Updated from 2:05 p.m. EDTMercury Interactive ( MERQ) shares dropped sharply Wednesday after the company reported unexpectedly weak second-quarter earnings and issued disappointing guidance for the third quarter. Shares of the Mountain View, Calif., software company closed the day at $37.93, a drop of $4.80, or 11.2%, as shareholders rushed to sell them. When the dust settled, more than 28.9 million shares had changed hands, in excess of 13 times an average day's volume. Mercury, which makes software to test and tune business applications, posted revenue of $159 million in the June quarter, a year-over-year increase of 35%, but below Wall Street's expectations of $166 million. Net income for the quarter was $11.6 million, or 12 cents a share, well under the same quarter last year when the company earned $16.9 million, or 19 cents a share. Excluding a $9.2 million charge for expenses related to Mercury's move to a new headquarters, and $5 million of other charges, the company earned $22 million, or 22 cents a share. Analysts polled by Thomson First Call had expected the company to earn 25 cents a share. However, the miss may not have been as worrisome as the numbers indicate on a first glance. Mercury reported that deferred revenue grew to $26.2 million in the quarter, compared with its forecast of approximately $15 million, noted analyst Jason Brueschke of Pacific Growth Equities. Therefore, the $11 million the company expected to put on the income statement instead went to the balance sheet and blew the revenue forecast. The spike in deferred license revenue also hits earnings, because expenses for deferred revenue are taken up front, while the revenue is taken over a period of time. Brueschke explained that some of the company's products are sold on a perpetual basis only, others on a subscription basis only, and some are sold either way depending on the customer's preference. Therefore a change in the mix can make a large difference to the top and bottom line of a particular quarter without actually reflecting a real change in sales.