10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from                      to                     

Commission File Number: 0-17995

ZIX CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Texas
(State of Incorporation) 75-2216818
(I.R.S. Employer Identification Number)

2711 North Haskell Avenue
Suite 2200, LB 36
Dallas, Texas 75204-2960
(Address of Principal Executive Offices)

(214) 370-2000
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 26, 2011
Common Stock, par value $0.01 per share	64,094,116

INDEX

	Page
	Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010		3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010		4
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2011		5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
Item 4. Controls and Procedures		16
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		16
Item 1A. Risk Factors		16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16
Item 3. Defaults Upon Senior Securities		17
Item 4. (Removed and Reserved)		17
Item 5. Other Information		17
Item 6. Exhibits		17
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2011			2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,829,000		$	24,619,000
Commercial Paper		2,290,000			—
Receivables, net		1,084,000			1,344,000
Prepaid and other current assets		1,462,000			1,115,000
Deferred tax assets		815,000			1,056,000
Total current assets		20,480,000			28,134,000
Property and equipment, net		2,296,000			2,209,000
Goodwill		2,161,000			2,161,000
Deferred tax assets		34,542,000			34,304,000
Other assets		—			44,000
Total assets	$	59,479,000		$	66,852,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	480,000		$	562,000
Accrued expenses		2,127,000			2,282,000
Deferred revenue		16,102,000			15,331,000
License subscription note payable		118,000			137,000
Total current liabilities		18,827,000			18,312,000
Long-term liabilities:
Deferred revenue		952,000			1,439,000
License subscription note payable		—			49,000
Deferred rent		159,000			165,000
Total long-term liabilities		1,111,000			1,653,000
Total liabilities		19,938,000			19,965,000
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.01 par value, 175,000,000 shares authorized; 70,611,320 issued and 63,998,539 outstanding at June 30, 2011 and 69,505,919 issued and 67,178,738 outstanding at December 31, 2010		706,000			695,000
Additional paid-in capital		347,520,000			344,981,000
Treasury stock, at cost; 6,612,781 common shares at June 30, 2011 and 2,327,181 common shares at December 31, 2010		(26,419,000	)		(11,507,000	)
Accumulated deficit		(282,266,000	)		(287,282,000	)
Total stockholders’ equity		39,541,000			46,887,000
Total liabilities and stockholders’ equity	$	59,479,000		$	66,852,000

See notes to condensed consolidated financial statements.

3

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
Revenues	$	9,431,000	$	8,194,000		$	18,702,000		$	15,673,000
Cost of revenues		1,756,000		1,570,000			3,573,000			3,072,000
Gross margin		7,675,000		6,624,000			15,129,000			12,601,000
Operating expenses:
Research and development		1,292,000		1,248,000			2,605,000			2,556,000
Selling, general and administrative		3,796,000		3,988,000			7,556,000			8,216,000
Total operating expenses		5,088,000		5,236,000			10,161,000			10,772,000
Operating income		2,587,000		1,388,000			4,968,000			1,829,000
Other income, net		19,000		15,000			61,000			44,000
Income from continuing operations before income taxes		2,606,000		1,403,000			5,029,000			1,873,000
Income tax benefit (expense)		11,000		(24,000	)		(13,000	)		30,000
Income from continuing operations		2,617,000		1,379,000			5,016,000			1,903,000
Income from discontinued operations before income taxes		—		188,000			—			478,000
Income tax expense		—		(66,000	)		—			(168,000	)
Income from discontinued operations		—		122,000			—			310,000
Net Income	$	2,617,000	$	1,501,000		$	5,016,000		$	2,213,000
Basic income per common share:
Income from continuing operations	$	0.04	$	0.02		$	0.08		$	0.03
Income from discontinued operations		—	$	0.00			—		$	0.00
Net Income	$	0.04	$	0.02		$	0.08		$	0.03
Diluted income per common share:
Income from continuing operations	$	0.04	$	0.02		$	0.07		$	0.03
Income from discontinued operations		—	$	0.00			—		$	0.00
Net Income	$	0.04	$	0.02		$	0.07		$	0.03
Basic weighted average common shares outstanding		65,208,875		63,976,551			66,190,442			63,883,974
Diluted weighted average common shares outstanding		67,280,939		66,359,134			68,638,470			65,933,977

See notes to condensed consolidated financial statements.

4

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Stockholders’ Equity
					Additional								Total
	Common Stock				Paid-In		Treasury			Accumulated			Stockholders’
	Shares		Amount		Capital		Stock			Deficit			Equity
Balance, December 31, 2010		69,505,919	$	695,000	$	344,981,000	$	(11,507,000	)	$	(287,282,000	)	$	46,887,000
Issuance of common stock upon exercise of stock options		635,591		6,000		1,604,000		—			—			1,610,000
Issuance of common stock upon exercise of warrants		469,810		5,000		719,000		—			—			724,000
Employee stock-based compensation costs		—		—		201,000		—			—			201,000
Non-employee stock-based compensation costs		—		—		15,000		—			—			15,000
Repurchase of common stock		—		—		—		(14,912,000	)		—			(14,912,000	)
Net income		—		—		—		—			5,016,000			5,016,000
Balance, June 30, 2011		70,611,320	$	706,000	$	347,520,000	$	(26,419,000	)	$	(282,266,000	)	$	39,541,000

See notes to condensed consolidated financial statements.

5

ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2011			2010
Operating activities:
Net income	$	5,016,000		$	2,213,000
Non-cash items in net income:
Depreciation and amortization		672,000			685,000
Employee stock-based compensation costs		201,000			976,000
Non-employee stock-based compensation costs		15,000			21,000
Changes in deferred taxes		3,000			7,000
Changes in operating assets and liabilities:
Receivables		260,000			196,000
Prepaid and other assets		(303,000	)		353,000
Accounts payable		(86,000	)		(222,000	)
Deferred revenue		284,000			958,000
Accrued and other liabilities		(161,000	)		(766,000	)
Net cash provided by operating activities		5,901,000			4,421,000
Investing activities:
Purchases of property and equipment		(755,000	)		(663,000	)
Purchase of commercial paper		(2,290,000	)		—
Sales of marketable securities		—			25,000
Net cash used in investing activities		(3,045,000	)		(638,000	)
Financing activities:
Proceeds from exercise of stock options		1,610,000			469,000
Proceeds from exercise of warrants		724,000			—
Payment of license subscription note payable		(68,000	)		(62,000	)
Purchase of treasury shares		(14,912,000	)		—
Net cash (used in) provided by financing activities		(12,646,000	)		407,000
(Decrease) increase in cash and cash equivalents		(9,790,000	)		4,190,000
Cash and cash equivalents, beginning of period		24,619,000			13,287,000
Cash and cash equivalents, end of period	$	14,829,000		$	17,477,000

See notes to condensed consolidated financial statements.

6

ZIX CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

     The accompanying condensed consolidated financial statements of Zix Corporation (“ZixCorp,” the “Company,” “we,” “our,” “us”) should be read in conjunction with the audited consolidated financial statements included in the Company’s 2010 Annual Report on Form 10-K. These financial statements are unaudited, but have been prepared in the ordinary course of business for the purpose of providing information with respect to the interim periods covered thereby. Management of the Company believes that all adjustments necessary for a fair presentation of such periods have been included and are of a normal recurring nature. The results of operations for the six-month period ended June 30, 2011, are not necessarily indicative of the results to be expected for any future interim periods or for the full fiscal year.

2. Recent Accounting Standards and Pronouncements

Revenue Recognition

     In October 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition that became effective January 1, 2011. Under the new guidance tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance; such software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when Vendor Specific Objective Evidence (“VSOE”) or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. This new guidance did not have a material impact on our condensed consolidated financial statements.

3. Discontinued Operations

     On December 31, 2010, we discontinued our e-Prescribing business. For information relating to discontinued operations, see the Company’s 2010 Annual Report on Form 10-K.

4. Stock Options and Stock-based Employee Compensation

     As of June 30, 2011, there were 6,827,165 options outstanding and 1,433,834 available for grant. Of the options available for grant, 1,187,310 options were available for grant to employees and 246,524 were available for grant to the Company’s directors. For the three month and six month periods ended June 30, 2011, the total stock-based employee compensation expense was recorded to the following line items of the Company’s condensed consolidated statements of operations:

	Three Months		Six Months
	Ended June 30,		Ended June 30,
	2011		2011
Cost of revenues	$	12,000	$	24,000
Research and development		13,000		26,000
Selling, general and administrative		68,000		151,000
Stock-based compensation expense	$	93,000	$	201,000

     There were 224,791 and 635,591 stock options exercised for the three and six month periods ended June 30, 2011, respectively. There were 139,460 and 309,096 stock options exercised for the three and six month periods ended June 30, 2010, respectively. The excess tax benefit recorded in the three month period ended June 30, 2011, related to the 224,791 options exercises was $92,000. The excess tax benefit recorded in the six month periods ended June 30, 2011, related to the 635,591 option exercises was $103,000. A deferred tax asset totaling $63,000 and $263,000, resulting from stock-based compensation expense relating to the Company’s U.S. operations, was recorded for the six month periods ended June 30, 2011 and 2010, respectively. As of June 30, 2011, there was

7

$493,000 of total unrecognized stock-based compensation related to non-vested stock-based compensation awards granted under the stock option plans. This cost is expected to be recognized over a weighted average period of 0.93 years.

Stock Option Activity

The following is a summary of all stock option transactions during the three months ended June 30, 2011:

						Weighted Average
				Weighted		Remaining		Aggregate
				Average		Contractual Term		Intrinsic
	Shares			Exercise Price		(Yrs)		Value
Outstanding at March 31, 2011		7,141,002		$	4.46
Granted at market price		45,000		$	3.52
Cancelled or expired		(134,046	)	$	6.06
Exercised		(224,791	)	$	1.70
Outstanding at June 30, 2011		6,827,165		$	4.52		4.58	$	4,503,000
Options exercisable at June 30, 2011		6,373,970		$	4.70		4.31	$	3,668,000

     Of the above-described stock options outstanding at June 30, 2011, 2,884,535 of such stock options outstanding had an exercise price lower than the market price of the Company’s common stock.

     For additional information regarding the Company’s Stock Options and Stock-based Employee Compensation, see Note 4 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

5. Supplemental Cash Flow Information

     Supplemental cash flow information relating to interest, taxes and non-cash activities:

	Six Months Ended June 30,
	2011			2010
Cash paid for interest	$	7,000		$	12,000
Cash income tax payments	$	107,000		$	149,000
Non-cash investing and financing activities:
Payables related to purchases of fixed assets	$	(4,000	)	$	125,000

6. Receivables, net

	June 30,			December 31,
	2011			2010
Receivables	$	1,116,000		$	1,376,000
Allowance for returns and doubtful accounts		(32,000	)		(32,000	)
Note receivable		468,000			476,000
Allowance for note receivable		(468,000	)		(476,000	)
Receivables, net	$	1,084,000		$	1,344,000

     The allowance for doubtful accounts includes all specific accounts receivable which we believe are likely not collectible based on known information. In addition, we record 2.5% of all accounts receivable greater than 90 days past due, net of those accounts specifically reserved, as a general allowance against accounts that could potentially become uncollectible.

     The note receivable represents the remaining outstanding balance of an original note related to the sale of a product line in 2005 in the amount of $540,000. The note receivable is fully reserved at June 30, 2011.

7. Earnings Per Share and Potential Dilution

     Basic earnings per share are computed using the weighted average number of common shares outstanding for the period. The dilutive effect of common shares potentially outstanding is included in diluted earnings per share. The computations for basic and diluted earnings per share for the three and six month periods ended June 30, 2011 and 2010, are as follows:

8

	Three Months ended June 30,				Six Months ended June 30,
	2011		2010		2011		2010
Basic weighted average shares		65,208,875		63,976,551		66,190,442		63,883,974
Effect of dilutive securities:
Employee and director stock options		965,444		836,291		1,144,363		730,104
Warrants		1,106,620		1,546,292		1,303,665		1,321,899
Potential dilutive common shares		67,280,939		66,359,134		68,638,470		65,935,977

     During the three and six month periods ended June 30, 2011, weighted average shares of 4,479,858 and 4,096,786 respectively, related to stock options were excluded from the calculation of diluted earnings per share because the option exercise prices exceeded the market price of ZixCorp’s common stock on that date, and the options were therefore anti-dilutive. During each of those periods, 145,853 of shares related to anti-dilutive warrants were excluded from that calculation. During the three and six month periods ended June 30, 2010, weighted average shares of 7,419,427 and 7,404,603 respectively, related to anti-dilutive stock options were excluded from the calculation of diluted earnings per share. During those same periods, 3,664,902 and 4,123,236, respectively, of shares related to anti-dilutive warrants were excluded from that calculation.

8. Commitments and contingencies

     A summary of our fixed contractual obligations and commitments at June 30, 2011, is as follows:

	Payments Due by Period
	Total		1 Year		Years 2 & 3		Beyond 3 Years
Operating leases	$	3,849,000	$	1,230,000	$	2,069,000	$	550,000
License subscription note payable		118,000		118,000		—		—
Total cash obligations		3,967,000		1,348,000		2,069,000		550,000
Interest on obligations		5,000		5,000		—		—
Total	$	3,972,000	$	1,353,000	$	2,069,000	$	550,000

     We have not entered into any material, non-cancelable purchase commitments at June 30, 2011.

Claims and Proceedings

     We are, from time to time, involved in various legal proceedings that arise in the ordinary course of business. We do not believe the outcome of these legal proceedings either individually or taken as a whole, will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, we cannot predict with certainty any eventual loss or range of possible loss related to such matters.

9. Fair Value Measurements

     FASB guidance regarding fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

     For certain of the Company’s financial instruments, including cash and cash equivalents, commercial paper, trade receivables, and accounts payable, the fair values approximate carrying values due to the short-term maturities of these instruments. The carrying values of other current assets and accrued expenses are also not recorded at fair value, but approximate fair values primarily due to their short-term nature.

10. Commercial Paper

     The investment in commercial paper is classified as a held-to-maturity debt security as the Company has the positive intent and ability to hold this investment until maturity. This short term investment was purchased on February 18, 2011, and matures on October 25, 2011. At maturity, the commercial paper will pay interest of approximately $10,000. The carrying value of this security approximates fair market value due to the short-term maturity of the investment.

9

11. Common Stock Repurchase Program

     On March 7, 2011, the Company announced that its Board of Directors approved a share repurchase program that authorized the Company to purchase up to $15,000,000 of its shares of common stock from time to time in the open market. During the three months ended June 30, 2011, the Company repurchased 2,917,300 shares at an aggregate cost of $9,900,000. During the three months ended March 31, 2011, the Company repurchased 1,368,300 shares at an aggregate cost of $5,000,000. We completed the share repurchase program during the first week of July 2011 when the remaining repurchased shares valued at approximately $100,000 were transferred to the Company.

12. Income Taxes

     At the end of 2010, the Company recorded a $35,300,000 tax benefit by reducing the valuation allowance related to its deferred tax assets. This reduction was determined through an assessment of future deferred tax asset utilization following accounting guidance which relies largely on historical earnings. Using the same methodology, and updating the future taxable earnings estimates based on first six months 2011 actual earnings, the Company believes its future taxable earnings estimate to be established at the end of 2011 will exceed the estimate used at the end of 2010. For this reason, the Company offset its first and second quarter 2011 deferred tax provision by reducing its valuation allowance by an equal amount; thereby eliminating any deferred tax provision from the Company’s first and second quarter 2011 financial statements. The Company expects to follow this same methodology in the third quarter of 2011 and will reevaluate the need for its valuation allowance at December 31, 2011, following the same assessment that was performed at December 31, 2010.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     Statements in this report which are not purely historical facts or which necessarily depend upon future events, including statements about trends, uncertainties, hopes, beliefs, anticipations, expectations, plans, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Any of these risk factors could have a material adverse effect on our business, financial condition or financial results and reduce the value of an investment in our securities. We may not succeed in addressing these and other risks associated with an investment in our securities, with our business and with our achieving any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. All forward-looking statements are based upon information available to us on the date the statements are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

     We are a leader in providing secure, Internet-based applications in a Software as a Service (“SaaS”) model. ZixCorp^® Email Encryption Service enables the use of secure email for sensitive information exchange primarily in the healthcare, financial services, insurance and government sectors. More than 1,200 hospitals and over 1,500 financial institutions, including some of the most influential companies and government organizations, use our Email Encryption Service. Wellpoint, Humana, and the Securities and Exchange Commission (“SEC”) are among these notable customers. Our Email Encryption Service is enhanced by ZixDirectory^®, which includes approximately 27 million members. ZixDirectory allows for emails to be sent seamlessly whenever possible, across the largest email encryption community in the world.

     The business operations and service offerings are supported by the ZixData Center™, a network operations center dedicated to secure electronic transaction processing. The operations of the ZixData Center are independently audited annually to maintain AICPA SysTrust^SM certification in the areas of security, confidentiality, integrity and availability. Auditors also produce a SAS70 Type II report on the effectiveness of operational controls used over the audit period. The center is staffed 24 hours a day with a proven 99.99% reliability. We enable email communications to be sent in a trusted, safe, and secure manner. This is our core competency and we believe it is a competitive advantage.

10

Critical Accounting Policies and Estimates

     The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and assumptions. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most subjective judgments.

     We describe our significant accounting policies in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. We discuss our Critical Accounting Policies and Estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010.

Results of Operations

Second Quarter 2011 Summary of Operations

Financial

• Revenue for the quarter ended June 30, 2011, was $9,431,000 compared with $8,194,000 for the same period in 2010 representing a 15% increase.

• Gross profit for the quarter ended June 30, 2011, was $7,675,000 or 81% of revenues compared with $6,624,000 or 81% of revenues for the comparable period in 2010.

• Net income for the quarter ended June 30, 2011, was $2,617,000 compared with net income of $1,501,000 for the same period 2010.

• Ending cash and cash equivalents and commercial paper were $17,119,000 on June 30, 2011, compared with $24,619,000 on December 31, 2010. During the six month period ended June 30, 2011, the company purchased 4,285,600 shares of its common stock at a cost of $14,912,000.

Operations

• New first year orders (“NFYOs”) for the quarter ended June 30, 2011, were $2,039,000. As of June 30, 2011, backlog was $52,584,000.

Revenues

     Email Encryption is a subscription-based service. The following table sets forth a period-over-period comparison of the Company’s revenues:

					3-month Variance									6-month Variance
	Three Months Ended June 30,				2011 vs. 2010					Six Months Ended June 30,				2011 vs. 2010
	2011		2010		$		%			2011		2010		$		%
Email Encryption revenues	$	9,431,000	$	8,194,000	$	1,237,000		15	%	$	18,702,000	$	15,673,000	$	3,029,000		19	%

     The increase in Email Encryption revenue was due to the growth inherent in a successful subscription model with steady additions to the subscriber base coupled with a high rate of existing customer renewals.

Revenue Indicators — Backlog and Orders

     Backlog — Our end-user order backlog is comprised of contractually bound agreements that we expect to amortize into revenue as the services are performed. The timing of revenue is affected by both the length of time required to deploy a service and the length of the service contract.

11

     As of June 30, 2011, total backlog was $52,584,000 and we expect approximately 57% of the total backlog to be recognized as revenue during the next twelve months. The backlog as of June 30, 2011, was comprised of the following elements: $17,054,000 of deferred revenue that has been billed and paid, $5,792,000 billed but unpaid, and approximately $29,738,000 of unbilled contracts.

     Email Encryption Orders — Total orders for Email Encryption were $12,517,000 and $9,598,000 for the three-month periods ended June 30, 2011 and 2010, respectively. Total orders include contract renewals, NFYOs, and in the case of new multi-year contracts, the years beyond the first year of service. NFYOs were $2,039,000 and $2,108,000 for the three months ended June 30, 2011 and 2010, respectively.

Cost of Revenues

     The following table sets forth a period-over-period comparison of the cost of revenues:

					3-month Variance									6-month Variance
	Three Months Ended June 30,				2011 vs. 2010					Six Months Ended June 30,				2011 vs. 2010
	2011		2010		$		%			2011		2010		$		%
Email Encryption	$	1,756,000	$	1,570,000	$	186,000		12	%	$	3,573,000	$	3,072,000	$	501,000		16	%

     Cost of revenues is comprised of costs related to operating and maintaining the ZixData Center, a field deployment team, customer service and support and the amortization of Company-owned, customer-based computer appliances. A significant portion of the total cost of revenues relates to the ZixData Center, which currently has excess capacity. The primary contributor to the year over year increase in Cost of revenues was an increase in the allocation of fixed costs relating to the data center and various fixed occupancy charges including facilities and telecommunications and various shared costs. A portion of these fixed and shared costs had previously been absorbed by the Company’s e-Prescribing business that was discontinued at the end of 2010. The Company’s remaining product line, Email Encryption, began absorbing higher allocated costs during 2010 as we were winding down the Company’s e-Prescribing business. The increase in cost of revenues in the second quarter of 2011 compared to the same quarter last year, resulted primarily from higher allocated costs. For the six months ended June 30, 2011, the allocated costs absorbed by Email Encryption increased approximately $450,000 compared to the first half of 2010. The remaining year over year increase of approximately $50,000 resulted primarily from increases in salaries and benefits.

Research and Development Expenses

     The following table sets forth a period-over-period comparison of our research and development expenses:

					3-month Variance									6-month Variance
	Three Months Ended June 30,				2011 vs. 2010					Six Months Ended June 30,				2011 vs. 2010
	2011		2010		$		%			2011		2010		$		%
Email Encryption	$	1,292,000	$	1,248,000	$	44,000		4	%	$	2,605,000	$	2,556,000	$	49,000		2	%

     Research and development expenses consist primarily of salary, benefits, and stock-based compensation for our development staff, and other non-people costs associated with enhancing our existing products and services and developing new products and services. For the quarter and year to date ended June 30, 2011, research and development expenses increased slightly due to increases in wages and benefit costs.

Selling, General and Administrative Expenses

     The following table sets forth a period-over-period comparison of our selling, general and administrative expenses:

					3-month Variance										6-month Variance
	Three Months Ended June 30,				2011 vs. 2010						Six Months Ended June 30,				2011 vs. 2010
	2011		2010		$			%			2011		2010		$			%
Selling, general and administrative	$	3,796,000	$	3,988,000	$	(192,000	)		(5	%)	$	7,556,000	$	8,216,000	$	(660,000	)		(8	%)

12

     Selling, general and administrative expenses consist primarily of salary, stock-based compensation and benefit costs for marketing, sales, executive and administrative personnel as well as costs associated with advertising, promotions, professional services and general corporate activities. The $192,000 decrease in expense during the quarter ended June 30, 2011 compared to the same period last year primarily resulted from decreases in bonus and commissions, stock based compensation, and salaries and severance expenses totaling approximately $650,000, which was partially offset by increases in professional fees, recruitment, advertising and investor relations totaling approximately $350,000. The remaining decrease of $108,000 was spread over a wide range of other selling, general and administrative activities.

     The $660,000 decrease in expense for the six months ended June 30, 2011, compared to the same period last year primarily resulted from decreases in bonus and commissions, stock based compensation, and salaries and severance expenses totaling approximately $1,500,000, which was partially offset by increases in professional fees, recruitment, advertising and investor relations totaling approximately $600,000. The remaining decrease of $240,000 was spread over a wide range of other selling, general and administrative activities.

Interest Expense

     Interest expense was $3,000 and $7,000 for the three and six months ended June 30, 2011, respectively. Interest expense was $5,000 and $12,000 for the three and six months ended June 30, 2010, respectively. Interest expense consists of interest related to a license subscription promissory note payable.

Investment and Other Income

     Investment and other income was $22,000 and $68,000 for the three and six months ended June 30, 2011, respectively. Investment and other income was $20,000 and $56,000 for the three and six months ended June 30, 2010, respectively. Other income consists of interest and other income items earned in the normal course of business.

Provision for Income Taxes

     The provision for income taxes was $(11,000) and $90,000 for the three-month periods ended June 30, 2011 and 2010, respectively, and $13,000 and $138,000 for the six month periods ended June 30, 2011 and 2010, respectively. The operating losses incurred by the Company’s U.S. operations in past years and the resulting net operating losses for U.S. Federal tax purposes are subject to a $71,683,000 reserve because of the uncertainty of future taxable income levels sufficient to utilize the net operating losses. Our 2011 provision of $13,000 consists of a benefit from refundable tax credits on our U.S. operations totaling $48,000, and taxes related to our Canadian operations totaling $35,000; and $26,000 in state taxes based on gross revenues. The 2010 provision consisted of $53,000 in taxes on our U.S. operations, $69,000 in taxes on our Canadian operations, and a small amount of state taxes based on gross revenues.

     There were no penalty-related charges to selling, general and administrative expenses accrued or recognized for the same comparative periods. Additionally, we have not taken a tax position that would have a material effect on the financial statements or the effective tax rate for the three-month period ended June 30, 2011. We are currently subject to a three-year statute of limitations by major tax jurisdictions.

     The Company previously recorded a $327,000 tax contingency liability related to tax year 2004 for its Canada operation, and that amount and the specifics therein have remained unchanged except for currency translation adjustments. As of June 30, 2011, the gross amount of our unrecognized tax benefits, inclusive of the $327,000 tax liability and $50,000 in other uncertain positions in 2008, was approximately $472,000. Included in this balance are tax positions which, if recognized, would impact our effective tax rate.

     At June 30, 2011, the Company partially reserved its U.S. net deferred tax assets due to the uncertainty of future taxable income sufficient to utilize net loss carryforwards prior to their expiration. The Company did not reserve a portion, $35,348,000, of its U.S. net deferred tax assets related to $48,000 in state tax credit carryforwards because such credits will be used to offset a revenue-based state franchise tax and are therefore not contingent on the Company’s reporting taxable income in a future period, and $35,300,000 in U.S. net operating losses (“NOLs”) because we believe the Company will generate sufficient taxable income in future years to utilize these NOLs prior to their expiration.

     At the end of 2010, the Company recorded a $35,300,000 tax benefit by reducing the valuation allowance related to its deferred tax assets. This reduction was determined through an assessment of future deferred tax asset utilization following accounting guidance

13

which relies largely on historical earnings. Using the same methodology, and updating the future taxable earnings estimates based on first and second quarter 2011 actual earnings, the Company believes its future taxable earnings estimate to be established at the end of 2011 will exceed the estimate used at the end of 2010. For this reason, the Company offset its first and second quarter 2011 deferred tax provision by reducing its valuation allowance by an equal amount, thereby eliminating any deferred tax provision from the Company’s first and second quarter 2011 financial statements. The Company expects to follow this same methodology in the third quarter of 2011 and will reevaluate the need for its valuation allowance at December 31, 2011 following the same assessment methodology that was performed at December 31, 2010. Adjusting our valuation allowance could have a significant impact on operating results in the period that it becomes more likely than not that an additional portion of our deferred tax assets will or will not be realized.

     We have determined that utilization of existing net operating losses against future taxable income is not subject to limitation by Section 382 of the Internal Revenue Code. Future ownership changes, however, may limit the company’s ability to fully utilize its existing net operating loss carryforwards against future taxable income.

     As indicated earlier, the operating losses incurred by our U.S. operations and the resulting net operating losses for U.S. Federal tax purposes are subject to a partial reserve. Significant judgment is required in determining any reserve recorded against the deferred tax asset. In assessing the need for a reserve, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies.

Net Income

     The net income for the quarter ending June 30, 2011, of $2,617,000 reflects the achievement of profitability for the sixth consecutive quarter, and is an improvement of $1,116,000 compared to the net income of $1,501,000 for the same period last year. The improvement in net income resulted from higher gross profit, due to increased revenue, combined with flat R&D and lower SG&A expenses, as discussed above.

Liquidity and Capital Resources

Overview

     Based on our performance over the last four quarters and current expectations, we believe our cash, cash equivalents, commercial paper and cash generated from operations, will satisfy our working capital needs, capital expenditures, investment requirements, contractual obligations, commitments, future customer financings, and other liquidity requirements associated with our operations through at least the next twelve months. We plan for and measure our liquidity and capital resources through an annual budgeting process. At June 30, 2011, our cash, cash equivalents, and commercial paper totaled $17.1 million and our debt was $118,000. Our debt consists of a note related to a three-year subscription for Microsoft licenses that is paid on a monthly basis at approximately $12,000 per month.

     Revenue is expected to grow at approximately 15% to 20% for the full year 2011 compared to 2010. For the three month period ended June 30, 2011, we achieved our sixth consecutive quarter of profitability.

     Cash, cash equivalents and commercial paper at June 30, 2011, were $17,119,000, a decrease of $7,500,000 from the December 31, 2010, balance. This decrease was primarily driven by the repurchase of $14,912,000 of our common stock under a repurchase program approved by our Board of Directors in March 2011. We completed the share repurchase program during the first week of July 2011 when the remaining repurchased shares valued at approximately $100,000 were transferred to the Company. Our decrease in cash was partially offset by cash generated from the exercise of stock options, cash collections from customers, and relatively flat accounts payable and accrued expenses.

     We believe a significant portion of all other spending is discretionary and flexible and that we have the ability to adjust overall cash spending to react, as needed, to any shortfalls in projected cash.

Sources and Uses of Cash Summary

	Six Months Ended June 30,
	2011			2010
Net cash provided by operations	$	5,901,000		$	4,421,000
Net cash used in investing activities	$	(3,045,000	)	$	(638,000	)
Net cash (used in) provided by financing activities	$	(12,646,000	)	$	407,000

14

     Our primary source of liquidity from our operations is the collection of revenue in advance from our customers and accounts receivable from our customers, net of the timing of payments to our vendors and service providers.

     Related to our investing activities in the first six months of 2011, we utilized $2,290,000 to purchase commercial paper and $755,000 to purchase equipment, primarily computer and networking equipment. In first six months of 2010, equipment purchases were $663,000. These 2010 purchases were slightly offset by the $25,000 cash inflow from proceeds from the sales of maturing marketable securities.

     Cash used in financing activities in the first six months of 2011 included the $14,912,000 repurchase of common stock mentioned above and $68,000 to fund a small promissory note associated with computer operating system licenses. These usages were partially offset by $2,334,000 received from the exercise of stock options and warrants. In the first six months of 2010, the exercise of stock options resulted in $469,000 in cash, which was partially offset by $62,000 used to fund the above mentioned promissory note.

Options and Warrants of ZixCorp Common Stock

     We have significant warrants and options outstanding that are currently vested. There is no assurance that any of these options and warrants will be exercised; therefore, the extent of future cash from additional warrant and option exercises is not certain. The following table summarizes the warrants and options that were outstanding as of June 30, 2011. The vested shares are a subset of the outstanding shares. The value of the shares is the number of shares multiplied by the exercise price for each share.

	Summary of Outstanding Options and Warrants
					Vested
			Total Value		(included in		Total Value of
Exercise Price Range	Outstanding		Outstanding		Outstanding)		Vested
$1.11 - $1.99		3,342,679	$	5,129,000		3,144,410	$	4,810,000
$2.00 - $3.49		1,088,359		2,794,000		852,183		2,277,000
$3.50 - $4.99		2,638,945		11,670,000		2,620,195		11,601,000
$5.00 - $5.99		515,927		2,624,000		515,927		2,624,000
$6.00 - $8.99		545,316		3,578,000		545,316		3,578,000
$9.00 - $11.00		804,792		8,628,000		804,792		8,628,000
Total		8,936,018	$	34,423,000		8,482,823	$	33,518,000

Off-Balance Sheet Arrangements

     None.

Contractual Obligations, Contingent Liabilities and Commitments

     A summary of our fixed contractual obligations and commitments at June 30, 2011, is as follows:

	Payments Due by Period
	Total		1 Year		Years 2 & 3		Beyond 3 Years
Operating leases	$	3,849,000	$	1,230,000	$	2,069,000	$	550,000
Debt (long-term and short-term)		118,000		118,000		—		—
Total cash obligations		3,967,000		1,348,000		2,069,000		550,000
Interest on obligations		5,000		5,000		—		—
Total	$	3,972,000	$	1,353,000	$	2,069,000	$	550,000

     We did not enter into any other material, non cancelable purchase commitments during the three month period ended June 30, 2011.

     We have severance agreements with certain employees which would require the Company to pay approximately $1,554,000 if all such employees separated from employment with our Company in certain circumstances, including a “Change of Control” or termination without “Cause,” as defined in the severance agreements.

15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2010.

ITEM 4. CONTROLS AND PROCEDURES

     The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e)) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2011.

Changes in Internal Controls over Financial Reporting

     During the six months ended June 30, 2011, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

     See Note 8 to the Condensed Consolidated Financial Statements set forth in this Form 10-Q.

ITEM 1A. Risk Factors

     See Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. There have been no material changes in our risk factors from those disclosed in such Annual Report on Form 10-K. The risk factors in our Form 10-K should be read in conjunction with the considerations set forth above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)	None.
(b)	None.
(c)	Purchases of Equity Securities by the Issuer

							Maximum Number (or
							Approximate Dollar
					Total Number of		Value) of Shares
					Shares Purchased as		(or Units) that May
					part of Publicly		Yet Be Purchased
	Total Number of Shares		Average Price Paid		Announced Plans or		Under the Plans or
Period	Purchased		per Share		Programs1		Programs
April 1, 2011 to April 30, 2011		440,000	$	3.66		440,000	$	8,389,000
May 1, 2011 to May 31, 2011		2,147,300	$	3.32		2,147,300	$	1,263,000
June 1, 2011 to June 30, 2011		330,000	$	3.56		330,000	$	88,000
Total		4,285,600	$	3.48		4,285,600	$	88,000

¹ The shares were repurchased under the $15 million stock repurchase program announced March 7, 2011. No shares were purchased other than through publicly announced programs during the periods shown.

16

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. (Removed and Reserved)

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS

a. Exhibits

     The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.	Description of Exhibits
3.1	Restated Articles of Incorporation of Zix Corporation, as filed with the Texas Secretary of State on November 10, 2005. Filed as Exhibit 3.1 to Zix Corporation’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
3.2	Amended and Restated Bylaws of Zix Corporation, dated February 4, 2009. Filed as Exhibit 3.1 to Zix Corporation’s Current Report on Form 8-K, dated February 10, 2009, and incorporated herein by reference.
10.1*	Form of Executive Termination Benefits Agreement.
10.2*	Description of Zix Corporation 2011 Variable Compensation Plan.
31.1*	Certification of Richard D. Spurr, President and Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Michael W. English, Principal Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of CEO and CFO, pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1***	101. INS (XBRL Instance Document)
	101. SCH (XBRL Taxonomy Extension Schema Document)
	101. CAL (XBRL Calculation Linkbase Document)
	101. LAB (XBRL Taxonomy Label Linkbase Document)
	101. DEF (XBRL Taxonomy Linkbase Document)
	101. PRE (XBRL Taxonomy Presentation Linkbase Document)

*	Filed herewith.
**	Furnished herewith.
***	In accordance with Rule 406T of Regulation S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

17

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ZIX CORPORATION
Date: August 2, 2011	By:	/s/ MICHAEL W. ENGLISH
		Michael W. English
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

18

EX-10.1

Exhibit 10.1

EMPLOYMENT TERMINATION BENEFITS AGREEMENT

     This Employment Termination Benefits Agreement, dated effective as of ______________, 20___, is entered into by and between Zix Corporation, a Texas corporation (“Company”), and the undersigned individual (“Employee”).

     Employee is an “at will” employee of an Affiliate of Company and is based in ______________.

     Company wishes to specify terms under which Employee would leave employment in the circumstances described in this agreement.

     The parties agree as follows:

     Capitalized terms not otherwise defined in this agreement have the meanings ascribed to them in section 5.

1. Separation Payment. If the Company or its Affiliate terminates Employee’s employment other than for Cause, then the Company shall pay to Employee the Separation Payment pursuant to and in accordance with subsection 1.B. If Employee resigns from employment (subject to the notice and cure provisions set forth below) with the Company and its Affiliates within 24 months after a Change in Control and the resignation was for a Change In Control Good Reason, then the resignation will be deemed to be a termination of Employee’s employment other than for Cause and the Company shall pay to Employee the Separation Payment pursuant to and in accordance with subsection 1.B. Neither Employee’s death nor Employee’s resignation or termination on account of disability will give rise to any Separation Payment. The Company’s obligation to make the Separation Payment will not be mitigated or offset by virtue of Employee obtaining new employment or failing to seek new employment. The Separation Payment encompasses and includes any applicable employment standards entitlements.

     A. Notice Required for Change in Control Good Reason. Notwithstanding anything to the contrary in the preceding paragraph, Employee will not be deemed to have resigned employment for a Change In Control Good Reason unless and until: (i) Employee provided to the Company notice of the existence of the Change In Control Good Reason condition within 90 days of its initial existence; (ii) the Company failed to remedy the Change In Control Good Reason condition within 30 days after the Company received the notice; and (iii) Employee resigned employment within 180 days after the initial existence of the Change In Control Good Reason condition.

     B. Time of Payment. The Company shall pay the Separation Payment to Employee in equal monthly payments over the number of months of base salary used to calculate the Separation Payment, beginning as soon as practicable after termination of Employee’s employment but no later than 60 days after such termination.

     C. Liability Release as Condition to Payment. Notwithstanding anything to the contrary in this agreement, the Company’s obligation to pay the Separation Payment is subject to and conditioned upon: (i) the Company’s receiving from the Employee, within 60 days after

1

Employee’s termination other than for Cause or resignation for a Change in Control Good Reason, a duly executed separation agreement containing a release of claims in a form reasonably satisfactory to the Company. If Employee fails to execute and deliver such a separation agreement to the Company within that 60-day time period, or Employee revokes such release pursuant to the terms of the separation agreement, then Employee is deemed to forfeit any entitlement to receive the Separation Payment and shall promptly return any portion of the Separation Payment which he or she received before such failure to execute and deliver or revocation. The Company will provide the separation agreement to Employee promptly after Employee’s termination other than for Cause or resignation for a Change in Control Good Reason.

     D. Withholding. Employee is responsible for all withholdings for taxes and other withholdings required by applicable law as to any amounts owed by Employee to Company, and Employee shall pay the same to the Company promptly upon demand if not otherwise withheld.

2. Accelerated Vesting of Stock Based Compensation. Notwithstanding anything to the contrary in any stock option agreement between Employee and Company:

     A. Change in Control.

     (1) Stock Options not Assumed or Substituted by Surviving Entity. Upon the occurrence of a Change in Control, and except with respect to any awards described in subsection 2.A(2) below: (i) all outstanding stock options granted by the Company to Employee immediately become fully exercisable, and (ii) the Company has the right to settle those options in accordance with subsection 2.C below. To the extent that this provision causes incentive stock options to exceed the dollar limitation set forth in section 422(d) of the Code, the excess stock options will be deemed to be nonstatutory stock options.

     (2) Stock Options Assumed or Substituted by Surviving Entity. With respect to awards that are assumed by the Surviving Entity or are otherwise equitably converted or substituted in connection with a Change in Control in a manner approved by the Board: (i) all outstanding stock options granted by the Company to Employee immediately become fully exercisable if, within two years after the effective date of the Change in Control, either (a) the Company or its Affiliate or the Surviving Entity terminates Employee’s employment other than for Cause or (b) Employee resigns for a Change in Control Good Reason. Upon the occurrence of an event described in the immediately preceding sentence, the Company has the right to settle the described options in accordance with subsection 2.C below.

     B. Termination Other Than for Cause. If the Company or its Affiliate terminates Employee’s employment other than for Cause, then each issued and outstanding stock option granted by the Company to Employee will immediately vest and become exercisable. Phrases referring to Employee’s termination “not for Cause” or “other than for Cause” in this agreement exclude any termination or resignation as a result of Employee’s death or disability. Neither Employee’s death nor Employee’s resignation or termination on account of disability will give rise to any accelerated vesting or right to settlement of any stock options under this agreement.

2

     C. Company’s Election. In the circumstances described in subsections 2.A, the Company has the right to choose to settle in cash, as described in subsection 2.D below, all or any portion of Employee’s stock options. The Employee shall surrender and transfer to the Company all stock options that the Company elects to settled in cash. Any stock options that are not settled in cash shall thereafter continue or lapse in accordance with the other provisions of the plan and the award agreement under which they were granted.

     D. Settlement in Cash. If the Company chooses to settle some or all of the stock options in cash, pursuant to subsection 2.C above, it may do so by paying the Employee either (i) the difference (if any, including a deemed distribution of $0) between the price being paid for the Company’s common stock in the Change in Control over the exercise price of the stock options (that difference, the “Spread Amount”), multiplied by the number of such stock options; or (ii) the “fair value” of those stock options under Generally Accepted Accounting Principles (as determined as of the settlement date through the Black-Scholes, binomial, or any other option pricing model permissible under FASB Accounting Standards Codification 718 or a successor standard), but only if that fair value would yield a greater payment to Employee than the Spread Amount. The Company shall pay the settlement amount, net of any required withholding, to Employee within 30 days after the Company notifies Employee it has elected the cash settlement.

3. No Conflict of Interest. Without limiting Employee’s obligations to comply with the Company’s Code of Conduct and Code of Ethics, Employee agrees that during the term of Employee’s employment:

     A. Employee shall not engage, either directly or indirectly, in any activity that may involve a conflict of interest with the Company or its Affiliate, including without limitation ownership in any supplier, contractor, subcontractor, customer or other entity with which the Company or its Affiliate does business (other than as a shareholder of less than one percent (1%) of a publicly-traded or privately-held class of equity ownership) (“Conflict of Interest”);

     B. Employee shall promptly report to the Company’s Chief Compliance Officer any information about which Employee becomes aware that might involve or give rise to a Conflict of Interest or potential Conflict of Interest.

     C. Employee shall not accept any material payment, service, loan, gift, trip, entertainment or other favor from a supplier, contractor, subcontractor, customer or other entity with which the Company or its Affiliate does business.

     D. Employee shall promptly report to the Company’s Chief Compliance Officer each offer by any entity with which the Company or its Affiliate does business for any material payment, service, loan, gift, trip, entertainment or other favor.

4. Ongoing Covenants. Employee acknowledges that the Company has a legitimate interest in (i) maintaining the confidentiality of the Company’s confidential information and (ii) restraining Employee from competing against the Company and its Affiliates during and for a reasonable time after Employee’s employment by the Company or its Affiliate. Employee agrees to the restrictions in subsection 4.A: (i) in consideration of the benefits described in this agreement and the Company’s providing Employee with confidential information, and (ii) in

3

order to enforce Employee’s agreement to maintain the confidentiality of the Company’s confidential information.

     A. Restrictive Covenants. Throughout the term of Employee’s employment by the Company or its Affiliate, and throughout the six month period beginning upon Employee’s separation from employment with the Company for any reason, Employee shall not do any of the following:

     (1) Non-Competition. Directly or indirectly engage in, sell or otherwise provide Competitive Services within the Restricted Territory while serving in a position that is the same as or substantially similar to the [INSERT NAME OF POSITION EMPLOYEE HOLDS] position that Employee held with the Company, whether on his own behalf or as a Principal or Representative of any Person other than the Company; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Employee of not more than 1% of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended.

     (2) Non-Solicitation of Protected Customers. Directly or indirectly, on Employee’s own behalf or on behalf of a competitor of the Company’s Business, or as a Principal or Representative of any other Person, solicit, divert, take away or attempt to solicit, divert, or take away a Protected Customer for purposes of providing or selling services or products that are the same as or substantially similar to the services and products that are provided or sold by the Company.

     (3) Non-Solicitation of Protected Employees. Directly or indirectly, on Employee’s own behalf or as Principal or Representative of any other Person, solicit or induce or attempt to solicit or induce any Protected Employee to terminate his or her employment with the Company or to enter into employment with any other Person.

     B. Restrictions Are Reasonable. The Company and Employee have, in good faith, used their best efforts to make the restrictions in subsection 4.A reasonable in all pertinent respects, and it is not anticipated, nor is it intended, by either party that any arbitrator or court will find it necessary to reform any restriction to make it reasonable. Employee has carefully read and considered the restrictions in subsection 4.A and agrees that the restrictions, including, but not limited to, the time period of restriction, the geographic areas of restriction, and the scope of the restriction are fair and reasonable, are supported by sufficient and valid consideration, and these restrictions do not impose any greater restraint than is necessary to protect the goodwill and other legitimate business interests of the Company. Employee acknowledges that these restrictions will not prevent Employee from obtaining gainful employment in Employee’s occupation or field of expertise or cause Employee undue hardship and that there are numerous other employment and business opportunities available to Employee that are not affected by these restrictions.

     C. Modification of Covenants. It is the desire and intent of each of the parties that the provisions of section 4.A be enforced to the fullest extent legally permissible. If an arbitrator or court determines it is necessary to reform any restriction to make it reasonable in all pertinent respects, then any damages due to a breach of the restriction, as so reformed, will be deemed to accrue to the Company as and from the date of such a breach only, and only so far as the

4

damages for such breach related to an action that accrued within the scope of the restriction as so reformed. The covenants set forth in this Agreement shall be construed as separate and independent covenants. Should any part or provision of any covenant be held invalid, void or unenforceable, such invalidity, voidness, or unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement. If any portion of subsection 4.A is adjudicated to be invalid or unenforceable, this section 4 will be deemed amended (i) to reform the particular portion to provide for such maximum restrictions as will be valid and enforceable or, if that is not possible, then (ii) to delete therefrom only the portion thus adjudicated to be invalid or unenforceable

     D. Successors. subsection 4.A will inure to the benefit of and be enforceable by any successor to the Company and/or any successor to any Affiliate of the Company that is then conducting the Email Encryption business or any Other Material Business.

     E. Notification of Future Employer. Employee shall, and the Company has the right to, notify any person or entity employing Employee or evidencing an intention to employ Employee about the existence and terms of subsection 4.A.

     F. Remedies. If Employee violates any of the obligations set forth in subsection 4.A, the period of restriction applicable to each obligation violated shall cease to run during the pendency of any litigation over such violation, provided that such litigation was initiated during the period of restriction. Employee acknowledges that the violation of any of the covenants or agreements contained in subsection 4.A would cause irreparable injury to the Company, that the remedy at law for any such violation or threatened violation thereof would be inadequate, and Employee agrees that the Company will be entitled, in addition to any other remedy, to temporary and permanent injunctive or other equitable relief from a court of competent jurisdiction without the necessity of proving actual damages or posting a bond as well as to the recovery of its reasonable attorneys’ fees.

5. Definitions.

     A. “Acquiring Person” means any person (including any “person” as such term is used in subsections 13(d)(3) or 14(d)(2) of the Exchange Act) that, together with all Affiliates and Associates of such person, is the beneficial owner (as the term “beneficial owner” is defined under rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act)) of 10% or more of the outstanding Common Stock. The term “Acquiring Person” does not include the Company, any majority-owned subsidiary of the Company, any employee benefit plan of the Company or a majority-owned subsidiary of the Company, or any person to the extent such person is holding Common Stock for or pursuant to the terms of any such plan. For the purposes of this agreement, a person who becomes an Acquiring Person by acquiring beneficial ownership of 10% or more of the Common Stock at any time after the date of this agreement will continue to be an Acquiring Person whether or not such person continues to be the beneficial owner of 10% or more of the outstanding Common Stock.

     B. “Affiliate” and “Associate” have the respective meanings ascribed to such terms in rule 12b-2 under the Exchange Act.

     C. “Board” means the Company’s board of directors or the compensation committee thereof.

5

     D. “Cause” means any of the following shall have occurred: (1) the intentional and continued failure by Employee to substantially perform Employee’s employment duties, such intentional failure involving willful and deliberate malfeasance or gross negligence in the performance of Employee’s duties (other than any such failure resulting from Employee’s incapacity due to physical or mental illness), after (i) written demand for substantial performance is delivered by or on behalf of the Company, which demand reasonably identifies the manner in which the Company believes Employee has not substantially performed Employee’s duties, and (ii) Employee’s failure to cure such performance failure within five business days after receipt of such written demand; (2) the intentional engaging by Employee in misconduct that is materially injurious to the Company; (3) the conviction of Employee or a plea of nolo contendere, or the substantial equivalent to either of the foregoing, of or with respect to, any felony; (4) the commission by Employee of acts of moral turpitude that are injurious to the Company; (5) a breach by Employee of the Confidentiality and Invention Agreement between the Company (or its affiliate) and Employee; (6) a breach by Employee of Employee’s obligations under this agreement or the Arbitration Agreement (as hereinafter defined); or (7) a breach by Employee of the Company’s Code of Ethics and Code of Conduct as then in effect. For purposes of this definition, no act, or failure to act, on Employee’s part shall be considered “intentional” unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in, or not opposed to, the best interest of the Company.

     Notwithstanding the foregoing, Employee will not be deemed to have been terminated for Cause without (1) reasonable written notice to Employee, setting forth the reasons for the Company’s intention to terminate for Cause; (2) an opportunity for Employee to be heard by the [Company][Board] (or an authorized representative thereof); and (3) delivery to Employee of a written notice of termination from the [Company][Board] (or its authorized representative) stating that, in the good faith opinion of the [Company][Board] (or its authorized representative), Employee engaged in the conduct set forth above in clause (1), (2), (4), (5), (6) or (7) of the preceding paragraph or an event specified in clause (3) of the preceding paragraph has occurred.

     E. “Change in Control” of the Company will be deemed to have occurred if any of the following events occurs during Employee’s employment:

     (1) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, other than an Affiliate, and as a result of such merger, consolidation or reorganization, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of such transaction, equity securities of the surviving or acquiring person or such corporation’s parent entity (the “Surviving Entity”) possessing less than 51% of the voting power of the Surviving Entity;

     (2) The Company sells all or substantially all of its assets to any other corporation or other legal person, other than an Affiliate, and as a result of such sale, the Company or its shareholders or Affiliates immediately before such transaction beneficially own, immediately after or as a result of such transaction, equity securities of the Surviving Entity possessing less than 51% of the voting power of the Surviving Entity (provided that this paragraph will not apply to a registered public offering of securities of a subsidiary of the Company, which offering is not part of a transaction otherwise a part of or related to a Change in Control);

6

     (3) Any Acquiring Person has become the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities which, when added to any securities already owned by such person, would represent in the aggregate 35% or more of the then outstanding securities of the Company which are entitled to vote to elect any class of directors;

     (4) As measured over any 12 month period, Continuing Directors cease to constitute at least a majority of the Board;

     (5) The occurrence of an event required to be reported under Item 6(e) of Schedule 14A of Regulation 14A or any successor rule or regulation promulgated under the Exchange Act; or

     (6) The Board in its sole discretion determines that any other event is deemed to be a Change in Control.

     F. “Change In Control Good Reason” means any of the following: (i) a material diminution in Employee’s authority, duties or responsibilities, (ii) a material diminution in Employee’s base salary, (iii) a material change in the geographic location at which Employee must perform services, (iv) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Employee is required to report, (v) a material diminution in the budget over which Employee retains authority, or (vi) any material breach by the Company of this agreement or any other agreement under which Employee provides services to the Company or its Affiliates.

     G. “Code” means the Internal Revenue Code of 1986 and applicable Internal Revenue Service guidance and Treasury Regulations.

     H. “Continuing Director” means a director of the Company who (1) is not an Acquiring Person or an Affiliate or Associate thereof, or a representative of an Acquiring Person or nominated for election by an Acquiring Person, and (2) was either (a) a member of the Board on the date of this agreement or (b) subsequently became a director of the Company and whose initial election or initial nomination for election by the Company’s shareholders was approved by a majority of the Continuing Directors then on the Board.

     I. “Company” means Zix Corporation, a Texas corporation, or its successors in interest, as the context requires.

     J. “Competitive Services” means the Email Encryption business or any other material line of business being conducted by the Company or any Affiliate.

     K. “Exchange Act” means the Securities Exchange Act of 1934.

     L. “Person” means any individual or any corporation, partnership, joint venture, limited liability company, association or other entity or enterprise.

     M. “Principal” or “Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

7

     N. “Protected Customer” means any customer to whom the Company sold its products or services at any time during Employee’s employment and with whom Employee had business dealings on behalf of the Company.

     O. “Protected Employee” means any employee of the Company who was employed by the Company at any time during Employee’s employment and (a) with whom Employee had a supervisory relationship or (b) with whom Employee worked or communicated on a regular basis regarding the Company’s business.

     P. “Restricted Territory” means the United States and Canada.

     Q. “Separation Payment” means and equals 6 months’ of Employee’s base salary. For the purpose of calculating the Separation Payment, the Employee’s base salary will be deemed to be Employee’s highest base salary in any month during the term of Employee’s employment.

     R. “Surviving Entity” has the meaning set forth in subsection 5.E(1).

6. Miscellaneous.

     A. Litigation Assistance. During Employee’s employment and following Employee’s separation from employment, Employee shall cooperate reasonably with the Company and its Affiliates in the defense of litigation that pertains to (i) matters reasonably within the purview of Employee’s job responsibilities while employed with the Company or its Affiliate or (ii) matters for which Employee has particular knowledge, thereof, including signing affidavits and making himself or herself available for interviews, deposition preparation, deposition, and trial. Employee shall not, without the Company’s prior consent, comment publicly on any such litigation or any of the issues in the litigation. Employee shall not, without the Company’s prior consent, discuss any such litigation, or cooperate, with the Company’s opponent(s) in such litigation, their attorneys, or their representatives.

     B. Reimbursement for Litigation Assistance. If Employee assists the Company or its Affiliate with litigation activities following Employee’s separation from employment other than those litigation activities in which Employee would be required to participate as a named party, the Company shall pay all reasonable documented out-of-pocket costs (subject to a maximum of $1,000 per day) that Employee incurs in connection with such activities and will pay Employee for his or her actual, demonstrated lost income (subject to a maximum of $10,000 in any tax year) for the period in which Employee assists with such litigation activities. The Company shall pay the out-of-pocket reimbursement as soon as practicable after Employee provides documentation of such out-of-pocket costs but no later than the end of the tax year following the tax year in which such expenses were incurred. The amount of expenses reimbursed to Employee pursuant to subsection 6.A during Employee’s tax year will not impact the amount of such expenses eligible for reimbursement during any other tax year of Employee. Employee’s right to reimbursement of expenses will not be subject to liquidation or exchange for another benefit. Employee must provide documentation of the lost income on or before January 15 of the year following the year in which the income is lost. The lost income will be paid in a lump sum within 60 days after Employee provides documentation of the same but in no event later than March 15 of the year following the year in which the income is lost.

8

     C. Indemnification. Employee and the Company acknowledge the indemnification provisions set forth in the Company’s bylaws.

     D. No Deemed Waivers. The failure by a party to enforce any provision of this agreement does not constitute a waiver of any subsequent breach of the same or any other provision. No waiver is effective unless made in a writing signed by the waiving party.

     E. No Third Party Beneficiaries. Except as otherwise stated in this agreement, nothing in this agreement, is intended to confer any rights or remedies on any persons other than the parties to it and their respective permitted successors and assigns and other legal representatives.

     F. Remedies. Employee hereby agrees that a violation of subsection 4.A would cause irreparable injury to the Company for which it would have no adequate remedy at law. Accordingly, in the event of any such violation, the Company shall be entitled to preliminary and other injunctive relief without the necessity to post a bond or other security. Any such injunctive relief shall be in addition to any other remedies to which the Company may be entitled at law or in equity, or otherwise.

     G. Notice. Any consent, notice, demand, or other communication regarding any payment required or permitted hereby must be in writing to be effective and shall be deemed to have been received on the date delivered, if delivered in person, or the date received, if delivered otherwise (including by U.S. mail, overnight delivery or e-mail), addressed to the applicable party at the address for such party set forth below or at such other address as such party may designate by like notice:

The Company:

Zix Corporation
2711 North Haskell Avenue
Suite 2200, LB 36
Dallas, Texas 75204-2960
Attn: General Counsel

To Employee:

At the address on file in the Company’s records.

     H. Entire Agreement. This agreement, together with the Mutual Alternative Dispute Resolution Agreement and the Confidentiality and Invention Agreement between the parties, and the Code of Ethics and Code of Conduct, as currently in effect or hereafter amended from time-to-time, embodies the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof.

     I. Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties to this agreement and any successors-in-interest to the Company. Employee cannot assign or transfer this agreement or any rights under this agreement, or delegate any obligations under this agreement, and any attempted assignment, transfer or delegation is void ab initio.

9

     J. Governing Law. This Agreement is governed by and will be construed, interpreted and enforced in accordance with, the laws of the State of Texas (excluding its conflict of laws rules) and applicable federal law.

     K. Arbitration. All claims, demands, causes of action, disputes, controversies, or other matters in question, whether sounding in contract, tort, or otherwise and whether provided by statute or common law, arising under or related to this agreement or Employee’s employment (or its termination) are subject to resolution under the procedures descried in the parties’ Mutual Alternative Dispute Resolution Agreement.

     L. Cumulative Remedies. No remedy in this agreement conferred upon any party is intended to be exclusive of any other benefit or remedy, and each and every such remedy shall be cumulative and shall be in addition to every other benefit or remedy given under this agreement or now or hereafter existing at law or in equity or by statute or otherwise. No single or partial exercise by any party of any right, power, or remedy under this agreement shall preclude any other or further exercise thereof.

     M. Multiple Counterparts. This Agreement may be executed in a number of identical counterparts, each of which constitute collectively, one agreement; but in making proof of this agreement, it is not necessary to produce or account for more than one counterpart.

     N. Descriptive Headings. The headings, captions, and arrangements used in this agreement are for convenience only and do limit, amplify, or modify the terms of this agreement, nor affect the meaning hereof.

     O. 409A Compliance.

     (1) General. This Agreement will be interpreted and administered so that any amount or benefit paid or provided is either exempt from or compliant with the requirements section 409A of the Code (and any applicable transition relief under section 409A of the Code). Nevertheless, the tax treatment of the amounts or benefits provided under the Agreement is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers will be liable for any taxes, interest, penalties or other monetary amounts owed by Employee as a result of the application of section 409A of the Code.

     (2) Definitional Restrictions. Notwithstanding anything in this Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of section 409A of the Code (“Non-Exempt Deferred Compensation”) would otherwise be payable or distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of a Change in Control or the Executive’s termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to the Executive, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control or termination of employment, as the case may be, meet any description or definition of “change in control event” or “separation from service”, as the case may be, in section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not

10

prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control or termination of employment, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a section 409A-compliant “change in control event” or “separation from service,” as the case may be, or such later date as may be required by subsection 6.O(3) below below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same form as would have applied absent such designated event or circumstance.

     (3) Six-Month Delay in Certain Circumstances. Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of Executive’s separation from service during a period in which he or she is a Specified Employee (as defined in subsection 6.O(3)(iii)), then, subject to any permissible acceleration of payment by the Company under Treasury Regulations section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):

     (i) The amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following Executive’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following Executive’s separation from service (or, if Executive dies during such period, within 30 days after Executive’s death) (in either case, the “Required Delay Period”).

     (ii) The normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

     (iii) For purposes of this Agreement, the term “Specified Employee” has the meaning given such term in section 409A of the Code and the final regulations thereunder; provided, however, that the Company’s Specified Employees and its application of the six-month delay rule of subsection 409A(a)(2)(B)(i) of the Code will be determined in accordance with rules adopted by the Board or a committee thereof, which will be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Agreement.

     (4) Treatment of Installment Payments. Each payment of termination benefits under section 1.B, including, without limitation, each installment Separation Payment, shall be considered a separate payment, as described in Treasury Regulations section 1.409A-2(b)(2), for purposes of section 409A of the Code.

     (5) Timing of Release of Claims. Whenever in this agreement a payment or benefit is conditioned on Executive’s execution and non-revocation of a separation agreement including a release of claims, such release must be executed and all revocation periods must have expired within 60 days after the date of termination of Employee’s employment; failing which such payment or benefit is forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, then, subject to subsection 6.O(3), such payment or benefit (including any installment payments) that

11

would have otherwise been payable during such 60-day period shall be accumulated and paid on the 60^th day after the date of termination provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is exempt from section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.

Each party is signing this Employment Termination Benefits Agreement on the date indicated under its signature.

Zix Corporation	Employee
By:
Name:	Name:
Title:	Dated:
Date:

12

EX-10.2

Exhibit 10.2

Description of 2011 Variable Compensation Plan

The Zix Corporation “variable compensation plan” is a short-term incentive compensation program that is designed to provide an opportunity for the company’s executives to earn performance-based compensation that is conditioned upon the company meeting during 2011 certain metrics tied to the following:

• revenue growth;

• growth in new first year orders (NFYO);

• growth in non-GAAP adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA); and

• growth in non-GAAP adjusted earnings per share (Adjusted EPS).

The program establishes award levels that are based on the company meeting 80 percent, 100 percent and 120 percent of the target for each metric.

The program was unanimously approved by the Board of Directors on April 26, 2011, upon recommendation of the Compensation Committee. The independent directors reserved the discretion to adjust the awards to reflect overall corporate performance and business and financial conditions.

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Richard D. Spurr, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Zix Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2011	/s/ RICHARD D. SPURR
	Richard D. Spurr
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Michael W. English, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Zix Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2011	/s/ MICHAEL W. ENGLISH
	Michael W. English
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

August 2, 2011

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Ladies and Gentlemen:

     The certifications set forth below are being submitted in connection with the Quarterly Report on Form 10-Q (the “Report”) of Zix Corporation for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

     Richard D. Spurr, the chief executive officer, and Michael W. English, the chief financial officer of Zix Corporation, each certifies that to the best of his knowledge and in their respective capacities as an officer of Zix Corporation:

1.	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Zix Corporation.

/s/ RICHARD D. SPURR
Name:	Richard D. Spurr
Title:	President and Chief Executive Officer
/s/ MICHAEL W. ENGLISH
Name:	Michael W. English
Title:	Chief Financial Officer

XML



Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2011	Dec. 31, 2010
Stockholders' equity:
Preferred stock, par value	$ 1	$ 1
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	175,000,000	175,000,000
Common stock, shares issued	70,611,320	69,505,919
Common stock, shares outstanding	63,998,539	67,178,738
Treasury stock, shares	6,612,781	2,327,181

XML



Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Condensed Consolidated Statements of Operations [Abstract]
Revenues	$ 9,431,000	$ 8,194,000	$ 18,702,000	$ 15,673,000
Cost of revenues	1,756,000	1,570,000	3,573,000	3,072,000
Gross margin	7,675,000	6,624,000	15,129,000	12,601,000
Operating expenses:
Research and development	1,292,000	1,248,000	2,605,000	2,556,000
Selling, general and administrative	3,796,000	3,988,000	7,556,000	8,216,000
Total operating expenses	5,088,000	5,236,000	10,161,000	10,772,000
Operating income	2,587,000	1,388,000	4,968,000	1,829,000
Other income, net	19,000	15,000	61,000	44,000
Income from continuing operations before income taxes	2,606,000	1,403,000	5,029,000	1,873,000
Income tax benefit (expense)	11,000	(24,000)	(13,000)	30,000
Income from continuing operations	2,617,000	1,379,000	5,016,000	1,903,000
Income from discontinued operations before income taxes		188,000		478,000
Income tax expense		(66,000)		(168,000)
Income from discontinued operations		122,000		310,000
Net Income	$ 2,617,000	$ 1,501,000	$ 5,016,000	$ 2,213,000
Basic income per common share:
Income from continuing operations	$ 0.04	$ 0.02	$ 0.08	$ 0.03
Income from discontinued operations		$ 0		$ 0
Net Income	$ 0.04	$ 0.02	$ 0.08	$ 0.03
Diluted income per common share:
Income from continuing operations	$ 0.04	$ 0.02	$ 0.07	$ 0.03
Income from discontinued operations		$ 0		$ 0
Net Income	$ 0.04	$ 0.02	$ 0.07	$ 0.03
Basic weighted average common shares outstanding	65,208,875	63,976,551	66,190,442	63,883,974
Diluted weighted average common shares outstanding	67,280,939	66,359,134	68,638,470	65,933,977

XML



Document and Entity Information (USD $)	6 Months Ended
	Jun. 30, 2011	Jul. 26, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	ZIX CORP
Entity Central Index Key	0000855612
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 143,477,786
Entity Common Stock, Shares Outstanding		64,094,116

XML



Receivables, net

6 Months Ended

Jun. 30, 2011

Receivables, net [Abstract]

Receivables, net

6. Receivables, net

	June 30,			December 31,
	2011			2010
Receivables	$	1,116,000		$	1,376,000
Allowance for returns and doubtful accounts		(32,000	)		(32,000	)
Note receivable		468,000			476,000
Allowance for note receivable		(468,000	)		(476,000	)
Receivables, net	$	1,084,000		$	1,344,000

     The allowance for doubtful accounts includes all specific accounts receivable which we believe are likely not collectible based on known information. In addition, we record 2.5% of all accounts receivable greater than 90 days past due, net of those accounts specifically reserved, as a general allowance against accounts that could potentially become uncollectible.

     The note receivable represents the remaining outstanding balance of an original note related to the sale of a product line in 2005 in the amount of $540,000. The note receivable is fully reserved at June 30, 2011.

XML



Common Stock Repurchase Program

6 Months Ended

Jun. 30, 2011

Common Stock Repurchase Program [Abstract]

Common Stock Repurchase Program

11. Common Stock Repurchase Program

     On March 7, 2011, the Company announced that its Board of Directors approved a share repurchase program that authorized the Company to purchase up to $15,000,000 of its shares of common stock from time to time in the open market. During the three months ended June 30, 2011, the Company repurchased 2,917,300 shares at an aggregate cost of $9,900,000. During the three months ended March 31, 2011, the Company repurchased 1,368,300 shares at an aggregate cost of $5,000,000. We completed the share repurchase program during the first week of July 2011 when the remaining repurchased shares valued at approximately $100,000 were transferred to the Company.

XML



Recent Accounting Standards and Pronouncements

6 Months Ended

Jun. 30, 2011

Recent Accounting Standards and Pronouncements [Abstract]

Recent Accounting Standards and Pronouncements

2. Recent Accounting Standards and Pronouncements

Revenue Recognition

     In October 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition that became effective January 1, 2011. Under the new guidance tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance; such software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when Vendor Specific Objective Evidence (“VSOE”) or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. This new guidance did not have a material impact on our condensed consolidated financial statements.

XML



Commitments and contingencies

6 Months Ended

Jun. 30, 2011

Commitments and contingencies [Abstract]

Commitments and contingencies

8. Commitments and contingencies

     A summary of our fixed contractual obligations and commitments at June 30, 2011, is as follows:

	Payments Due by Period
	Total		1 Year		Years 2 & 3		Beyond 3 Years
Operating leases	$	3,849,000	$	1,230,000	$	2,069,000	$	550,000
License subscription note payable		118,000		118,000		—		—
Total cash obligations		3,967,000		1,348,000		2,069,000		550,000
Interest on obligations		5,000		5,000		—		—
Total	$	3,972,000	$	1,353,000	$	2,069,000	$	550,000

     We have not entered into any material, non-cancelable purchase commitments at June 30, 2011.

Claims and Proceedings

     We are, from time to time, involved in various legal proceedings that arise in the ordinary course of business. We do not believe the outcome of these legal proceedings either individually or taken as a whole, will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, we cannot predict with certainty any eventual loss or range of possible loss related to such matters.

XML



Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

9. Fair Value Measurements

     FASB guidance regarding fair value measurement establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices for similar assets and liabilities in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

     For certain of the Company’s financial instruments, including cash and cash equivalents, commercial paper, trade receivables, and accounts payable, the fair values approximate carrying values due to the short-term maturities of these instruments. The carrying values of other current assets and accrued expenses are also not recorded at fair value, but approximate fair values primarily due to their short-term nature.

XML



Earnings Per Share and Potential Dilution

6 Months Ended

Jun. 30, 2011

Earnings Per Share and Potential Dilution [Abstract]

Earnings Per Share and Potential Dilution

7. Earnings Per Share and Potential Dilution

     Basic earnings per share are computed using the weighted average number of common shares outstanding for the period. The dilutive effect of common shares potentially outstanding is included in diluted earnings per share. The computations for basic and diluted earnings per share for the three and six month periods ended June 30, 2011 and 2010, are as follows:

	Three Months ended June 30,				Six Months ended June 30,
	2011		2010		2011		2010
Basic weighted average shares		65,208,875		63,976,551		66,190,442		63,883,974
Effect of dilutive securities:
Employee and director stock options		965,444		836,291		1,144,363		730,104
Warrants		1,106,620		1,546,292		1,303,665		1,321,899
Potential dilutive common shares		67,280,939		66,359,134		68,638,470		65,935,977

     During the three and six month periods ended June 30, 2011, weighted average shares of 4,479,858 and 4,096,786 respectively, related to stock options were excluded from the calculation of diluted earnings per share because the option exercise prices exceeded the market price of ZixCorp’s common stock on that date, and the options were therefore anti-dilutive. During each of those periods, 145,853 of shares related to anti-dilutive warrants were excluded from that calculation. During the three and six month periods ended June 30, 2010, weighted average shares of 7,419,427 and 7,404,603 respectively, related to anti-dilutive stock options were excluded from the calculation of diluted earnings per share. During those same periods, 3,664,902 and 4,123,236, respectively, of shares related to anti-dilutive warrants were excluded from that calculation.

XML



Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating activities:
Net income	$ 5,016,000	$ 2,213,000
Non-cash items in net income:
Depreciation and amortization	672,000	685,000
Employee stock-based compensation costs	201,000	976,000
Non-employee stock-based compensation costs	15,000	21,000
Changes in deferred taxes	3,000	7,000
Changes in operating assets and liabilities:
Receivables	260,000	196,000
Prepaid and other assets	(303,000)	353,000
Accounts payable	(86,000)	(222,000)
Deferred revenue	284,000	958,000
Accrued and other liabilities	(161,000)	(766,000)
Net cash provided by operating activities	5,901,000	4,421,000
Investing activities:
Purchases of property and equipment	(755,000)	(663,000)
Purchase of commercial paper	(2,290,000)
Sales of marketable securities		25,000
Net cash used in investing activities	(3,045,000)	(638,000)
Financing activities:
Proceeds from exercise of stock options	1,610,000	469,000
Proceeds from exercise of warrants	724,000
Payment of license subscription note payable	(68,000)	(62,000)
Repurchase of common stock	(14,912,000)
Net cash (used in) provided by financing activities	(12,646,000)	407,000
(Decrease) increase in cash and cash equivalents	(9,790,000)	4,190,000
Cash and cash equivalents, beginning of period	24,619,000	13,287,000
Cash and cash equivalents, end of period	$ 14,829,000	$ 17,477,000

XML



Discontinued Operations

6 Months Ended

Jun. 30, 2011

Discontinued Operations [Abstract]

Discontinued Operations

3. Discontinued Operations

     On December 31, 2010, we discontinued our e-Prescribing business. For information relating to discontinued operations, see the Company’s 2010 Annual Report on Form 10-K.

XML



Stock Options and Stock-based Employee Compensation

6 Months Ended

Jun. 30, 2011

Stock Options and Stock-based Employee Compensation [Abstract]

Stock Options and Stock-based Employee Compensation

4. Stock Options and Stock-based Employee Compensation

     As of June 30, 2011, there were 6,827,165 options outstanding and 1,433,834 available for grant. Of the options available for grant, 1,187,310 options were available for grant to employees and 246,524 were available for grant to the Company’s directors. For the three month and six month periods ended June 30, 2011, the total stock-based employee compensation expense was recorded to the following line items of the Company’s condensed consolidated statements of operations:

	Three Months		Six Months
	Ended June 30,		Ended June 30,
	2011		2011
Cost of revenues	$	12,000	$	24,000
Research and development		13,000		26,000
Selling, general and administrative		68,000		151,000
Stock-based compensation expense	$	93,000	$	201,000

     There were 224,791 and 635,591 stock options exercised for the three and six month periods ended June 30, 2011, respectively. There were 139,460 and 309,096 stock options exercised for the three and six month periods ended June 30, 2010, respectively. The excess tax benefit recorded in the three month period ended June 30, 2011, related to the 224,791 options exercises was $92,000. The excess tax benefit recorded in the six month periods ended June 30, 2011, related to the 635,591 option exercises was $103,000. A deferred tax asset totaling $63,000 and $263,000, resulting from stock-based compensation expense relating to the Company’s U.S. operations, was recorded for the six month periods ended June 30, 2011 and 2010, respectively. As of June 30, 2011, there was $493,000 of total unrecognized stock-based compensation related to non-vested stock-based compensation awards granted under the stock option plans. This cost is expected to be recognized over a weighted average period of 0.93 years.

Stock Option Activity

The following is a summary of all stock option transactions during the three months ended June 30, 2011:

						Weighted Average
				Weighted		Remaining		Aggregate
				Average		Contractual Term		Intrinsic
	Shares			Exercise Price		(Yrs)		Value
Outstanding at March 31, 2011		7,141,002		$	4.46
Granted at market price		45,000		$	3.52
Cancelled or expired		(134,046	)	$	6.06
Exercised		(224,791	)	$	1.70
Outstanding at June 30, 2011		6,827,165		$	4.52		4.58	$	4,503,000
Options exercisable at June 30, 2011		6,373,970		$	4.70		4.31	$	3,668,000

     Of the above-described stock options outstanding at June 30, 2011, 2,884,535 of such stock options outstanding had an exercise price lower than the market price of the Company’s common stock.

     For additional information regarding the Company’s Stock Options and Stock-based Employee Compensation, see Note 4 to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

XML



Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

12. Income Taxes

     At the end of 2010, the Company recorded a $35,300,000 tax benefit by reducing the valuation allowance related to its deferred tax assets. This reduction was determined through an assessment of future deferred tax asset utilization following accounting guidance which relies largely on historical earnings. Using the same methodology, and updating the future taxable earnings estimates based on first six months 2011 actual earnings, the Company believes its future taxable earnings estimate to be established at the end of 2011 will exceed the estimate used at the end of 2010. For this reason, the Company offset its first and second quarter 2011 deferred tax provision by reducing its valuation allowance by an equal amount; thereby eliminating any deferred tax provision from the Company’s first and second quarter 2011 financial statements. The Company expects to follow this same methodology in the third quarter of 2011 and will reevaluate the need for its valuation allowance at December 31, 2011, following the same assessment that was performed at December 31, 2010.

XML



Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2011

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

5. Supplemental Cash Flow Information

     Supplemental cash flow information relating to interest, taxes and non-cash activities:

	Six Months Ended June 30,
	2011			2010
Cash paid for interest	$	7,000		$	12,000
Cash income tax payments	$	107,000		$	149,000
Non-cash investing and financing activities:
Payables related to purchases of fixed assets	$	(4,000	)	$	125,000

XML



Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $)	Total	Common Stock	Additional Paid-In Capital	Treasury Stock	Accumulated Deficit
Balance at Dec. 31, 2010	$ 46,887,000	$ 695,000	$ 344,981,000	$ (11,507,000)	$ (287,282,000)
Balance, shares at Dec. 31, 2010		69,505,919
Issuance of common stock upon exercise of stock options	1,610,000	6,000	1,604,000
Issuance of common stock upon exercise of stock options, shares		635,591
Issuance of common stock upon exercise of warrants	724,000	5,000	719,000
Issuance of common stock upon exercise of warrants, shares		469,810
Employee stock-based compensation costs	201,000		201,000
Non-employee stock-based compensation costs	15,000		15,000
Repurchase of common stock	(14,912,000)			(14,912,000)
Net income	5,016,000				5,016,000
Balance at Jun. 30, 2011	$ 39,541,000	$ 706,000	$ 347,520,000	$ (26,419,000)	$ (282,266,000)
Balance, shares at Jun. 30, 2011		70,611,320

XML



Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation [Abstract]

Basis of Presentation

1. Basis of Presentation

     The accompanying condensed consolidated financial statements of Zix Corporation (“ZixCorp,” the “Company,” “we,” “our,” “us”) should be read in conjunction with the audited consolidated financial statements included in the Company’s 2010 Annual Report on Form 10-K. These financial statements are unaudited, but have been prepared in the ordinary course of business for the purpose of providing information with respect to the interim periods covered thereby. Management of the Company believes that all adjustments necessary for a fair presentation of such periods have been included and are of a normal recurring nature. The results of operations for the six-month period ended June 30, 2011, are not necessarily indicative of the results to be expected for any future interim periods or for the full fiscal year.

XML



Commercial Paper

6 Months Ended

Jun. 30, 2011

Commercial Paper [Abstract]

Commercial Paper

10. Commercial Paper

     The investment in commercial paper is classified as a held-to-maturity debt security as the Company has the positive intent and ability to hold this investment until maturity. This short term investment was purchased on February 18, 2011, and matures on October 25, 2011. At maturity, the commercial paper will pay interest of approximately $10,000. The carrying value of this security approximates fair market value due to the short-term maturity of the investment.

XML



Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 14,829,000	$ 24,619,000
Commercial Paper	2,290,000	0
Receivables, net	1,084,000	1,344,000
Prepaid and other current assets	1,462,000	1,115,000
Deferred tax assets	815,000	1,056,000
Total current assets	20,480,000	28,134,000
Property and equipment, net	2,296,000	2,209,000
Goodwill	2,161,000	2,161,000
Deferred tax assets	34,542,000	34,304,000
Other assets	0	44,000
Total assets	59,479,000	66,852,000
Current liabilities:
Accounts payable	480,000	562,000
Accrued expenses	2,127,000	2,282,000
Deferred revenue	16,102,000	15,331,000
License subscription note payable	118,000	137,000
Total current liabilities	18,827,000	18,312,000
Long-term liabilities:
Deferred revenue	952,000	1,439,000
License subscription note payable	0	49,000
Deferred rent	159,000	165,000
Total long-term liabilities	1,111,000	1,653,000
Total liabilities	19,938,000	19,965,000
Commitments and contingencies (see Note 8)
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued and outstanding	0	0
Common stock, $0.01 par value, 175,000,000 shares authorized; 70,611,320 issued and 63,998,539 outstanding at June 30, 2011 and 69,505,919 issued and 67,178,738 outstanding at December 31, 2010	706,000	695,000
Additional paid-in capital	347,520,000	344,981,000
Treasury stock, at cost; 6,612,781 common shares at June 30, 2011 and 2,327,181 common shares at December 31, 2010	(26,419,000)	(11,507,000)
Accumulated deficit	(282,266,000)	(287,282,000)
Total stockholders' equity	39,541,000	46,887,000
Total liabilities and stockholders' equity	$ 59,479,000	$ 66,852,000