GRAPHON CORP/DE (Form: 10-K, Received: 03/31/2010 16:47:33)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________

Form 10-K

____________________

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

Commission File Number: 0-21683

GraphOn Corporation

(Exact name of Registrant as specified in its charter)

Delaware	13-3899021
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

5400 Soquel Avenue, Suite A2

Santa Cruz, California 95062

(Address of principal executive offices)

(800) 472-7466

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.0001 par value

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o No o

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

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

o Large accelerated filer o Accelerated filer o Non-Accelerated filer þ Smaller reporting company

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

As of June 30, 2009, the aggregate market value of the Registrant’s common stock held by non-affiliates was $2,838,300.

As of March 19, 2010, there were outstanding 45,898,292 shares of the Registrant’s common stock.

GRAPHON CORPORATION

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

	PART I	Page
Item 1.	Business	1
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Reserved	12
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 8.	Financial Statements and Supplementary Data	23
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	47
Item 9A(T).	Controls and Procedures	47
Item 9B.	Other Information	48
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	49
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	53
Item 13.	Certain Relationships and Related Transactions, and Director Independence	55
Item 14.	Principal Accounting Fees and Services	55
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	56

Forward-Looking Information

This report includes, in addition to historical information, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. This act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact we make in this report are forward-looking statements. In particular, the statements regarding industry prospects and our future results of operations or financial position are forward-looking statements. Such statements are based on management's current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ significantly from those described in the forward looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Risk Factors," as well as those discussed elsewhere in this report. Statements included in this report are based upon information known to us as of the date that this report is filed with the SEC, and we assume no obligation to update or alter our forward-looking statements made in this report, whether as a result of new information, future events or otherwise, except as otherwise required by applicable federal securities laws.

PART I

ITEM 1. BUSINESS

General

We are developers of business connectivity software, including Unix, Linux and Windows server-based software, with an immediate focus on web-enabling applications for use and/or resale by independent software vendors (ISVs), corporate enterprises, governmental and educational institutions, and others. We have also made significant investments in intellectual property and have pursued various means of monetizing such investments. We conduct and manage our business in two business segments, which we refer to as our “Software” and “Intellectual Property” segments, respectively.

Server-based computing, sometimes referred to as thin-client computing, is a model where traditional desktop software applications are relocated to run entirely on a server, or host computer. This centralized deployment and management of applications reduces the complexity and total costs associated with enterprise computing. Our software architecture provides application developers with the ability to relocate applications traditionally run on the desktop to a server, or host computer, where they can be run over a variety of connections from remote locations to a multiplicity of display devices. With our server-based software, applications can be web enabled, without any modification to the original application software required, allowing the applications to be run from browsers or portals. Our server-based technology can web-enable a variety of Windows, Unix or Linux applications.

We are a Delaware corporation, founded in May of 1996. Our headquarters are located at 5400 Soquel Avenue, Suite A2, Santa Cruz, California, 95062 and our phone number is 1-800-GRAPHON (1-800-472-7466). Our Internet website is http://www.graphon.com . The information on our website is not part of this annual report. We also have offices in Concord, New Hampshire and Irvine, California.

You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website ( http://www.sec.gov ) that contains reports, proxy and information statements, and other information that we file electronically with the SEC from time to time. We post our annual, quarterly and periodic filings that we have made with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 on our website as soon as reasonably practicable after such reports and other materials have been electronically filed with, or furnished to, the SEC. You may obtain these filings by visiting our website and clicking on “About GraphOn,” then “Investors,” and then “View GraphOn SEC Filings”.

Business Connectivity Software

History

In the 1970s, software applications were executed on central mainframes and typically accessed by low-cost display terminals. Information technology departments were responsible for deploying, managing, and supporting applications to create a reliable environment for users. In the 1980s, the personal computer, or PC, became the desktop of choice, empowering the user with flexibility, a graphical user interface, and a multitude of productive and inexpensive applications. In the 1990s, the desktop provided access to mainframe applications and databases, which run on large, server computers. Throughout the computing evolution, the modern desktop has become increasingly complex and costly to administer and maintain. This situation is further worsened as organizations become more decentralized with employees operating from home, in the field, or at other remote locations, and as their desire increases to become more closely connected with vendors and customers through the Internet.

Lowering Total Cost of Ownership

PC software, generally, has grown dramatically in size and complexity in recent years. As a result, the cost of supporting and maintaining PC desktops has increased substantially. Industry analysts and enterprise users alike have begun to recognize that the total cost of PC ownership, taking into account the recurring cost of technical support, administration, security, and end-user down time, has become high; both in absolute terms, and relative to the initial hardware purchase price.

With increasing demands to control corporate computing costs, industry leaders are developing technology to address total cost of ownership issues. One approach, led by Sun Microsystems and IBM, utilizes Java-based network computers, which operate by downloading small Java programs to the desktop, which in turn are used for accessing server-based applications. Another

Table of Contents

approach is Microsoft’s Windows Terminal Services™, introduced in June 1998. It permits server-based Windows applications to be accessed from Windows-based network computers. Both initiatives are examples of server-based computing. They simplify the desktop by moving the responsibility of running applications to a central server, with the promise of lowering total cost of ownership.

Enterprise Cross-Platform Computing

Today’s enterprises contain a diverse collection of end user devices, each with its particular operating system, processing power and connection type. Consequently, it is becoming increasingly difficult to provide universal access to business-critical applications across the enterprise. As a result, organizations resort to emulation software, new hardware or costly application rewrites in order to provide universal application access.

A common cross-platform problem for the enterprise is the need to access Unix or Linux applications from a PC desktop. While Unix-based computers dominate the enterprise applications market, Microsoft Windows-based PCs dominate the enterprise desktop market. Since the early 1990s, enterprises have been striving to connect desktop PCs to Unix applications over all types of connections, including networks and standard phone lines. This effort, however, is both complex and costly. The primary solution to date is known as PC X Server software, which requires substantial memory and processing resources on the desktop. Typically, PC X Server software is difficult to install, configure and maintain. Enterprises are looking for effective Unix connectivity software for PCs and non-PC desktops that is easier and less expensive to administer and maintain.

Businesses today are exploring alternatives to the Windows desktop. The Linux desktop is a popular choice as it promises lower acquisition costs and avoids “single vendor lock-in.” Both the Linux desktop and the Unix desktop, popular in many engineering organizations, need to access the large number of applications written for the Microsoft operating environment, such as Office 2003 and Office 2007. Our technology enables server-based Windows applications to be accessible to any client device running our GO-Global client software.

Remote Computing

The cost and complexity of contemporary enterprise computing has been further complicated by the growth in remote access requirements. As business activities become physically distributed, computer users have looked to portable computers with remote access capabilities to stay connected in a highly dispersed work environment. One problem facing remote computing over the Internet, or direct telephone connections, is the slow speed of communication in contrast to the high speed of internal corporate networks. Applications requiring remote access must be tailored to the limited speed and lower reliability of remote connections, further complicating the already significant challenge of connecting desktop users to business-critical applications.

Our Technology

Our server-based software deploys, manages, supports and executes applications entirely on a server computer by interfacing efficiently and instantaneously to the user’s desktop device. Our Windows-based Bridges software, introduced during 2000, enabled us to enter the Windows application market by allowing us to provide support for Windows applications to enterprise customers and to leverage independent software vendors (ISVs) as a distribution channel. We introduced our GO-Global for Windows product in 2002, which features increased application compatibility, server scalability and improved application performance over our Bridges software.

Our technology consists of three key components:

·	A server component, which runs alongside the server-based application and intercepts user-specific information for display at the desktop.
·	A desktop component, which sends keystrokes and mouse motion to the server, as well as displaying the appearance of the application to the desktop user. This keeps the desktop simple, or thin, independent of application requirements for resources, processing power, and operating systems.
·	Our protocol, which enables efficient communication over both fast networks and slow dial-up connections, allows applications to be accessed from remote locations with network-like performance and responsiveness.

Table of Contents

We believe that the major benefits of our technology are as follows:

·	Lowers Total Cost of Ownership. Reducing information technology (IT) costs is a primary goal of our products. Installing enterprise applications is time-consuming, complex and expensive, typically requiring administrators to manually install and support diverse desktop configurations and interactions. Our server-based software simplifies application management by enabling deployment, administration and support from a central location. Installation and updates are made only on the server, thereby avoiding desktop software and operating system conflicts and minimizing at-the-desk support.
·	Supports Strong Information Security Practices. The distributed nature of most organizations’ computing environments makes information security difficult. Business assets, in the form of data, are often dispersed among desktop systems. Our server-based approach places the application and data on servers behind firewalls, thus enabling an organization to centrally manage its applications and data.
·	Web Enables Existing Applications. The Internet represents a fundamental change in distributed computing. Organizations now benefit from ubiquitous access to corporate resources by both local and remote users. However, to fully exploit this opportunity, organizations need to find a way to provide access to existing applications to Internet enabled devices. Our technology is specifically targeted at solving this problem. With GO-Global, an organization can provide access to an existing application to an Internet-enabled device without the need to rewrite the application. This reduces application development costs while preserving the original user interface, which is typically difficult to replicate in Web-based versions of the original application.
·	Connects Diverse Computing Platforms. Today’s computing infrastructures are a mix of computing devices, network connections and operating systems. Enterprise-wide application deployment is problematic due to this heterogeneity, often requiring costly and complex emulation software or application rewrites. Our products provide organizations the ability to access applications from virtually all devices, utilizing their existing computing infrastructure, without rewriting a single line of code or changing or reconfiguring hardware. This means that enterprises can maximize their investment in existing technology and allow users to work in their preferred environment.
·	Leverages Existing PCs and Deploys New Desktop Hardware. Our software brings the benefits of server-based computing to users of existing PC hardware, while simultaneously enabling enterprises to take advantage of, and deploy, new, less complex network computers. This assists organizations in maximizing their current investment in hardware and software while, at the same time, facilitating a manageable and cost effective transition to newer devices.
·	Efficient Protocol. Applications typically are designed for network-connected desktops, which can put tremendous strain on congested networks and may yield poor, sometimes unacceptable, performance over remote connections. For application service providers, bandwidth typically is the top recurring expense when web-enabling, or renting, access to applications over the Internet. In the wireless market, bandwidth constraints limit application deployment. Our protocol sends only keystrokes, mouse clicks and display updates over the network, resulting in minimal impact on bandwidth for application deployment, thus lowering cost on a per user basis. Within the enterprise, our protocol can extend the reach of business-critical applications to many areas, including branch offices, telecommuters and remote users over the Internet, phone lines or wireless connections. This concept may be extended further to include vendors and customers for increased flexibility, time-to-market and customer satisfaction.

Our Products

We are dedicated to creating business connectivity technology that brings Windows, Unix, and Linux applications to the web without modification. Our customers include ISVs, Value-Added Resellers (VARs), and small to medium-sized enterprises. We believe that by employing our technology, our customers can benefit from a very quick time to market, overall cost savings via centralized computing, a client neutral cross-platform solution, and high performance remote access.

Table of Contents

Our primary product offerings are:

GO-Global for Windows allows access to Windows applications from remote locations and a variety of connections, including the Internet and dial-up connections. GO-Global for Windows allows Windows applications to be run via a browser from Windows or non-Windows devices, over many types of data connections, regardless of the bandwidth or operating system. With GO-Global for Windows, web enabling is achieved without modifying the underlying Windows applications’ code or requiring costly add-ons.

GO-Global for Unix web-enables Unix and Linux applications, allowing them to be run via a browser from many different display devices, over various types of data connections, regardless of the bandwidth or operating systems being used. GO-Global for Unix web-enables individual Unix and Linux applications, or entire desktops. When using GO-Global for Unix, web-enabling is achieved without modifying the underlying applications’ code or requiring costly add-ons.

Target Markets

The target market for our products comprises organizations that need to access Windows, Unix and/or Linux applications from a wide variety of devices, from remote locations, including over the Internet, dial-up lines, and wireless connections. This includes organizations such as small to medium-sized companies, governmental and educational institutions, ISVs, and VARs. Our software is designed to allow these enterprises to tailor the configuration of the end user device for a particular purpose, rather than following a “one PC fits all” high cost ownership model. We believe our opportunities are as follows:

·	ISVs . By web enabling their applications through use of our products, we believe that our ISV customers can accelerate their time to market without the risks and delays associated with rewriting applications or using other third party solutions, thereby opening up additional revenue opportunities and securing greater satisfaction and loyalty from their customers. Our technology quickly integrates with their existing software applications without sacrificing the full-featured look and feel of such applications, thereby providing ISVs with out-of-the-box web enabled applications with their own branding for licensed, volume distribution to their enterprise customers. We further believe that ISVs that effectively address the web computing needs of customers and the emerging application service provider market will have a competitive advantage in the marketplace.
·	Enterprises Employing a Mix of Unix, Linux, Macintosh and Windows. Small to medium-sized companies that utilize a mixed computing environment require cross-platform connectivity solutions, like GO-Global, that will allow users to access applications from different client devices. We believe that our server-based software products will significantly reduce the cost and complexity of connecting PCs to various applications.
·	Enterprises With Remote Computer Users and/or Extended Markets. We believe that remote computer users and enterprises with extended markets comprise two of the faster growing market segments in the computing industry. Extended enterprises allow access to their computing resources by their customers, suppliers, distributors and other partners, thereby affording them manufacturing flexibility, increased speed-to-market, and enhanced customer satisfaction. For example, extended enterprises may maintain decreased inventory via just-in-time, vendor-managed inventory and related techniques, or they may license their proprietary software application on a “pay-per-time” model, based on actual time usage by the user. The early adoption of extended enterprise solutions may be driven in part by enterprises’ needs to exchange information over a wide variety of computing platforms. We believe that our server-based software products, along with our low-impact protocol, which has been designed to enable highly efficient low-bandwidth connections, are well positioned to provide enabling solutions for extended enterprise computing.

Table of Contents

VARs. The VAR channel potentially presents an additional sales force for our products and services. In addition to creating broader awareness of GO-Global, VARs also provide integration and support services for our current and potential customers. Our products allow VARs to offer a cost effective competitive alternative for server-based thin client computing. In addition, reselling our GO-Global software creates new revenue streams for our VARs.

Strategic Relationships

We believe it is important to maintain our current strategic alliances and to seek suitable new alliances in order to enhance shareholder value, improve our technology and/or enhance our ability to penetrate relevant target markets. We also are focusing on strategic relationships that have immediate revenue generating potential, strengthen our position in the server-based software market, add complementary capabilities and/or raise awareness of our products and us. Our strategic relationships include the following:

·	In July 1999, we entered into a five-year, non-exclusive agreement with Alcatel, a telecommunications, network systems and services company. Pursuant to this agreement, Alcatel has licensed our GO-Global for Unix software for inclusion with their Turn-key Solution software, an optical networking system. Alcatel’s customers are using our server-based solution to access Alcatel's UNIX/X Network Management Systems applications from T-based PCs. Additionally, Alcatel has deployed GO-Global internally to provide their employees with high-speed network access to their own server-based software over dial-up connections, local area networks (LANs) and wide area networks (WANs). Alcatel consummated a merger with Lucent Technologies during November 2006 and has continued operations under the name Alcatel-Lucent. Although this agreement expired in July 2004, our relationship with Alcatel-Lucent continues under the terms of the contract. We anticipate continuing our relationship with Alcatel-Lucent throughout 2010.
·	We are a party to a non-exclusive distribution agreement with Ericsson, a global provider of telecommunications equipment and related services to mobile and fixed network operations. Pursuant to this agreement, Ericsson has licensed our GO-Global for Unix software for inclusion with their ServiceON Optical and ServiceON Access teleco network management systems. Our agreement with Ericsson, which was originally entered into in September 2000, automatically renews annually. Either party may terminate the contract upon written notice to the other party at least one month prior to the expiration of the then current term.
·	We are a party to a non-exclusive channel partner agreement with Elosoft Informatica Ltda, a South American distributor of various technology products, including both hardware and software offerings, and related services. Under the terms of this agreement, Elosoft has licensed both our GO-Global for Windows and GO-Global for Unix software for deployment throughout their distribution network with both sub-distributors and end users. Our agreement with Elosoft, which was originally entered into in February 2005, automatically renews annually. Either party may terminate the agreement upon 60-days written notice to the other party.
·	We are a party to a non-exclusive reseller agreement with Centric Systems Brazil Softwares Ltda, a South American reseller of various technology products and related services. Under the terms of this agreement, Centric has licensed both our GO-Global for Windows and GO-Global for Unix software for deployment throughout their distribution network of end users. Our agreement with Centric, which was originally entered into in December 2008, automatically renews annually. Either party may terminate the agreement upon 60-days written notice to the other party.

Sales, Marketing and Support

Sales and marketing efforts of our software products are directed at increasing product awareness and demand among ISVs, small to medium-sized enterprises, and VARs who have a vertical orientation or are focused on Unix, Linux or Windows environments. Current marketing activities include direct mail, targeted advertising campaigns, attendance at tradeshows, as well as displays and demonstrations at trade shows, production of promotional materials, and maintaining an Internet presence for marketing and sales purposes.

Table of Contents

We currently consider Alcatel-Lucent, Ericsson, and Elosoft to be our most significant customers. Sales to these three customers represented approximately 17.7%, 7.0% and 5.7% of total software product sales during 2009, respectively, and 15.3%, 7.3% and 4.6% of total software product sales during 2008, respectively.

Many of our customers enter into, and periodically renew, maintenance contracts to ensure continued product updates and support. Currently, we offer maintenance contracts for one, two, three or five-year periods.

Research and Development

Our research and development efforts currently are focused on further enhancing the functionality, performance and reliability of existing products and developing new products. We invested approximately $2,768,600 and $2,373,500 into research and development with respect to our software products in 2009 and 2008, respectively. No significant amount invested in research and development was capitalized during either 2009 or 2008. We historically have made significant investments in our protocol and in the performance and development of our server-based software and expect to continue to make significant product investments during 2010.

Competition

The server-based software market in which we participate is highly competitive. We believe that our products offer certain advantages over our competitors, particularly in product performance and market positioning. The market for our products ranges from remote access for a single PC user to server-based software for large numbers of users over many different types of device and network connections. We encounter competition from manufacturers of conventional server-based software for the individual PC as well as competition from other companies in the server-based software market. Competitive factors in our market space include: price, product quality, functionality, product differentiation and the breadth and variety of product offerings and product features.

We believe our principal competitors for our current products include Citrix Systems, Inc., Hummingbird Communications, Ltd., and Microsoft Corporation. Citrix is an established leading vendor of server-based computing software. Hummingbird is an established market leader in PC X Servers. Microsoft is an established leading vendor of operating systems and services for servers.

Proprietary Technology – Intellectual Property Portfolio

We rely primarily on trade secret protection, copyright law, confidentiality, and proprietary information agreements to protect our proprietary technology and registered trademarks. Despite our precautions, it may be possible for unauthorized third parties to copy portions of our products, or to obtain information we regard as proprietary. The loss of any material trade secret, trademark, trade name or copyright could have a material adverse effect on our results of operations and financial condition. We intend to defend our proprietary technology rights; however, we cannot give any assurance that our efforts to protect our proprietary technology rights will be successful.

We do not believe our products infringe on the rights of any third parties, but we can give no assurance that third parties will not assert infringement claims against us in the future, or that any such assertion will not result in costly litigation or require us to obtain a license to proprietary technology rights of such parties.

Through our acquisition of Network Engineering Solutions, Inc. (“NES”) in January 2005, we acquired the rights to 11 patents, which are primarily method patents that describe software and network architectures to accomplish certain tasks, as well as other intellectual property rights. Between 2005 and 2008, we initiated litigation against certain companies that we believed violated one or more of our patents. Due to the high cost of patent litigation, we have determined that we will not be initiating any new infringement litigation or attempting to seek licensing revenue with respect to any of the NES patent families that were not involved in our on-going litigation as of December 31, 2008. A patent family is comprised of the original parent patent and any continuation, continuation in part, or divisional patent subsequently filed that claims priority therefrom.

As of March 19, 2010, we had 24 issued patents, with respect to the NES patent families, that will expire at various times between December 2014 and October 2016. Also as of March 19, 2010, we had 20 applications for patents filed in the United States Patent Office relating to the various aspects of submission, storage, retrieval and security of information stored on computers accessed remotely, typically through computer networks or the Internet. At that date, the applications had been pending for various periods ranging from approximately 12 to 72

Table of Contents

months. Of the 20 applications, all are continuations of previously issued patents, within the NES patent families. Continuation applications are applications that are identical to an issued patent or another application but have different claims.

No applications for patents have been filed in any foreign jurisdiction.

On July 25, 2008 and April 6, 2008, the United States Patent and Trademark office (the “PTO”) ordered the reexamination of two of our patents, namely U.S. Patent Nos. 5,826,014 and 6,061,798 (the “’014” and “’798” patents), respectively. On August 14, 2009 and on September 24, 2009, the PTO issued final rejections of the ‘014 and ‘798 patents, respectively. We have appealed these rejections to the Board of Patents and Interferences. As of March 19, 2010, there had been no final determination of these appeals.

As discussed more fully in Item 7 in this Annual Report on Form 10-K, during 2008 we recorded an $868,200 impairment charge against certain patent families within our patent portfolio.

Operations

We perform all purchasing, order processing and shipping of products and accounting functions related to our operations. Although we generally ship products electronically, when a customer requires us to physically ship them a disc, production of the disc, printing of documentation and packaging are also accomplished through in-house means; however, since virtually all of our orders are currently being fulfilled electronically, we do not maintain any prepackaged inventory. Additionally, we have relatively little backlog at any given time, thus; we do not consider backlog a significant indicator of future performance.

Employees

As of March 19, 2010, we had a full-time equivalent total of 34.5 employees, including 7 in marketing, sales and support, 20 in research and development (which is inclusive of employees who may also perform customer service related activities), 6.5 in administration and finance and 1 in our patent group. We believe our relationship with our employees is good. No employees are covered by a collective bargaining agreement.

Table of Contents

ITEM 1A. RISK FACTORS

The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us, or risks that we do not consider significant, may also impair our business. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from the results we discuss in the forward-looking statements. If any of the following risks actually occur, they could have a severe negative impact on our financial results and stock price.

We have a history of operating losses and expect these losses to continue, at least for the near future.

We have experienced significant operating losses since we began operations. We incurred operating losses of $1,833,600 and $2,720,300 for the years ended December 31, 2009 and 2008, respectively. We expect that both our Software and Intellectual Property segments will incur operating losses in 2010, consequently, we expect to report an operating loss on a consolidated basis for 2010. In subsequent reporting periods, if revenues grow more slowly than anticipated, or if aggregate operating expenses exceed expectations, we will continue to be unprofitable. Even if we become profitable, we may be unable to sustain such profitability.

Continuance of the current widespread economic downturn could adversely affect our business, results of operations, financial condition, and cash flows.

The current economic downturn, coupled with continued uncertainty as to its duration and severity, could negatively impact our current and prospective customers, resulting in delays or reductions in their technology purchases. As a result, we could experience fewer new orders, fewer renewals, longer sales cycles, the impact of the slower adoption of newer technologies, increased price competition, and downward pressure on our pricing during contract renewals, any of which could have a material and adverse impact on our business, results of operations, financial condition, and cash flows. Continuation of the current adverse economic conditions also may negatively impact our ability to collect payment for outstanding debts owed to us by our customers or other parties with whom we do business. We can not predict the timing or strength of any subsequent recovery.

Our revenue is typically generated from a very limited number of significant customers.

A material portion of our revenue during any reporting period is typically generated from a very limited number of significant customers, all of which are unrelated third parties. Consequently, if any of these significant customers reduce their order level or fail to order during a reporting period, our revenue could be materially adversely impacted.

Several of our significant customers are ISVs who have bundled our products with theirs to sell as web-enabled versions of their products. Other significant customers include distributors who sell our products directly to end-users. Some of our significant customers maintain inventories of our products for resale to smaller end-users. For the customers who maintain inventories of our products for resale, we do not recognize revenue until our products are resold to end-users. If these customers determine to maintain a lower level of inventory in the future and/or they are unable to sell their inventory to end-users as quickly as they have in the past, our revenue and business could be materially adversely impacted.

If we are unable to develop new products and enhancements to our existing products, our business, results of operations, financial condition, and cash flows could be materially adversely impacted.

The market for our products and services are characterized by:

·	frequent new product and service introductions and enhancements;
·	rapid technological change;
·	evolving industry standards;
·	fluctuations in customer demand; and
·	changes in customer requirements.

Our future success depends on our ability to continually enhance our current products and develop and introduce new products that our customers choose to buy. If we are unable to satisfy our customers’ demands and remain competitive with other products that could satisfy their needs by introducing new products and enhancements, our business, results of operations, financial condition, and cash flows could be materially adversely impacted. Our future success could be hindered by:

Table of Contents

·	the limited amount of cash we have available to fund investment in new products and enhancements;
·	delays in our introduction of new products and/or enhancements of existing products;
·	delays in market acceptance of new products and/or enhancements of existing products; and
·	our, or a competitor’s, announcement of new products and/or product enhancements or technologies that could replace or shorten the life cycle of our existing products.

For example, sales of our GO-Global for Windows software could be affected by the announcement from Microsoft of the intended release, and the subsequent actual release. of a new Windows-based operating system, or an upgrade to a previously released Windows-based operating system version. These new or upgraded systems may contain similar features to our products or they could contain architectural changes that would temporarily prevent our products from functioning properly within a Windows-based operating system environment.

Sales of products within our GO-Global product line constitute a substantial majority of our revenue.

We anticipate that sales of products within our GO-Global product line, and related enhancements, will continue to constitute a substantial majority of our revenue for the foreseeable future. Our ability to continue to generate revenue from our GO-Global product line will depend on continued market acceptance of GO-Global. Declines in demand for our GO-Global product line could occur as a result of:

·	lack of success with our strategic partners;
·	new competitive product releases and updates to existing competitive products;
·	decreasing or stagnant information technology spending levels;
·	price competition;
·	technological changes, or;
·	general economic conditions in the market in which we operate.

If our customers do not continue to purchase GO-Global products as a result of these or other factors, our revenue would decrease and our results of operations, financial condition, and cash flows would be adversely affected.

Our operating results in one or more future periods are likely to fluctuate significantly and may fail to meet or exceed the expectations of investors.

Our operating results are likely to fluctuate significantly in the future on a quarterly and annual basis due to a number of factors, many of which are outside our control. Factors that could cause our revenues to fluctuate include the following:

·	our ability to maximize the revenue opportunities of our patents;
·	variations in the size of orders by our customers;
·	increased competition; and
·	the proportion of overall revenues derived from different sales channels such as distributors, original equipment manufacturers (OEMs) and others.

In addition, our royalty and license revenues are impacted by fluctuations in OEM licensing activity from quarter to quarter, which may involve one-time orders from non-recurring customers, or customers who order infrequently. Our expense levels are based, in part, on expected future orders and sales; therefore, if orders and sales levels are below expectations, our operating results are likely to be materially adversely affected. Additionally, because significant portions of our expenses are fixed, a reduction in sales levels may disproportionately affect our net income. Also, we may reduce prices or increase spending in response to competition or to pursue new market opportunities. Because of these factors, our operating results in one or more future periods may fail to meet or exceed the expectations of investors. In that event, the trading price of our common stock would likely be adversely affected.

We may not be successful in attracting and retaining key management or other personnel.

Our success and business strategy is dependent in large part on our ability to attract and retain key management and other personnel in certain areas of our business. The loss of the services of one or more key members of our management group and other key personnel, including our Chief Executive Officer, may have a material adverse effect on our business. We do not have long-term employment agreements with any of our key personnel and any officer or other employee can terminate their

Table of Contents

relationship with us at any time. The successful implementation of our business strategy could be dependent upon our ability to retain highly-skilled key management, technical, sales and finance personnel. If any of these employees were to leave, we would need to attract and retain replacements for them. We may also need to add key personnel in the future, in order to successfully implement our business strategies. The market for such qualified personnel is competitive and it includes other potential employers whose financial resources for such qualified personnel are more substantial than ours. Consequently, we could find it difficult to attract, assimilate or retain such qualified personnel in sufficient numbers to successfully implement our business strategies.

Our failure to adequately protect our proprietary rights may adversely affect us.

Our commercial success is dependent, in large part, upon our ability to protect our proprietary rights. We rely on a combination of patent, copyright and trademark laws, and on trade secrets and confidentiality provisions and other contractual provisions to protect our proprietary rights. These measures afford only limited protection. We cannot assure you that measures we have taken will be adequate to protect us from misappropriation or infringement of our intellectual property. Despite our efforts to protect proprietary rights, it may be possible for unauthorized third parties to copy aspects of our products or obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our intellectual property rights as fully as do the laws of the United States. Furthermore, we cannot assure you that the existence of any proprietary rights will prevent the development of competitive products. The infringement upon, or loss of any proprietary rights, or the development of competitive products despite such proprietary rights, could have a material adverse effect on our business.

Our business significantly benefits from strategic relationships and there can be no assurance that such relationships will continue in the future.

Our business and strategy relies to a significant extent on our strategic relationships with other companies. There is no assurance that we will be able to maintain or develop any of these relationships or to replace them in the event any of these relationships are terminated. In addition, any failure to renew or extend any licenses between any third party and us may adversely affect our business.

We rely on indirect distribution channels for our products and may not be able to retain existing reseller relationships or to develop new reseller relationships.

Our products are primarily sold through several distribution channels. An integral part of our strategy is to strengthen our relationships with resellers such as OEMs, systems integrators, VARs, distributors and other vendors to encourage these parties to recommend or distribute our products and to add resellers both domestically and internationally. We currently invest, and intend to continue to invest, significant resources to expand our sales and marketing capabilities. We cannot assure you that we will be able to attract and/or retain resellers to market our products effectively. Our inability to attract resellers and the loss of any current reseller relationships could have a material adverse effect on our business, results of operations, financial condition, and cash flows. Additionally, we cannot assure you that resellers will devote enough resources to provide effective sales and marketing support to our products.

The market in which we participate is highly competitive and has more established competitors.

The market we participate in is intensely competitive, rapidly evolving and subject to technological changes. We expect competition to increase as other companies introduce additional competitive products. In order to compete effectively, we must continually develop and market new and enhanced products and market those products at competitive prices. As markets for our products continue to develop, additional companies, including companies in the computer hardware, software and networking industries with significant market presence, may enter the markets in which we compete and further intensify competition. A number of our current and potential competitors have longer operating histories, greater name recognition and significantly greater financial, sales, technical, marketing and other resources than we do. We cannot give any assurance that our competitors will not develop and market competitive products that will offer superior price or performance features, or that new competitors

will not enter our markets and offer such products. We believe that we will need to invest increased financial resources in research and development to remain competitive in the future. Such financial resources may not be available to us at the time or times that we need them, or upon terms acceptable to us. We cannot assure you that we will be able to establish and maintain a significant market position in the face of our competition and our failure to do so would adversely affect our business.

Our stock price has been historically volatile.

Our stock price has historically been volatile; it has fluctuated significantly to date. The trading price of our stock is likely to continue to be highly volatile and subject to wide fluctuations. Your investment in our stock could lose value.

Table of Contents

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our corporate headquarters currently occupies approximately 1,850 square feet of office space in Santa Cruz, California, under a lease that will expire in July 2011. Rental of these premises will average approximately $3,900 per month over the remaining term of the lease, which is inclusive of our pro rata share of utilities, facilities maintenance and other costs.

In Concord, New Hampshire, our domestic research and development team currently occupies approximately 5,560 square feet of office space under a lease that will expire in September 2012. Rent on the Concord facility will approximate $8,800 per month over the remaining term of the lease.

We currently occupy approximately 150 square feet of office space in Irvine, California, under a lease that expires in March 2011. Monthly rental payments for this sales office are approximately $1,200.

We believe our current facilities will be adequate to accommodate our needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Between 2005 and 2008, we initiated litigation against certain companies that we believed violated one of more of the patents we acquired from NES. Even though all of the attorneys we have retained to represent our interests in enforcing our patents have agreed to represent us on a contingency basis, certain significant costs of enforcement, including those associated with expert consultants and travel, are required to be paid as incurred. Due to the high cost of patent litigation, we have determined that we will not be initiating any new infringement litigation or attempting to seek licensing revenue with respect to any of the NES patent families that were not involved in our on-going litigation as of December 31, 2008. We can give no assurances that we will be able to continue this litigation in the future.

On April 24, April 28, May 26, and September 21, 2009, we entered into settlement and licensing agreements with CareerBuilder, LLC, Classified Ventures, LLC, Google, Inc., and Yahoo! Inc., respectively, which ended all legal disputes between us and these entities, and granted to each of these entities irrevocable, perpetual, world-wide, non-exclusive licenses to all of our patents and patent applications. As a result of entering into these settlement and licensing agreements, we recorded $2,300,000 in Intellectual Property License revenue for the year ended December 31, 2009.

The paragraphs that follow summarize the status of all currently active legal proceedings. In all such proceedings we have retained the services of various outside counsel. All such counsel have been retained under contingency fee arrangements that require us to only pay for certain non-contingent fees, such as services for expert consultants, and travel, prior to a verdict or settlement of the respective underlying proceeding.

GraphOn Corporation v. Juniper Networks, Inc.

On August 28, 2007, we filed a proceeding against Juniper Networks, Inc. (“Juniper”) in the United States District Court in the Eastern District of Texas (the “court”) alleging that certain of Juniper’s products infringe three of our patents, namely; U.S. Patent Nos. 5,826,014, 6,061,798 and 7,028,336, (the “’014,” “’798” and “’336” patents) which protect our fundamental network security and firewall technologies. We seek preliminary and permanent injunctive relief along with unspecified damages and fees. Juniper filed its Answer and Counterclaims on October 26, 2007 seeking a declaratory judgment that it does not infringe any of these patents, and that all of these patents are invalid and unenforceable. On September 29, 2009, the court granted our request to remove the ‘336 patent from the case. On December 30, 2009, the court, acting on its own motion, transferred the case to the United States District Court for the Northern District of California. No trial date has as yet been set.

Separately, Juniper has petitioned the United States Patent and Trademark Office (the “PTO”) to reexamine two of our patents (the ’014 and ’798 patents). On April 6, 2008, the PTO ordered the reexamination of the ‘798 patent, and on July 25, 2008, the PTO ordered the reexamination of the ‘014 patent.

Table of Contents

On August 14, 2009 and on September 24, 2009, the PTO issued final rejections of the ‘014 and ‘798 patents, respectively. We have appealed these rejections to the Board of Patents and Interferences. As of March 19, 2010 there had been no final determination of these appeals.

We are committed to pursuing the confirmation of these patents through all channels of appeal, if necessary.

Juniper Networks, Inc. v. GraphOn Corporation et al

On March 16, 2009, Juniper Networks, Inc. initiated a proceeding against us and one of our resellers in the United States District Court in the Eastern District of Virginia alleging infringement of one of their patents, namely; U.S. Patent No. 6,243,752 (the “’752 Patent”), which protects Juniper’s unique method of transmitting data between a host computer and a terminal computer. On May 1, 2009, we filed an answer in which we asked the court to declare that the ‘752 Patent is not infringed and/or is invalid under the patent laws.

On November 24, 2009, the court granted a motion filed by Juniper and dismissed the case. On December 10, 2009, we filed a motion seeking attorney’s fees and costs. Subsequently, the court dismissed our motion, and we have appealed the court’s decision of such motion to the Court of Appeals for the Federal Circuit. No hearing date has as yet been set.

We also asserted a counterclaim against Juniper, alleging infringement of four of our patents, namely; U.S. Patent Nos. 7,249,378, 7,269,847, 7,383,573, and 7,424,737. On February 25, 2010, the court transferred the case to the United States District Court for the Northern District of California. No trial date has as yet been set by the court.

GraphOn Corporation v. Classified Ventures, LLC et al

On March 10, 2008, we initiated a proceeding against Classified Ventures, LLC; IAC/InterActiveCorp; Match.com (an operating business of IAC/InterActiveCorp); Yahoo! Inc.; eHarmony.com; and CareerBuilder, LLC in the United States District Court in the Eastern District of Texas alleging infringement of four of our patents, namely; U.S. Patent Nos. 6,324,538 (the “’538” patent); 6,850,940 (the “’940” patent); 7,028,034 (the “’034” patent); and 7,269,591 (the “’591” patent), which protect our unique method of maintaining an automated and network-accessible database. The suit alleges that the named companies infringe our patents on each of their Web sites. The suit seeks permanent injunctive relief along with unspecified damages. On August 21, 2008, IAC/interactive Corp. was dismissed from the lawsuit without prejudice. On December 2, 2008 the court issued a Docket Control Order setting the dates of April 27, 2011 for the Markman Hearing, in which the court will define any disputed claim terms, and November 7, 2011 for jury selection. On May 11, 2009, in conjunction with settlements reached with us, the court granted a joint motion to dismiss Classified Ventures, LLC and CareerBuilder, LLC from the case. On September 30, 2009, the court granted a joint motion to dismiss Yahoo! Inc. from the case, as a result of a settlement with us, leaving eHarmony and Match.com as the only remaining defendants in this proceeding.

MySpace, Inc. v. GraphOn Corporation and craigslist, Inc. v. GraphOn Corporation

In response to our licensing efforts, on February 10, 2010 and March 18, 2010, MySpace, Inc. and craigslist, Inc., respectively, filed complaints for declaratory judgment in the United States District Court for the District of Northern California. Such complaints ask the court to take certain actions with respect to some of our patents, namely the ’538, ‘940, ‘034, and ‘591 patents. In each of their complaints, MySpace, Inc. and craigslist, Inc. ask the court to declare that they are not infringing these patents, or, alternatively, that each of these patents is invalid. Further, MySpace, Inc. asks the court to declare these patents unenforceable. On March 17, 2010 we responded to the MySpace complaint and added counterclaims of infringement by MySpace of the '538, '940, '034, and'591 patents. We seek unspecified damages and injunctive relief. Additionally, we added Fox Audience Network, Inc. as a party to this suit. We have not yet responded to the craigslist complaint.

ITEM 4. RESERVED

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth, for the periods indicated, the high and low reported sales price of our common stock. Since March 27, 2003 our common stock has been quoted on the Over-the-Counter Bulletin Board. Our common stock is quoted under the symbol “GOJO.”

	Fiscal 2009 *		Fiscal 2008 *
Quarter	High	Low	High	Low
First	$ 0.09	$ 0.04	$ 0.46	$ 0.27
Second	$ 0.12	$ 0.06	$ 0.35	$ 0.24
Third	$ 0.15	$ 0.08	$ 0.33	$ 0.17
Fourth	$ 0.08	$ 0.06	$ 0.22	$ 0.05

* The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

On March 19, 2010 there were approximately 153 holders of record of our common stock. Between January 1, 2010 and March 19, 2010 the high and low reported sales price of our common stock was $0.09 and $0.05, respectively, and on March 19, 2010 the closing price of our common stock was $0.09.

We have never declared or paid dividends on our common stock, nor do we anticipate paying any cash dividends for the foreseeable future. We currently intend to retain future earnings, if any, to finance the operations and expansion of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon the earnings, financial condition, operating results, capital requirements and other factors as deemed necessary by the Board of Directors.

During the three-month period ended December 31, 2009, we granted stock options to purchase an aggregate 20,000 shares of common stock, at an exercise price of $0.09, to certain non-executive employees. The grants of such stock options were not registered under the Securities Act of 1933 because they were offered and sold in transactions not involving a public offering; thusly, they were exempt from registration under the Securities Act pursuant to the exemption from registration afforded by Section 4(2) of that Act.

On January 8, 2008, our Board of Directors authorized a program to repurchase up to $1,000,000 of our outstanding common stock. Under terms of the program, we are not obligated to repurchase any specific number of shares and the program may be suspended or terminated at management’s discretion.

The following is a summary of our purchases of our common stock during the three month period ended December 31, 2009 under our Board authorized stock repurchase program:

Month	Total Number of Shares Purchased	Average Price Per Share	Total Number of Shares Purchased as Part of Publicly Announced Program	Total Dollars Purchased Under the Program	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
October	—	—	—	—
November	—	—	—	—
December	550,000	$ 0.08	550,000	$ 48,100
Totals	550,000	$ 0.08	550,000	$ 48,100	$ 782,600

ITEM 6. SELECTED FINANCIAL DATA

Not applicable for smaller reporting companies.

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and related notes provided in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.

Critical Accounting Policies . The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The Summary of Significant Accounting Policies appears in Part II, Item 8 – Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, which summary describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, the amount of stock-based compensation expense, the allowance for doubtful accounts, the estimated lives and valuation of intangible assets, depreciation of fixed assets, accruals for liabilities and taxes. Actual results could differ materially from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Consolidated Financial Statements.

Revenue Recognition

We market and license products through various means, such as; channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively “resellers”) and direct sales to enterprise end users. Our product licenses are generally perpetual. We also separately sell intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.

Generally, software and intellectual property license revenues are recognized when:

·	Persuasive evidence of an arrangement exists, (i.e., when we sign a non-cancelable license agreement wherein the customer acknowledges an unconditional obligation to pay, or upon receipt of the customer’s purchase order) and
·	Delivery has occurred or services have been rendered and there are no uncertainties surrounding product acceptance, (i.e., when title and risk of loss have been transferred to the customer, which generally occurs when the media containing the licensed program(s) is provided to a common carrier or, in the case of electronic delivery, when the customer is given access to the licensed programs) and
·	The price to the customer is fixed or determinable, as typically evidenced in a signed non-cancelable contract, or a customer’s purchase order, and
·	Collectibility is probable. If collectibility is not considered probable, revenue is recognized when the fee is collected.

Revenue recognized on software arrangements involving multiple elements is allocated to each element of the arrangement based on vendor-specific objective evidence (“VSOE”) of the fair values of the elements; such elements include licenses for software products, maintenance, or customer training. We limit our assessment of VSOE for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately.

If sufficient VSOE of fair value does not exist, so as to permit the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. If evidence of VSOE of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

Certain resellers purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). We defer recognition of revenue from inventory stocking orders until the underlying licenses are sold to the end user.

There are no rights of return granted to purchasers of our software programs.

We recognize revenue from maintenance contracts ratably over the related contract period, which generally ranges from one to five years.

Table of Contents

Intellectual property license agreements provide for the payment of a fully paid licensing fee in consideration for the grant of a one-time, non-exclusive license to manufacture and/or sell products covered by patented technologies we own. Generally, the execution of these license agreements also provides for the release of the licensee from certain past and future claims, and the dismissal of any pending litigation between us and the licensee. Pursuant to the terms of these license agreements, we have no further obligation with respect to the grant of the license, including no express or implied obligation to maintain or upgrade the patented technologies, or provide future support or services to the licensee. As such, the earnings process is complete upon execution of the license agreement, and revenue is recognized upon execution of the agreement, and the determination that collectibility is probable.

Long-Lived Assets

Long-lived assets, which consist primarily of patents, are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever we have committed to a plan to dispose of the assets or, at a minimum, as it relates to our patents, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and undiscounted future cash flows, among other variables, as appropriate. Assets to be held and used affected by an impairment loss are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization.

Patents

Our patents are being amortized over their estimated remaining economic lives, currently estimated to be approximately one year, as of December 31, 2009. Costs associated with filing, documenting or writing method patents are expensed as incurred. Contingent legal fees paid in connection with a patent lawsuit, or settlements thereof, are charged to cost of goods sold. All other non-contingent legal fees and costs incurred in connection with a patent lawsuit, or settlements thereof, are charged to general and administrative expense. During the fourth quarter of 2008, we recorded an impairment charge of $868,200 against certain of our patent families as we determined that, due to the high cost of patent litigation, we would not be initiating any new infringement litigation or attempting to seek licensing revenue with respect to any of the NES patent families that were not involved in our on-going litigation as of December 31, 2008; thus, we reduced them to a net realizable value of $0 as of December 31, 2008. No such impairment charge was recorded during 2009.

Stock-Based Compensation

We apply the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Codification Subtopic (ASC) 718-10, “Compensation – Stock Compensation.” We estimated the fair value of each stock-based award granted during the years ended December 31, 2009 and 2008 on the date of grant using a binomial model, with the assumptions set forth in the following table:

	2009	2008
Estimated volatility	180% - 190%	158% - 173%
Annualized forfeiture rate	4%	4%
Expected option term (years)	7.5	7.5
Estimated exercise factor	10%	10%
Approximate risk-free interest rate	2.24% - 3.12%	2.6% - 3.5%
Expected dividend yield	—	—

In estimating our stock price volatility for grants awarded during the years ended December 31, 2009 and 2008, we analyzed our historic volatility over the 7.5 year period ended December 31, 2009 and December 2008, respectively, by reference to actual stock prices during this period. We derived an annualized forfeiture rate by analyzing our historical forfeiture data, including consideration of the impact of certain non-recurring events, such as reductions in our work force. Our estimates of the expected option term and the estimated exercise factor were derived from our analysis of historical data and future projections. The approximate risk-free interest rate was based on the implied yield available on U. S. Treasury issues with remaining terms equivalent to our expected option term. We believe that each of these estimates is reasonable in light of the data we analyzed. However, as with any estimate, the ultimate accuracy of these estimates is only verifiable over time.

We also recognized compensation costs for shares purchased under our Employee Stock Purchase Plan (“ESPP”) during the years ended December 31, 2009 and 2008. We applied the same variables to the calculation of the costs associated with the ESPP shares purchased in each respective year as the stock option grants noted above, except that the expected term was 0.5 years in each year and the approximate risk-free interest rate was 0.16% - 0.40% for ESPP shares purchased during 2009, and 1.9% - 3.8% for such shares purchased during 2008. The time span from the date of grant of ESPP shares to the date of purchase is six months.

Table of Contents

We have not historically paid dividends on our common stock and do not anticipate doing so for the foreseeable future.

Results of Operations

Set forth below is statement of operations data for the years ended December 31, 2009 and 2008 along with the dollar and percentage changes from 2008 to 2009 in the respective line items. Percentage changes that are not meaningful are marked “*”.

	Year Ended December 31,		Increase (Decrease)
Revenue	2009	2008	Dollars	Percentage
Product licenses	$ 3,328,600	$ 4,468,900	$ (1,140,300)	(25.5)	%
Intellectual property licenses	2,300,000	—	2,300,000	*
Service fees	2,290,300	2,168,700	121,600	5.6
Other	158,300	71,100	87,200	122.6
Total Revenue	8,077,200	6,708,700	1,368,500	20.4

Cost of revenue
Service costs	463,000	530,100	(67,100)	(12.7)
Product costs	22,100	45,000	(22,900)	(50.9)
Contingent legal fees	896,000	—	896,000	*
Total Cost of revenue	1,381,100	575,100	806,000	140.1
Gross profit	6,696,100	6,133,600	562,500	9.2

Operating expenses
Selling and marketing	1,871,500	1,816,100	55,400	3.1
General and administrative	3,889,600	3,796,100	93,500	2.5
Research and development	2,768,600	2,373,500	395,100	16.6
Impairment of patents	—	868,200	(868,200)	(100.0)
Total Operating expenses	8,529,700	8,853,900	(324,200)	(3.7)
Loss from operations	(1,833,600)	(2,720,300)	886,700	(32.6)

Other income (expense)
Interest and other income	37,800	89,100	(51,300)	(57.6)
Interest and other expense	(22,400)	(7,300)	(15,100)	206.8
Total other income	15,400	81,800	(66,400)	(81.2)
Loss before provision (benefit) for income tax	(1,818,200)	(2,638,500)	820,300	(31.1)
Provision (benefit) for income taxes	2,000	(11,700)	13,700	(117.1)
Net loss	$ (1,820,200)	$ (2,626,800)	$ 806,600	(30.7)

Revenue.

Product Licensing Fees.

Our software revenue historically has been primarily derived from product licensing fees and service fees from maintenance contracts.

The table that follows summarizes product licensing fees for the years ended December 31, 2009 and 2008 and calculates the change in dollars and percentage from 2008 to 2009 in the respective line item.

Table of Contents

	Year Ended December 31,		Increase (Decrease)
Product licensing fees	2009	2008	Dollars	Percentage
Windows	$ 2,095,900	$ 3,117,400	$ (1,021,500)	(32.8)	%
Unix/Linux	1,232,700	1,351,500	(118,800)	(8.8)
Total	$ 3,328,600	$ 4,468,900	$ (1,140,300)	(25.5)

The 2009 decrease in Windows product licensing fees, when compared to those in 2008, was primarily due to the recognition of $946,000 of product licensing fees in 2008 that had previously been deferred. Such deferred product licensing fees were the aggregate of several transactions that occurred in 2006 and 2007 with a former distributor in Japan. At the time we had entered into each of such transactions, not all criteria necessary for recognizing revenue had been met, consequently, all revenue related to such transactions was deferred, and such deferred amounts were reported as long term liabilities. In 2008, when all criteria for revenue recognition was met, the revenue for these transactions was recognized and long term liabilities was reduced by a corresponding amount.

The balance of the decrease in our Windows product licensing fees for the year ended December 31, 2009, as compared with the prior year, was primarily due to fewer sales of our products as a result of the challenges our resellers faced in selling our products in the current economy.

Our software revenue varies from year to year, sometimes by a material amount, because the majority of this revenue has historically been earned, and continues to be earned from a limited number of significant customers, most of whom are resellers. Consequently, if any of these customers significantly change their order level, or fail to order, our product licensing fees can be materially adversely impacted. We expect this trend to continue throughout 2010. The decrease in Unix/Linux product licensing fees exemplifies this trend. Unix/Linux product licensing fees from one reseller decreased by approximately $138,500 in 2009 from 2008 levels. This reseller, which is primarily a Windows reseller, made a small number of significant one-time Unix/Linux sales in 2008, as compared to minimal Unix/Linux sales in 2009.

Intellectual Property Licenses.

We recognized $2,300,000 and $0 of revenue derived from intellectual property licenses during 2009 and 2008, respectively, as we entered into four such licensing agreements during 2009, as compared with none during 2008. Intellectual property licenses revenue are non-predictable and are dependent upon the outcome of our currently pending litigation efforts. Due to the high cost of patent litigation, we have determined that we will not be initiating any new infringement litigation, or attempting to seek license revenue with respect to any of our patent families that were not involved in our ongoing litigation as of December 31, 2008.

Service Fees

The $121,600 increase in service fees in 2009, when compared to those in 2008, was primarily a result of the continued growth of the number of maintenance contracts our end-user customers have purchased. Since our end-user customers typically purchase maintenance contracts for their product licenses, subsequently renew them upon expiration, and they continue to license an increasing number of our products, revenue recognized from the sale of service contracts increases.

Other Revenue

Other revenue increased by $87,200 primarily as a result of the sale of four private labeling kits during 2009, as compared with three during 2008.

Segment Revenue. Segment revenue was as follows:

			Increase (Decrease)
Year Ended December 31,	2009	2008	Dollars	Percentage
Software	$ 5,777,200	$ 6,708,700	$ (931,500)	(13.9)	%
Intellectual Property	2,300,000	—	2,300,000	*
Consolidated Total	$ 8,077,200	$ 6,708,700	$ 1,368,500	20.4

* not meaningful

For additional information on our segment revenues, please refer to Note 13 of our consolidated financial statements included elsewhere in this Annual Report.

Table of Contents

Cost of Revenue. Cost of revenue is comprised primarily of customer service expenses (and is inclusive of non-cash stock-based compensation expense), product costs and, when applicable, contingent legal fees resulting from settlements and/or licensing agreements incurred as a result of our patent litigation efforts. Shipping and packaging materials are immaterial as virtually all of our license deliveries are made via electronic means over the Internet.

Cost of revenue increased by $806,000, or 140.1%, to $1,381,100 for the year ended December 31, 2009 from $575,100 for the prior year. Cost of revenue for the year ended December 31, 2009 represented approximately 17.1% of total revenue, as compared with 8.6% for the prior year. During the year ended December 31, 2009, cost of revenue included contingent legal fees that resulted from the various settlement and licensing agreements we entered into during the year, which aggregated approximately $896,000. No such fees were incurred during the prior year.

Net of contingent legal fees, cost of revenue decreased by $90,000, or 15.6%, to $485,100 for the year ended December 31, 2009 from $575,100 for the prior year, which primarily reflected a decrease in costs of customer service and a decrease in the costs of software we license and incorporate into our products. Customer service costs were lower as a result of changing the mix of employees providing such services. The cost of the software that we license and incorporate into our products was reduced as a result of a change in the composition of the component software products so licensed.

We expect that cost of revenue for 2010 will approximate 2009 levels, net of contingent legal fees, in each instance.

Selling and Marketing Expenses. Selling and marketing expenses primarily consist of employee costs (inclusive of non-cash stock-based compensation expense), outside services and travel and entertainment expenses.

Selling and marketing expenses for the year ended December 31, 2009 increased by $55,400, or 3.1%, to $1,871,500 from $1,816,100 for 2008. Selling and marketing expenses for the years ended December 31, 2009 and 2008 represented approximately 23.2% and 27.1% of total revenue, respectively.

Selling and marketing costs were higher in 2009 than in 2008 mainly due to costs associated with subscribing to an integrated sales management software package. We did not subscribe to this software package during 2008. Also, travel and entertainment costs were higher as more members of our sales force visited customers and prospects in Asia during 2009, as compared with 2008.

In March 2010, we hired an additional marketing employee; accordingly, we expect aggregate 2010 selling and marketing expenses to exceed 2009 levels.

General and Administrative Expenses. General and administrative expenses primarily consist of employee costs (inclusive of non-cash stock-based compensation expense), amortization and depreciation, legal, accounting, other professional services (including those related to realizing benefits from our patents), rent, travel and entertainment and insurance. Certain costs associated with being a publicly-held corporation are also included in general and administrative expenses, as well as bad debts expense.

General and administrative expenses for the year ended December 31, 2009 increased by $93,500, or 2.5%, to $3,889,600 from $3,796,100 for 2008. General and administrative expenses for the years ended December 31, 2009 and 2008 represented approximately 48.2% and 56.6% of total revenue, respectively.

The main factors that contributed to the increase in general and administrative expenses for the year ended December 31, 2009, as compared to the prior year, were legal, accounting, and other professional services expenses associated with our on-going intellectual property lawsuits and Sarbanes-Oxley implementation. Partially offsetting these items were decreases in depreciation and amortization, which primarily resulted from the patent impairment write down we recorded during December 2008, in employee costs, which resulted mainly from having one less patent employee in 2009, as compared with 2008, and in non-cash stock-based compensation, which reflected the decrease in the fair value of our stock in 2009 as compared with 2008.

The ending balance of our allowance for doubtful accounts as of December 31, 2009 and 2008 was $32,000. Bad debts expense was approximately $0 and $12,600 for the years ended December 31, 2009 and 2008, respectively.

We anticipate that cumulative general and administrative expense in 2010 will be significantly lower than those incurred during 2009 primarily because we expect legal and other professional services expenses related to our patent litigations to be

Table of Contents

significantly lower. We expect the next significant activities in our lawsuits to occur during the first half of 2011, and until such time period our lawsuit-related expenses will be significantly lower than those incurred during 2009.

Research and Development Expenses. Research and development expenses consist primarily of employee costs (inclusive of non-cash stock-based compensation expense), payments to contract programmers, all costs of our Israeli subsidiary, GraphOn Research Labs Limited, travel and entertainment for all our engineers, and all rent for our leased engineering facilities.

Research and development expenses increased by $395,100, or 16.6%, to $2,768,600 for the year ended December 31, 2009 from $2,373,500 in the prior year. Research and development expenses for the years ended December 31, 2009 and 2008 represented approximately 34.3% and 35.4% of total revenue, respectively.

The main cause of the increase in research and development expenses in 2009, as compared with 2008, was the addition of four more engineers. We also increased our use of outside contract engineers to assist in research and development activities surrounding GO-Global for Windows. Such activities performed by the outside contract engineers did not meet the criteria for capitalization under accounting principles generally accepted in the United States and were accordingly expensed as incurred. These cost increases were partially offset by decreased rent, resulting from the vacating of our rented Israeli office space in July 2008, decreased travel and entertainment, related to fewer trips to our New Hampshire engineering facility by our Israeli-based engineers, and non-cash stock-based compensation, which reflected the decrease in the fair value of our stock in 2009 as compared with 2008.

Our research and development efforts currently are focused on further enhancing the functionality, performance and reliability of existing products. We historically have made significant investments in our protocol and in the performance and development of our server-based software. Although we expect to continue to make product investments during 2010, including investments in new product offerings, we expect that as the specific work being performed for us by the outside contract engineers is completed, we can let the underlying respective contract expire. We believe that there would be sufficient outside contract engineering talent available for us should we require such services again after these contracts expire that “non-renewal” carries low risk. As a result of the completion of contracted work occurring throughout 2010, we expect 2010 research and development expense to be lower than 2009 levels.

Impairment of Patents. During the fourth quarter of 2008 we recorded an $868,200 impairment charge against certain of our patent families as we determined that due to the high cost of patent litigation we will not be initiating infringement litigation or attempting to seek licensing revenue with respect to any of the NES patent families that were not involved in our on-going litigation as of December 31, 2008; thus, we reduced such patent families to a net realizable value of $0 as of December 31, 2008. No such impairment charge was recorded during 2009.

Interest and Other Income. During 2009 and 2008 the primary component of interest and other income was interest income derived on excess cash. Our excess cash was held in interest bearing money market accounts with institutions whose minimum net assets were greater than or equal to one billion U.S. dollars. The decrease in interest and other income in 2009, as compared with 2008, was primarily as a result of lower amounts of excess cash.

During 2009 Interest and Other Income also included the fair value adjustment recorded against our liability attributable to warrants.

Interest and other income was approximately 0.5% and 1.3% of total revenues for the years ended December 31, 2009 and 2008, respectively.

Segment Operating Income (Loss). As a result of the foregoing items, segment operating income (loss) was as follows:

Year Ended December 31,	2009	2008
Software	$ (1,404,400)	$ (54,200)
Intellectual Property (1)	(429,200)	(2,666,100)
Unallocated	15,400	81,800
Consolidated Total	$ (1,818,200)	$ (2,638,500)

(1)	The year ended December 31, 2008 includes the $868,200 patent impairment charge recorded against certain of our patent assets, as more fully explained above.

Table of Contents

We do not allocate interest and other income, interest and other expense or income tax to our segments.

Income Taxes. For the years ended December 31, 2009 and 2008 we recorded a current tax (benefit) and provision of approximately $2,000 and $(11,700), respectively. At December 31, 2009, we had approximately $42 million of federal net operating loss carryforwards, which will begin to expire in 2018. Also at December 31, 2009, we had approximately $15 million of California state net operating loss carryforwards available to reduce future taxable income, which will begin to expire in 2010. During the years ended December 31, 2009 and 2008, we did not utilize any of our federal and California net operating losses and have recorded a full valuation allowance against each of them.

Net Loss. As a result of the foregoing items, we reported a net loss of $1,820,200 for the year ended December 31, 2009, as compared with a net loss of $2,626,800 for the prior year.

Liquidity and Capital Resources

During 2009 our cash balance decreased by $889,300, primarily as a result of our operations consuming approximately $728,800 of cash during the year. Our reported net loss of $1,820,200 included two significant non-cash items: depreciation and amortization of $559,100, which was primarily related to amortization of our patents; and stock-based compensation expense of $143,200.

During 2009, we closely monitored our investing activities, spending approximately $32,500, primarily on fixed asset purchases, mainly computer equipment. Our financing activities consumed approximately $128,000 of cash, primarily to buy our own stock under our board-approved stock repurchase program.

We are aggressively looking at ways to improve our revenue stream, including through the development of new products and further acquisitions. We continue to review potential business combination opportunities as they present themselves to us and at such time as such a transaction might make financial sense and add value for our shareholders, we will pursue that merger opportunity. We believe that maintaining our current revenue stream, coupled with our cash on hand, will be sufficient to support our operational plans for 2010.

Cash

As of December 31, 2009, cash was approximately $2,852,900 as compared with $3,742,200 as of December 31, 2008. The $728,800 of cash consumed by our operations during 2009 was the substantial majority of the year to year change in cash. We anticipate that our cash as of December 31, 2009, together with revenue from 2010 operations, will be sufficient to fund our anticipated expenses during the next twelve months.

Accounts receivable, net

At December 31, 2009 and 2008, we had approximately $839,600 and $970,000, respectively, in accounts receivable, net of allowances totaling $32,000 at each date. From time to time we could have individually significant accounts receivable balances due us from one or more of our significant customers. If the financial condition of any of these significant customers should deteriorate, our operating results could be materially affected.

Stock Repurchase Program

As of December 31, 2009, we had purchased 1,424,000 shares of our common stock, for approximately $217,500, under terms of our Board approved stock repurchase program. Under this program, the Board approved up to $1,000,000 to be used in repurchasing our stock; however, we are not obligated to repurchase any specific number of shares and the program may be suspended or terminated at our discretion. As of December 31, 2009, $782,500 remains available for stock purchases.

Working Capital

As of December 31, 2009, we had current assets of $3,757,000 and current liabilities of $2,848,800, which netted to working capital of $908,200. Included in current liabilities was the current portion of deferred revenue of $1,862,600.

Segment fixed assets

As of December 31, 2009, segment fixed assets (long-lived assets) were as follows:

Table of Contents

	Cost Basis	Accumulated Depreciation /Amortization	Net, as Reported
Software	$ 1,285,300	$ (1,158,200)	$ 127,100
Intellectual Property	2,839,000	(2,327,300)	511,700
Unallocated	14,800	—	14,800
	$ 4,139,100	$ (3,485,500)	$ 653,600

Fixed assets attributable to our software segment are primarily comprised of equipment, furniture and leasehold improvement and those attributable to our intellectual property segment are primarily comprised of our patents and patent related assets. We do not allocate other assets, which consists primarily of deposits, to our segments.

Commitments and contingencies

We do not have nor do we anticipate any material capital expenditure commitments for the next twelve months.

The following table discloses our contractual commitments for future periods, which consist entirely of leases for office space. The table assumes that we will occupy all currently leased facilities for the full term of each respective leases:

Year ending December 31,
2010	$ 168,700
2011	$ 133,700
2012	$ 70,400

Rent expense aggregated approximately $177,500 and $191,200 for the years ended December 31, 2009 and 2008, respectively.

New Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) implemented the FASB Accounting Standards Codification (the “Codification”) effective July 1, 2009. The Codification has become the source of authoritative GAAP recognized by FASB to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities law are also sources of authoritative GAAP for SEC registrants, including the Company. On the effective date of the Codification, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grand-fathered non-SEC accounting literature not included in the Codification has become non-authoritative.

Following the effective date of the Codification, FASB will not release new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force abstracts, but instead will issue Accounting Standards Updates (“ASU’s”). ASU’s will not be considered authoritative in their own right, but will serve only to update the Codification, provide background information about the guidance in the Codification, and provide the basis for the conclusions on the changes in the Codification.

In June 2009, FASB issued ASU 2009-01, “Generally Accepted Accounting Principles (Topic 105).” ASU 2009-01 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. ASU 2009-01 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASU 2009-01 did not have a material impact on our results of operations, cash flows, or financial position.

In August 2009, the FASB issued ASU 2009–05, “Measuring Liabilities at Fair Value.” ASU 2009–05 amends FASB ASC 820, “Fair Value Measurements.” Specifically, ASU 2009–05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: (1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or (2) a valuation technique that is consistent with the principles of FASB ASC Topic 820 (e.g. an income approach or market approach). ASU 2009–05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this standard did not have a material impact on our results of operations, cash flows, or financial position.

Table of Contents

new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Under the previous guidance, if the fair value of all of the elements in an arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. The adoption of ASU 2009-13 is not anticipated to have a material impact on our results of operations, cash flows, or financial position.

In October 2009, FASB issued ASU 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements,” ASU 2009-14 changed the accounting model for revenue arrangements that include both tangible products and software elements. It is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted, The adoption of ASU 2009-14 is not anticipated to have a material impact on our results of operations, cash flows, or financial position.

In April 2009, FASB issued FASB ASC 825-10-50, “Financial Instruments, Disclosure,” formerly Staff position 107-1 and Accounting Principles Board 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which increases the frequency of fair value disclosures to a quarterly instead of annual basis. The guidance within FASB ASC 825-10-50 relates to fair value disclosures for any financial instruments that are not currently reflected on an entity’s balance sheet at fair value. FASB ASC 825-10-50 is effective for interim and annual periods ending after June 15, 2009. The adoption of FASB ASC 825-10-50 did not have an impact on our results of operations, cash flows or financial position.

In June 2008, FASB ratified FASB ASC 815-40, “Derivatives and Hedging, Contracts in Entity’s Own Equity,” formerly the Emerging Issues Task Force’s Issue No. 07-5, ”Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” which provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. FASB ASC 815-40 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 815-40 did not have a material impact on our results of operations, cash flows or financial position. See Note 5 to Consolidated Financial Statements included in Item 8 to this Form 10-K.

In April 2008, FASB issued FASB ASC 350-30, “Goodwill and Other, General Intangibles Other than Goodwill,” formerly FASB Staff Position 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of FASB ASC 350-30 is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under FASB ASC 850, “Business Combinations,” formerly FASB Statement No. 141 (revised 2007), “Business Combinations,” and other accounting principles generally accepted in the United States. FASB ASC 350-30 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 350-30 did not have a material impact on our results of operations, cash flows or financial position.

In March 2008, FASB issued FASB ASC 815, Derivatives and Hedging,” formerly Statement of Financial Accounting Standard No. 161, “ Disclosures about Derivatives Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”). FASB ASC 815 requires enhanced disclosures about a company’s derivative and hedging activities. FASB ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption of FASB ASC 815 did not have a material impact on our results of operations, cash flows or financial position.

In December 2007, FASB issued FASB ASC 815, “Business Combinations,” formerly Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations,” which replaced SFAS No. 141, “Business Combinations.” FASB ASC 815 establishes principles and requirements for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in a business combination at their fair value at acquisition date. FASB ASC 815 alters the treatment of acquisition related costs, business combinations achieved in stages (referred to as a step acquisition), the treatment of gains from a bargain purchase, the recognition of contingencies in business combinations, the treatment of in-process research and development in a business combination as well as the treatment of recognizable deferred tax benefits. FASB ASC 815 is effective for business combinations closed in fiscal years beginning after December 15, 2008. We have evaluated the impact of FASB ASC 815 and have concluded that our results of operations, cash flows or financial position will only be impacted in relation to future business combination activities, if any.

Table of Contents

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements
	Page
Report of Independent Registered Public Accounting Firm	24
Consolidated Balance Sheets as of December 31, 2009 and 2008	25
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008	26
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009 and 2008	27
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008	28
Notes to Consolidated Financial Statements	29

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of GraphOn Corporation

We have audited the accompanying consolidated balance sheets of GraphOn Corporation and subsidiaries (the “Company”) as of December 31, 2009 and 2008 and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GraphOn Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 5 to the consolidated financial statements, in 2009, the Company has changed its method of accounting for warrants that are not indexed to its stock due to the adoption of FASB ASC 815 (EITF 07-5), Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock.

/s/ Macias Gini & O'Connell LLP

Macias Gini & O’Connell LLP

Sacramento, California

March 31, 2010

Table of Contents

GraphOn Corporation
Consolidated Balance Sheets
As of December 31,

Assets	2009	2008
Current Assets:
Cash	$ 2,852,900	$ 3,742,200
Accounts receivable, net of allowance for doubtful accounts of $32,000 and $32,000, respectively	839,600	970,000
Prepaid expenses and other current assets	64,500	63,400
Total Current Assets	3,757,000	4,775,600

Property and equipment, net	127,100	182,700
Patents, net	511,700	984,000
Other assets	14,800	20,200
Total Assets	$ 4,410,600	$ 5,962,500

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$ 321,800	$ 205,700
Accrued expenses	235,900	155,800
Accrued wages	428,500	434,200
Deferred revenue	1,862,600	1,744,600
Total Current Liabilities	2,848,800	2,540,300

Long Term Liabilities:
Deferred revenue	836,200	858,500
Other liabilities	—	28,400
Total Liabilities	3,685,000	3,427,200

Commitments and contingencies (Note 11)

Shareholders' Equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding	—	—
Common stock, $0.0001 par value, 195,000,000 shares authorized, 46,834,292 shares issued and 46,284,292 shares outstanding at December 31, 2009, and 47,322,292 shares issued and outstanding at December 31, 2008	4,600	4,700
Additional paid-in capital	58,861,500	59,662,100
Accumulated deficit	(58,092,400)	(57,131,500)
Common stock held in treasury, at cost, 550,000 and 0 shares, respectively	(48,100)	—
Total Shareholders' Equity	725,600	2,535,300
Total Liabilities and Shareholders' Equity	$ 4,410,600	$ 5,962,500

See accompanying notes to consolidated financial statements

Table of Contents

GraphOn Corporation
Consolidate Statements of Operations
For the Year Ended December 31,

Revenue	2009	2008
Product licenses	$ 3,328,600	$ 4,468,900
Intellectual property license	2,300,000	—
Service fees	2,290,300	2,168,700
Other	158,300	71,100
Total Revenue	8,077,200	6,708,700

Cost of revenue
Contingent legal fees	896,000	—
Service costs	463,000	530,100
Product costs	22,100	45,000
Total Cost of Revenue	1,381,100	575,100

Gross Profit	6,696,100	6,133,600

Operating Expenses
Selling and marketing	1,871,500	1,816,100
General and administrative	3,889,600	3,796,100
Research and development	2,768,600	2,373,500
Impairment of patents	—	868,200
Total Operating Expenses	8,529,700	8,853,900

Loss from Operations	(1,833,600)	(2,720,300)

Other Income (Expense)
Interest and other income	37,800	89,100
Interest and other expense	(22,400)	(7,300)
Total other income	15,400	81,800
Loss Before Provision (Benefit) for Income Tax	(1,818,200)	(2,638,500)
Provision (benefit) for income taxes	2,000	(11,700)
Net Loss	$ (1,820,200)	$ (2,626,800)

Loss per Common Share – Basic and Diluted	$ (0.04)	$ (0.06)

Weighted Average Common Shares Outstanding – Basic and Diluted	47,212,851	47,022,803

See accompanying notes to consolidated financial statements

Table of Contents

GraphOn Corporation
Consolidate Statements of Shareholders’ Equity
For the Year Ended December 31,

	2009	2008
Preferred stock - shares outstanding
Beginning balance	—	—
Ending balance	—	—
Common stock - shares outstanding
Beginning balance	47,322,292	47,576,401
Employee stock purchase plan issuances	42,000	39,891
Stock purchased and retired through stock buy-back program	(580,000)	(294,000)
Stock purchased through stock buy-back program and held in treasury	(550,000)	—
Restricted stock awards	50,000	—
Ending balance	46,284,292	47,322,292
Common stock – amount
Beginning balance	$ 4,700	$ 4,800
Stock purchased and retired through stock buy-back program	(100)	(100)
Ending balance	$ 4,600	$ 4,700
Additional paid-in capital
Beginning balance	$ 59,662,100	$ 59,399,000
Cumulative impact of adoption of accounting for derivative instruments – warrants (Note 5)	(864,000)	—
Beginning balance (restated)	58,798,100	59,399,000
Stock-based compensation expense	143,200	342,400
Employee stock purchase plan issuances	1,700	8,300
Stock purchased and retired through stock buy-back program	(81,500)	(87,600)
Ending balance	$ 58,861,500	$ 59,662,100
Accumulated deficit
Beginning balance	$ (57,131,500)	$ (54,504,700)
Cumulative impact of adoption of accounting for derivative instruments – warrants (Note 5)	859,300	—
Beginning balance (restated)	(56,272,200)	(54,504,700)
Net loss	(1,820,200)	(2,626,800)
Ending balance	$ (58,092,400)	$ (57,131,500)
Common stock held in treasury – shares held
Beginning balance	—	—
Stock purchased through stock buy-back program and held in treasury	550,000	—
Ending balance	550,000	—
Common stock held in treasury – amount
Beginning balance	$ —	$ —
Stock purchased through stock buy-back program and held in treasury	(48,100)	—
Ending balance	$ (48,100)	$ —
Total Shareholders' Equity	$ 725,600	$ 2,535,300

See accompanying notes to consolidated financial statements

Table of Contents

GraphOn Corporation
Consolidated Statements Of Cash Flows

	For the Year Ended December 31,
Cash Flows From Operating Activities:	2009	2008
Net loss	$ (1,820,200)	$ (2,626,800)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	559,100	972,100
Stock based compensation expense	143,200	342,400
Change in fair value of derivative instruments - warrants	(4,700)	—
Decrease to allowance for doubtful accounts	—	(197,000)
Impairment of patents	—	868,200
Loss on disposal of other assets	4,600	—
Loss on disposal of fixed assets	—	7,100
Changes in operating assets and liabilities:
Accounts receivable	130,400	113,600
Prepaid expenses and other current assets	2,800	(20,800)
Accounts payable	114,300	9,500
Accrued expenses	51,700	(82,100)
Accrued wages	(5,700)	(13,900)
Deferred revenue	95,700	(705,000)
Net Cash Used In Operating Activities:	(728,800)	(1,332,700)

Cash Flows Used In Investing Activities:
Capital expenditures	(29,400)	(106,300)
Other assets	(3,100)	(200)
Net Cash Used In Investing Activities:	(32,500)	(106,500)

Cash Flows Provided By (Used In) Financing Activities:
Proceeds from Employee Stock Purchase Plan	1,700	8,300
Amounts paid for stock repurchase and retired	(81,600)	(87,700)
Amounts paid for stock repurchase and held in treasury	(48,100)	—
Net Cash Used In Financing Activities:	(128,000)	(79,400)

Net Decrease in Cash	(889,300)	(1,518,600)
Cash, beginning of year	3,742,200	5,260,800
Cash, end of year	$ 2,852,900	$ 3,742,200

See accompanying notes to consolidated financial statements

Table of Contents

GraphOn Corporation

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

The Company . GraphOn Corporation, a Delaware corporation, was founded in May 1996. GraphOn Corporation and its subsidiaries are collectively defined in these Notes to Consolidated Financial Statements as the “Company.”

The Company’s headquarters are currently in Santa Cruz, California. The Company develops, markets, sells and supports business connectivity software, including Unix, Linux and Windows server-based software, with an immediate focus on web-enabling applications for use by Independent Software Vendors (ISVs), corporate enterprises, governmental and educational institutions, and others, primarily in the United States, Asia and Europe.

The Company acquired the rights to 11 method patents, which describe software and network architectures to accomplish certain tasks, as well as other intellectual property rights, in January 2005. Subsequent to this acquisition, the Company has sought to enforce its proprietary rights under the acquired patents, and other assets, using various means, including initiating litigation.

Basis of Presentation and Use of Estimates . The consolidated financial statements include the accounts of GraphOn Corporation and its subsidiaries; significant intercompany accounts and transactions are eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include the amount of stock-based compensation expense, the allowance for doubtful accounts, the estimated lives and valuation of intangible assets, depreciation of fixed assets and accruals for liabilities. Actual results could differ materially from those estimates.

Cash Equivalents . The Company considers all highly liquid investments purchased with remaining maturities of three months or less to be cash equivalents. The Company had no cash equivalents at either December 31, 2009 or 2008.

Property and Equipment . Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three to seven years. Amortization of leasehold improvements is calculated using the straight-line method over the lesser of the lease term or useful lives of the respective assets, generally seven years.

Shipping and Handling. Shipping and handling costs are included in cost of revenue for all periods presented.

Patents . The patents acquired in January 2005 are being amortized over their estimated remaining economic lives, currently estimated to be approximately 1 year, as of December 31, 2009. Costs associated with filing, documenting or writing patents are expensed as incurred. Contingent legal fees paid in connection with a patent lawsuit, or settlements thereof, are charged to cost of goods sold. All other non-contingent legal fees and costs incurred in connection with a patent lawsuit, or settlements thereof, are charged to general and administrative expense. During the year ended December 31, 2008 the Company recorded an impairment charge of $868,200 against certain of its patents as a result of reviewing such assets for impairment in accordance with the Financial Accounting Standards Board Codification Subtopic (ASC) 360-10-35-15, “Property, Plant and Equipment – Impairment or Disposal of Long-Lived Assets.” During the year ended December 31, 2009, no such impairment charge was recorded.

Capitalized Software Costs . Under the criteria set forth in Financial Accounting Standards (FAS) ASC 985-20, “Costs of Software to be Sold, Leased or Marketed,” development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility, in the form of a working model, has been established, at which time such costs are capitalized until the product is available for general release to customers. Capitalized costs are amortized to cost of sales based on either (a) estimated current and future revenue for each product or straight-line amortization over the shorter of three years or (b) the remaining estimated life of the product, whichever produces the higher expense for the period. The Company determined that none the costs it incurred during either of the years ended December 31, 2009 or 2008 met the criteria for capitalization set forth in FAS ASC 985-20; accordingly, no such costs were capitalized during either of the years then ended.

Revenue. The Company markets and licenses products through various means, such as; channel distributors, independent software vendors (“ISVs”), value-added resellers (“VARs”) (collectively “resellers”) and direct sales to enterprise end users. Its product licenses are generally perpetual. The Company also separately sells intellectual property licenses, maintenance contracts, which are comprised of license updates and customer service access, as well as other products and services.

Table of Contents

Generally, software license revenues are recognized when:

·	Persuasive evidence of an arrangement exists, (i.e., when the Company signs a non-cancelable license agreement wherein the customer acknowledges an unconditional obligation to pay, or upon receipt of the customer’s purchase order) and
·	Delivery has occurred or services have been rendered and there are no uncertainties surrounding product acceptance, (i.e., when title and risk of loss have been transferred to the customer, which generally occurs when the media containing the licensed program(s) is provided to a common carrier or, in the case of electronic delivery, when the customer is given access to the licensed programs) and
·	The price to the customer is fixed or determinable, as typically evidenced in a signed non-cancelable contract, or a customer’s purchase order, and
·	Collectibility is probable. If collectibility is not considered probable, revenue is recognized when the fee is collected.

Revenue recognized on software arrangements involving multiple deliverables is allocated to each deliverable based on vendor-specific objective evidence (“VSOE”) or third party evidence of the fair values of each deliverable; such deliverables include licenses for software products, maintenance, private labeling fees, or customer training. The Company limits its assessment of VSOE for each deliverable to either the price charged when the same deliverable is sold separately or the price established by management having the relevant authority to do so, for a deliverable not yet sold separately.

Certain resellers purchase product licenses that they hold in inventory until they are resold to the ultimate end user (an “inventory stocking order”). The Company defers the recognition of revenue from inventory stocking orders until the underlying licenses are sold to the end user.

There are no rights of return granted to resellers or other purchasers of the Company’s software programs.

Revenue is recognized from maintenance contracts ratably over the related contract period, which generally ranges from one to five years.

Intellectual property license agreements provide for the payment of a fully paid licensing fee in consideration for the grant of a one-time, non-exclusive license to manufacture and/or sell products covered by patented technologies owned by the Company. Generally, the execution of these license agreements also provides for the release of the licensee from certain past and future claims, and the dismissal of any pending litigation between the Company and the licensee. Pursuant to the terms of these license agreements, the Company has no further obligation with respect to the grant of the license, including no express or implied obligation to maintain or upgrade the patented technologies, or provide future support or services to the licensee. As such, the earnings process is complete upon execution of the license agreement, and revenue is recognized upon execution of the agreement, and the determination that collectibility is probable.

Segment information. The Company has determined that it operates its business in two segments; software and intellectual property, in accordance with FAS ASC 280-10-05, “ Segment Reporting ” (Note 13).

Allowance for Doubtful Accounts. The allowance for doubtful accounts is based on assessments of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer’s credit worthiness or actual defaults are higher than historical experience, the allowance for doubtful accounts is increased.

Income Taxes . The Company adopted the provisions of accounting for uncertain tax provisions in accordance with FAS ASC 740-10-05, “ Income Taxes” on January 1, 2007, and, accordingly, performed a comprehensive review of the Company’s uncertain tax positions as of that date. In this regard, an uncertain tax position represents the expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes.

Table of Contents

The Company and one or more of its subsidiaries are subject to United States federal income taxes, as well as income taxes of multiple state and foreign jurisdictions. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2005. The Company is not currently subject to an examination of any of its prior year’s tax returns in any taxing jurisdiction.

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as taxes. The Company had not accrued any amount for the payment of interest or penalties related to any uncertain tax positions at either December 31, 2009 or 2008, as its review of such positions indicated that such potential positions were minimal.

Under FAS ASC 740-10-05, “Income Taxes,” deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement and income tax bases of assets, liabilities and carryforwards using enacted tax rates. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not expected to be realized. Realization is dependent upon future pre-tax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in effect in future periods.

Fair Value of Financial Instruments. The fair value of the Company’s accounts receivable, accounts payable and other current liabilities approximate their carrying amounts due to the relative short maturities of these items.

Long-Lived Assets . Long-lived assets, which consist primarily of patents assets, are assessed for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, whenever the Company has committed to a plan to dispose of the assets or, at a minimum, as it relates to the Company’s patents, annually. Typically, for long-lived assets to be held and used, measurement of an impairment loss is based on the fair value of such assets, with fair value being determined based on appraisals, current market value, comparable sales value, and undiscounted future cash flows, among other variables, as appropriate. Assets to be held and used affected by an impairment loss are depreciated or amortized at their new carrying amount over their remaining estimated life; assets to be sold or otherwise disposed of are not subject to further depreciation or amortization. During the fourth quarter of 2008, the Company recorded an impairment charge of $868,200 against certain of its patent families as the Company determined that due to the high cost of patent litigation it would not be initiating new infringement litigation or attempting to seek licensing revenue with respect to any of its patent families that were not involved in the Company’s on-going litigation as of December 31, 2008; thus, the Company reduced them to a net realizable value of $0 as of December 31, 2008 (Note 2). No such impairment charge was recorded for 2009. A patent family is comprised of the original parent patent and any continuation, continuation in part, or divisional patent subsequently filed that claims priority therefrom.

Loss Contingencies. The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of the loss or impairment of an asset or the incurrence of a liability as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information available to it to determine whether such accruals should be adjusted.

Stock-Based Compensation . The Company applies the fair value recognition provisions of FAS ASC 718-10, “ Compensation – Stock Compensation. ”

Valuation and Expense Information Under FAS ASC 718-10

The Company recorded stock-based compensation expense of $143,200 and $342,400 in the years ended December 31, 2009 and 2008, respectively. As required by FAS ASC 718-10, the Company estimates forfeitures of employee stock-based awards and recognizes compensation cost only for those awards expected to vest. Forfeiture rates are estimated based on an analysis of historical experience and are adjusted to actual forfeiture experience as needed.

Upon cessation of service of one of the Company’s directors, certain of the director’s previously granted stock options were modified by accelerating their vesting and/or changing their expiration date. The Company recognized approximately an aggregate $10,300 of non-cash stock-based compensation expense as a result of such modifications. The compensation expense so recognized was reported as a component of general and administrative expense during the year ended December 31, 2009.

The following table illustrates the stock-based compensation expense recorded during the years ended December 31, 2009 and 2008 by income statement classification:

Table of Contents

	2009	2008
Cost of revenue	$ 6,800	$ 24,500
Selling and marketing expense	14,500	30,600
General and administrative expense	88,000	182,900
Research and development expense	33,900	104,400
	$ 143,200	$ 342,400

The Company estimated the fair value of each stock-based award granted during the years ended December 31, 2009 and 2008 on the date of grant using a binomial model, with the assumptions set forth in the following table:

	2009	2008
Estimated volatility	180% - 190%	158% - 173%
Annualized forfeiture rate	4%	4%
Expected option term (years)	7.5	7.5
Estimated exercise factor	10%	10%
Approximate risk-free interest rate	2.24% - 3.12%	2.6% - 3.5%
Expected dividend yield	—	—

The Company also recognized compensation costs for common shares purchased under its Employee Stock Purchase Plan (“ESPP”) during the years ended December 31, 2009 and 2008 applying the same variables as noted in the table above to the calculation of such costs, except that the expected term was 0.5 years for each respective year. The time span from the date of grant of ESPP shares to the date of purchase is six months. Additionally, the risk free interest rate was approximately 0.16% - 0.40% for ESPP shares purchased during 2009, and 1.9% - 3.8% for ESPP shares purchased during 2008.

The Company does not anticipate paying dividends on its common stock for the foreseeable future. The Company used the average historical volatility of its daily closing price for each 7.5 year period ended on the end of each quarterly reporting period during 2009 and 2008 as the basis of the volatility component within its calculation for stock-based compensation expense.

The approximate risk free interest rate was based on the implied yield available on U.S. Treasury issues with remaining terms equivalent to the Company’s expected term on its stock-based awards. The expected term of the Company’s stock-based awards was based on historical award holder exercise patterns and considered the market performance of the Company’s common stock and other items.

The estimated forfeiture rate was based on an analysis of historical data and considered the impact of events such as work force reductions the Company carried out during previous years. The estimated exercise factor was based on an analysis of historical data and included a comparison of historical and current share prices.

For grants made during the years ended December 31, 2009 and 2008, the weighted average fair value of ESPP shares was $0.07 and $0.30, respectively.

As of December 31, 2009, there were outstanding options to purchase 7,047,450 shares of common stock with a weighted average exercise price of $0.32 per share, a weighted average remaining contractual term of 5.53 years and an aggregate intrinsic value of $37,300. Of the options outstanding as of December 31, 2009, 5,979,149 were vested, 1,032,467 were estimated to vest in future periods and 35,834 were estimated to be forfeited or expire.

Generally, all options are exercisable immediately upon grant and they vest ratably over a 33-month period commencing in the fourth month after the grant date. The Company has the right to repurchase exercised options that have not vested upon their forfeiture at the respective option’s exercise price.

As of December 31, 2009, there was approximately $49,200 of total unrecognized compensation cost, net of estimated forfeitures, related to unvested awards. That cost is expected to be recognized over a weighted-average period of approximately one year.

Earnings Per Share of Common Stock . FAS ASC 260-10, “Earnings Per Share,” provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities by adding other common stock equivalents, including common stock options, warrants and redeemable convertible preferred stock, in the weighted average number of common shares outstanding for a period, if dilutive. Potentially dilutive securities are excluded from the computation if their effect is antidilutive. For the years ended

Table of Contents

December 31, 2009 and 2008, 16,147,150 and 19,268,955 shares of common stock equivalents were excluded from the computation of diluted earnings per share since their effect would be antidilutive, respectively.

Comprehensive Loss . FAS ASC 220-10, “Reporting Comprehensive Income,” establishes standards for reporting comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during the period from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gain/loss of available-for-sale securities. The individual components of comprehensive income (loss) are reflected in the consolidated statement of operations. For the years ended December 31, 2009 and 2008, there were no changes in equity (net assets) from non-owner sources.

New Accounting Pronouncements . The FASB implemented the FASB Accounting Standards Codification (the “Codification”) effective July 1, 2009. The Codification has become the source of authoritative GAAP recognized by FASB to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities law are also sources of authoritative GAAP for SEC registrants, including the Company. On the effective date of the Codification, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grand-fathered non-SEC accounting literature not included in the Codification has become non-authoritative.

In June 2009, FASB issued ASU 2009-01, “Generally Accepted Accounting Principles (Topic 105).” ASU 2009-01 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. ASU 2009-01 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASU 2009-01 did not have a material impact on the Company’s results of operations, cash flows, or financial position.

In August 2009, the FASB issued ASU 2009–05, “Measuring Liabilities at Fair Value.” ASU 2009–05 amends FASB ASC 820, “Fair Value Measurements.” Specifically, ASU 2009–05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: (1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or (2) a valuation technique that is consistent with the principles of FASB ASC Topic 820 (e.g. an income approach or market approach). ASU 2009–05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include inputs relating to the existence of transfer restrictions on that liability. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows, or financial position.

In October 2009, FASB issued ASU 2009-13 “Revenue Recognition (Topic 605).” ASU 2009-13 provides accounting and financial reporting disclosure amendments for multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is allowed. The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Under the previous guidance, if the fair value of all of the elements in an arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. The adoption of ASU 2009-13 is not anticipated to have a material impact on the Company’s results of operations, cash flows, or financial position.

In October 2009, FASB issued ASU 2009-14, “Software (Topic 985): Certain Revenue Arrangements That Include Software Elements,” ASU 2009-14 changed the accounting model for revenue arrangements that include both tangible products and software elements. It is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted, The adoption of ASU 2009-14 is not anticipated to have a material impact on the Company’s results of operations, cash flows, or financial position.

Table of Contents

ASC 825-10-50 is effective for interim and annual periods ending after June 15, 2009. The adoption of FASB ASC 825-10-50 did not have an impact on the Company’s results of operations, cash flows or financial position.

In June 2008, FASB ratified FASB ASC 815-40, “Derivatives and Hedging, Contracts in Entity’s Own Equity,” formerly the Emerging Issues Task Force’s Issue No. 07-5, ”Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” which provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. FASB ASC 815-40 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 815-40 did not have a material impact on results of the Company’s operations, cash flows or financial position. See Note 5.

In April 2008, FASB issued FASB ASC 350-30, “Goodwill and Other, General Intangibles Other than Goodwill,” formerly FASB Staff Position 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The intent of FASB ASC 350-30 is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under FASB ASC 850, “Business Combinations,” formerly FASB Statement No. 141 (revised 2007), “Business Combinations,” and other accounting principles generally accepted in the United States. FASB ASC 350-30 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FASB ASC 350-30 did not have a material impact on the Company’s results of operations, cash flows or financial position.

In March 2008, FASB issued FASB ASC 815, Derivatives and Hedging,” formerly Statement of Financial Accounting Standard No. 161, “ Disclosures about Derivatives Instruments and Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”). FASB ASC 815 requires enhanced disclosures about a company’s derivative and hedging activities. FASB ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Adoption of FASB ASC 815 did not have a material impact on the Company’s results of operations, cash flows or financial position.

In December 2007, FASB issued FASB ASC 815, “Business Combinations,” formerly Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations,” which replaced SFAS No. 141, “Business Combinations.” FASB ASC 815 establishes principles and requirements for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in a business combination at their fair value at acquisition date. FASB ASC 815 alters the treatment of acquisition related costs, business combinations achieved in stages (referred to as a step acquisition), the treatment of gains from a bargain purchase, the recognition of contingencies in business combinations, the treatment of in-process research and development in a business combination as well as the treatment of recognizable deferred tax benefits. FASB ASC 815 is effective for business combinations closed in fiscal years beginning after December 15, 2008. The Company has evaluated the impact of FASB ASC 815 and has concluded that the Company’s results of operations, cash flows or financial position will only be impacted in relation to future business combination activities, if any.

2. Impairment of Patents

During the fourth quarter of 2008, the Company recorded an asset impairment charge of $868,200 against certain of its patent assets related to its Intellectual Property segment. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. In the case of its patents assets, the Company performs such review at least annually. Examples of events or changes in circumstances that indicate that the recoverability of the carrying amount of a long-lived asset should be reviewed include the following:

·	A significant decrease in the market value of an asset;
·	A significant change in the extent or manner in which an asset is used;
·	A significant adverse change in the business climate that could affect the value of the asset; and
·	Current and historical operating or cash flow losses.

Between 2005 and 2008, the Company initiated litigation against certain companies that it believed violated one or more of the patents it acquired from NES. Even though all of the attorneys that have been retained to represent the Company’s interest in enforcing its patents have agreed to represent it on a contingency basis, certain significant costs of enforcement, including those associated with expert consultants and travel, are required to be paid as incurred. Due to the high cost of patent litigation, the Company has determined that it will not be initiating any new infringement litigation or attempting to seek licensing revenue with

Table of Contents

respect to any of the NES patent families that were not involved in its on-going litigation as of December 31, 2008. The Company can give no assurances that it will be able to continue this litigation in the future. As a result of the foregoing, the Company reduced the carrying value of all of its patent families that were not involved in litigation as of December 31, 2008 to a net realizable value of $0 as of that date. No such impairment charge was recorded during 2009.

The following table summarizes the impact of the patent impairment charge recorded in the Company’s Intellectual Property segment for 2008:

	Net Book Value Before Impairment	Impairment	Net Book Value After Impairment
Patents	$ 1,852,200	$ 868,200	$ 984,000

After giving effect to the impairment charge outlined above, patents as of December 31, 2009 and 2008 consisted of the following:

	2009	2008
Patents	$ 2,839,000	$ 2,839,000
Accumulated amortization	(2,327,300)	(1,855,000)
	$ 511,700	$ 984,000

Patent amortization expense for the years ended December 31, 2009 and 2008 aggregated $472,300 and $889,100, respectively. Estimated aggregate annual amortization expense for the patents for future years ending December 31 is as follows:

2010	$ 472,300
2011	39,400
Total	$ 511,700

3. Property and Equipment

Property and equipment as of December 31, 2009 and 2008 consisted of the following:

	2009	2008
Equipment	$ 1,026,300	$ 995,100
Furniture	236,000	236,000
Leasehold improvements	23,000	23,000
	1,285,300	1,254,100
Less: accumulated depreciation and amortization	1,158,200	1,071,400
	$ 127,100	$ 182,700

Aggregate property and equipment depreciation expense for the years ended December 31, 2009 and 2008 was $86,800 and $83,000, respectively.

4. Accrued Expenses

Accrued expenses as of December 31, 2009 and 2008 consisted of the following:

	2009	2008
Professional fees	$ 176,500	$ 107,200
Software licensing fees	28,400	28,400
Consulting services	17,800	—
Income taxes payable	—	400
Other	13,200	19,800
	$ 235,900	$ 155,800

Table of Contents

5. Liability Attributable to Warrants

On January 1, 2009, the Company adopted the guidance set forth in Financial Accounting Standards Board (“FASB”) Codification Subtopic 815-40, “Contracts in an Entity’s Own Equity” (“ASC 815-40”), formerly EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock . ” As part of the adoption of such guidance, the Company determined that FASB ASC 815-40 applies to warrants the Company had previously issued and that such warrants were not indexed to the Company’s own stock; therefore, the value of the warrants was recorded as a liability. The cumulative effect of the accounting entries the Company recorded pursuant to its adoption of this guidance is set forth in the following table:

	Derivative Liability	Additional Paid-in Capital	Accumulated Deficit
	Increase / (Decrease)
Record the reversal of the prior accounting treatment related to the warrants	$ —	$ (864,000)	$ (864,000)
Record the January 1, 2009 derivative instrument related to the warrants	4,700	—	4,700
	$ 4,700	$ (864,000)	$ (859,300)

The Company currently does not have a material exposure to either commodity prices or interest rates; accordingly, it does not currently use derivative instruments to manage such risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. All derivative financial instruments are recognized in the balance sheet at fair value. Changes in fair value are recognized in earnings if they are not eligible for hedge accounting or in other comprehensive income if they qualify for cash flow hedge accounting.

The Company used a binomial pricing model to determine the fair value of its warrants as of December 31, 2009 using the following assumptions:

Estimated volatility	85%
Annualized forfeiture rate	0%
Expected term (years)	0.11
Estimated exercise factor	10%
Approximate risk-free interest rate	0.15%
Expected dividend yield	0%

The fair value calculation of these warrants indicated that the fair value of the liability attributable to these warrants was insignificant and the Company elected to write such fair value down to $0 as of December 31, 2009.

The Company reported $4,700 of other income in its consolidated statement of operations for the year ended December 31, 2009, related to the change in fair value of the liability attributable to warrants during such period.

The Company did not record a liability attributable to warrants on its consolidated balance sheet as of December 31, 2008, nor did it record any change in fair value for such liability during the year then ended as the effective date for the adoption of FASB ASC 815-40 was January 1, 2009.

6. Other Liabilities

As of December 31, 2008, other liabilities were comprised of the final payment due in 2010 under a contractual agreement. As of December 31, 2009, such amount was reclassifed as accrued expense, a current liability.

7. Fair Value Measurements

FASB Codification Subtopic 820-10, “Fair Value Measurements and Disclosures,” formerly SFAS No. 157, Fair Value Measurements,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

Table of Contents

·	Level 1: Defined as observable inputs, such as quoted prices in active markets for identical assets.

Level 2: Defined as observable inputs other than Level 1 prices. This includes quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·	Level 3: Defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of December 31, 2009, all of the Company’s inputs used in the fair value valuation process of its liability attributable to warrants were categorized as Level 3 inputs (See Note 5).

8. Stockholders' Equity

Common Stock. During 2009 and 2008 the Company issued 42,000 and 39,891 shares of common stock to employees in connection with its Employee Stock Purchase Plan, resulting in cash proceeds of $1,700 and $8,300, respectively.

During the year ended December 31, 2009, the Company repurchased 1,130,000 shares of its common stock, at an average price of approximately $0.11, for an aggregate cost of $129,700, in accordance with the stock buy-back program authorized by its Board during January 2008. As of December 31, 2009, 580,000 of such repurchased shares had been retired and were available for reissue, and 550,000 of such repurchased shares were held in treasury. All such treasury shares were retired and made available for reissue during January 2010. As of December 31, 2009, approximately $782,600 of the Board approved $1,000,000 stock buy-back program remained available for future purchases. The Company is not obligated to repurchase any specific number of shares and the program may be suspended or terminated at any time at the Company’s discretion.

During the year ended December 31, 2008, the Company repurchased 294,000 shares of its common stock, at an average price of approximately $0.30, for an aggregate cost of approximately $87,700. All such shares were retired and made available for reissue during the year ended December 31, 2008.

During 2009, the Company issued 50,000 restricted shares of common stock to a non-executive employee in conjunction with an award granted to the employee prior to 2009, as discussed in the next paragraph. Of these 50,000 shares, 25,000 were vested upon issuance. Vesting of the unvested shares will occur on the next anniversary of the original grant date, and are based on the employee’s continued service with the Company.

During 2008, the Company awarded 75,000 restricted shares of common stock to a non-executive employee, which will vest in three equal installments, ratably, on each of the first three grant date anniversaries, assuming that employee’s continued service with the Company. The shares were awarded at $0.38, the fair market value on the date of the award.

Stock Purchase Warrants. As of December 31, 2009, the following common stock warrants were issued and outstanding:

Issued with respect to:	Shares subject to warrant	Exercise price	Expiration date
2005 Private Placement	8,147,700	$ 0.40	02/10
2005 Private Placement	1,481,500	$ 0.27	02/10

Subsequent to December 31, 2009, all warrants with respect to the 2005 Private Placement expired unexercised.

1996 Stock Option Plan. As of December 31, 2006, the 1996 Stock Option Plan (the “96 Plan”) was expired; thus, no future options could be granted from this plan. The 96 Plan was restricted to employees, including officers, and to non-employee directors.

As of December 31, 2009, options to purchase 54,625 shares of common stock were outstanding. No grants were made under the 96 Plan during the years ended December 31, 2009 or 2008. No options previously granted under the 96 Plan were exercised during the years ended December 31, 2009 or 2008.

Table of Contents

1998 Stock Option/Stock Issuance Plan. As of December 31, 2009, the 1998 Stock Option/Stock Issuance Plan (the “98 Plan”) was expired; thus, no future options or stock could be granted or issued from the 98 Plan. Officers, non-officer employees, non-employee directors and independent consultants who rendered services to the Company were eligible to participate under the terms of the 98 Plan.

As of December 31, 2009, options to purchase 3,027,325 shares of common stock were outstanding. No options were granted under the 98 Plan during the year ended December 31, 2009. During the year ended December 31, 2008, options to purchase 215,000 shares of common stock, with a weighted average grant date fair value of $0.38 per share, were granted under the 98 Plan.

No options previously granted under the 98 Plan were exercised during the years ended December 31, 2009 or 2008.

Supplemental Stock Option Plan. In May 2000, the Board approved an additional stock option plan (the “Supplemental Plan”). Pursuant to the terms of the Supplemental Plan, options are restricted to employees who are neither officers nor directors at the grant date. As of December 31, 2009, the Company is authorized to issue options to purchase up to 400,000 shares of common stock in accordance with the terms of the Supplemental Plan.

Under the Supplemental Plan the exercise price of options granted is to be not less than 85% of the fair market value of the Company’s common stock on the date of the grant or, in the case when the grant is to a holder of more than 10% of the Company’s common stock, at least 110% of the fair market value of the Company’s common stock on the date of the grant. As of December 31, 2009, options to purchase 381,000 shares of common stock were outstanding and 19,000 remained available for issuance under the Supplemental Plan.

During the year ended December 31, 2009 no options were granted under the Supplemental Plan. During the year ended December 31, 2008, options to purchase 25,000 shares of common stock, with a weighted average grant date fair value of $0.38 per share, were granted under the Supplemental Plan.

No options previously granted under the Supplemental Plan were exercised during the years ended December 31, 2009 or 2008.

NES Stock Option Plan. In February 2005, the Board approved the NES Stock Option Plan (the “NES Plan”). Pursuant to the terms of the NES Plan, options were restricted to a named employee, who was neither an officer nor director of the Company at the grant date. The Company was authorized to issue options to purchase up to 1,000,000 shares of common stock in accordance with the terms of the NES Plan. As of December 31, 2009, the NES Plan was expired; thus, no future options could be granted from the plan.

As of December 31, 2009 all options previously granted under the NES Plan had been cancelled. No options were granted under the NES Plan during the years ended December 31, 2009 or 2008, and no options previously granted under the NES Plan had been exercised during the years ended December 31, 2009 or 2008.

GG Stock Plan. In February 2005, the Board approved the GG Stock Option Plan (the “GG Plan”). Pursuant to the terms of the GG Plan, options are restricted to a named employee who was neither an officer nor director of the Company at the grant date. The Company is authorized to issue options to purchase up to 250,000 shares of common stock in accordance with the terms of the GG Plan.

Under the GG Plan the exercise price of options granted is to be equal to the fair market value of the Company’s common stock on the date of the grant. As of December 31, 2009, options to purchase 250,000 shares of common stock were outstanding and none remained available for issuance under the GG Plan. No options were granted under the GG Plan during the years ended December 31, 2009 or 2008, and no options previously granted under the GG Plan were exercised during the years ended December 31, 2009 or 2008.

2005 Equity Incentive Plan. In December 2005, the Company’s 2005 Equity Incentive Plan (the “05 Plan”) was adopted by the Board and approved by the stockholders. Pursuant to the terms of the 05 Plan, options or performance vested stock may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 3,500,000 shares of common stock or performance vested stock in accordance with the terms of the 05 Plan.

Table of Contents

In the case of a performance vested stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or other conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions are not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a performance vested stock award would be considered outstanding for dividend, voting and other purposes.

Under the 05 Plan the exercise price of non-qualified stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The exercise price of incentive stock options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted provided, however, that if the recipient of the incentive stock option owns greater than 10% of the voting power of all shares of the Company’s capital stock then the exercise price will be no less than 110% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of the performance-vested stock issued under the 05 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the performance-vested stock is granted. As of December 31, 2009, options to purchase 2,340,000 shares of common stock were outstanding, awards of 1,075,000 shares of restricted common stock had been granted, 5,000 options had been exercised and 80,000 remained available for issuance.

During the year ended December 31, 2009, options to purchase 150,000 shares of common stock, with a weighted average grant date fair value of $0.27 per share, were granted under the 05 Plan. During the year ended December 31, 2008, options to purchase 715,000 shares of common stock, with a weighted average grant date fair value of $0.37 per share, were granted under the 05 Plan. Also, during the year ended December 31, 2008, 75,000 shares of restricted stock, with a grant date fair value of $0.38 per share, were granted to a non-executive employee under the 05 Plan.

No options previously issued under the 05 Plan were exercised during the years ended December 31, 2009 or 2008.

During the year ended December 31, 2009, 50,000 shares were issued under the 05 Plan, of which 25,000 had vested. Such shares issued had a weighted average grant date fair value of $0.38 per share. During the year ended December 31, 2008, 400,000 shares awarded under the 05 Plan vested. Such shares had a weighted average grant date fair value of $0.16 per share.

2008 Equity Incentive Plan. In November 2008, the Board approved an additional stock option/stock issuance plan (the “08 Plan”). Pursuant to the terms of the 08 Plan, options or restricted stock may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The Company is authorized to issue options to purchase up to 3,000,000 shares of common stock or restricted stock in accordance with the terms of the 08 Plan.

In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or performance conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions are not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a performance vested stock award would be considered outstanding for dividend, voting and other purposes.

Under the 08 Plan the exercise price of options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of performance-vested stock issued under the 08 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the performance-vested stock is granted. As of December 31, 2009, options to purchase 994,500 shares of common stock were outstanding and 2,005,500 remained available for issuance.

During the year ended December 31, 2009, options to purchase 1,053,500 shares of common stock, with a weighted average grant date fair value of $0.05 per share, were granted under the 08 Plan, and during the year ended December 31, 2008, options to purchase 25,000 shares of common stock, with a weighted average grant date fair value of $0.09 per share, were granted.

No options previously granted under the 08 Plan were exercised during either 2009 or 2008.

Table of Contents

Employee Stock Purchase Plan. In February 2000, the Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board and approved by the stockholders in June 2000. The ESPP provides for the purchase of shares of the Company’s common stock by eligible employees, including officers, at semi-annual intervals through payroll deductions. No participant may purchase more than $25,000 worth of common stock under the ESPP in one calendar year or more than 2,000 shares on any purchase date. Purchase rights may not be granted to an employee who immediately after the grant would own or hold options or other rights to purchase stock and cumulatively possess 5% or more of the total combined voting power or value of common stock of the Company.

Pursuant to the terms of the ESPP, shares of common stock are offered through a series of successive offering periods, each with a maximum duration of six months beginning on the first business day of February and August each year. The purchase price of the common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of such shares on the start date of an offering period or the fair market value of such shares on the last day of such offering period. As of December 31, 2009, the ESPP is authorized to offer for sale to participating employees 400,000 shares of common stock, of which, 389,790 shares have been purchased and 10,210 are available for future purchase.

A summary of the status of the Company’s stock option plans as of December 31, 2009 and 2008, and changes during the years then ended is presented in the following table:

	2009		2008
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Beginning	7,501,255	$ 0.45	6,569,286	$ 0.46
Granted	1,203,500	$ 0.08	980,000	$ 0.37
Exercised	—	$ —	—	$ —
Forfeited or expired	(1,657,305)	$ 0.74	(48,031)	$ 0.26
Ending	7,047,450	$ 0.32	7,501,255	$ 0.45
Exercisable at year-end	7,047,450	$ 0.32	7,501,255	$ 0.45
Vested or expected to vest at year-end	7,011,616	$ 0.32	7,463,204	$ 0.45
Weighted average fair value of options granted during the period		$ 0.05		$ 0.33

As of December 31, 2009 and 2008, of the options exercisable, 5,979,149 and 6,405,159 were vested.

The following table summarizes information about stock options outstanding as of December 31, 2009:

			Options Outstanding				Options Exercisable
Range of Exercise Price			Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$ 0.05	—	$ 0.16	1,254,500	7.24		$ 0.07		1,254,500		$ 0.07
$ 0.17	—	$ 0.18	972,500	5.71		$ 0.17		972,500		$ 0.17
$ 0.19	—	$ 0.21	860,000	5.63		$ 0.21		860,000		$ 0.21
$ 0.22	—	$ 0.35	1,000,004	4.56		$ 0.32		1,000,004		$ 0.32
$ 0.36	—	$ 0.41	1,023,825	6.61		$ 0.38		1,023,825		$ 0.38
$ 0.42	—	$ 0.91	1,854,500	4.36		$ 0.49		1,854,500		$ 0.49
$ 0.92	—	$ 7.31	82,125	0.92		$ 2.17		82,125		$ 2.17
			7,047,454	5.53		$ 0.32		7,047,454		$ 0.32

Table of Contents

9. Income Taxes

The components of the provision (benefit) for income taxes for the years ended December 31, 2009 and 2008 consisted of the following:

Current	2009	2008
Federal	$ —	$ —
State	—	—
Foreign	2,000	(11,700)
	$ 2,000	$ (11,700)
Deferred
Federal	$ —	$ —
State	—	—
Foreign	—	—
	—	—
Total	$ 2,000	$ (11,700)

The following table summarizes the differences between income tax expense and the amount computed applying the federal income tax rate of 34% for the years ended December 31, 2009 and 2008:

	2009	2008
Federal income tax (benefit) at statutory rate	$ (618,700)	$ (877,300)
Foreign taxes	2,000	(11,700)
Patent impairment write down	—	295,200
Temporary differences	213,900	54,200
Federal net operating loss not utilized (applied)	376,000	461,400
Stock-based compensation expense	26,100	59,800
Meals and entertainment (50%)	5,000	6,700
Other items	(2,300)	—
Provision (benefit) for income tax	$ 2,000	$ (11,700)

Deferred income taxes and benefits result from temporary timing differences in the recognition of certain expense and income items for tax and financial reporting purposes. The following table sets forth those differences as of December 31, 2009 and 2008:

	2009	2008
Net operating loss carryforwards	$ 15,180,000	$ 14,735,000
Tax credit carryforwards	1,059,000	1,059,000
Depreciation and amortization	128,000	123,000
Compensation expense – non-qualified stock options	296,000	230,000
Deferred revenue and maintenance service contracts	1,075,000	1,037,000
Reserves and other	83,000	74,000
Total deferred tax assets	17,822,000	17,258,000
Deferred tax liability – patent amortization	(205,000)	(394,000)
Net deferred tax asset	17,617,000	16,864,000
Valuation allowance	(17,617,000)	(16,864,000)
Net deferred tax asset	$ —	$ —

For financial reporting purposes, with the exception of the year ended December 31, 2007, the Company has incurred a loss in each year since inception. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net

Table of Contents

deferred tax assets at December 31, 2009 and 2008. The net change in valuation allowance was $753,000 and ($133,000) for the years ended December 31, 2009 and 2008, respectively, and was due primarily to changes in the amount of net operating losses and patent amortization and impairment.

At December 31, 2009, the Company had approximately $42 million of federal net operating loss carryforwards and approximately $15 million of California state net operating loss carryforwards available to reduce future taxable income. The federal loss carry forward will begin to expire in 2018 and the California state loss carry forward will begin to expire in 2010. During the years ended December 31, 2009 and 2008, the Company did not utilize any of its federal or California net operating losses.

Under the Tax Reform Act of 1986, (the “86 TRA Act”) the amounts of benefits from net operating loss carryforwards may be impaired or limited if the Company incurs a cumulative ownership change of more than 50%, as defined in the 86 TRA Act, over a three year period.

At December 31, 2009, the Company had approximately $1 million of federal research and development tax credits that will begin to expire in 2012.

10. Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and trade receivables. The Company places cash and, when applicable, cash equivalents, with high quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. As of December 31, 2009, the Company had $2,682,200 of cash with financial institutions in excess of FDIC insurance limits. As of December 31, 2008, the Company had approximately $3,408,300 and $12,300 of cash with financial institutions in excess of FDIC and SIPC insurance limits, respectively.

For the year ended December 31, 2009, the four customers the Company considered its most significant, namely; Alcatel-Lucent, Ericsson, Elosoft, and Centric, accounted for approximately 17.7%, 7.0%, 5.7% and 3.0%, respectively, of total software product sales, for an aggregate 33.4% of the total of all such sales. These four customers’ December 31, 2009 year-end accounts receivable balances represented approximately 30.1%, 15.1%, 9.3%, and 8.5%, respectively, of reported net accounts receivable, for an aggregate 63.0% of reported net accounts receivable.

For the year ended December 31, 2008, the three customers the Company considered its most significant, namely; Alcatel-Lucent, FrontRange and Ericsson, respectively, accounted for approximately 15.3%, 6.2% and 7.3%, respectively, of total software product sales, for an aggregate 28.8% of the total of such sales. These three customers’ December 31, 2008 year-end accounts receivable balances represented approximately 23.3%, 5.1%, and 10.0% of reported net accounts receivable, for an aggregate 38.4% of reported net accounts receivable.

The Company performs credit evaluations of customers' financial condition whenever necessary, and generally does not require cash collateral or other security to support customer receivables.

11. Commitments and Contingencies

On April 24, April 28, May 26, and September 21, 2009, the Company entered into settlement and licensing agreements with CareerBuilder, LLC, Classified Ventures, LLC, Google, Inc., and Yahoo! Inc., respectively, which ended all legal disputes between the Company and these entities, and granted to each of these entities irrevocable, perpetual, world-wide, non-exclusive licenses to all of the Company’s patents and patent applications. As a result of entering into these settlement and licensing agreements, the Company recorded $2,300,000 in Intellectual Property License revenue for the year ended December 31, 2009.

The paragraphs that follow summarize the status of all currently active legal proceedings involving the Company. In all such proceedings the Company has retained the services of various outside counsel. All such counsel have been retained under contingency fee arrangements that require the Company to only pay for certain non-contingent fees, such as services for expert consultants, and travel, prior to a verdict or settlement of the respective underlying proceeding.

GraphOn Corporation v. Juniper Networks, Inc.

On August 28, 2007, the Company filed a proceeding against Juniper Networks, Inc. (“Juniper”) in the United States District Court in the Eastern District of Texas (the “court”) alleging that certain of Juniper’s products infringe three of the Company’s patents, namely; U.S. Patent Nos. 5,826,014, 6,061,798 and 7,028,336, (the “’014,” “’798” and “’336” patents) which protect the Company’s fundamental network security and firewall technologies. The Company seeks preliminary and permanent injunctive relief along with

Table of Contents

unspecified damages and fees. Juniper filed its Answer and Counterclaims on October 26, 2007 seeking a declaratory judgment that it does not infringe any of these patents, and that all of these patents are invalid and unenforceable. On September 29, 2009, the court granted the Company’s request to remove the ‘336 patent from the case. On December 30, 2009, the court, acting on its own motion, transferred the case to the United states District Court for the Northern District of California. No trial date has as yet been set.

Separately, Juniper has petitioned the United States Patent and Trademark Office (the “PTO”) to reexamine two of the Company’s patents (the’014 and’798 patents). On April 6, 2008, the PTO ordered the reexamination of the ‘798 patent, and on July 25, 2008, the PTO ordered the reexamination of the ‘014 patent.

On August 14, 2009 and on September 24, 2009, the PTO issued final rejections of the ‘014 and ‘798 patents, respectively. The Company has appealed these rejections to the Board of Patents and Interferences. As of March 19, 2010 there had been no final determination of these appeals.

The Company is committed to pursuing the confirmation of these patents through all channels of appeal, if necessary.

Juniper Networks, Inc. v. GraphOn Corporation et al

On March 16, 2009, Juniper Networks, Inc. initiated a proceeding against the Company and one of its resellers in the United States District Court in the Eastern District of Virginia alleging infringement of one of their patents, namely; U.S. Patent No. 6,243,752 (the “’752 Patent”), which protects Juniper’s unique method of transmitting data between a host computer and a terminal computer. On May 1, 2009, the Company filed an answer in which it asked the court to declare that the ‘752 Patent is not infringed and/or is invalid under the patent laws.

On November 24, 2009, the court granted a motion filed by Juniper and dismissed the case. On December 10, 2009, the Company filed a motion seeking attorney’s fees and costs. Subsequently, the court dismissed the Company’s motion, and the Company has appealed the court’s decision of such motion to the Court of Appeals for the Federal Circuit. No hearing date has as yet been set.

The Company also asserted a counterclaim against Juniper, alleging infringement of four of the Company’s patents, namely; U.S. Patent Nos. 7,249,378, 7,269,847, 7,383,573, and 7,424,737. On February 25, 2010, the court transferred the case to the United States District Court for the Northern District of California. No trial date has as yet been set by the court.

GraphOn Corporation v. Classified Ventures, LLC et al

On March 10, 2008, the Company initiated a proceeding against Classified Ventures, LLC; IAC/InterActiveCorp; Match.com (an operating business of IAC/InterActiveCorp); Yahoo! Inc.; eHarmony.com; and CareerBuilder, LLC in the United States District Court in the Eastern District of Texas alleging infringement of four of the Company’s patents, namely; U.S. Patent Nos. 6,324,538 (the “’538” patent); 6,850,940 (the “’940” patent); 7,028,034 (the “’034” patent); and 7,269,591 (the “’591” patent), which protect the Company’s unique method of maintaining an automated and network-accessible database. The suit alleges that the named companies infringe the Company’s patents on each of their Web sites. The suit seeks permanent injunctive relief along with unspecified damages. On August 21, 2008, IAC/interactive Corp. was dismissed from the lawsuit without prejudice. On December 2, 2008 the court issued a Docket Control Order setting the dates of April 27, 2011 for the Markman Hearing, in which the court will define any disputed claim terms, and November 7, 2011 for jury selection. On May 11, 2009, in conjunction with settlements reached with the Company, the court granted a joint motion to dismiss Classified Ventures, LLC and CareerBuilder, LLC from the case. On September 30, 2009, the court granted a joint motion to dismiss Yahoo! Inc. from the case, as a result of a settlement with the Company, thus leaving eHarmony and Match.com as the only remaining defendants in this proceeding.

Operating Leases. The Company currently occupies approximately 1,850 square feet of office space in Santa Cruz, California. The office space is rented pursuant to a three-year operating lease, which will expire in July 2011. Rent on the Santa Cruz facility will average approximately $3,900 per month over the term of the lease, which is inclusive of a pro rata share of utilities, facilities maintenance and other costs.

The Company currently occupies approximately 5,560 square feet of office space in Concord, New Hampshire, under a lease that will expire in September 2012. Rent on the Concord facility will approximate $8,800 per month over the remaining term of the lease.

The Company currently occupies approximately 150 square feet of office space in Irvine, California, under a lease that expires in March 2011. Under the terms of the lease, monthly rental payments are approximately $1,200.

The Company believes that its current facilities will be adequate to accommodate its needs for the foreseeable future.

Table of Contents

Future minimum lease payments, which consist entirely of leases for office space, are set forth below. The table assumes that the Company will occupy all currently leased facilities for the full term of each respective lease:

Year ending December 31,
2010	$ 168,700
2011	$ 133,700
2012	$ 70,400

Rent expense aggregated approximately $177,500 and $191,200 for the years ended December 31, 2009 and 2008, respectively.

Contingencies. Under its Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws and certain agreements with officers and directors, the Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director’s serving in such capacity. Generally, the term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is limited as the Company currently has a directors and officers liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of December 31, 2009.

The Company enters into indemnification provisions under (i) its agreements with other companies in its ordinary course of business, including contractors and customers and (ii) its agreements with investors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company's activities or, in some cases, as a result of the indemnified party's activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights, and often survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2009.

The Company’s software license agreements also generally include a performance guarantee that the Company’s software products will substantially operate as described in the applicable program documentation for a period of 90 days after delivery. The Company also generally warrants that services that the Company performs will be provided in a manner consistent with reasonably applicable industry standards. To date, the Company has not incurred any material costs associated with these warranties.

12. Employee 401(k) Plan

In December 1998, the Company adopted a 401(k) Plan (the “Plan”) to provide retirement benefits for employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute up to 15% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. In addition, the Company may make discretionary/matching contributions. During 2009 and 2008, the Company contributed a total of approximately $46,000 and $34,000, to the Plan, respectively.

13 . Supplemental Disclosure of Cash Flow Information

The following table presents supplemental disclosure information for the statements of cash flows for the years ended December 31, 2009 and 2008.


	2009	2008
Cash paid:
Income taxes	$ 2,700	$ 47,900
Interest	$ 2,200	$ 2,200

As more fully explained in Note 7, the Company adopted FASB ASC 815-40 effective January 1, 2009. Accordingly, the Company recorded a non-cash liability of $4,700, which it classified as a liability attributable to warrants, as part of the cumulative effect of a change in accounting principle upon the adoption of FASB ASC 815-40. Pursuant to FASB ASC 815-40, such liability was charged to opening retained earnings (accumulated deficit).

Table of Contents

During the year ended December 31, 2009, the Company recorded as other income an aggregate $4,700 non-cash fair value adjustment to its liability attributable to warrants, which reduced the fair value of such liability to $0, as of December 31, 2009. No such adjustment was recorded during 2008 as the effective date for the adoption of FASB ASC 815-40 was January 1, 2009.

During 2009, the Company transferred approximately $7,600 of other assets (long term) to prepaid expense. The amount so transferred, which was originally recorded as a component of other assets during 2008, and was related to support services for software purchased for internal use pursuant to a three-year contract with three-year payment terms, was paid for during 2009, contemporaneously with the transfer. Additionally, during 2009 the Company reduced the carry value of other assets by $3,600 based on its assessment that an asset no longer had value to the Company.

The Company transferred approximately $28,400 of other liabilities (long term) to accrued liabilities during 2009. The transferred amount represents the third and final payment due under a three-year contract with three-year payment terms entered into during 2008 related to software purchased for internal use. No cash was been disbursed in connection with the transfer.

As of December 31, 2009, the Company had capitalized approximately $1,800 of fixed assets, primarily machinery and equipment, for which no cash was disbursed. The Company had reported this amount as a component of accounts payable as of December 31, 2009.

14. Segment Information

FASB Codification Subtopic 280-10, “Segment Reporting” (“ASC 280-10”) establishes standards for reporting information about operating segments. This standard requires segmentation based on the Company’s internal organization and reporting of revenue and operating income based upon internal accounting methods. The Company’s financial reporting systems present various data for management to operate the business prepared in methods consistent with accounting principles generally accepted in the United States. The segments were defined in order to allocate resources internally. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. For the years ended December 31, 2009 and 2008, the Company has determined that it operated its business in two segments, namely Software and Intellectual Property.

Segment revenue for the years ended December 31, 2009 and 2008 was as follows:

			Increase (Decrease)
	2009	2008	Dollars	Percentage
Software	$ 5,777,200	$ 6,708,700	$ (931,500)	(13.9)	%
Intellectual Property	2,300,000	—	2,300,000	*
Consolidated Total	$ 8,077,200	$ 6,708,700	$ 1,368,500	20.4

* not meaningful

Segment operating loss for the years ended December 31, 2009 and 2008 was as follows:

	2009	2008
Software	$ (1,404,400)	$ (54,200)
Intellectual Property (1)	(429,200)	(2,666,100)
Unallocated	15,400	81,800
Consolidated Total	$ (1,818,200)	$ (2,638,500)

(1)	The year ended December 31, 2008 includes the $868,200 patent impairment charge (Note 2) recorded against certain of the Company’s patents assets.

The Company does not allocate interest and other income, interest and other expense or income tax to its segments.

Table of Contents

As of December 31, 2009 segment fixed assets (long-lived assets) were as follows:

	Cost Basis	Accumulated Depreciation /Amortization	Net, as Reported
Software	$ 1,285,300	$ (1,158,200)	$ 127,100
Intellectual Property	2,839,000	(2,327,300)	511,700
Unallocated	14,800	—	14,800
	$ 4,139,100	$ (3,485,500)	$ 653,600

The Company does not allocate other assets (long-term), which consists primarily of deposits, to its segments. The Company does not maintain any significant long-lived assets outside of the United States.

Products and services provided by the software segment include all currently available versions of GO-Global for Windows, GO-Global for Unix, OEM private labeling kits, software developer’s kits, maintenance contracts and product training and support. The Intellectual property segment provides licenses to our intellectual property. The Company’s two segments do not engage in cross-segment transactions.

15. Subsequent Events

In response to our licensing efforts, on February 10, 2010 and March 18, 2010, MySpace, Inc. and craigslist, Inc., respectively, filed complaints for declaratory judgment in the United States District Court for the District of Northern California. Such complaints ask the court to take certain actions with respect to some of the Company’s patents, namely the ’538, ‘940, ‘034, and ‘591 patents. In each of their complaints, MySpace, Inc. and craigslist, Inc. ask the court to declare that they are not infringing these patents, or, alternatively, that each of these patents is invalid. Further, MySpace, Inc. asks the court to declare these patents unenforceable. The Company responded to the MySpace complaint on March 17, 2010 and added counterclaims of infringement by MySpace of the '538, '940, '034, and '591 patents. The Company seeks unspecified damages and injunctive relief. Additionally, the Company added Fox Audience Network, Inc. as a party to this suit. It has yet to respond to the craigslist complaint. The Company believes that the outcome of these two actions will not have a material impact on its results of operations, financial condition or cash flows as neither action against the Company seeks monetary damages.

Table of Contents

ITEM 9 . CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A(T). CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our 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 upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) under the Exchange Act as a process designed by, or under the supervision of our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:

·	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; and
·	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material impact on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal control issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

Based on our evaluation under the framework described above, our management has concluded that our internal control over financial reporting was effective as of December 31, 2009.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report .

Table of Contents

ITEM 9B. OTHER INFORMATION

Our 2009 Annual Meeting of Stockholders was held on November 18, 2009. At the meeting, the stockholders ratified the reappointment of Macias Gini & O’Connell LLP as our independent auditors for fiscal 2009. The vote was as follows:

For	Against	Abstain
33,726,850	550,793	59,780

On February 22, 2010, we issued a press release announcing our financial results for the year ended December 31, 2009. A copy of the press release is being furnished as Exhibit 99.1 to this report and incorporated herein by reference.

Table of Contents

PART III

ITEM 10 . DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Set forth below is information concerning each of our directors and executive officers as of March 19, 2010.

Robert Dilworth, age 68, has been a director since July 1998, and Chairman of the Board since December 1999. In January 2002, Mr. Dilworth was appointed Interim Chief Executive Officer, and since September 2006, Mr. Dilworth has been our full-time Chief Executive Officer. From 1987 to 1998, Mr. Dilworth served as the Chief Executive Officer and Chairman of the Board of Metricom, Inc., a leading provider of wireless data communication and network solutions. Prior to joining Metricom, from 1985 to 1988, Mr. Dilworth served as President of Zenith Data Systems Corporation, a microcomputer manufacturer. Earlier positions included: Chief Executive Officer and President of Morrow Designs; Chief Executive Officer of Ultramagnetics; Group Marketing and Sales Director of Varian Associates Instruments Group; Director of Minicomputer Systems at Sperry Univac; and Vice President of Finance and Administration at Varian Data Machines. Mr. Dilworth has developed an intimate knowledge of our business, employees, culture, and competitors during his tenure with our company and we believe that these traits, and his in-depth knowledge of high-tech companies, demonstrates that he is well-qualified to serve on our board. Mr. Dilworth currently serves as a director for eOn Communications, a publicly-held corporation, and Public Wireless, Inc, a privately-held corporation. During the five year period ended December 31, 2009, Mr. Dilworth served as a director of the following privately-held entities: Amber Technologies; Get2Chip.com, Inc.; Mobility Electronics; Sky Pipeline; and Yummy Interactive.

William Swain, age 69, has been our Chief Financial Officer and Secretary since March 2000. Mr. Swain was a consultant from August 1998 until February 2000, working with entrepreneurs in the technology industry in connection with the start-up and financing of new business opportunities. Mr. Swain was Chief Financial Officer and Secretary of Metricom Inc., from January 1988 until June 1997, during which time he was instrumental in private financings as well as Metricom’s initial public offering and subsequent public financing activities. Mr. Swain continued as Senior Vice President of Administration with Metricom from June 1997 until July 1998. Prior to joining Metricom, Mr. Swain held top financial positions with leading companies in the computer industry, including Morrow Designs, Varian Associates and Univac. Mr. Swain holds a Bachelors degree in Business Administration from California State University of Los Angeles and is a Certified Public Accountant in the State of California.

August P. Klein , age 73, has been a director since August 1998, and Vice Chairman of the Board since February 2010. In 1995 Mr. Klein founded JSK Corporation, a general contracting firm. Mr. Klein was an initial member of JSK Corporation’s board of directors and served as its initial Chief Executive Officer until his retirement in 1999. Mr. Klein remains a member of JSK Corporation’s board of directors. From 1989 to 1993, Mr. Klein was founder and Chief Executive Officer of Uniquest, Inc., an object-oriented application software company. From 1984 to 1988, Mr. Klein served as Chief Executive Officer of Masscomp, Inc., a developer of high performance real time mission critical systems and UNIX-based applications. Mr. Klein has served as Group Vice President, Serial Printers at Data Products Corporation and President and Chief Executive Officer at Integral Data Systems, a manufacturer of personal computer printers. Mr. Klein spent 25 years with IBM Corporation, rising to a senior executive position as General Manager of the Retail/Distribution Business Unit. We believe that Mr. Klein’s more than 30 years’ experience as chief executive and board member of many different companies, including multiple high-tech companies, supports our belief that he is well-qualified to serve as a member of our board. Mr. Klein currently serves as a trustee of the United States Supreme Court Historical Society and as a trustee of the Computer Museum in Boston, Massachusetts. During the five year period ended December 31, 2009, Mr. Klein was a director of privately-held QuickSite Corporation. Mr. Klein holds a B.S. in Mathematics from St. Vincent College.

Gordon Watson, age 74, has been a director since April 2002. Mr. Watson brings over 30 years’ executive, board and management experience to our board. In 1997 Mr. Watson founded Watson Consulting, LLC, a consulting company for early stage technology companies, and has served as its President since its inception. From 1996 to 1997, Mr. Watson served as Western Regional Director, Lotus Consulting of Lotus Development Corporation. From 1988 to 1996, Mr. Watson held various positions with Platinum Technology, Incorporated, most recently serving as Vice President Business Development, Distributed Solutions. Earlier positions included: Senior Vice President of Sales for Local Data, Incorporated; President, Troy Division, Data Card Corporation; and Vice President and General Manager, Minicomputer Division, Computer Automation, Incorporated. Mr. Watson also held various executive and director level positions with TRW, Incorporated, Varian Data Machines, and Computer Usage Company. We believe that Mr. Watsons’s qualifications to serve on our board include his over 25 years’ executive-level experience (full income statement responsibility) at the Chief Operating Officer, Vice President, General Manager, and Division President levels, his extensive knowledge and understanding of the high tech industry, and his over 10 years’ experience serving on the boards of other public and privately-held companies. Mr. Watson holds a Bachelors of Science degree in electrical engineering from the University of California at Los Angeles and has taught at the University of California at Irvine. Mr. Watson is currently Chairman and Chief Executive Officer of PerSage Inc. and a director of PATH Reliability (formerly PATH Communications), each of which is a privately-held entity. During the five year period ended December 31, 2009, Mr. Watson served as a director of publicly-held DPAC Technologies and of

Table of Contents

the following privately-held entities: SoftwarePROSe, Inc., Grapevine Software, and Pound Hill Software. During the five year period ended December 31, 2009, Mr Watson has also served on the advisory boards for Cluepedia, Inc.; Mobophiles, Inc.; Akiira Media Systems, Inc.; and Sterling Pear, Incorporated, each of which are privately-held companies.

Our Board of Directors has determined that each of our non-employee directors (August Klein and Gordon Watson), who collectively constitute a majority of the Board, meets the general independence criteria set forth in the Nasdaq Marketplace Rules.

Our Board of Directors has an audit committee consisting of two directors. The current members of the audit committee are August P. Klein (committee chairman), and Gordon Watson. The board has determined that each member of the audit committee meets the Nasdaq Marketplace Rules’ definition of “independent” for audit committee purposes. Our Board of Directors has determined that Mr. Klein meets the SEC’s definition of an audit committee financial expert.

On February 17, 2010, our board of directors adopted and approved several amendments to our bylaws, including those that impose certain advance notice and expanded disclosure requirements upon shareholders desiring to nominate persons to stand for election to our board of directors. For further information, see Exhibit 3.2 to this annual report and our current report on Form 8-K filed with the SEC on February 24, 2010.

Our Board of Directors has adopted a Code of Ethics applicable to all of our employees, including our chief executive officer, chief financial officer and controller. This code of ethics was filed with the SEC on March 30, 2004 as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003.

All executive officers serve at the discretion of the Board of Directors.

Compliance With Section 16(a) of the Securities Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, as well as those persons who own more than 10% of our common stock, to file reports of ownership and changes in ownership with the SEC. These persons are required by SEC rule to furnish us with copies of all Section 16(a) forms they file.

Based solely on our review of the copies of such forms, we believe that during the year ended December 31, 2009, all filing requirements applicable to our officers, directors and greater than 10% owners of our common stock were complied with.

Table of Contents

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth the compensation we paid to our executive officers for the fiscal years ended December 31, 2009 and 2008;

Summary Compensation Table
Name and Principal Position	Year	Salary	Option Awards (1)	All Other Compensation	Total
Robert Dilworth,	2009	$ 311,131	$ 6,250	—	$ 317,381
Chief Executive Officer	2008	$ 311,131	$ 47,500	—	$ 358,631
William Swain,	2009	$ 157,511	$ 3,750	$ 2,000 (2)	$ 163,261
Chief Financial Officer	2008	$ 157,511	$ 28,500	$ 2,000 (2)	$ 188,011

(1)

The amounts listed in the Option Awards column reflect the aggregate grant date fair value of the underlying options granted to the respective named officer during the respective year. For Mr. Dilworth such amounts are based on option awards made on January 2, 2009 and 2008, respectively, in the amount of 125,000 and 125,000 options, respectively, at exercise prices, which were equal to the grant date fair values, of $0.05 and $0.38, respectively. For Mr. Swain such amounts are based on option awards made on January 2, 2009 and 2008, respectively, in the amount of 75,000 and 75,000 options, respectively, at exercise prices, which were equal to the grant date fair values, of $0.05 and $0.38, respectively.

(2)	Company contribution to the 401(k) Plan.

Mr. Dilworth began as Chief Executive Officer (Interim) during January 2002 and became full-time Chief Executive Officer during September 2006. Mr. Dilworth has been a director since July 1998, and Chairman of the Board since December 1999. Mr. Dilworth elected during his term as interim Chief Executive Officer, to forgo the cash compensation we pay all directors for their attendance at board and committee meetings as well as the quarterly retainer.

All such options granted to Mr. Dilworth and Mr. Swain were immediately exercisable upon their respective grant date and vest in thirty-three equal monthly installments, beginning in the fourth month after their respective grant date. Should either Mr. Dilworth’s or Mr. Swain’s service cease prior to full vesting of the options, we have the right to repurchase any shares issued upon exercise of options not vested.

Pursuant to his employment agreement, Mr. Swain would be entitled to three-months’ severance of his then base salary in the event of a merger or acquisition which lead to a change in the nature, reduction or elimination of his duties, a reduction in his level of compensation, relocation of the corporate office by more than 50 miles from its then current location or his termination.

Outstanding Equity Awards at Fiscal Year-End

Outstanding Equity Awards At Fiscal Year-End
	Option Awards (1)
Name	Number of Securities Underlying Unexercised Options Exercisable	Option Exercise Price	Option Expiration Date
Robert Dilworth,	100,000 (2)	$ 0.25	03/04/12
Chief Executive Officer	40,000 (2)	$ 0.18	05/04/13
	300,000 (3)	$ 0.34	11/14/14
	200,000 (2)	$ 0.43	01/26/15
	125,000 (2)	$ 0.21	01/25/16
	125,000 (2)	$ 0.17	01/14/17
	125,000 (2)	$ 0.38	01/01/18
	125,000 (2)	$ 0.05	01/01/19
William Swain,	40,000 (2)	$ 0.18	05/04/13
Chief Financial Officer	380,000 (3)	$ 0.34	11/14/14
	160,000 (2)	$ 0.43	01/26/15
	75,000 (2)	$ 0.21	01/25/16

Table of Contents

75,000 (2)	$ 0.17	01/14/17
75,000 (2)	$ 0.38	01/01/18
75,000 (2)	$ 0.05	01/01/19

(1) As of December 31, 2009.

(2) All such options were immediately exercisable upon grant and vest in thirty-three equal monthly installments, beginning in the fourth month after their respective grant date. For Mr. Dilworth, the options identified in this footnote were, or will be, fully vested on the following dates: March 4, 2005, May 4, 2006, January 25, 2008, January 25, 2009, January 15, 2010, January 1, 2011, and January 1, 2012, respectively. For Mr. Swain, the options identified in this footnote were, or will be, fully vested on the following dates: May 4, 2006, January 26, 2008, January 25, 2009, January 15, 2010, January 1, 2011, and January 1, 2012, respectively. If Mr. Dilworth’s or Mr. Swain’s employment ceases prior to full vesting of the options, we have the right to repurchase any shares issued upon exercise of options not vested.

(3) Mr. Dilworth and Mr. Swain voluntarily surrendered, on May 14, 2004, 260,000 and 380,000 out-of-the-money options, respectively, in conjunction with participation in a voluntary stock option exchange program. New option grants equal to the number cancelled were made on November 15, 2004. All such options were fully vested as of November 14, 2005. On November 15, 2004, Mr. Dilworth was granted 40,000 options in his capacity as a director. These options became fully vested on November 14, 2007.

Compensation of Directors

During the years ended December 31, 2009 and 2008, our non-employee directors were eligible to be compensated at the rate of $1,000 for attendance at each meeting of our board, $500 if their attendance was via telephone, $500 for attendance at each meeting of a board committee, and a $1,500 quarterly retainer. Additionally, non-employee directors are granted stock options periodically, typically on a yearly basis.

Director Compensation
Name	Year	Fees Earned or Paid in Cash	Option Awards (1)	All Other Compensation		Total
August Klein	2009	$ 16,500	$ 3,750	$ —		$ 20,250
	2008	18,000	28,500	—		46,500

Michael Volker (2)	2009	18,000	3,750	—	(3)	21,750
	2008	16,000	28,500	—		44,500

Gordon Watson	2009	17,500	3,750	—		21,250
	2008	17,000	28,500	—		45,500

(1)

(2)	Mr. Volker withdrew his candidacy as a director prior to our Annual Meeting of Shareholders held November 18, 2009.

(3)

Upon the cessation of his service as director, we entered into an agreement with Mr. Volker that will pay him $1,500 per quarter, during the year ending December 31, 2010, in return for which he will provide us with advisory services in our search for a replacement director, and prospective potential business combinations. Additionally, we modified certain of Mr. Volker’s previously granted stock option awards by accelerating their vesting to November 18, 2009 and/or changing their expiration date to December 31, 2010.

All such options granted to our non-employee directors were immediately exercisable upon their respective grant date and vest in thirty-three equal monthly installments, beginning in the fourth month after their respective grant date. Should any non-employee director’s service cease prior to full vesting of the options, we have the right to repurchase any shares issued upon exercise of options not vested.

Table of Contents

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information, as of March 19, 2010, with respect to the beneficial ownership of shares of our common stock held by: (i) each director; (ii) each person known by us to beneficially own 5% or more of our common stock; (iii) each executive officer named in the summary compensation table; and (iv) all directors and executive officers as a group. Unless otherwise indicated, the address for each stockholder is c/o GraphOn Corporation, 5400 Soquel Avenue, Suite A2, Santa Cruz, California 95062.

Name and Address of Beneficial Owner	Number of Shares of Common Stock Beneficially Owned (1)(2)	Percent of Class (%)
Robert Dilworth (3)	1,293,820	2.8
William Swain (4)	940,800	2.0
August P. Klein (5)	745,760	1.6
Gordon Watson (6)	602,800	1.3
AIGH Investment Partners, LLC (7) 6006 Berkeley Avenue Baltimore, MD 21209	6,080,278	13.2
Paul Packer (8) 60 Broad Street, 38 th Floor New York, NY 10004	2,296,925	5.0
All current executive officers and directors as a group (4 persons)(9)	3,583,180	7.3

(1)	As used in this table, beneficial ownership means the sole or shared power to vote, or direct the voting of, a security, or the sole or shared power to invest or dispose, or direct the investment or disposition, of a security. Except as otherwise indicated, based on information provided by the named individuals, all persons named herein have sole voting power and investment power with respect to their respective shares of our common stock, except to the extent that authority is shared by spouses under applicable law, and record and beneficial ownership with respect to their respective shares of our common stock. With respect to each stockholder, any shares issuable upon exercise of options and warrants held by such stockholder that are currently exercisable or will become exercisable within 60 days of March 19, 2010 are deemed outstanding for computing the percentage of the person holding such options, but are not deemed outstanding for computing the percentage of any other person.
(2)	Percentage ownership of our common stock is based on 45,898,292 shares of common stock outstanding as of March 19, 2010.
(3)	Includes 1,140,000 shares of common stock issuable upon the exercise of outstanding options.
(4)	Includes 880,000 shares of common stock issuable upon the exercise of outstanding options.
(5)	Includes 595,000 shares of common stock issuable upon the exercise of outstanding options.
(6)	Includes 580,000 shares of common stock issuable upon the exercise of outstanding options.
(7)	Based on information contained in a Schedule 13G/A filed by AIGH Investment Partners, LLC on March 3, 2008, and information known to us, AIGH has shared voting and dispositive power with respect to 6,080,278 shares of common stock. Orin Hirschman is the managing member of AIGH Investment Partners, LLC.
(8)	Based on information contained in a Schedule 13G/A filed by Paul Packer and related parties on February 11, 2010 and information known to us, Mr. Packer has sole voting and dispositive power with respect to 701,317 shares of common stock and shared voting and dispositive power with respect to 1,595,608 shares of common stock.
(9)	Includes 3,755,000 shares of common stock issuable upon the exercise of outstanding options.

Table of Contents

Equity Compensation Plan Information. The following table sets forth information related to all of our equity compensation plans as of December 31, 2009:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights	Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by security holders:
1996 Stock Option Plan	54,625	$0.80	—
1998 Stock Option/Stock Issuance Plan	3,027,325	$0.42	—
2005 Equity Incentive Plan	2,340,000	$0.24	80,000
Employee Stock Purchase Plan (1)	NA	NA	10,210
Equity compensation plans not approved by security holders:
Stock option plans (2)	1,625,500	$0.21	2,024,500
Total - all plans	7,047,450	$0.32	2,114,710

(1)	Under terms of the employee stock purchase plan, employees who participate in the plan are eligible to purchase shares of common stock. As of December 31, 2009, 389,790 shares had been purchased through the plan, at an average cost of $0.53 per share, and 10,210 shares are available for future purchase.
(2)	(a) In May 2000 our board of directors approved a supplemental stock option plan (the “supplemental plan”). Participation in the supplemental plan is limited to those employees who are, at the time of the option grant, neither officers nor directors. The supplemental plan is authorized to issue options for up to 400,000 shares of common stock. The exercise price per share is subject to the following provisions:
	· The exercise price per share shall not be less than 85% of the fair market value per share of common stock on the option grant date.
	· If the person to whom the option is granted is a 10% shareholder, then the exercise price per share shall not be less than 110% of the fair market value per share of common stock on the option grant date.
	All options granted are immediately exercisable by the optionee. The options vest, ratably, over a 33-month period, however no options vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. Shares issued upon exercise of options are subject to our repurchase, which right lapses as the shares vest. The supplemental plan will terminate no later than April 30, 2010. As of December 31, 2009, options to purchase 381,000 shares were outstanding under the supplemental plan and options to purchase 19,000 shares remained available for issuance.
	(b) On February 14, 2005 our board of directors approved a stock option plan (the “GG Plan”) for a named employee, who at the time of the option grant was neither an officer nor a director. The GG Plan is authorized to issue options for up to 250,000 shares of common stock. Under the terms of the GG Plan, the exercise price of all options issued under the GG Plan would be equal to the fair market value of our common stock on the date of the grant.
	All options granted under the GG Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options vest, ratably, over a 33-month period, however no options vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. Shares issued upon exercise of options are subject to our repurchase, which right lapses as the shares vest. The GG Plan shall terminate no later than February 15, 2015. As of December 31, 2009, options to purchase 250,000 shares were outstanding under the GG Plan and no shares remained available for issuance.

Table of Contents

	(c) On November 19, 2008 our board of directors approved a stock option/stock issuance plan (the “08 Plan”) pursuant to which options or restricted stock may be granted to officers and other employees, non-employee directors and independent consultants and advisors who render services to the Company. The 08 Plan is authorized to issue options or restricted stock for up to 3,000,000 shares of common stock. Under the 08 Plan the exercise price of options granted is to be no less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The purchase price of performance-vested stock issued under the 08 Plan shall also not be less than 100% of the fair market value of the Company’s common stock on the date the performance-vested stock is granted.
	In the case of a restricted stock award, the entire number of shares subject to such award would be issued at the time of the grant and subject to vesting provisions based on time or performance conditions specified by the Board or an authorized committee of the Board. For awards based on time, should the grantee’s service to the Company end before full vesting occurred, all unvested shares would be forfeited and returned to the Company. In the case of awards granted with vesting provisions based on specific performance conditions, if those conditions are not met, then all shares would be forfeited and returned to the Company. Until forfeited, all shares issued under a performance vested stock award would be considered outstanding for dividend, voting and other purposes.
	All options granted under the 08 Plan are immediately exercisable by the optionee; however, there is a vesting period for the options. The options vest, ratably, over a 33-month period, however no options vest until after three months from the date of the option grant. The exercise price is immediately due upon exercise of the option. Under the terms of the 08 Plan, the exercise price of all options issued under the 08 Plan would be equal to the fair market value of our common stock on the date of the grant. Shares issued upon exercise of options are subject to our repurchase, which right lapses as the shares vest. The 08 Plan shall terminate no later than November 19, 2018. As of December 31, 2009, options to purchase 994,500 shares were outstanding under the 08 Plan, no restricted shares had been awarded and 2,005,500 shares remained available for issuance.

For additional information concerning our equity compensation plans, see Note 8 to our consolidated financial statements appearing in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth in Item 10 of this Annual Report on Form 10-K concerning director independence is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees for professional services provided by Macias Gini & O’Connell LLP for the years ended December 31, 2009 and 2008 were as follows:

Category	2009	2008
Audit fees	$ 142,600	$ 144,300
Audit – related fees	—	—
Tax fees	14,000	15,000
Other fees	—	—
Totals	$ 156,600	$ 159,300

Audit fees include fees associated with our annual audit, the reviews of our quarterly reports on Form 10-Q, and assistance with and review of documents filed with the Securities and Exchange Commission (the “SEC”). Audit-related fees include consultations regarding revenue recognition rules, and new accounting pronouncements, and interpretations thereof, as they related to the financial reporting of certain transactions. Tax fees included tax compliance and tax consultations.

The audit committee has adopted a policy that requires advance approval of all audit, audit-related, tax services and other services performed by our independent auditor. The policy provides for pre-approval by the audit committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the audit committee must approve the permitted service before the independent auditor is engaged to perform it.

Table of Contents

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

Our financial statements as set forth in the Index to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K are hereby incorporated by reference.

(b) Exhibits

The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed as part of this Annual Report on Form 10-K or, as noted, incorporated by reference herein:

Exhibit Number	Exhibit Description
3.1	Amended and Restated Certificate of Incorporation of Registrant, as amended (1)
3.2	Second Amended and Restated Bylaws of Registrant
4.1	Form of certificate evidencing shares of common stock of Registrant (2)
10.1	1996 Stock Option Plan of Registrant (2)
10.2	1998 Stock Option/Stock Issuance Plan of Registrant (3)
10.3	Supplemental Stock Option Agreement, dated as of June 23, 2000 (3)
10.4	Employee Stock Purchase Plan of Registrant (3)
10.5	Lease Agreement between Registrant and Central United Life Insurance, dated as of October 24, 2003 (4)
10.6	Third Amendment to Lease Agreement between Registrant and Central United Life Insurance, dated as of September 15, 2006 (1)
10.7	Fourth Amendment to Lease Agreement between Registrant and Central United Life Insurance, dated as of September 15, 2006
10.8	2005 Equity Incentive Plan (5)
10.9	Stock Option Agreement, dated January 29, 2005 by and between Registrant and Gary Green (6)
10.10	Employment Agreement, dated February 11, 2000, by and between Registrant and William Swain (7)
10.11	Director Severance Plan (8)
10.12	Key Employee Severance Plan (8)
10.13	2008 Equity Incentive Plan (9)
14.1	Code of Ethics (4)
21.1	Subsidiaries of Registrant (10)
23.1	Consent of Macias Gini & O’Connell LLP
31.1	Rule 13a-14(a)/15d-14(a) Certifications
32.1	Section 1350 Certifications
99.1	Press Release, dated February 22, 2010

__________

(1)	Filed on April 2, 2007 as an exhibit to Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2006, and incorporated herein by reference.
(2)	Filed as an exhibit (Exhibit 4.1 was filed on September 19, 1996 and Exhibit 10.6 was filed on August 30, 1996) to the Registrant’s Registration Statement on Form S-1 (File No. 333-11165), and incorporated herein by reference
(3)	Filed on June 23, 2000 as an exhibit to the Registrant’s Registration Statement on Form S-8 (File No. 333-40174) and incorporated herein by reference
(4)	Filed on March 30, 2004 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference
(5)	Filed on November 25, 2005 as an exhibit to the Registrant’s definitive Proxy Statement for the Registrant’s 2005 Annual Meeting, and incorporated herein by reference
(6)	Filed on April 17, 2006 as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 2005, and incorporated herein by reference
(7)	Filed on February 7, 2007 as an exhibit to Post-Effective Amendment No. 4 to the Registrant’s Registration Statement to Form S-1 on Form SB-2 (File No. 333-124791), and incorporated herein by reference

Table of Contents

(8)	Filed on August 14, 2008 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, and incorporated herein by reference
(9)	Filed on December 17, 2008 as an exhibit to the Registrant’s Registration Statement on Form S-8 (File No. 333-156229) and incorporated herein by reference
(10)	Filed on March 31, 2009 as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, and incorporated herein by reference

Not applicable for smaller reporting companies.

Table of Contents

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.

GraphOn Corporation

March 31, 2010 By: /s/ Robert Dilworth

Robert Dilworth

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Robert Dilworth	Chairman of the Board and Chief Executive Officer	March 31, 2010
Robert Dilworth	(Principal Executive Officer)

/s/ William Swain	Chief Financial Officer and Secretary	March 31, 2010
William Swain	(Principal Financial Officer and
	Principal Accounting Officer)

/s/ August P. Klein	Director	March 31, 2010
August P. Klein

/s/ Gordon Watson	Director	March 31, 2010
Gordon Watson

Table of Contents

Exhibit 3.2

Explanatory Note

The Second Amended and Restated By-Laws of GraphOn Corporation were previously filed as an exhibit to the Form 8-K filed on February 24, 2010. Subsequent to filing, we noted inaccuracies in the Section header numbers and are correcting such inaccuracies with this filing.

SECOND AMENDED AND RESTATED BY-LAWS

GRAPHON CORPORATION

ARTICLE I

OFFICES

Section 1. Registered Office . The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

ARTICLE II

STOCKHOLDERS

Section 1. Meetings . All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Nomination of persons for election to the board of directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the corporation’s notice of meeting (or any supplement thereto), (b) by or at the direction of the board of directors or (c) by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Article II, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Article II.

Section 2. Notice by Stockholders . At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before a meeting by a stockholder pursuant to Section 1 of this Article, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and such other business must be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the ninetieth (90 th ) day nor earlier than the close of business on the one hundred twentieth (120 th ) day prior to the anniversary of the date on which the corporation first mailed its proxy materials for the immediately preceding annual meeting; provided , that in the event that the date of the annual meeting is changed by more than thirty (30) days from the anniversary date of the immediately preceding annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120 th ) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90 th ) day prior to such annual meeting or the tenth (10 th ) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth:

(a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, the name, age, business address and residence address of such person; the principal occupation or employment of such person; the class and number of shares of capital stock of the corporation that are beneficially owned by such person, if any, and any other direct or indirect pecuniary or economic interest in any capital stock of the corporation of such person, including, without limitation, any derivative instrument, swap, option, warrant, short interest, hedge or profit sharing arrangement; and all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected, a description of all arrangements or understandings between such stockholder or beneficial owner and any other person or persons (including their names) in connection with the nomination and of any material interest in such nomination of such stockholder and the beneficial owner, if any, on whose behalf the nomination is made; provided , that the corporation may require any proposed nominee to furnish such other information as may be reasonably required by the corporation to determine the qualifications of such nominee to serve as a director of the corporation;

(b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of any resolution proposed to be adopted at the meeting, the reasons for conducting such business at the meeting and a description of all arrangements or understandings between such stockholder or beneficial owner and any other person or persons (including their names) in connection with the proposal of such business, and of any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made;

(c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, (ii) the class and number of shares of the corporation that are owned beneficially and of record by such stockholder and such beneficial owner and any other direct or indirect pecuniary or economic interest in any capital stock of the corporation of any such person, including, without limitation, any derivative instrument, swap, option, warrant, short interest, hedge or profit sharing arrangement, and, in the case of such stockholder, his commitment to remain a stockholder through the date of the stockholders meeting with respect to which his notice was given, and (iii) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any such beneficial owner with respect to any share of stock of the corporation; and

(d) a representation that such stockholder and, if applicable, beneficial owner, intends to appear in person or by proxy at the stockholders meeting to make such nominations or bring such business before the meeting.

Notwithstanding anything in the second sentence of Section 2 of this Article to the contrary, in the event that the number of directors to be elected to the board of directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board made by the corporation at least one hundred (100) days prior to the first anniversary of the mailing of proxy materials for the preceding year’s annual meeting, a stockholder’s notice required by this Article II shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the corporation not

later than the close of business on the tenth (10 th ) day following the day on which such public announcement is first made by the corporation.

For purposes of this Article II, “ public announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the U.S. Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

The requirements of this Article II apply to all stockholder nominations and all stockholder proposals, whether or not such nominations or proposals are sought to be included in the corporation’s proxy statement; provided , however , that nothing in this Article II shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to and in accordance with Rule 14a-8 under the Exchange Act.

Section 3. Annual Meetings . Annual meetings of stockholders shall be held on such date and at such time as shall be designated by the board of directors from time to time and stated in the notice of the meeting. If any annual meeting for the election of directors shall not be held on the date designated therefor, the board of directors shall cause the meeting to be held as soon thereafter as is convenient. At each annual meeting, stockholders shall elect directors to succeed those whose terms expire in that year and transact such other business as may properly be brought before the meeting.

Section 4. Meeting Notices . Written notice of stockholder meetings, whether annual or special, stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) or more than sixty (60) days before the date of the meeting. Written notice of a special meeting shall state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Except as otherwise required by law, notice of any meeting of stockholders following an adjournment shall not be required to be given if the time and place thereof are announced at the meeting that is adjourned.

Section 5. Voting Lists . The officer who has charge of the stock ledger of the corporation shall prepare and make or cause to be prepared and made through a transfer agent appointed by the board of directors, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

Section 6. Special Meetings . Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called at any time by the chairman, president or the secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in the amount of the entire capital stock of the corporation issued and outstanding that are entitled to vote.

Section 7. Quorum . The holders of a majority of the stock issued and outstanding that are entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by

the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

When a quorum is present at any meeting, (a) the vote of the holders of a plurality of the stock having voting power present in person or represented by proxy shall decide any election of directors or director nominees brought before the meeting, and (b) the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide all other questions brought before the meeting, unless the question is one upon which, by express provision of the statutes, the rules or regulations of any stock exchange applicable to the corporation, these by-laws, or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question.

Section 8. Voting of Shares . Unless otherwise specifically provided by statute, the certificate of incorporation of the corporation, or these by-laws, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of the capital stock having voting power held by such stockholder.

Section 9. Proxies . Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him, her, or it by proxy, but no proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Such authorization must be in writing and executed by the stockholder or his, her, or its authorized officer, director, employee, or agent. To the extent permitted by law, a stockholder may authorize another person or persons to act for him or her as proxy by transmitting or authorizing the transmission of a facsimile or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission; provided , that the facsimile or electronic transmission either sets forth or is submitted with information from which it can be determined that the facsimile or electronic transmission was authorized by the stockholder. A copy, facsimile transmission or other reliable reproduction of a writing or transmission authorized by this Section 9 may be substituted for or used in lieu of the original writing or electronic transmission for any and all purposes for which the original writing or transmission could be used; provided , that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission. No ballot, proxies or votes, nor any revocations thereof or changes thereto shall be accepted after the time set for the closing of the polls unless the Court of Chancery, upon application of a stockholder, shall determine otherwise. Each proxy shall be delivered to the inspectors of election prior to or at the meeting. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing a subsequent duly executed proxy with the secretary of the corporation. The vote for directors shall be by ballot.

Section 10. No Informal Action by Stockholders . Stockholders of the corporation shall have no right to take any action by written consent without a meeting.

Section 11. Stock Ledger . The stock ledger of the corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 5 of this Article or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.

Section 12. Conduct of Meeting . Unless otherwise provided by the board of directors, the chief executive officer shall act as chairman; and the secretary, or in his absence an assistant secretary, shall act as secretary of the meeting. The order of business shall be determined by the chairman of the meeting.

ARTICLE III

DIRECTORS

Section 1. Number, Tenure and Qualifications . The number of directors that shall constitute the whole board shall be determined by the board of directors. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 4 of this Article, and each director elected shall hold office until (a) his or her successor is elected and qualified, (b) the expiration of the term for which he or she is elected, or (c) his or her earlier resignation or removal, except that if any such election shall not be so held, such election shall take place at a stockholders’ meeting called and held in accordance with the DGCL. Directors need not be stockholders.

Section 2. Nominations of Directors . Only such persons who are nominated in accordance with the procedures set forth in Article II, Section 2 shall be eligible to serve as a directors and only such business shall be conducted at a meeting of the stockholders as shall have been brought before the meeting of stockholders in accordance with the procedures set forth in Article II, Section 4. Except as otherwise provided by law, the certificate of incorporation or these by-laws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these by-laws and, if any proposed nomination or business is not in compliance with these by-laws, to declare that such defective proposal or nomination shall be disregarded. The chairman of the meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that any nomination or business was not properly brought before the meeting and in accordance with the provisions of these by-laws, and if he should so determine, the chairman shall so declare to the meeting, and any such nomination or business not properly brought before the meeting shall not be transacted.

Section 3. Classes of Directors . The directors of the corporation shall be divided into three (3) classes as nearly equal in size as is practicable, designated as Class I, Class II, and Class III. At the 2009 annual meeting of the stockholders, the term of the office of the Class I directors shall expire and Class I directors shall be elected for a full term of three (3) years. At the 2010 annual meeting of the stockholders, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three (3) years. At the 2011 annual meeting of stockholders, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three (3) years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three (3) years to succeed the directors of the class whose terms expire at such annual meeting. If the number of directors is hereafter changed, each director then serving as such shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his current term and any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable.

Section 4. Vacancies . Except as otherwise provided by law, any vacancy on the board of directors (whether because of death, resignation, removal, an increase in the number of directors, or any other cause) may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and any director so chosen shall hold office until the next annual election at which directors of the applicable class are scheduled to be elected and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. If there are no directors in office,

then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. A director may be removed from office by the affirmative vote of the holders of a majority (50.01%) of the outstanding voting stock of the corporation entitled to vote at an election of directors.

Section 5. General Powers . The business of the corporation shall be managed under the direction of its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute, by the certificate of incorporation, or by these by-laws directed or required to be exercised or done by the stockholders.

Section 6. Meetings . The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware.

Section 7. First Meeting . The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors.

Section 8. Regular Meetings . Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board.

Section 9. Special Meetings . Special meetings of the board may be called by either the chairman of the board or the president on forty-eight (48) hours’ notice to each director, either personally or by telephone, facsimile, or other electronic transmission; special meetings shall be called by the president or the secretary in a like manner and on like notice on the written request of a majority of the board, unless the board consists of only one director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director; provided , however , that a meeting may be called on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Any meeting of the board of directors shall be a legal meeting without any notice thereof having been given if all the directors shall be present thereat or if notice thereof shall be waived either before or after such meeting in writing by all absentees therefrom, provided a quorum be present thereat. Notice of any adjourned meeting need not be given.

Section 10. Quorum . At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 11. Organization . At each meeting of the board of directors, the chairman of the board of directors, or in his or her absence, the president of the corporation, or in his or her absence, a vice chairman, or in the absence of all of said officers, a chairman chosen by a majority of the directors

present, shall preside. The secretary of the corporation, or in his or her absence, an assistant secretary, if any, or, in the absence of both the secretary and assistant secretaries, any person whom the chairman shall appoint, shall act as secretary of the meeting.

Section 12. Informal Action by Directors . Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee.

Section 13. Participation by Conference Telephone . Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board, may participate in a meeting of the board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting.

Section 14. Committees . The board of directors may, by resolution passed by a majority of the whole board, designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the corporation. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee; provided , however , that, if the resolution of the board of directors so provides, in the absence or disqualification of any such member or alternate member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member or alternate member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution or amending the by-laws of the corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. A majority of those entitled to vote at any meeting of any committee shall constitute a quorum for the transaction of business at that meeting.

Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

Section 15. Compensation . Unless otherwise restricted in the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors or committee and may be paid a fixed sum for attendance at each meeting of the board of directors or such committee and/or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

ARTICLE IV

NOTICES

Section 1. Written Notice . Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, such notice shall be in writing and shall be given in person or by mail to such director or stockholder. If mailed, such notice shall be addressed to such director or stockholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid, and shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telephone, facsimile, or other form of electronic transmission.

Section 2. Waiver of Notice . Whenever any notice is required to be given under the provisions of the statutes, the certificate of incorporation, or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.

ARTICLE V

OFFICERS

Section 1. Number . The officers of the corporation shall be chosen by the board of directors and shall include a president, a chief financial officer, and a secretary. The board of directors, in its discretion, may also choose a chairman of the board of directors and one or more vice chairmen of the board of directors from among their members and one or more vice-presidents, assistant treasurers and assistant secretaries. The board of directors may appoint such other officers and agents as it shall deem desirable who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. The officers of the corporation need not be stockholders of the corporation.

Section 2. Election and Term of Office . The board of directors at its first meeting and after each annual meeting of stockholders shall elect the officers of the corporation. The officers of the corporation shall hold office until their successors are chosen and qualify.

Section 3. Removal . Any officer elected or appointed by the board of directors may be removed, with or without cause, at any time by the affirmative vote of a majority of the board of directors or by any committee or superior officer upon whom such power of removal may be conferred by the board of directors.

Section 4. Vacancies . Any vacancy occurring in any office of the corporation shall be filled by the board of directors.

Section 5. Chairman of the Board of Directors . The chairman of the board of directors, if any, shall preside, if present, at all meetings of the board of directors and stockholders at which he or she shall be present. Except where by law the signature of the president is required, the chairman of the board of directors shall possess the same power as the chief executive officer or president to sign all documents of the corporation that the chief executive officer or president may be authorized to sign by these by-laws or by the board of directors. The chairman of the board of directors shall see that all orders and resolutions of the board of directors are carried into effect and shall from time to time report to the board of directors all matters within his or her knowledge that the interests of the corporation may require to be brought to their notice. During the absence or disability of the president, the chairman of the board of directors shall exercise all the powers and discharge all the duties of the president unless the board of

directors shall designate another officer to exercise such powers and discharge such duties. The chairman of the board of directors shall also perform such other duties and he or she may exercise such other powers as from time to time may be prescribed by these by-laws or by the board of directors.

Section 6. Vice Chairmen of the Board of Directors . The vice chairmen of the board of directors, if any, shall perform such duties and may exercise such powers as from time to time may be prescribed by the board of directors.

Section 7. President . The president shall be the chief executive officer of the corporation unless the board of directors shall designate another officer as chief executive officer, and shall have general and active management of the business, subject to the control of the board of directors, and shall see that all orders and resolutions of the board of directors are carried into effect. In the absence of the Chairman of the Board, the president shall preside at all meetings of the board of directors and of the stockholders at which he or she shall be present. The president shall vote all shares of stock of any other corporation standing in the name of this corporation, except where the voting thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president shall also perform all duties incident to the office of the president and such other duties as may be prescribed by these by-laws or by the board of directors from time to time.

Section 8. The Vice-Presidents . Each vice-president shall perform such duties and have such powers as the board of directors or chief executive officer may from time to time prescribe. At the request of the board of directors, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

Section 9. The Chief Financial Officer . The chief financial officer shall be the treasurer of the corporation unless the board of directors shall designate another officer as treasurer. If required by the board of directors, the chief financial officer shall give bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors shall determine. The chief financial officer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these by-laws; (b) sign (unless the secretary or other proper officer thereunto duly authorized by the board of directors shall sign), with the chairman of the board of directors, or president, or a vice president, certificates for shares of the capital stock of the corporation, the issue of which shall have been authorized by resolution of the board of directors; provided , that the signatures of the officers of the corporation thereon may be facsimile as provided in these by-laws; (c) disburse funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as chief financial officer and of the financial condition of the corporation; and (d) in general perform all the duties incident to the office of chief financial officer and such other duties as from time to time may be assigned to him or her by the chief executive officer or by the board of directors.

Section 10. The Secretary . The secretary shall: (a) attend all meetings of the board of directors and all meetings of the stockholders and keep the minutes of the stockholders’ and of the board of directors’ meetings in one or more books provided for that purpose; and at the request of the board of directors shall also perform like duties for the standing committees thereof when required; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records; (d) keep a register of the post office address of each stockholder that shall be furnished to the secretary by such stockholder; (e) have general charge of the stock transfer books

of the corporation; (f) sign (unless the chief financial officer or other proper officer thereunto duly authorized by the board of directors shall sign), with the chairman of the board of directors, or president, or a vice president, certificates for shares of the capital stock of the corporation the issue of which shall have been authorized by resolution of the board of directors; provided , that the signatures of the officers of the corporation thereon may be facsimile as provided in these by-laws; and (g) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the chairman of the board, the president or by the board of directors.

Section 11. Assistant Treasurers and Assistant Secretaries . The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant treasurers and assistant secretaries, in general, or if there be more than one, the assistant treasurers and assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall perform such duties as shall be assigned to them by the chief financial officer or the secretary, respectively, or by the chief executive officer or the board of directors, and in the event of the absence, inability or refusal to act of the chief financial officer or the secretary, the assistant treasurers or assistant secretaries (in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the chief financial officer or the secretary, respectively.

Section 12. Other Officers . Such other officers as the board of directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the chief executive officer or the board of directors. The board of directors may delegate to any other officer of the corporation the power to choose such other officers and to prescribe their respective duties and powers.

Section 13. Other Positions . The chief executive officer may authorize the use of titles, including the titles of chairman, president and vice president, by individuals who hold management positions with the business groups, divisions or other operational units of the corporation, but who are not and shall not be deemed officers of the corporation. Individuals in such positions shall hold such titles at the discretion of the appointing officer, who shall be the chief executive officer or any officer to whom the chief executive officer delegates such appointing authority, and shall have such powers and perform such duties as such appointing officer may from time to time determine.

Section 14. Salaries . The salaries of the officers shall be fixed from time to time by the board of directors, or by one or more committees or officers to the extent so authorized from time to time by the board of directors, and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the corporation.

ARTICLE VI

INTERESTED DIRECTORS AND OFFICERS

Section 1. No contract or transaction between or among the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or a committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if:

(a) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

(b) The material facts as to his or her relationship or interests and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or

(c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders.

The common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee that authorizes the contract or transaction.

ARTICLE VII

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 1. Right to Indemnification . To the fullest extent permitted by applicable law, the corporation shall indemnify (and advance expenses to) directors, officers, employees and agents (and any other persons to which Delaware law permits the corporation to provide indemnification) through these by-laws, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to any action for breach of duty to the corporation, its stockholders, and others.

No director of the corporation shall be personally liable to the corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of the DGCL or any amendment thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, such director (1) shall have breached the director's duty or loyalty to the corporation or its stockholders, (2) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (3) shall have derived an improper personal benefit. If the DGCL is hereafter amended to permit the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment, the indemnification rights conferred by this Article VII shall be broadened to the fullest extent permitted by the DGCL, as so amended.

Each person who was or is made a party or is threatened to be made a party to or is in any way involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a " Proceeding "), including any appeal therefrom, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or a direct or indirect subsidiary of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity or enterprise, or was a director or officer of a foreign or domestic corporation that was predecessor corporation of the corporation or of another entity or enterprise at the request of such predecessor corporation (the “ Indemnified Persons ”), shall be indemnified and held harmless by the corporation, and the corporation shall advance all expenses incurred by any such person in defense of any such Proceeding prior to its final determination, to the fullest extent authorized by the DGCL. In any Proceeding against the corporation to enforce these rights, such person shall be presumed to be entitled to indemnification and the corporation shall have the burden of proving that such person has not met the standards of conduct for permissible indemnification set forth in the DGCL.

The rights to indemnification and advancement of expenses conferred by this Article VII shall be presumed to have been relied upon by the Indemnified Persons in serving or continuing to serve the corporation and shall be enforceable as contract rights. Said rights shall not be exclusive of any other

rights to which those seeking indemnification may otherwise be entitled. The corporation may, upon written demand presented by an Indemnified Person, enter into contracts to provide such persons with specified rights to indemnification, which contracts may confer rights and protections to the maximum extent permitted by the DGCL, as amended and in effect from time to time.

Section 2. Protection of Rights . If a claim under this Article VII is not paid in full by the corporation within sixty (60) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce the right to be advanced expenses incurred in defending any Proceeding prior to its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the DGCL for the corporation to indemnify the claimant for the amount claimed, but the claimant shall be presumed to be entitled to indemnification and the corporation shall have the burden of proving that the claimant has not met the standards of conduct for permissible indemnification set forth in the DGCL.

Section 3. Miscellaneous.

(i) Non-Exclusivity of Rights . The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. The board of directors shall have the authority, by resolution, to provide for such indemnification of employees or agents of the corporation or others and for such other Indemnified Persons as it shall deem appropriate.

(ii) Insurance, Contracts and Funding . The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of, or person serving in any other capacity with, the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expenses, liabilities or losses, whether or not the corporation would have the power to indemnify such person against such expenses, liabilities or losses under the DGCL. The corporation may enter into contracts with any Indemnified Person in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect the advancing of expenses and indemnification as provided in this Article.

(iii) Contractual Nature . The provisions of this Article shall be applicable to all Proceedings commenced or continuing after its adoption, whether such arise out of events, acts or omissions that occurred prior or subsequent to such adoption, and shall continue as to a person who has ceased to be an Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such person. This Article shall be deemed to be a contract between the corporation and each person who, at any time that this Article is in effect, serves or agrees to serve in any capacity that entitles him to indemnification hereunder and any repeal or other modification of this Article or any repeal or modification of the DGCL or any other applicable law shall not limit any Indemnified Person’s entitlement to the advancement of expenses or indemnification under this Article for Proceedings then existing or later arising out of events, acts or omissions occurring prior to such repeal or modification, including, without limitation, the right to indemnification for Proceedings commenced after such repeal or modification to enforce this Article with regard to Proceedings arising out of acts, omissions or events occurring prior to such repeal or modification.

(iv) Severability . If this Article or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, such invalidity or unenforceability shall not affect the other provisions hereof, and this Article shall be construed in all respects as if such invalid or unenforceable provisions had been omitted therefrom.

ARTICLE VIII

CERTIFICATES OF STOCK AND THEIR TRANSFER

Section 1. Certificates of Stock . The shares of capital stock of the corporation shall be represented by a certificate in such form or forms from time to time approved by the board of directors, unless and until the board of directors adopts a resolution permitting shares to be uncertificated. Notwithstanding the adoption of any such resolution providing for uncertificated shares, every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by (a) the chairman of the board of directors, president or a vice-president and (b) by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary of the corporation certifying the number of shares owned by such stockholder in the corporation. Where a certificate is signed by (x) a transfer agent of the corporation other than the corporation or its employee, or (y) by a registrar other than the corporation or its employee, the signature of the chairman of the board of directors, president, vice president, chief financial officer, assistant treasurer, secretary or assistant secretary may be facsimile. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation.

Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified.

If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided , that , except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

Section 2. Records of Certificates . A record shall be kept of the name of the person, firm or corporation of record holding the stock represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the corporation for exchange or transfer shall be cancelled and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled, except in cases provided for in Section 3 of this Article.

Section 3. Lost Certificates . The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 4. Transfers of Stock . Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

Section 5. Fixing Record Date . In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the board of directors may fix a new record date for the adjourned meeting.

Section 6. Registered Stockholders . The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

Section 7. Books and Records . The books and records of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated, from time to time, by the board of directors or these by-laws.

ARTICLE IX

GENERAL PROVISIONS

Section 1. Execution of Documents . The chief executive officer, or any other officer, employee or agent of the corporation designated by the board of directors or designated in accordance with corporate policy approved by the board of directors, shall have the power to execute and deliver proxies, stock powers, deeds, leases, contracts, mortgages, bonds, debentures, notes, checks, drafts and other orders for payment of money and other documents for and in the name of the corporation, and such power may be delegated (including the power to re-delegate) by the chief executive officer or to the extent provided in such corporate policy by written instrument to other officers, employees or agents of the corporation.

Section 2. Dividends . Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any

regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

Section 3. Fiscal Year . The fiscal year of the corporation shall end on the last day of December in each year.

Section 4. Seal . The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Unless the board of directors shall otherwise direct in specific instances, the seal, when so impressed or affixed, shall be attested by the signature of the secretary or an assistant secretary.

The secretary shall be the custodian of the seal and shall affix the seal to all papers that may require it upon the authorization of the chairman, the president, a committee of the board of directors, or any other officer designated by the board of directors.

ARTICLE X

AMENDMENTS

Section 1. Amendments; Generally . These by-laws may be repealed, altered, amended or rescinded, in whole or in part, or new by-laws may be adopted by the stockholders or the board of directors; provided , however , that notice of such repeal, alteration, amendment, rescission or adoption of new by-laws be contained in the notice of such meeting of stockholders or board of directors, as the case may be. All such amendments must be approved by either the holders of a at least sixty-six and two-thirds percent (66 2/3%) of the outstanding capital stock entitled to vote thereon or by the board of directors.

Exhibit 10.7

FOURTH AMENDMENT TO LEASE AGREEMENT

NOW COME Central United Life Insurance Company (“Lessor”) and GraphOn Corporation (“Lessee”) pursuant to a lease agreement between the parties dated October 24, 2003 (the “Agreement”) and confirm the following:

1. EFFECTIVE DATE OF THE AMENDMENT

This Fourth Amendment becomes effective September 15, 2009 and continues through the term of the Agreement.

2. TERM

Lessor does hereby extend the Lease term for a three (3) year term commencing on September 15, 2009 and ending on September 14, 2012. Lessee shall have the right to terminate the Lease at any time during the term by giving a six (6) month advance written notice to Lessor.

3. BASE RENT

Lessee shall pay to Lessor annual rent in the amount of One Hundred Five Thousand Six Hundred and Fifty Nine Dollars ($105,659.00) the “Base Rent,” which base rent is calculated at Nineteen Dollars ($19.00) per square foot for Five Thousand Five Hundred Sixty One (5,561) square feet (except for any fractional months at the beginning and end of each term which shall be prorated). Lessee shall make payment in equal monthly installments of Eight Thousand Eight Hundred and Four Dollars and Ninety Two Cents ($8,804.92) in advance on the first day of each month.

4. CONTINUATION OF AGREEMENT

In all other respects, the Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment by their officers hereunto duly authorized.

LESSOR: Date: 09/17/09	CENTRAL UNITED LIFE INSURANCE CO. BY :/s/ Douglas G. Noyes Douglas G. Noyes Its Duly Authorized Representative

LESSEE: Date: 09/17/09	GRAPHON CORPORATION BY: /s/ William Tidd William Tidd Its Director of Engineering

STATE OF NEW HAMPSHIRE

COUNTY OF MERRIMACK

The foregoing instrument was acknowledged before me this 17 th day of September, 2009 by Douglas G. Noyes, Duly Authorized Representative of Central United Life Insurance Company.

BY :/s/ Susan Maples

Notary Public

STATE OF NEW HAMPSHIRE

COUNTY OF MERRIMACK

The foregoing instrument was acknowledged before me this 17 th day of September, 2009 by William Tidd of GraphOn Corporation.

BY :/s/ Susan Maples

Notary Public

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of GraphOn Corporation

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-156229, 333-145284, 333-119402, 333-107336, 333-40174, and 333-88255) of GraphOn Corporation of our report dated March 31, 2010, relating to the consolidated financial statements, which appear in this Form 10-K.

Our report on the consolidated financial statements included a pragraph that states, as discussed in Note 5 to the consolidated financial statements, in 2009, the Company has changed its method of accounting for warrants that are not indexed to its stock due to the adoption of FASB ASC 815 (EITF 07-5), Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock.

/s/ Macias Gini & O'Connell LLP

Macias Gini & O’Connell LLP

Sacramento, California

March 31, 2010

Exhibit 31.1

I, Robert Dilworth, certify that:

1.	I have reviewed this annual report on Form 10-K of GraphOn Corporation (“registrant”);
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(s) 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(s) 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: March 31, 2010

/s/ Robert Dilworth

Robert Dilworth

Chief Executive Officer

Chairman of the Board

I, William Swain, certify that:

1.	I have reviewed this annual report on Form 10-K of GraphOn Corporation (“registrant”);
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(s) 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(s) 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: March 31, 2010

/s/ William Swain

William Swain

Chief Financial Officer

Exhibit 32.1

(a) Certification of Annual Report by Chief Executive Officer.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of GraphOn Corporation (the “Company”) on Form 10-K for the period ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert Dilworth, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert Dilworth________

Robert Dilworth

Chief Executive Officer

March 31, 2010

(b) Certification of Annual Report by Chief Financial Officer.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of GraphOn Corporation (the “Company”) on Form 10-K for the period ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William Swain, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William Swain________

William Swain

Chief Financial Officer

March 31, 2010

Exhibit 99.1

Press Release For Immediate Release

Company Contact:

William Swain, GraphOn Corporation

1.800.GRAPHON

Bill.Swain@GraphOn.com

GraphOn Corporation Reports Fiscal 2009 Financial Results

SANTA CRUZ, CA, USA –February 22, 2010 – GraphOn Corporation (OTCBB: GOJO.OB), a leading worldwide developer of application publishing and Web-enabling solutions, today announced financial results for fiscal year 2009.

Financial Highlights

Revenue was approximately $8.1 million for the fiscal year ended December 31, 2009, as compared to approximately $6.7 million recorded for the same period in 2008. Net loss for the fiscal year ended December 31, 2009 was approximately $1.8 million, as compared to a net loss of approximately $2.6 million for 2008. Loss per common share on a basic and diluted basis for the fiscal year ended December 31, 2009 was $0.04 per share as compared to a net loss of $0.06 per share for 2008.

"We are pleased with our overall approximate 20% increase in revenue over fiscal 2008 levels,” Robert Dilworth, CEO, said. “Our revenue increase was primarily due to the total $2.3 million in revenue we recognized from a number of intellectual property licenses that we were able to consummate during the year. Revenue from new business within our core GO-Global product line remained constant year over year, even in these difficult economic times, when we eliminate the $946,000 of revenue we recognized in 2008 related to transactions we entered into with our distributor in Japan prior to 2008.”

Mr. Dilworth continued; “With respect to our primary line of business, as a result of our continued investment in our GO-Global products, we believe we will continue to be in a position to introduce upgraded products that will maintain our position in the market place. We ended the year with $2.9 million in cash, a portion of which will be judiciously used to continue development of new products, which we intend to announce later in the year.”

About GraphOn Corporation

GraphOn Corporation is a publicly-traded company headquartered in Santa Cruz, California. For over two decades, GraphOn has been an innovator of cost-effective, advanced solutions that help customers access applications from anywhere. GraphOn’s high-performance software provides fast remote access, cross-platform connectivity, and a centralized architecture that delivers a dramatically lower cost of ownership. The company’s solutions run under Microsoft (MSFT) Windows, Linux and UNIX, including Sun (JAVA) Solaris, IBM AIX, Hewlett-Packard (HPQ) HP-UX, and others. For more information, call 1.800.GRRAPHON in the USA, +44.1344.206549 in Europe, or visit www.graphon.com

- more -

GRAPHON CORPORATION
Condensed Consolidated Balance Sheets
	December 31,	December 31,
	2009	2008
	(Unaudited)	(Unaudited)
Assets
Cash and cash equivalents	$ 2,852,900	$ 3,742,200
Accounts receivable, net	839,600	970,000
Other current assets	64,500	63,400
Total current assets	3,757,000	4,775,600
Property and equipment, net	127,100	182,700
Patents, net	511,700	984,000
Other assets	14,800	20,200
Total assets	$ 4,410,600	$ 5,962,500

Liabilities and stockholders' equity
Accounts payable and accrued liabilities	$ 986,200	$ 795,700
Deferred revenue - current	1,862,600	1,744,600
Total current liabilities	2,848,800	2,540,300
Deferred revenue - long term	836,200	858,500
Other liabilities - long term	-	28,400
Stockholders' equity	725,600	2,535,300
Total liabilities and stockholders' equity	$ 4,410,600	$ 5,962,500

Condensed Consolidated Statements of Operations and Comprehensive Loss

	Year ended December 31,
	2009	2008
	(Unaudited)	(Unaudited)
Revenue	$ 8,077,200	$ 6,708,700
Cost of revenue	1,381,100	575,100
Gross profit	6,696,100	6,133,600

Selling and marketing	1,871,500	1,816,100
General and administrative	3,889,600	3,796,100
Research and development	2,768,600	2,373,500
Impairment of patents	-	868,200
Total operating expenses	8,529,700	8,853,900
Loss from operations	(1,833,600)	(2,720,300)
Other income, net	15,400	81,800
Loss before income taxes	(1,818,200)	(2,638,500)
Income taxes	2,000	(11,700)
Net loss	(1,820,200)	(2,626,800)
Other comprehensive income (loss)	-	-
Comprehensive loss	$ (1,820,200)	$ (2,626,800)
Loss per common share - basic and diluted	$ (0.04)	$ (0.06)
Weighted average shares outstanding - basic and diluted	47,212,851	47,022,803

This press release contains statements that are forward looking as that term is defined by the United States Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties. Actual results will differ due to factors such as shifts in customer demand, product shipment schedules, product mix, competitive products and pricing, technological shifts and other variables. Readers are referred to GraphOn's most recent periodic and other reports filed with the Securities and Exchange Commission.

GraphOn and GO-Global are a registered trademarks of GraphOn Corporation. All other trademarks belong to their respective owners.

# # #