, rather than the fair value method.

For options accounted for under SFAS 123(R), and for purposes of the SFAS 123 pro forma reconciliation above, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

pricing model. The assumptions used and the resulting estimated fair value for grants during the applicable period are as follows:


	Year Ended September 30,
	2007		2006		2005

Dividend yield		—		—		—
Volatility		49% to 50%		49% to 66%		66%
Risk-free interest rate		4.35% to 4.78%		4.4% to 5.2%		3.7% to 4.2%
Weighted-average expected option term (in years)		4.1		4.1 to 6.1		6.1
Weighted-average fair value per share of options granted		$5.15		$5.97		$5.90
Weighter-average fair value per share of restricted stock awards granted		$12.18		$11.89		—

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


	Year Ended September 30,
	2007			2006

Dividend yield		—			—
Volatility		41	%		37	%
Risk-free interest rate		4.07	%		4.96	%
Weighted-average expected option term (in years)		0.5			0.5
Weighted-average fair value per share of options granted..	$	1.23		$	1.23

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 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. 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 years ended September 30, 2007, 2006 and 2005 was $11.63, $12.28 and $9.30, respectively.

The components of share-based compensation expense for the years ended September 30, 2007 and 2006 are as follows:


	Year Ended		Year Ended
	September 30,		September 30,
	2007		2006

Stock options under SFAS 123(R)	$	2,426	$	1,733
Stock options under APB 25		82		152
Restricted stock units		2,937		1093
Employee stock purchase plan		75		40

Total share-based compensation	$	5,520	$	3,018

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Cost of revenue and operating expenses include share-based compensation expense as follows for the years ended September 30, 2007, 2006 and 2005.


	Year Ended September 30,
	2007		2006		2005

Cost of maintenance and services revenue	$	590	$	273	$	94
Sales and marketing expense		1,706		776		171
Research and development expense		1,151		678		68
General and administrative expense		2,073		1,291		120

Total share-based compensation expense	$	5,520	$	3,018	$	453

As a result of adopting SFAS 123(R) on October 1, 2005, the Company’s net income for the years ended September 30, 2007 and 2006 was $2,501 and 1,773, respectively, net of tax, lower than if it had continued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the year ended September 30, 2007 was $0.12 lower than if the Company had continued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the year ended September 30, 2006 was $0.09 lower than if the company had continued to account for share-based compensation under APB 25.

The Company expects to record the unamortized portion of share-based compensation expense for existing stock options and restricted stock awards outstanding at September 30, 2007, over a weighted-average period of 2.05 years, as follows:


Year Ending September 30,

2008	$	6,073
2009		5,413
2010		3,896
2011		1,506

Expected future share-based compensation expense	$	16,888

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.

Recently Issued Accounting Pronouncements

In September 2006, the SEC issued SAB 108, Considering the Effects of Prior Year Misstatements when Qualifying Misstatements in Current Year Financial Statements,” which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment.

The Company adopted SAB 108 as of October 1, 2005 and had applied its provisions using the cumulative effect transition method which required us to reverse $510 of excess allowance for doubtful accounts for uncorrected errors. The excess allowance for doubtful accounts as of September 30, 2003 was

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

approximately $410 and had accumulated over several years. The excess allowance for doubtful accounts increased by approximately $80 and $20 during the years ended September 30, 2004 and 2005, respectively. The excess allowance for doubtful accounts was the result of our business practice, which started in the fiscal year ended September 30, 1998, to record a general provision to protect against future loss exposure. These errors had not previously been material to any of those prior periods when measured using the roll-over method. The Company recorded this cumulative effect adjustment net of tax, resulting in a decrease to short-term deferred tax assets of $201. As a result, the net adjustment was recorded as an increase to retained earnings as of October 1, 2005 of $309.

In September 2006, the FASB issued SFAS 157, Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Where applicable, SFAS 157 simplifies and codifies related guidance within generally accepted accounting principles. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is analyzing the expected impact from adopting this statement on its financial statements, but currently does not believe its adoption will have a significant impact on the financial position or results of operations of the Company.

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

In September 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in companies’ financial statements in accordance with SFAS 109, Accounting for Income Taxes, and provides guidance on financial statement recognition and disclosure for tax positions taken or expected to be taken on a tax return. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition whereby companies must determine whether it is more likely than not that a tax position will be sustained upon examination. The second step is measurement whereby a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. FIN 48 also provides guidance on derecognition of recognized tax benefits, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The guidance of FIN 48 is applicable for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 at the beginning of fiscal 2008. The Company is in the process of evaluating whether the adoption of FIN 48 will have a material effect on the Company’s financial position, results of operations or cash flows.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and, as such, the Company will adopt this standard in fiscal 2010. The Company has not yet determined the impact, if any, of SFAS 160 on its consolidated financial statements.


3.	Acquisitions

MarketingCentral, L.L.C.

On July 12, 2007, the Company acquired by merger MarketingCentral L.L.C. (MarketingCentral), a software company located in Atlanta, Georgia. The purchase price was $12.9 million, which consisted of cash consideration of $12.5 million and assumed liabilities and transaction-related costs of $0.4 million. This acquisition was accounted for as a purchase transaction in accordance with SFAS 141, Business Combinations. The results of operations of the Company include the results of MarketingCentral beginning on the date of the acquisition. The purchase price allocation is preliminary and a final determination of purchase accounting adjustments will be made upon the finalization of the Company’s integration activities.

Following is a summary of the purchase price allocation of the acquired MarketingCentral business:


Cash and cash equivalents	$	580
Accounts receivable		527
Purchased customer receivables		720
Property and equipment		49
Other assets		7
Developed technology		2,011
Customer relationships		1,948
Goodwill		5,673
Tradename		44
License agreement		1,360

Total assets		12,919
Deferred revenue		215
Transaction costs		130
Assumed liabilities		74

Total liabilities		419

Total cash consideration	$	12,500

The portion of the MarketingCentral purchase price allocated to purchased customer receivables reflects the fair value of future amounts due under customer contracts in effect as of the acquisition date for which Unica assumed an obligation to perform. The fair value of these receivables was determined based on the expected discounted cash flows.

The portion of the MarketingCentral purchase price allocated to developed technology, customer relationships, tradename and license agreement as determined by the Company using a discounted cash flow method. These intangible assets will be amortized over their estimated useful lives (see Note 4). The goodwill is not subject to amortization, but will be evaluated for impairment at least annually in accordance with the provisions of SFAS 142. Goodwill of $5,673 is expected to be deductible for tax purposes.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Various factors contributed to the establishment of goodwill, including: MarketingCentral’s assembled work force as of the acquisition date; the synergies expected to result from combining infrastructure; and the expected revenue growth and product cash flows in future years.

The Company has estimated the fair value of deferred revenue related to the obligation assumed from MarketingCentral in connection with the acquisition using the cost build-up approach, which determines fair value by estimating the cost of fulfilling the obligation, plus a normal profit margin. The Company estimated the normal profit margin to be 20%.

Sane Solutions, L.L.C.

On March 22, 2006, the Company acquired Sane Solutions, L.L.C. (Sane), a privately-held provider of web analytics software for internet marketing, located in North Kingstown, Rhode Island. The purchase price was $28,818, which consisted of cash consideration of $21,774, assumed liabilities and transaction-related costs of $5,240, and 151,984 shares of common stock valued at $1,804 for accounting purposes or $11.87 per share. This acquisition was accounted for as a purchase transaction in accordance with SFAS 141. The results of Sane have been included in the Company’s financial statements from the date of acquisition.

Following is a summary of the final purchase price allocation of the acquired Sane business:


Cash	$	745
Accounts receivable		577
Other current assets		28
Property and equipment		185
Developed technology		2,714
Customer contracts and related customer relationships		4,343
Goodwill		16,189
In-process research and development		4,037

Total assets		28,818
Deferred revenue		440
Merger-related restructuring costs		178
Accrued and assumed liabilities		4,622

Total liabilities		5,240

Common stock issued		1,804

Total cash consideration	$	21,774

Goodwill has increased by $273 since the Company’s initial purchase price allocation as the Company obtained final information on which to base its determination of the fair value of assets acquired and liabilities assumed.

Accrued and assumed liabilities includes $1,500 of settlement costs and $909 of legal costs related to a settlement and patent license agreement with NetRatings to resolve the patent infringement lawsuit against Sane alleging that Sane’s NetTracker software infringes upon certain patents owned by NetRatings. In addition, it includes $2,081 of other assumed liabilities and transaction related costs.

The portion of the Sane purchase price allocated to developed technology and customer contracts and related customer relationships reflects its fair value as determined by the Company using a discounted cash flow method. These intangible assets will be amortized on a straight-line basis over their estimated useful lives

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

(see Note 4). The goodwill is not subject to amortization, but will be evaluated for impairment at least annually in accordance with the provisions of SFAS 142, Goodwill and Other Intangible Assets. Goodwill of $16,189 is expected to be deductible for tax purposes.

Various factors contributed to the establishment of goodwill, including: Sane’s assembled work force as of the acquisition date; the synergies expected to result from combining infrastructure; and the expected revenue growth and product cash flows in future years.

The Company has estimated the fair value of deferred revenue related to the maintenance obligation assumed from Sane in connection with the acquisition using the cost build-up approach, which determines fair value by estimating the cost of fulfilling the obligation, plus a normal profit margin. The Company estimated the normal profit margin to be 20%.

In-Process Research and Development

The in-process research and development associated with the Sane acquisition primarily consists of an acquired web analytics product that was in development at the acquisition date. The amount of $4,037 was recorded as in-process research and development and charged to expense at the acquisition date as the future benefit is dependent on continued research and development activity and the asset has no alternative future use as of the acquisition date. In determining this value, the Company used the income approach to determine the fair values of the in-process research and development. This approach determines fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value at a risk-adjusted discount rate, for which the Company used 31%. The Company estimated that it would complete development of the in-process project in the third quarter of fiscal 2006, at which point material cash inflows would commence. In arriving at the value of the in-process project, the Company considered, among other factors, the in-process project’s stage of completion, the complexity of the work completed as of the acquisition date, the costs already incurred, the projected costs to complete, the contribution of core technologies and other acquired assets, the expected introduction date and the estimated useful life of the technology. The Company completed development in June 2006, incurring approximately $450 of product development costs.

Litigation

On June 30, 2006, the Company entered into a settlement and patent license agreement with NetRatings, Inc. (NetRatings) to resolve the patent infringement lawsuit against Sane alleging that Sane’s NetTracker software infringes upon certain patents owned by NetRatings. The suit was filed in the U.S. District Court of New York on May 26, 2005 seeking unspecified monetary relief. Subsequent to the acquisition, NetRatings amended the complaint adding the Company as a defendant to the lawsuit.

The Company initially accrued $2,800 of legal fees related to this matter, and as a result of the settlement and agreement, made adjustments to the original purchase accounting to reflect the actual settlement and fees. A substantial portion of the accrued and assumed liabilities in purchase accounting of Sane is related to the NetRatings litigation matter. The above settlement amounts are part of the cost of the acquired company and are included in the determination of the total purchase price.

Under the terms of the settlement agreement, the Company obtained a non-exclusive, worldwide perpetual license to certain patents owned by NetRatings and paid a one-time fee of $1,500 in July 2006. The developed technology resulting from this acquisition was valued in purchase accounting based upon estimated cash flows and there are no anticipated changes to the cash flows used in the valuation as a result of the settlement payment. Hence, the adjustments to purchase accounting resulting from the settlement were made to goodwill.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

In addition, the Company is required to make a payment of $1,000 to NetRatings in the event of a sale of the Company. In addition, in the event that the Company acquires certain specified companies, it may elect to extend the license granted by NetRatings under the agreement to cover the products, services and technology of such an acquired company by making additional payments to NetRatings based on the web analytics revenue of the acquired company during the twelve-month period preceding such acquisition.

MarketSoft Software Corporation

On December 20, 2005, the Company acquired certain assets and assumed certain liabilities of MarketSoft Software Corporation (MarketSoft), a software company formerly located in Lexington, Massachusetts. The purchase price was $7,875, which consisted of cash consideration of $7,258 and assumed liabilities and transaction-related costs of $617. This acquisition was accounted for as a purchase transaction in accordance with SFAS 141. The results of operations of the Company include the results of MarketSoft, beginning on the date of the acquisition.

Following is a summary of the final purchase price allocation of the acquired MarketSoft business:


Purchased customer receivables	$	1,919
Property and equipment		115
Purchased customer receivables, long term		2,477
Developed technology		1,129
Customer contracts and related customer relationships		628
Goodwill		1,607

Total assets		7,875
Deferred revenue		374
Transaction costs		149
Merger-related restructuring costs		57
Assumed liabilities		37

Total liabilities		617

Total cash consideration	$	7,258

Goodwill has decreased by $434 since the Company’s initial purchase price allocation as the Company obtained final information on which to base its determination of the fair value of assets acquired, in particular the purchased customer receivables, and liabilities assumed.

The portion of the MarketSoft purchase price allocated to purchased customer receivables reflects the fair value of receivables related to completed customer contracts for which amounts had not yet been billed and cash had not yet been collected as of the acquisition date. The fair value of these receivables was determined based on the expected discounted cash flows. The purchased customer receivables balance was allocated to current and long-term, based on the expected timing of future cash flows.

The portion of the MarketSoft purchase price allocated to developed technology and customer contracts and related customer relationships reflects the fair value as determined by the Company using a discounted cash flow method. These intangible assets will be amortized on a straight-line basis over their estimated useful lives (see Note 4). The goodwill is not subject to amortization, but will be evaluated for impairment at least annually in accordance with the provisions of SFAS 142. Goodwill of $1,607 is expected to be deductible for tax purposes.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Various factors contributed to the establishment of goodwill, including: MarketSoft’s assembled work force as of the acquisition date; the synergies expected to result from combining infrastructure; and the expected revenue growth and product cash flows in future years.

The Company has estimated the fair value of deferred revenue related to the maintenance obligation assumed from MarketSoft in connection with the acquisition using the cost build-up approach, which determines fair value by estimating the cost of fulfilling the obligation, plus a normal profit margin. The Company estimated the normal profit margin to be 20%.

Acquisition-Related Restructuring Costs

The purchase price for each acquisition includes restructuring liabilities of $196 for Sane Solutions and $60 for MarketSoft, which represent severance, relocation and related legal charges that were recorded as part of each purchase price in accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination.

Following is a roll forward of the acquisition-related restructuring accrual:


Balance at September 30, 2006	$	169
Less: Cash Payments		(40	)
Adjustments		(109	)

Balance at September 30, 2007	$	20

The Company expects that the remaining balance of $20 will be paid in fiscal 2008.

Pro Forma Results (Unaudited)

The unaudited pro forma combined condensed results of operations of Unica, MarketingCentral, Sane, and MarketSoft for the years ended September 30, 2007 and 2006 presented below give effect to the acquisitions of MarketingCentral, Sane and MarketSoft as if the acquisitions had occurred as of the beginning of each period presented. MarketingCentral’s fiscal year end prior to the acquisition was December 31, Sane’s fiscal year end prior to the acquisition was December 31, and MarketSoft’s fiscal year end prior to the acquisition was June 30. The unaudited pro forma combined condensed results of operations are not necessarily indicative of future results or the actual results that would have occurred had the acquisitions been consummated as of the beginning of each period presented.


	Year Ended
	September 30,
	2007		2006

Pro forma revenue	$	104,705	$	87,527
Pro forma net income		423		641
Pro forma net income per share:
Basic	$	0.02	$	0.03

Diluted	$	0.02	$	0.03

The above unaudited pro forma results exclude adjustments for the $4,037 in-process research and development charge, and include net amortization of acquired intangible assets in the amounts of $2,930 and $1,412 for the years ended September 30, 2007 and 2006, respectively. In addition, the unaudited pro forma results have been adjusted to reduce interest income earned by the Company on the cash paid for each

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

acquisition. The Company estimated this interest income adjustment using an interest rate of 2.5% for the years ended September 30, 2007 and 2006.


4.	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 142. In 2007 and 2006, the Company’s annual testing indicated there was no impairment since the fair value exceeded the net assets of the reporting units, including goodwill. The Company estimates fair value using the income approach, based on the discounted future cash flows estimated by management for each reporting unit. 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. A portion of goodwill and acquired intangible assets pertains to the Company’s France subsidiary and, as a result, is subject to translation at the currency rates in effect at the balance sheet date.

The following table describes changes to goodwill:


	Year Ended
	September 30,
	2007			2006

Beginning balance	$	20,106		$	2,337
Additions:
Sane acquisition		159			16,030
MarketSoft acquisition		(78	)		1,685
MarketingCentral acquisition		5,673			—
Foreign exchange		300			54

Ending balance	$	26,160		$	20,106

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Intangible assets subject to amortization are comprised of the following:


	Estimated
	Useful Lives		As of September 30,
	In Years		2007			2006

Developed technology		1-8	$	6,699		$	4,594
Customer contracts and related customer relationships		3-14		7,556			5,537
License agreement		14		1,360
Tradename		1		44
Other		2		—			40

				15,659			10,171
Less: Accumulated amortization of developed technology				(2,645	)		(1,426	)
Customer contracts and related customer relationships				(3,067	)		(1,423	)
License agreement				(31	)		—
Tradename				(10	)		—
Other				—			(40	)

Total accumulated amortization				(5,753	)		(2,889	)

Total intangible assets, net			$	9,906		$	7,282

The increase in the gross intangible assets as of September 30, 2007 as compared to September 30, 2006, principally reflects the acquisition of MarketingCentral on July 12, 2007. The developed technology intangible assets are being amortized on a straight-line basis over their estimated useful lives from one to eight years. Amortization of developed technology, included as a component of cost of product revenue in the consolidated statements of operations, was $1,135 and $675 and for the years ended September 30, 2007 and 2006, respectively.

Intangible assets are expected to be amortized over a weighted-average period of 3.42 years as follows:


Year ending September 30, 2008	$	3,060
2009		2,330
2010		1,201
2011		692
2012		585
2013 and thereafter		2,038

Total expected amortization	$	9,906

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)


5.	Property and Equipment

Property and equipment consists of the following:


	Estimated		As of September 30,
	Useful Life		2007			2006

Software		2-3 years	$	1,531		$	1,067
Office equipment		3 years		4,549			3,237
Furniture and fixtures		5 years		658			517
Leasehold improvements		Lesser of useful life or term of lease		1,063			782
Construction-in-progress		—		1,281			123

				9,082			5,726

Less: accumulated depreciation and amortization				(4,947	)		(3,500	)

			$	4,135		$	2,226

Property and equipment are stated at cost. Leasehold improvements are depreciated over the shorter of the lease term or their estimated useful lives. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets. Depreciation expense for the years ended September 30, 2007, 2006 and 2005 was $1,428, $1,102 and $787, respectively. Repairs and maintenance charges less than $1 are expensed as incurred.


6.	Restricted Cash

At September 30, 2007 and 2006, the Company had $260 and $247, respectively, of restricted cash held in certificates of deposit as collateral for a letter of credit related to the security deposit on the Company’s leased facilities in Waltham, Massachusetts and in Paris, France. Restricted cash is included within other assets in the consolidated balance sheet. The restriction on cash expires upon expiration of the leases in 2009.


7.	Commitments and Contingencies

Operating Leases

The Company conducts its operations in leased office facilities under various operating leases that expire through fiscal 2011. Total rent expense under these operating leases was $3,026, $2,818 and $1,764 for the years ended September 30, 2007, 2006 and 2005, respectively. Future minimum payments under operating leases as of September 30, 2007 are as follows:


Year ending September 30, 2008	$	2,689
2009		1,788
2010		149
2011		36

Total minimum lease payments	$	4,662

Obligations related to operating leases denominated in foreign currencies were translated at exchange rates in effect at September 30, 2007. The Company does not believe that changes in exchange rates over the term of the lease will have a material impact on the lease obligation. Upon expiration of current operating leases beginning in 2009, the Company expects to renew, or contract for new leased facilities, at prevailing market rates.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

The Company has open vendor purchase obligations in the amount of $1,553, which are expected to be paid as follows: $1,172 in 2008, $316 in 2009 and $65 in 2010.

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 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.

On June 30, 2006, the Company entered into a settlement and patent license agreement with NetRatings to resolve the patent infringement lawsuit against Sane alleging that Sane’s NetTracker software infringes upon certain patents owned by NetRatings. The suit was filed in the U.S. District Court of New York on May 26, 2005 seeking unspecified monetary relief. The Company completed its acquisition of Sane on March 22, 2006, and subsequent to the acquisition, NetRatings amended the complaint adding the Company as a defendant to the lawsuit.

Under the terms of the agreement, the Company obtained a non-exclusive, worldwide perpetual license to certain patents owned by NetRatings and paid a one-time fee of $1,500 in July 2006. The Company also is required to make a payment of $1,000 to NetRatings in the event of a sale of the Company. In addition, in the event that the Company acquires certain specified companies, it may elect to extend the license granted by NetRatings under the agreement to cover the products, services and technology of such an acquired company by making additional payments to NetRatings based on the web analytics revenue of the acquired company during the twelve month period preceding such acquisition.

Warranties, Indemnifications and Guarantees

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.

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 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

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

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.


8.	Accrued Expenses

Accrued expenses consist of the following:


	As of September 30,
	2007		2006

Accrued payroll and related	$	8,285	$	7,693
Accrued professional fees		597		757
Acquisition-related accruals		257		693
Accrued restructuring		609		424
Accrued other		4,429		3,967
State sales tax accruals		3,254		—

	$	17,431	$	13,534


9.	Restructuring Charges

In the fourth quarter of fiscal 2006, the Company initiated the restructuring of certain of its operations in France to realign its resources in that region. As a result of this initiative, the Company terminated several employees resulting in a restructuring charge for severance and related costs of $1,240 and $255 during fiscal 2007 and 2006, respectively. The remaining balance at September 30, 2007 is expected to be paid during fiscal 2008.

The following is a roll forward of the restructuring accrual:


Restructuring accrual balance at September 30, 2006	$	255
Restructuring and other related charges		1,240
Cash payments and foreign currency translation adjustment		(886	)

Restructuring accrual balance at September 30, 2007	$	609


10.	Income Taxes

The Company is on the accrual basis for tax purposes. At September 30, 2007, the Company had $163 of U.S. foreign tax credits, which may be available to offset future regular U.S. income tax liabilities and are

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

expected to expire at various dates through 2010. The Company also had available foreign net operating loss carryforwards of $170 that do not expire and state net operating loss carryforwards of $2,082 that expire at various dates through 2027.

The principal components of the Company’s deferred tax assets and liabilities are as follows:


	As of September 30,
	2007			2006

Non-deductible reserves, accruals and other	$	343		$	759
Share-based compensation		1,989			920
Foreign net operating loss carryforwards		57			237
U.S. foreign tax credit carryforwards		163			163
Research and development tax credit carryforwards		354			—
Amortization of intangible assets		2,393			2,008
Depreciation		173			117

Total		5,472			4,204
Valuation allowance		(583	)		(550	)

Net deferred tax asset	$	4,889		$	3,654

At September 30, 2007 and 2006, the Company had recorded a valuation allowance of $229 and $550, respectively, related to the deferred tax assets associated with foreign net operating loss carryforwards and foreign temporary differences due to the uncertainty of realizing the benefit of these assets. At September 30, 2007 and 2006, the Company recorded a valuation allowance of $354 and $0, respectively, related to the deferred tax asset associated with state research and development tax credits. In the year ended September 30, 2007, the Company generated certain foreign income and utilized certain foreign net operating loss carryforwards which resulted in the reduction of a portion of its valuation allowance and a tax benefit of $353 in the current period.

In the fiscal quarter ended June 30, 2007, the Company incorrectly determined its income tax provision primarily as a result of recognizing certain tax benefits relating to state research and development tax credits. Specifically, the Company concluded that based on a decrease in the Company’s expected fiscal 2007 financial results in the third quarter of fiscal 2007 that it should have recorded a $656 valuation allowance against its state research and development tax credits.

The Company recorded an additional tax provision of $165 in the quarter ended June 30, 2007 relating to the adjustment of the estimated tax provision computed for the fiscal year ended September 30, 2006, based upon amounts included in the actual tax returns filed in June 2007.

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

Our effective tax rate, before discrete items, on a quarterly or annual basis, varies from statutory rates primarily due to the mix in jurisdictional earnings and losses.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

In February 2006, the United States Internal Revenue Service completed its audit of Unica Corporation for fiscal years ended September 30, 2003 and 2004. The Company had established tax reserves in excess of the ultimate settled amounts and, as a result of the settlement, reversed the excess portion of the related income tax reserves during the quarter ended March 31, 2006. This was accounted for as a discrete item and resulted in an income tax benefit of $75.

During the quarter ended June 30, 2006, the Company determined that certain estimated liabilities to taxing authorities were no longer probable due to the expiration of the statute of limitations on the related tax positions. At that time, the Company reversed this portion of the related tax reserves, which was accounted for as a discrete item and resulted in an income tax benefit of $90.

An additional tax benefit of $72 was recorded in the quarter ended June 30, 2006 relating to the adjustment of the estimated tax provision computed for the fiscal year ended September 30, 2005, based upon amounts included in the actual tax returns filed in June 2006.

The Company recorded a decrease of $201 to its short-term deferred tax asset upon adoption of SAB 108. This was recorded through an adjustment to retained earnings on October 1, 2005.

The following is a summary of the Company’s income (loss) before provision for income taxes by geography:


	Year Ended September 30,
	2007			2006		2005

Domestic	$	(3,183	)	$	370	$	5,972
Foreign		2,878			343		878

	$	(305	)	$	713	$	6,850

The following is a summary of the Company’s income tax provision (benefit):


	Year Ended September 30,
	2007			2006			2005

Current:
Federal	$	(330	)	$	2,465		$	2,162
State		202			230			424
Foreign		479			271			211

Total current provision		351			2,966			2,797

Deferred:
Federal		(1,158	)		(2,612	)		(395	)
State		(31	)		(317	)		(73	)
Foreign		37			—			—

Total deferred benefit		(1,152	)		(2,929	)		(468	)

	$	(801	)	$	37		$	2,329

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

The following is a reconciliation of the Company’s statutory tax rate and effective tax rate:


	Year Ended September 30,
	2007			2006			2005

Statutory tax rate		(34.0	)%		34.0	%		34.0	%
Foreign taxes, net		(4.7	)		(13.5	)		(0.9	)
State taxes, net		54.1			(23.1	)		3.4
Extraterritorial income exclusion		—			(16.4	)		(1.3	)
Domestic manufacturer’s deduction		—			(7.8	)		—
Share-based compensation		48.5			32.3			2.3
Meals and entertainment		34.3			12.8			0.9
Research and development credit		(240.3	)		(12.1	)		(4.0	)
Change in valuation allowance		(115.6	)		32.2			(0.4	)
Tax reserve adjustment		—			(33.2	)		—
Other		(4.9	)		—			—

Effective tax rate		(262.6	)%		5.2	%		34.0	%

During the year ended September 30, 2007, the Company recorded a provision of $141, or 46% of loss before income taxes, related to prior fiscal years. The Company reviewed its income tax nexus position in certain states and it was determined that the Company had underaccrued for state income taxes in prior years. The $141 adjustment was recorded during the quarter ended December 31, 2006 and is reflected in state taxes, net in the table above.

The Company plans to reinvest indefinitely undistributed foreign earnings. As of September 30, 2007, the Company had approximately $3,204 of undistributed foreign earnings. It is not practicable to compute the estimated deferred tax liability on these earnings.


11.	Stockholders’ Equity

Common Stock

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s common stockholders. Common stockholders are entitled to receive dividends, if any, as declared by the Board of Directors. At September 30, 2007, the Company had reserved 4,681,000 shares of common stock for the future exercise of stock options and vesting of restricted stock units authorized under its stock incentive plan as well as for stock purchases through its employee stock purchase plan. On October 1, 2007, an additional 1,004,000 shares were reserved under the 2005 Stock Incentive Plan (the 2005 Plan), in accordance with the provisions of the 2005 Plan, which 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.

On March 11, 2005, the Board of Directors and stockholders approved an amendment to the Company’s charter to increase the authorized number of shares of common stock from 28,000,000 to 90,000,000, upon the closing of the Company’s initial public offering, which occurred on August 3, 2005.

The Company does not have a practice of repurchasing shares to satisfy share-based payment arrangements and does not expect to repurchase shares during fiscal 2008.

Treasury Stock

As of September 30, 2007, there were no shares held as treasury stock.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Redeemable Preferred Stock and Undesignated Preferred Stock

The Company had authorized for issuance 3,421,220 shares of Redeemable Preferred Stock as of September 30, 2004, of which 74,811 shares had been designated as Series A convertible participating preferred stock (Series A Preferred Stock), 74,811 shares had been designated as Series A redeemable preferred stock (Series A-1 Preferred Stock), 1,635,799 shares had been designated as Series B convertible participating preferred stock (Series B Preferred Stock) and 1,635,799 shares had been designated as Series B redeemable preferred stock (Series B-1 Preferred Stock). None of the shares of Series A-1 or Series B-1 Preferred Stock were issued or outstanding.

On March 11, 2005, the Board of Directors and stockholders approved an amendment to the Company’s charter to authorize 10,000,000 shares of undesignated preferred stock, par value $0.01 per share, and to eliminate all reference to the designated Redeemable Preferred Stock, upon the closing of the Company’s initial public offering. In connection with the initial public offering, all outstanding shares of Series A Preferred Stock and Series B Preferred Stock were converted to 4,082,967 shares of common stock, and the Redeemable Preferred Stock was cancelled. As of September 30, 2007 and 2006, there was no Redeemable Preferred Stock.

Reverse Stock Split

On March 11, 2005, the Board of Directors approved, and on March 17, 2005 the Company’s stockholders ratified, a 2-for-3 reverse stock split of the outstanding shares of common stock and adjusted the conversion ratio of the then outstanding redeemable convertible preferred stock to reflect the 2-for-3 reverse stock split of the common stock. All share and per share amounts for all periods presented have been retroactively adjusted to reflect the 2-for-3 reverse stock split.

Initial Public Offering

On August 3, 2005, the Company completed an initial public offering of 4,800,000 shares of common stock at $10.00 per share, of which 3,750,000 shares were sold by the Company and the remaining 1,050,000 shares were sold by selling stockholders. In connection with the offering, all of the outstanding shares of Redeemable Preferred Stock converted into 4,082,967 shares of common stock. On August 12, 2005, the Company sold an additional 720,000 shares of common stock at $10.00 per share as a result of the exercise of the over-allotment option by the underwriters of the offering. The sale of the 4,470,000 shares of common stock by the Company in connection with the initial public offering resulted in net proceeds to the Company of $38,524 after deducting underwriters’ discounts and offering-related expenses of $6,177.

Dividends

Prior to conversion into common stock, holders of the Series A and Series B Preferred Stock were entitled to receive, in preference to the holders of any and all other classes of capital stock of the Company, cumulative dividends on the Series A and Series B Preferred Stock at the rate per annum of $8.1205 per share and $0.2454 per share, respectively, when and if declared by the Board of Directors, out of funds legally available. Furthermore, holders of Series A and Series B Preferred Stock were also entitled to any dividends declared on common stock on an as-converted basis.

As of August 3, 2005, the Company had accrued $3,243 in cumulative dividends on the Series A Preferred Stock and $1,751 in cumulative dividends on the Series B Preferred Stock. As a result of the conversion on August 3, 2005 concurrent with the closing of the Company’s initial public offering, the cumulative dividends were converted into additional paid in capital upon issuance of common stock to preferred stockholders.

The Board of Directors approved amendments to the Company’s charter in order to modify the redemption provisions of its Series B-1 Preferred Stock. The charter amendments were approved by the

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

stockholders in March and June, 2005. Under the terms of the Company’s amended charter, shares of Series B-1 Preferred Stock became issuable to holders of the Company’s outstanding Series B Preferred Stock upon the closing of the Company’s initial public offering. Those shares of Series B-1 Preferred Stock were redeemable for cash immediately after the closing. Under the amended charter, the redemption price for such shares of Series B-1 Preferred Stock was fixed at the aggregate amount of $1,000. The redemption payment was accounted for as an induced conversion, similar to a dividend, in the period in which the Series B Preferred Stock was converted into common stock and the redemption amount became payable.

The Board of Directors also declared a one-time cash dividend concurrent with the closing of the Company’s initial public offering, of $0.75 per share of common stock, $30.00 per share of Series A Preferred Stock (on a pre-conversion basis) and $0.50 per share of Series B Preferred Stock (on a pre-conversion basis). The record date for the dividend was August 3, 2005, one business day after the date on which the Company entered into an underwriting agreement with the several underwriters of the Company’s initial public offering. The cash dividend was paid after the closing of the offering. The aggregate amount of the dividends and redemption payments paid to the holders of preferred stock and common stock was $11,823, which is calculated as follows:


			Pre-
			Conversion
	Shares		Dividend Rate		Dividend

Common stock outstanding		10,348,333	$	0.75	$	7,761
Series A Preferred Stock		74,811		30.00		2,244
Series B Preferred Stock		1,635,799		0.50		818
Series B Preferred Stock redemption payment						1,000

Total dividends paid					$	11,823

The amount of the one-time cash dividend payable to holders of Series A and B Preferred Stock of $3,062 and the $1,000 redemption payment to holders of Series B Preferred Stock reduced income applicable to common stockholders and the related income per share amounts in the fiscal quarter and year-ended September 30, 2005, the period in which the dividend and redemption amounts were paid.

Accumulated Other Comprehensive Income

SFAS 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, the Company’s comprehensive income includes foreign currency translation adjustments and unrealized gains and losses on short-term investments.

The following table presents the calculation of comprehensive income:


	Year Ended September 30,
	2007			2006

Net Income	$	496		$	676
Other comprehensive income:
Change in unrealized gain (loss) on short-term investments		(1	)		1
Foreign currency translation adjustments		104			74

Other comprehensive income	$	599		$	751

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)


12.	Equity Compensation Plans

Stock Options

In May 1997, the Company’s stockholders approved the amended and restated 1993 Stock Option Plan (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 by officers, employees, directors and consultants of the Company. 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 provides that the options shall be exercisable over a period not to exceed ten years. The Board of Directors is responsible for administration of the 1993 Plan and determines the term of each option, the option exercise price, the number of shares for which each option is exercisable and the vesting period. Options generally vest over a period of four to five years. 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 (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 by officers, employees, directors, and consultants of the Company. 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 2003 Plan provides that the options shall be exercisable over a period not to exceed ten years. The Board of Directors is responsible for the administration of the 2003 Plan and determines the term of each option, the option exercise price, the number of shares for which each option is exercisable and the vesting period. Options generally vest over a period of four or five years. In connection with the adoption of the 2005 Stock Incentive Plan (the 2005 plan), a total of 367,000 shares then available under the 2003 Plan became available for grant under the 2005 Plan and no further option grants were permitted under the 2003 Plan.

In March 2005, the Board of Directors and stockholders also approved the 2005 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 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, 2006 and 2007, an additional 980,000 and 1,004,000 shares, respectively, 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.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

The following is a summary of the stock option activity, including related disclosures, during the year ended September 30, 2007.


						Weighted-
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
	Options			Exercise Price		Term		Value(1)

Outstanding at September 30, 2006		2,179,000		$	6.69
Granted		928,000			11.63
Exercised		(321,000	)		3.94
Forfeited		(299,000	)		10.10

Outstanding at September 30, 2007		2,487,000		$	8.48		5.40	$	8,022,000

Exercisable at September 30, 2007		1,342,000		$	5.97		5.28	$	7,532,000
Options at September 30, 2007 vested and expected to vest in the future		2,297,000		$	8.24		5.39	$	7,931,000


(1)		The aggregate intrinsic value was calculated based on the positive difference between the closing price of the Company’s common stock on September 28, 2007 of $11.23 per share and the exercise price of the underlying options.

The total intrinsic value of options exercised during the years ended September 30, 2007 and 2006 was $2,958 and $4,788, respectively.

Restricted Stock Units

During fiscal 2006, the Company started the issuance of restricted stock unit awards (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. The fair value of these RSUs was calculated based upon the Company’s closing stock price on the date of grant, and the related share-based compensation expense is being recorded over the vesting period. RSUs generally vest over a four-year period and unvested RSUs are forfeited and cancelled 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, which are subject to the fair value accounting requirements of SFAS 123(R) as of September 30, 2007 and the activity during the year ended September 30, 2007.


				Weighted-
				Average
				Grant-Date
	Shares			Fair Value

Nonvested awards at September 30, 2006		601,000		$	11.87
Granted		800,000			12.18
Vested		(138,000	)		12.10
Forfeited		(127,000	)		11.37

Nonvested awards at September 30, 2007		1,136,000		$	12.11

The Company recorded $2,937 of shared-based compensation expense related to RSUs for the year-ended September 30, 2007. As of September 30, 2007, there was unrecognized compensation cost related to RSUs totaling $10,169, net of estimated forfeitures, which will be recognized over a weighted-average period of 2.95 years.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Employee Stock Purchase Plan

In March 2005, the Board of Directors and stockholders approved the 2005 Employee Stock Purchase Plan (ESPP) which is qualified under Section 423 of the Internal Revenue Code. The ESPP is available to all eligible employees, who, through payroll deductions, will be able to individually purchase shares of the Company’s common stock semi-annually at a price equal to 90% of the fair market value on the semi-annual purchase dates. The Company has reserved for issuance an aggregate of 1,000,000 shares of common stock for the ESPP. In fiscal 2007 and 2006, there were 61,000 shares and 33,000 shares, respectively, issued under the ESPP. At September 30, 2007, 906,000 shares were reserved for future issuance under the ESPP.


13.	Segment Information

SFAS 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 and manages its business as one reporting segment.

Geographic Data

Total assets located outside of the U.S. were 7% and 10% of total assets as of September 30, 2007 and 2006, respectively. Long-term assets located outside of the U.S. were 8% and 9% of total long-term assets at September 30, 2007 and 2006, respectively, or $3,672 and $3,202, the majority of which represent acquisition-related intangible assets located in France. Revenue for the years ended September 30, 2007, 2006 and 2005 from customers located outside the United States was 30%, 26% and 24%, respectively, of total revenue.

In the following table, revenue is determined based on the locations of customers.


	Year Ended September 30,
	2007		2006		2005

Revenues:
United States	$	71,536	$	60,841	$	48,026
All other		30,707		21,570		15,522

	$	102,243	$	82,411	$	63,548

Other than the United States, no individual country represented greater than 10% of total revenues in any year.


14.	Quarterly Financial Data (unaudited)

On December 20, 2007, the Company and the Audit Committee of the Board of Directors of the Company concluded that prior quarter restatement of its previously issued unaudited condensed consolidated financial data for each of the first three quarters in fiscal 2007 was necessary. The errors are primarily the result of errors in recording its state income tax provision, and also errors in recording its state sales tax liabilities and receivables, the timing of recording revenue on certain revenue arrangements, and the timing of recording a purchase accounting entry. In addition, the Company identified errors originating in periods prior to fiscal 2007 which primarily related to errors in recording its state income tax provision and its state sales tax liabilities and receivables as well as errors in the timing of recording revenue on certain revenue arrangements. These prior fiscal period errors individually and in the aggregate are not material to the financial results for previously issued annual financial statements or previously issued interim financial data prior to fiscal 2007.

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

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

State Income Tax

In the fiscal quarter ended June 30, 2007, the Company incorrectly determined its income tax provision (benefits) primarily as a result of not properly evaluating the realizability of state tax benefits and related deferred tax assets relating to state research and development tax credits. Specifically, the Company concluded that primarily based on a decrease in the Company’s expected fiscal 2007 financial results related to taxable income in Massachusetts, it should not have recorded a $656 benefit related to its state research and development tax credits in the third quarter of fiscal 2007.

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

Sales Tax

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

Revenue

The Company identified several errors related to the timing of recording revenue on certain agreements. The impact of all revenue related adjustments resulted in an increase in previously reported revenue during the quarters ended December 31, 2006 and March 31, 2007 of $109 and $263, respectively, and a decrease in previously reported revenue during the quarter ended June 30, 2007 of $194. Of the adjustment recorded in the quarter ended December 31, 2006, $7 related to prior periods. The significant corrections included:


	•	The Company acquired Sane on March 22, 2006. The contract terms for certain Sane web-based license arrangements granted the customer a fifteen day evaluation period to accept the product. The Company historically recognized revenue for the license at the time of sale instead of after the fifteen day evaluation period. The Company made the correction in the fiscal 2007 quarters to recognize the revenue from these transactions at the expiration of the fifteen day period.

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

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

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

UNICA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except share data)

Acquisition Costs

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

Other

The restatement of the Company’s unaudited condensed consolidated financial statements for the first three quarters in fiscal 2007 also include corrections for other identified errors. Such adjustments primarily relate to (i) fixed assets eligible for capitalization that were initially expensed; (ii) amortization and depreciation for certain fixed assets; (iii) an increase in pension liability related to a foreign subsidiary and (iv) corrections to certain accrual accounts. The net impact of restating all other operating expense related adjustments was a decrease in reported operating expenses of approximately $122 during the three months ended December 31, 2006, of which $7 related to prior years, and an increase in previously reported operating expenses during the three months ended March 31, 2007 and June 30, 2007 of approximately $16 and $110, respectively.

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

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

The following tables set forth the effects of correcting the errors described above for the first three quarters in fiscal 2007:

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


	Three Months Ended December 31, 2006
	As Previously
	Reported			Adjustments			As Restated

Revenue:
License	$	9,181		$	(150	)	$	9,031
Maintenance and services		12,299			166			12,465
Subscription		2,209			93			2,302

Total revenue		23,689			109			23,798

Costs of revenue:
License		567			—			567
Maintenance and services		3,893			(10	)		3,883
Subscription		149			—			149

Total cost of revenue		4,609			(10	)		4,599

Gross profit		19,080			119			19,199
Operating expenses:
Sales and marketing		9,245			(32	)		9,213
Research and development		5,076			(80	)		4,996
General and administrative		3,887			52			3,939
Restructuring charges		1,244			—			1,244
Amortization of acquired intangible assets		393			—			393

Total operating expenses		19,845			(60	)		19,785

Loss from operations		(765	)		179			(586	)
Other income, net		538			—			538

Loss before income taxes		(227	)		179			(48	)
Provision for (benefit from) income taxes		(87	)		219			132

Net loss	$	(140	)	$	(40	)	$	(180	)

Net loss per common share:
Basic	$	(0.01	)				$	(0.01	)

Diluted	$	(0.01	)				$	(0.01	)

Shares used in computing loss per common share:
Basic		19,640,000						19,640,000

Diluted		19,640,000						19,640,000

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


	December 31, 2006
	As Previously
	Reported		Adjustments			As Restated

ASSETS
Current assets:
Cash and cash equivalents	$	19,359	$	—		$	19,359
Short-term investments		17,145		—			17,145
Accounts receivable, net of allowance for doubtful accounts of $112		32,346		(34	)		32,312
Purchased customer receivables		1,030		—			1,030
Deferred tax assets, net of valuation allowance		656		—			656
Prepaid expenses and other current assets		2,852		2,774			5,626

Total current assets		73,388		2,740			76,128
Property and equipment, net		2,235		109			2,344
Purchased customer receivables, long-term		1,388		—			1,388
Acquired intangible assets, net		6,612		—			6,612
Goodwill		20,232		115			20,347
Deferred tax assets, long-term, net of valuation allowance		2,965		—			2,965
Other assets		675		—			675

Total assets	$	107,495	$	2,964		$	110,459


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,013	$	—		$	3,013
Accrued expenses		12,054		3,113			15,167
Short-term deferred revenue		32,863		(109	)		32,754

Total current liabilities		47,930		3,004			50,934
Long-term deferred revenue		3,801		—			3,801

Total liabilities		51,731		3,004			54,735
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value:
Authorized — 10,000,000 shares; no shares issued or outstanding at December 31, 2006		—		—			—
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; issued and outstanding — 19,730,000 shares at December 31, 2006		197		—			197
Additional paid-in capital		53,374		—			53,374
Retained earnings		1,942		(40	)		1,902
Accumulated other comprehensive income		251		—			251

Total stockholders’ equity		55,764		(40	)		55,724

Total liabilities and stockholders’ equity	$	107,495	$	2,964		$	110,459

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Three Months Ended December 31, 2006
	As Previously
	Reported			Adjustments			As Restated

Cash flows from operating activities:
Net loss	$	(140	)	$	(40	)	$	(180	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		328			(59	)		269
Amortization of acquired intangible assets		670			—			670
Share-based compensation		1,059			—			1,059
Excess tax benefits from share-based compensation		(374	)		—			(374	)
Deferred tax benefits		34			—			34
Changes in operating assets and liabilities:
Accounts receivable, net		(6,014	)		34			(5,980	)
Prepaid expenses and other current assets		(1,137	)		(2,774	)		(3,911	)
Other assets		331			—			331
Accounts payable		383			—			383
Accrued expenses		(1,320	)		2,998			1,678
Deferred revenue		2,655			(109	)		2,546

Net cash used in operating activities		(3,525	)		50			(3,475	)

Cash flows from investing activities:
Purchases of property and equipment, net of acquisitions		(325	)		(50	)		(375	)
Cash collected from purchased intangible assets Sales and maturities of short-term investments		4,751			—			4,751
Purchases of short-term investments		(12,360	)		—			(12,360	)
Increase in restricted cash		(5	)		—			(5	)

Net cash used in investing activities		(7,939	)		(50	)		(7,989	)

Cash flows from financing activities:
Proceeds from the issuance of common stock under stock option and employee stock purchase plans		148			—			148
Excess tax benefits from share-based compensation		374			—			374
Common stock repurchased under employee stock plans		(300	)		—			(300	)

Net cash provided by financing activities		222			—			222

Effect of exchange rate changes on cash and cash equivalents		100						100

Net decrease in cash and cash equivalents		(11,142	)		—			(11,142	)
Cash and cash equivalents at beginning of period		30,501						30,501

Cash and cash equivalents at end of period	$	19,359		$	—		$	19,359

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


	Three Months Ended March 31, 2007							Six Months Ended March 31, 2007
	As Previously							As Previously
	Reported		Adjustments			As Restated		Reported			Adjustments			As Restated

Revenue:
License	$	10,014	$	36		$	10,050	$	19,195		$	(114	)	$	19,081
Maintenance and services		13,821		235			14,056		26,120			401			26,521
Subscription		2,199		(8	)		2,191		4,408			85			4,493

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

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

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

Gross profit		20,137		263			20,400		39,217			382			39,599
Operating expenses:
Sales and marketing		9,940		—			9,940		19,185			(32	)		19,153
Research and development		5,345		50			5,395		10,421			(30	)		10,391
General and administrative		3,990		2			3,992		7,877			54			7,931
Restructuring charges		—		—			—		1,244			—			1,244
Amortization of acquired intangible assets		393		—			393		786			—			786

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

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

Income before income taxes		998		211			1,209		771			390			1,161
Provision for (benefit from) income taxes		85		61			146		(2	)		280			278

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

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

Diluted	$	0.04				$	0.05	$	0.04					$	0.04

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

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

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


	March 31, 2007
	As Previously
	Reported		Adjustments			As Restated

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

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

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


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

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

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

Total stockholders’ equity		58,382		110			58,492

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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Six Months Ended March 31, 2007
	As Previously
	Reported			Adjustments			As Restated

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

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

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

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

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

Net cash provided by financing activities		851			—			851

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

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

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

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


	Three Months Ended June 30, 2007									Nine Months Ended June 30, 2007
	As Previously									As Previously
	Reported			Adjustments			As Restated			Reported			Adjustments			As Restated

Revenue:
License	$	6,971		$	114		$	7,085		$	26,166		$	—		$	26,166
Maintenance and services		13,895			(223	)		13,672			40,015			178			40,193
Subscription		2,175			(85	)		2,090			6,583			—			6,583

Total revenue		23,041			(194	)		22,847			72,764			178			72,942

Costs of revenue:
License		663			—			663			1,945			—			1,945
Maintenance and services		4,756			10			4,766			13,663			—			13,663
Subscription		206			—			206			523			—			523

Total cost of revenue		5,625			10			5,635			16,131			—			16,131

Gross profit		17,416			(204	)		17,212			56,633			178			56,811
Operating expenses:
Sales and marketing		9,903			32			9,935			29,088			—			29,088
Research and development		5,442			30			5,472			15,863			—			15,863
General and administrative		3,975			(75	)		3,900			11,852			(21	)		11,831
Restructuring charges		—			—			—			1,244			—			1,244
Amortization of acquired intangible assets		393			—			393			1,179			—			1,179

Total operating expenses		19,713			(13	)		19,700			59,226			(21	)		59,205

Loss from operations		(2,297	)		(191	)		(2,488	)		(2,593	)		199			(2,394	)
Other income, net		567			—			567			1,634			—			1,634

Loss before income taxes		(1,730	)		(191	)		(1,921	)		(959	)		199			(760	)
Benefit from income taxes		(2,064	)		935			(1,129	)		(2,066	)		1,215			(851	)

Net income (loss)	$	334		$	(1,126	)	$	(792	)	$	1,107		$	(1,016	)	$	91

Net income (loss) per common share:
Basic	$	0.02					$	(0.04	)	$	0.06					$	0.00

Diluted	$	0.02					$	(0.04	)	$	0.05					$	0.00

Shares used in computing net income (loss) per common share:
Basic		19,934,000						19,934,000			19,794,000						19,794,000

Diluted		20,948,000						19,934,000			20,749,000						20,749,000

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


	June 30, 2007
	As Previously
	Reported		Adjustments			As Restated

ASSETS
Current assets:
Cash and cash equivalents	$	26,197	$	—		$	26,197
Short-term investments		25,358		—			25,358
Accounts receivable, net of allowance for doubtful accounts of $163		18,409		—			18,409
Purchased customer receivables		1,030		—			1,030
Deferred tax assets, net of valuation allowance		845		—			845
Prepaid expenses and other current assets		5,682		2,787			8,469

Total current assets		77,521		2,787			80,308
Property and equipment, net		3,417		63			3,480
Purchased customer receivables, long-term		1,064		—			1,064
Acquired intangible assets, net		5,291		—			5,291
Goodwill		20,231		115			20,346
Deferred tax assets, long-term, net of valuation allowance		3,581		—			3,581
Other assets		712		—			712

Total assets	$	111,817	$	2,965		$	114,782


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,348	$	—		$	2,348
Accrued expenses		11,330		4,159			15,489
Short-term deferred revenue		33,589		(178	)		33,411

Total current liabilities		47,267		3,981			51,248
Long-term deferred revenue		3,312		—			3,312

Total liabilities		50,579		3,981			54,560
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock, $0.01 par value:
Authorized — 10,000,000 shares; no shares issued or outstanding at June 30, 2007		—		—			—
Common stock, $0.01 par value:
Authorized — 90,000,000 shares; issued and outstanding — 20,006,000 shares at June 30, 2007		200		—			200
Additional paid-in capital		57,588		—			57,588
Retained earnings		3,189		(1,016	)		2,173
Accumulated other comprehensive income		261		—			261

Total stockholders’ equity		61,238		(1,016	)		60,222

Total liabilities and stockholders’ equity	$	111,817	$	2,965		$	114,782

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	Nine Months Ended June 30, 2007
	As Previously
	Reported			Adjustments			As Restated

Cash flows from operating activities:
Net income	$	1,107		$	(1,016	)	$	91
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		1,067			(63	)		1,004
Amortization of acquired intangible assets		1,991			—			1,991
Share-based compensation		3,802			—			3,802
Excess tax benefits from share-based compensation		(815	)		—			(815	)
Deferred tax benefits		(772	)		—			(772	)
Changes in operating assets and liabilities:
Accounts receivable, net		7,936			—			7,936
Prepaid expenses and other current assets		(3,481	)		(2,787	)		(6,268	)
Other assets		721			—			721
Accounts payable		(288	)		—			(288	)
Accrued expenses		(2,177	)		4,044			1,867
Deferred revenue		2,797			(178	)		2,619

Net cash provided by operating activities		11,888			—			11,888

Cash flows from investing activities:
Purchases of property and equipment, net of acquisitions		(2,298	)		—			(2,298	)
Sales and maturities of short-term investments		31,320						31,320
Purchases of short-term investments		(47,143	)					(47,143	)

Net cash used in investing activities		(18,121	)		—			(18,121	)

Cash flows from financing activities:
Proceeds from the issuance of common stock under stock option and employee stock purchase plans		1,535			—			1,535
Excess tax benefits from share-based compensation		815			—			815
Common stock repurchased under employee stock plans		(528	)		—			(528	)

Net cash provided by financing activities		1,822			—			1,822

Effect of exchange rate changes on cash and cash equivalents		107			—			107

Net decrease in cash and cash equivalents		(4,304	)		—			(4,304	)
Cash and cash equivalents at beginning of period		30,501						30,501

Cash and cash equivalents at end of period	$	26,197		$	—		$	26,197

SELECTED QUARTERLY FINANCIAL DATA (Unaudited):


	First			Second			Third			Fourth
Year Ended September 30, 2007	Quarter			Quarter			Quarter			Quarter
	(As Restated)			(As Restated)			(As Restated)
	(in thousands, except per share data)
Total revenue	$	23,798		$	26,297		$	22,847		$	29,301
Gross profit		19,199			20,400			17,212			23,000
Net income (loss)		(180	)		1,063			(792	)		405
Net income (loss) per common share:
Basic	$	(0.01	)	$	0.05		$	(0.04	)	$	0.02

Diluted	$	(0.01	)	$	0.05		$	(0.04	)	$	0.02



	First			Second			Third			Fourth
Year Ended September 30, 2006	Quarter			Quarter			Quarter			Quarter
	(in thousands, except per share data)
Total revenue	$	17,595		$	18,841		$	21,707		$	24,268
Gross profit		14,478			15,161			17,168			19,397
Net income (loss)		1,434			(1,743	)		215			770
Net income (loss) per common share:
Basic	$	0.08		$	(0.09	)	$	0.01		$	0.04

Diluted	$	0.07		$	(0.09	)	$	0.01		$	0.04


15.	Employee Benefit Plan

On July 1, 2000, the Company adopted the Unica Corporation 401(k) Savings Plan (the 401(k) Plan). Under the 401(k) Plan, employees may elect to reduce their current compensation by an amount no greater than the statutorily prescribed annual limit and may have that amount contributed to the 401(k) Plan. The Company may make matching or additional contributions to the 401(k) Plan in amounts to be determined by management. The Company contributed $477, $368 and $149 to the 401(k) Plan for the years ended September 30, 2007, 2006 and 2005, respectively.


16.	Allowance for Doubtful Accounts

The Company offsets gross trade accounts receivable with an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts on a monthly basis and all past due balances are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for allowance for doubtful accounts are recorded in general and administrative expenses.

Below is a summary of the changes in the Company’s allowance for doubtful accounts for the years ended September 30, 2007, 2006 and 2005:


	Balance at		Impact of								Balance at
	Beginning of		Adopting								End of
	Period		SAB 108			Provision		Write-offs			Period

Year ended September 30, 2007	$	141		—		$	55	$	(119	)	$	77
Year ended September 30, 2006	$	569	$	(510	)	$	82		—		$	141
Year ended September 30, 2005	$	488		—		$	81		—		$	569

Upon adoption of SAB 108, the Company reversed $510 of excess allowance for doubtful accounts for uncorrected errors. The excess allowance for doubtful accounts as of September 30, 2003 was approximately $410 and had accumulated over several years. The excess allowance for doubtful accounts increased by approximately $80 and $20 during the years ended September 30, 2004 and 2005, respectively. These errors had not previously been material to any of those prior periods when measured using the roll-over method. The Company recorded this cumulative effect adjustment net of tax, resulting in a decrease to short-term deferred tax assets of $201. As a result, the net adjustment was recorded as an increase to retained earnings as of October 1, 2005 of $309.

100


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.*

None.


Item 9A.	*Controls and Procedures*

Evaluation 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,” as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act, 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 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 concluded that our disclosure controls and procedures were not effective because of the material weakness described in Management’s Report on Internal Control Over Financial Reporting.

Notwithstanding the existence of the material weakness described below, we concluded that the consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the interim and annual periods presented.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


	•	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

	•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and

	•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of 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.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of September 30, 2007. In making this assessment, Unica’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.

101

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.

We identified a material weakness in our internal control over financial reporting as of September 30, 2007 because we did not maintain effective controls over the accounting for taxes, including the determination and reporting of state income taxes, state sales taxes, deferred tax assets and the income tax provision. Specifically, we did not properly evaluate the realizability of a state tax benefit and related deferred tax assets and we did not perform an effective analysis to ensure the completeness and accuracy of our state sales taxes and income taxes. This control deficiency resulted in the misstatement of the aforementioned accounts and disclosures and the restatement of our interim consolidated financial statements of fiscal 2007. Additionally, this control deficiency could result in a misstatement of the aforementioned accounts and disclosures that would result in a material misstatement of our interim or annual consolidated financial statements and disclosures that would not be prevented or detected. -Accordingly, our management has determined that this control deficiency constitutes a material weakness.

Based on the material weakness described above, management concluded that, as of September 30, 2007, our internal control over financial reporting was not effective based on criteria in Internal Control — Integrated Framework issued by the COSO.

The effectiveness of our internal control over financial reporting as of September 30, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page 52.

Remediation Plans for Material Weakness in Internal Control Over Financial Reporting Related to the Accounting for Taxes

The Company has commenced plans to implement 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 will enhance its quarterly review of tax-related assets and liabilities, as well as the effective tax rate, to ensure the proper recognition of taxes payable and the deferred tax assets and liabilities. Such reviews will be performed by personnel with an appropriate level of tax expertise; and

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

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

Remediation of Material Weakness in Internal Control over Financial Reporting Related to Non-Standard Contract Provisions

Management concluded that a material weakness existed related to our evaluation and accounting for software license arrangements with nonstandard terms and conditions, reported in the Company’s Quarterly reports on Form 10-Q for the three and six months ended March 31, 2007 and the three and nine months ended June 30, 2007,

In the normal course of business, we routinely enter into software license arrangements that contain non-standard terms and conditions, which could significantly affect the timing and amount of revenue recognized in a given period. Specifically, for certain software license agreements, we did not adequately document non-standard terms and conditions contained in these agreements and did not perform sufficient accounting research to determine the impact of such non-standard contractual terms. As a result of this material weakness, we deferred license revenue related to one of the software license agreements entered into during the quarter ended March 31, 2007.

102

Management has concluded that, as of September 30, 2007, the Company has remediated the previously reported material weakness in internal control over financial reporting relating to our evaluation and accounting for software license arrangements with nonstandard terms and conditions. We have taken the following remedial actions:


	•	Beginning in the third quarter of fiscal 2007, we revised our process of reviewing significant non-standard terms contained in our software license agreements to require expanded documentation of each significant non-standard term by our legal department and additional rigor around the accounting research performed by our finance department for each significant non-standard term identified by us.

	•	Beginning in the fourth quarter of fiscal 2007, we developed a supplemental revenue review checklist to ensure that all processes are being performed in their entirety and in a timely manner with respect to software license arrangements with nonstandard terms and conditions.

	•	Beginning in the fourth quarter of fiscal 2007, we built additional levels of review by senior management into our control processes relating to software license arrangements with nonstandard terms and conditions.

During the fourth quarter of fiscal 2007 we completed testing to validate compliance with the newly implemented policies, procedures and controls. The Company has undertaken this testing in order to demonstrate operating effectiveness over a period of time that is sufficient to support its conclusion. We have reviewed the results from this testing and concluded that the material weakness in our internal control over financial reporting relating to our evaluation and accounting for software license arrangements with nonstandard terms and conditions has been remediated as of September 30, 2007. The Company will continue to monitor the effectiveness of these procedures on a quarterly basis, and will continue to make any changes that management deems appropriate.

Changes in Internal Control Over Financial Reporting

As described above in the paragraph titled Remediation of Material Weakness in Internal Control Over Financial Reporting Related to Non-Standard Contract Provisions, there were changes in our internal control over financial reporting during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As a result of these changes, as stated above, we have remediated the previously reported material weakness relating to our evaluation and accounting for software license agreements with non standard terms and conditions.

Item 9B. Other Information

None.

PART III


Item 10.	*Directors, Executive Officers and Corporate Governance*

The information required by this item is set forth under the captions “Proposal 1: Election of Class II Directors,” “Information About Continuing Directors,” “Information About Executive Officers,” “Code of Business Conduct and Ethics” and “Board Committees — Audit Committee” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders, and is incorporated herein by reference.

We are also required under Item 405 of Regulation S-K to provide information concerning delinquent filers of reports under Section 16 of the Securities Exchange Act of 1934, as amended. This information is listed under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference. The information regarding executive officers is listed under the section captioned “Executive Officers of the Company” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders to

103

be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference.


Item 11.	*Executive Compensation*

The information required by this item is set forth under the captions “Director Compensation; Executive Officer Compensation,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The information required by this item is set forth under the captions “Stock Owned by Directors, Executive Officers and Greater-Than-5% Stockholders” and “Securities Authorized for Issuance Under Equity Compensation Plans” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference.


Item 13.	*Certain Relationships and Related Transactions, and Director Independence*

The information required by this item is set forth under the captions “Related Party Transactions” and “Information About Corporate Governance” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference.


Item 14.	*Principal Accountant Fees and Services*

The information required by this item is set forth under the caption “Independent Registered Public Accountants” in our definitive proxy statement for the 2008 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference.

Part IV


Item 15.	*Exhibits and Financial Statement Schedules*

1. Financial Statements are filed as part of this Annual Report on Form 10-K.

2. The following consolidated financial statements are included in Item 8:


	•	Consolidated Balance Sheets as of September 30, 2007 and 2006

	•	Consolidated Income Statements for the years ended September 30, 2007, 2006 and 2005

	•	Consolidated Statements of Redeemable Preferred Stock, Stockholders’ (Deficit) Equity and Comprehensive Income for the years ended September 30, 2007, 2006 and 2005

	•	Consolidated Statements of Cash Flows for the years ended September 30, 2007, 2006 and 2005

(b) Exhibits


Exhibit
Number			Description

	2	.1	Agreement and Plan of Merger, dated July 9, 2007 by and among the Registrant, MRB Acquisition Corp. and MarketingCentral, L.L.C.(6)
	3	.1	Amended and Restated Certificate of Incorporation(1)

104


Exhibit
Number			Description

	3	.2	Amended and Restated By-laws(1)
	4	.1	Specimen Certificate for shares of common stock(1)
	4	.2	Registration Rights Agreement, dated as of November 24, 1999, by and among the Registrant and the parties named therein, as amended(1)
	10	.1*	Amended and Restated 1993 Stock Option Plan(1)
	10	.2*	2003 Stock Option Plan, as amended(1)
	10	.3*	2005 Stock Incentive Plan, as amended(4)
	10	.4*	2005 Employee Stock Purchase Plan, as amended(2)
	10	.5*	Standard form of Stock Option Agreement entered into with executive officers pursuant to the 1993 Stock Option Plan(1)
	10	.6*	Standard form of Adviser’s Stock Option Agreement entered into with directors pursuant to the 1993 Stock Option Plan(1)
	10	.7*	Standard form of Stock Option Agreement entered into with executive officers pursuant to the 2003 Stock Option Plan(1)
	10	.8*	Standard form of Adviser’s Stock Option Agreement entered into with directors pursuant to the 2003 Stock Option Plan(1)
	10	.9*	Standard form of Incentive Stock Option Agreement entered into with executive officers pursuant to the 2005 Stock Option Plan(1)
	10	.10*	Standard form of Non-qualified Stock Option Agreement entered into with directors pursuant to the 2005 Stock Option Plan(1)
	10	.11*	Standard form of Restricted Stock Agreement granted under 2005 Stock Option Plan(2)
	10	.12*	Standard form of Restricted Stock Unit Agreement granted under 2005 Stock Option Plan(3)
	10	.13	Lease, dated as of December 20, 2002, by and between the Registrant and Mortimer B. Zuckerman and Edward H. Linde, Trustees of Tracer Lane Trust II, as amended(1)
	10	.14	Form of Indemnification Agreement entered into by and between the Registrant and each of its executive officers and directors(1)
	10	.19*	Letter Agreement between the Registrant and Ralph A. Goldwasser, dated February 1, 2006(5)
	10	.20*	Transition Agreement dated January 31, 2006 between Unica Corporation and Richard Darer(3)
	10	.21*	Fiscal 2007 Executive Incentive Plan(7)
	14	.1	Code of Business Conduct and Ethics(1)
	16	.01	Letter from Ernst & Young LLP(8)
	21	.1	List of Subsidiaries
	23	.1	Consent of PricewaterhouseCoopers LLP
	23	.2	Consent of Ernst & Young LLP
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	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


*		Management contract or compensatory plan or arrangement

(1)		Incorporated by reference to the exhibits to the Registrant’s registration statement on Form S-1 (File No. 333-120615)

105


(2)		Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on December 19, 2005 (File No. 000-51461)

(3)		Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on February 14, 2006 (File No. 000-51461)

(4)		Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on May 15, 2006 (File No. 000-51461)

(5)		Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on August 14, 2006 (File No. 000-51461)

(6)		Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with SEC on July 13, 2007 (File No. 000-51461)

(7)		Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on May 29, 2007 (File No. 000-51461)

(8)		Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on June 29, 2007 (File No. 000-51461)

106

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on behalf by the undersigned, thereunto duly authorized.

UNICA CORPORATION


	By:	/s/ Yuchun Lee

Yuchun Lee

Chief Executive Officer, President and Chairman


	By:	/s/ Ralph A. Goldwasser

Ralph A. Goldwasser

Senior Vice President and Chief Financial Officer

Date: January 7, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of January 7, 2008.


Signature				Title


/s/ Yuchun Lee Yuchun Lee				Chief Executive Officer, President and Director (Principal Executive Officer)

/s/ Ralph A. Goldwasser Ralph A. Goldwasser				Senior Vice President and Chief Financial Officer (Principal Financial Officer)

/s/ Kevin R. Thimble Kevin R. Thimble				Vice President and Corporate Controller (Principal Accounting Officer)

/s/ Aron J. Ain Aron J. Ain				Director

/s/ Bruce R. Evans Bruce R. Evans				Director

/s/ Carla Hendra Carla Hendra				Director

/s/ James A. Perakis James A. Perakis				Director

/s/ Robert P. Schechter Robert P. Schechter				Director

/s/ Bradford D. Woloson Bradford D. Woloson				Director

EXHIBIT INDEX


Exhibit
Number			Description

	2	.1	Agreement and plan of Merger, dated July 9, 2007 by and among the Registrant, MRB Acquisition Corp. and MarketingCentral, L.L.C.(6)
	3	.1	Amended and Restated Certificate of Incorporation(1)
	3	.2	Amended and Restated By-laws(1)
	4	.1	Specimen Certificate for shares of common stock(1)
	4	.2	Registration Rights Agreement, dated as of November 24, 1999, by and among the Registrant and the parties named therein, as amended(1)
	10	.1*	Amended and Restated 1993 Stock Option Plan(1)
	10	.2*	2003 Stock Option Plan, as amended(1)
	10	.3*	2005 Stock Incentive Plan, as amended(4)
	10	.4*	2005 Employee Stock Purchase Plan, as amended(2)
	10	.5*	Standard form of Stock Option Agreement entered into with executive officers pursuant to the 1993 Stock Option Plan(1)
	10	.6*	Standard form of Adviser’s Stock Option Agreement entered into with directors pursuant to the 1993 Stock Option Plan(1)
	10	.7*	Standard form of Stock Option Agreement entered into with executive officers pursuant to the 2003 Stock Option Plan(1)
	10	.8*	Standard form of Adviser’s Stock Option Agreement entered into with directors pursuant to the 2003 Stock Option Plan(1)
	10	.9*	Standard form of Incentive Stock Option Agreement entered into with executive officers pursuant to the 2005 Stock Option Plan(1)
	10	.10*	Standard form of Non-qualified Stock Option Agreement entered into with directors pursuant to the 2005 Stock Option Plan(1)
	10	.11*	Standard form of Restricted Stock Agreement granted under 2005 Stock Option Plan(2)
	10	.12*	Standard form of Restricted Stock Unit Agreement granted under 2005 Stock Option Plan(3)
	10	.13	Lease, dated as of December 20, 2002, by and between the Registrant and Mortimer B. Zuckerman and Edward H. Linde, Trustees of Tracer Lane Trust II, as amended(1)
	10	.14	Form of Indemnification Agreement entered into by and between the Registrant and each of its executive officers and directors(1)
	10	.19*	Letter Agreement between the Registrant and Ralph A. Goldwasser, dated February 1, 2006(5)
	10	.20*	Transition Agreement dated January 31, 2006 between Unica Corporation and Richard Darer(3)
	10	.21*	Fiscal 2007 Executive Incentive Plan(7)
	14	.1	Code of Business Conduct and Ethics(1)
	16	.01	Letter from Ernst & Young LLP(8)
	21	.1	List of Subsidiaries
	23	.1	Consent of PricewaterhouseCoopers LLP
	23	.2	Consent of Ernst & Young LLP
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	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


*		Management contract or compensatory plan or arrangement

(1)		Incorporated by reference to the exhibits to the Registrant’s registration statement on Form S-1 (File No. 333-120615)


(2)		Incorporated by reference to the exhibits to the Registrant’s annual report on Form 10-K filed with the SEC on December 19, 2005 (File No. 000-51461)

(3)		Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on February 14, 2006 (File No. 000-51461)

(4)		Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on May 15, 2006 (File No. 000-51461)

(5)		Incorporated by reference to the exhibits to the Registrant’s quarterly report on Form 10-Q filed with the SEC on August 14, 2006 (File No. 000-51461)

(6)		Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on July 13, 2007 (File No. 000-51461)

(7)		Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on May 29, 2007 (File No. 000-51461)

(8)		Incorporated by reference to the exhibits to the Registrant’s current report on Form 8-K filed with the SEC on June 29, 2007 (File No. 000-51461)


	August 3,		September 30,		September 30,		September 30,
	2005		2005		2006		2007
Unica Corporation	$	100.00	$	93.77	$	87.96	$	95.90
Nasdaq Stock Market (U.S.)	$	100.00	$	97.06	$	101.88	$	121.86
Nasdaq Computer & Data Processing	$	100.00	$	96.63	$	100.39	$	123.04


			Page

Part I
	Item 1.	Business		1
	Item 1A.	Risk Factors		13
	Item 1B.	Unresolved Staff Comments		24
	Item 2.	Properties		24
	Item 3.	Legal Proceedings		25
	Item 4.	Submission of Matters to a Vote of Security Holders		25

Part II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		26
	Item 6.	Selected Financial Data		28
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		50
	Item 8.	Financial Statements and Supplementary Data		51
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		101
	Item 9A.	Controls and Procedures		101
	Item 9B.	Other Information		103

Part III
	Item 10.	Directors, Executive Officers and Corporate Governance		103
	Item 11.	Executive Compensation		104
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		104
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		104
	Item 14.	Principal Accountant Fees and Services		104

Part IV
	Item 15.	Exhibits and Financial Statement Schedules		104
Signatures
Ex-21.1 List of Subsidiaries
Ex-23.1 Consent of PricewaterhouseCoopers LLP
Ex-23.2 Consent of Ernst & Young LLP
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO & CFO


Item 8.	*Financial Statements and Supplementary Data*


	Page

Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm		52
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		53
Consolidated Balance Sheets as of September 30, 2007 and 2006		54
Consolidated Income Statements for the years ended September 30, 2007, 2006 and 2005		55
Consolidated Statements of Redeemable Preferred Stock, Stockholders’ (Deficit) Equity and Comprehensive Income for the years ended September 30, 2007, 2006 and 2005		56
Consolidated Statements of Cash Flows for the years ended September 30, 2007, 2006 and 2005		57
Notes to Consolidated Financial Statements		58



	/s/ Yuchun Lee
	Yuchun Lee
	Chief Executive Officer, President and Chairman



	/s/ Ralph A. Goldwasser
	Ralph A. Goldwasser
	Chief Financial Officer