UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark
 (Mark one)
xþAnnual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 20072010

oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-15169

PERFICIENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or other jurisdiction of 
incorporation or organization)
No. 74-2853258
(I.R.S. Employer Identification No.)

1120 South Capital of Texas Highway, Building 3,
520 Maryville Centre Drive, Suite 220400
Austin, Texas 78746Saint Louis, Missouri 63141
(Address of principal executive offices)
 
(512) 531-6000
(314) 529-3600
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.001 par value
Name of each exchange on which registered:
The NASDAQ StockNasdaq Global Select Market LLC

Securities registered pursuant to Section 12(g) of the Act:None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yeso   oNo  No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yeso oNo    Noþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ    Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o   No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec.229.405(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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.
  
Large accelerated filero
Accelerated filerþ
Non-accelerated filero
Smaller reporting companyo
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso  oNo   Noþ
 
The aggregate market value of the voting stock held by non-affiliates of the Company was approximately $568.0$241.3 million on June 30, 2007 based on the last reported sale price of the Company's common stock on The NASDAQ StockNasdaq Global Select Market LLC on June 30, 2007.2010.

As of February 27, 2008,28, 2011, there were 31,908,56629,623,398­ shares of Common Stock outstanding.

Portions of the definitive proxy statement in connection with the 20082011 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission no later than April 30, 2008,2011, are incorporated by reference in Part III of this Form 10-K.




 
 
 



TABLE OF CONTENTS
 
PART I 
Item 1.Business.  1 
Item 1A.Risk Factors.  98 
Item 1B.Unresolved Staff Comments.  1516 
Item 2.Properties.  16 
Item 3.Legal Proceedings.  16 
Item 4.Submission of Matters to a Vote of Security Holders.Reserved.  16 
  
PART II 
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.  17 
Item 6.Selected Financial Data.  18 
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations.  19 
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.  29 
Item 8.Financial Statements and Supplementary Data.  30 
Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.  5552 
Item 9A.Controls and Procedures.  5552 
Item 9B.Other Information.  5652 
  
PART III 
Item 10.Directors, Executive Officers and Corporate Governance.  5753 
Item 11.Executive Compensation.  5954 
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.  5954 
Item 13.Certain Relationships and Related Transactions, and Director Independence.  5954 
Item 14.Principal Accounting Fees and Services.  5954 
  
PART IV 
Item 15.Exhibits, and Financial Statement Schedules.  6055 
 

 
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PART I
Item 1. Business.
 
Overview
 
We are an information technology consulting firm serving Forbes Global 2000 (“Global 2000”) and other large enterprise companies with a primary focus on the United States. We help our clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with their customers, suppliers and partners, improve productivity, and reduce information technology costs. We design, build, and deliver business-driven technology solutions using third party software products developed by our partners.products. Our solutions include custom applications, portals and collaboration, eCommerce, online customer management, enterprise content management, business intelligence, business integration, mobile technology,customer relationship management, custom applications, technology platform implementations, business intelligence, enterprise con tent management, enterprise performance management, eCommerce, and customer self service, oriented architectures.among others. Our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global, Internet-driven and competitive marketplace.
 
Through our experience in developing and delivering business-driven technology solutions for a large number of Global 2000 clients, we have acquired significant domain expertise that we believe differentiates our firm. We use expert project teams that we believe deliver high-value, measurable results by working collaboratively with clients and their partners through a user-centered, technology-based and business-driven solutions methodology. We believe this approach enhances return-on-investment for our clients by significantly reducing the time and risk associated with designing and implementing business-driven technology solutions.

We are
Our goal is to continue to build one of the leading independent information technology consulting firms in North America by expanding our relationships with existing and new clients and through a combinationthe continuation of organic growth and acquisitions.our disciplined acquisition strategy.  We believe that information technology consulting is a fragmented industry and that there are a substantial number of privately held information technology consulting firms in our target markets that, if acquired, can be strategically beneficial and accretive to earnings over time. We have a track record of successfully identifying, executing, and integrating acquisitions that add strategic value to our business.  SinceFrom April 2004 through November 2007, we have acquired and integrated 12 information technology consulting firms, fourfir ms.  Given the economic conditions during 2008 and 2009 we suspended acquisition activity pending improved visibility into the health of which were acquired in 2007. We believe that we can achieve significantly fasterthe economy.  With the return to growth in revenues and profitability through a combination of organic growth and acquisitions than we could through organic growth alone.
We believe2010 we have built oneresumed our disciplined acquisition strategy as evidenced by our acquisition of the leading independent information technology consulting firmsKerdock Consulting, LLC (“Kerdock”) in the United States. March and speakTECH in December.
We serve our customers from our network oflocations in 18 officesmarkets throughout North America. InAmerica and, in addition, we have over 500 colleaguesbillable employees who are part of “national” business units whoand travel extensively to serve clients throughout North America and Europe.primarily in the United States. Our future growth plan includes expanding our business both organically and through acquisitions, with a primarycontinued focus on the United States, both through expansion ofStates. We also intend to further leverage our national travel practicesexisting offshore capabilities to support our future growth and through opening new offices, both organically and through acquisitions.provide our clients flexible options for project delivery.  In 2007, 2006 and 2005, 99%2010, 96% of our revenues were derived from clients in the United States while 1%4% of our revenues were derived from clients in Canada and Europe.  Over 98%In 2009 and 2008, 96% and 97%, respectively, of our revenues were derived from clients in the United States while 4% and 3%, respectively, of our revenues were derived from clients in Canada and Europe. Approximately 97% of our total assets were located in the United States in 20072010 and 2009 with the remainder located in Canada, China, and India. During 2006, over 99% of our total assets were located in the United States with the remainder located in Canada.
 
We place strong emphasis on building lasting relationships with clients. Over the past three years ending December 31, 2007,2010, an average of 78%87% of services revenues waswere derived from clients who continued to utilize our services from the prior year, excluding from the calculation for any single period revenues from acquisitions completed in that year. We have also built meaningful partnershipsrelationships with software providers most notably IBM, whose products we use to design and implement solutions for our clients. These partnershipsrelationships enable us to reduce our cost of sales and sales cycle times and increase success rates through leveraging our partners'partners’ marketing efforts and endorsements.
 
Industry Background
 
A number of factors are shaping the information technology industry and, in particular, the market for our information technology consulting services:

United States Economic RecoveryEconomy. The years 2001In 2008 and 2002 saw a protracted downturn in information technology spending as a result of an economic recession in the United States and the collapse of the Internet “bubble.” The information technology consulting industry began to experience a recovery in the second half of 2003, which continued through the first half of 2007.  As we enter 2008, it appears that2009, the United States economy is beginning to experienceexperienced a slowdown in growth.recession.  It is clear that the slowdown will haverecession had an effect on the information technology consulting industry in general and on demand for our servicesservices.  We experienced a return to organic growth in particular, but the amount of that impact is uncertain.2010 and expect it to continue in 2011. According to the most recent forecast from independent market research firm Forrester Research, totalthe United States technology market will grow by 7.4% in 2011 and demand for software and information technology services spending in North America is expectedwill grow 8.4% and 8.2%, respectively.  We have provided services revenue guidance for 2011 of $235 million to rise 5.2% in 2008.$255 million which would represent an increase from 2010 revenues of 9% to 19%.
 


 
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Need to Rationalize Complex, Heterogeneous Enterprise Technology Environments. Over the past 15 years, theThe information systems of many Global 2000 and large enterprise companies have evolvedcontinue to evolve from traditional mainframe-based systems to include distributed computing environments. This evolution has been driven by the benefits offered by distributed computing, including lower incremental technology costs, faster application development and deployment, increased flexibility, and improved access to business information. Organizations have also widely installed enterprise resource planning (ERP), supply chain management (SCM), and customer relationship management (CRM), applications in order to streamline internal processesp rocesses and enable communication and collaboration.
 
As a result of investment in these different technologies, organizations nowgenerally have complex enterprise technology environments with, in some cases, incompatible technologies and high costs of integration. These increases in complexity, cost, and risk, combined with the business and technology transformation caused by the commercialization ofresulting from the Internet, have created demand for information technology consultants with experience in enabling the integration of disparate platforms and leveraging Internet-based technologies to support business and technology goals.
 
Increased Competitive Pressures. The marketplace continues to become increasingly global Internet-driven and competitive. To gain and maintain a competitive advantage in this environment, Global 2000 and large enterprise companies seek real-time access to critical business applications and information that enables quality business decisions based on the latest possible information, flexible business processes and systems that respond quickly to market opportunities, improved quality and lower cost customer care through online customer self-service and provisioning, reduced supply chain costs, and improved logistics through processes and systems integrated online to suppliers, partners, and distributors, and increased employee productivity through better information flow and collaboration.
 
Enabling these business goals requires integrating, automating and extending business processes, technology infrastructure, and software applications end-to-end within an organization and with key partners, suppliers, and customers. This requires the ability not only to integrate the disparate information resource types, databases, legacy mainframe applications, packaged application software, custom applications, trading partners, people, and Web services, but also to manage the business processes that govern the interactions between these resources so that organizations can engage in “real-timereal-time business.” Real-time business refers to the use of current information in business to execute critical business processes.
 
These factors are driving increasedcontinue to drive spending on software and related consulting services in the areas of application integration, middleware and portals, (AIMP), as these segments play critical roles in the integration between new and existing systems and the extension of those systems to customers, suppliers, and partners via the Internet.partners. Companies are expected to increase software spendingcontinue to spend on integration broker suites, enterprise portal services, application platform suites, and message-oriented middleware. As companies increase spendingcontinue to spend on software and related consulting services, their overall spending on services will also increase,continue, often by a multiplier of each dollar spent on software.

Quarterly Fluctuations. Our quarterly operating results are subject to seasonal fluctuations. The first and fourth quarters arequarter is impacted by fewer billable days as a result of professional staff vacation and holidays, as well asand the timing of buying decisionsfirst quarter is impacted by clients.diminished opportunities to sell services through the fourth quarter holiday period. Our results will also fluctuate, in part, based on whether we succeed in counterbalancing periodic declines in services revenues when a project or engagement is completed or cancelled by entering into arrangements to provide additional services to the same or other clients. Software sales are seasonal as well, with generally higher software demand during the third and fourth quarter.quarter as procure ment policies of our clients may result in higher technology spending towards the end of budget cycles. These and other seasonal factors may contribute to fluctuations in our operating results from quarter-to-quarter.

Competitive Strengths

We believe our competitive strengths include:

§•  
Domain Expertise. We have acquired significant domain expertise in a core set of business-driven technology solutions and software platforms. These solutions include custom applications, portals and collaboration, eCommerce,business integration, customer relationship management, custom applications, technology platform implementations, business intelligence, enterprise content management, business intelligence, business integration, mobile technology solutions, technology platform implementationsenterprise performance management, eCommerce, and customer self service oriented architectures and enterprise service bus. , among others. The platforms in which we have significant domain expertise and on which these solutions are built include IBM, WebSphere,Oracle, Microsoft, TIBCO, BusinessWorks, Microsoft.NET, Oracle-Seibel, BEA (acquired by Oracle), Cognos (acquired by IBM) and Documentum, among others.


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Delivery Model and Methodology. We believe our significant domain expertise enables us to provide high-value solutions through expert project teams that deliver measurable results by working collaboratively with clients through a user-centered, technology-based, and business-driven solutions methodology. Our eNable Methodology,methodology includes a unique and proven execution process map we developed, which allows for repeatable, high quality services delivery. The eNable Methodologymethodology leverages the thought leadership of our senior strategists and practitioners to support the client project team and focuses on transforming our clients'clients’ business processes to provide enhanced customer value and operating efficiency, enabled by Webweb technology. As a result, we believe we are able to offer our clients the dedicated attention that small firms usually provide and the delivery and project management that larger firms usually offer.

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§•  
Client Relationships. We have built a track record of quality solutions and client satisfaction through the timely, efficient and successful completion of numerous projects for our clients. As a result, we have established long-term relationships with many of our clients who continue to engage us for additional projects and serve as references for us. Over the past three years ending December 31, 2007,2010, an average of 78%87% of services revenues waswere derived from clients who continued to utilize our services from the prior year, excluding from the calculation for any revenues from acquisitions completed in that year.

§•  
Vendor PartnershipsRelationship and Endorsements. We have built meaningful partnershipsrelationships with software providers, including IBM, whose products we use to design and implement solutions for our clients. These partnershipsrelationships enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our partners'partners’ marketing efforts and endorsements. We also serve as a sales channel for our partners, helping them market and sell their software products. We are a Premier IBM business partner, a TeamTIBCO partner,Certified Oracle Partner, a Microsoft Gold Certified Partner, a Certified Oracle Partner,TeamTIBCO partner, and an EMC Documentum Select Services Team Partner.  Our partnersvendors have recognized our partnershiprelationships with several awards.  Most recently, we were named IBM’s 2010 InfoSphere Warehouse Pack Partner of the CompanyYear. The honor marked the fifth consecutive year that we have received a major business partner award from IBM, which also recognized Perficient with the Impact 2010 Smarter Decision Management Award. Also in 2010, Perficient was honored with IBM’s Information Management 2007 Most Distinguishednamed Microsoft’s Public Sector Healthcare Provider Partner (North America) Awardof the Year and IBM’s Lotus 2008 Most Distinguished Partner (North America)was a recipient of the 2010 Greater St. Louis Top 50 Businesses Shaping our Future Award.

§•  
Geographic Focus. We believe we have built one of the leading independent information technology consulting firms in the United States. We serve our clients from our network oflocations in 18 officesmarkets throughout North America. InAmerica and, in addition, we have over 500 colleaguesbillable employees who are part of “national” business units whoand travel extensively to serve clients primarily in the United States. Our future growth plan includes expanding our business throughout the United States through expansion of our national travel practices, both organically and through acquisition. We believe our network providesacquisitions, with a competitive platform from which to expand nationally.primary focus on the United States.

§•  
Offshore Capability. We own and operate a CMMI Level 45 certified global development center in Hangzhou, China that was acquired in September 2007.China. This facility is staffed with Perficient colleagues who provide offshore custom application development, quality assurance and testing services. Additionally, we have a relationship with an offshore development facility in Bitola, Macedonia. Through this facilitythese facilities we contract withutilize a team of professionalscolleagues with expertise in IBM, TIBCOMicrosoft, and MicrosoftTIBCO technologies and with specializations that include application development, adapter and interface development, quality assurance and testing, monitoring and support, product development, platform migration, and portal development. In addition to our offshore capabilities, we employ a substantial number of foreign nationals in the United States on H1-B visas.  Also in 2007, we acquiredvisas .  We also maintain a recruiting and development facility in Chennai, India, to continue to grow our base of H1-B foreign national colleagues.  As of December 31, 2010, we had 170 colleagues at the Hangzhou, China facility and 178 colleagues with H1-B visas.  We intend to continue to leverage our existing offshore capabilities to support our growth and provide our clients flexible options for project delivery.

Our Solutions
 
We help clients gain competitive advantage by using Internet-based technologiestechnology to make their businesses more responsive to market opportunities and threats,threats; strengthen relationships with customers, suppliers, and partners,partners; improve productivityproductivity; and reduce information technology costs. Our business-driven technology solutions enable these benefits by developing, integrating, automating, and extending business processes, technology infrastructure and software applications end-to-end within an organization and with key partners, suppliers, and customers. This provides real-time access to critical business applications and information and a scalable, reliable, secure, and cost-effective technology infrastructure that enables clients to:

§•  give managers and executives the information they need to make quality business decisions and dynamically adapt their business processes and systems to respond to client demands, market opportunities, or business problems;
§•  improve the quality and lower the cost of customer acquisition and care through Web-basedweb-based customer self-service and provisioning;
§•  reduce supply chain costs and improve logistics by flexibly and quickly integrating processes and systems and making relevant real-time information and applications available online to suppliers, partners, and distributors;
§•  increase the effectiveness and value of legacy enterprise technology infrastructure investments by enabling faster application development and deployment, increased flexibility, and lower management costs; and


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§•  increase employee productivity through better information flow and collaboration capabilities and by automating routine processes to enable focus on unique problems and opportunities.
 

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Our business-driven technology solutions include the following:

•  §
Enterprise portals and collaboration. We design, develop, implement, and integrate secure and scalable enterprise portals and collaboration solutions for our clients and their customers, suppliers, and partners that include searchable data systems, collaborative systems for process improvement, transaction processing, unified and extended reporting, content management, social media/networking tools, and personalization.

•  
Business integration and service oriented architectures (SOA). We design, develop, and implement business integration and SOA solutions that allow our clients to integrate all of their business processes end-to-end and across the enterprise. Truly innovative companies are extending those processes and eliminating functional friction between the enterprise, core customers, and partners. Our business integration solutions can extend and extract core applications, reduce infrastructure strains and cost, web-enable legacy applications, provide real-time insight into business metrics, and introduce efficiencies for customers, suppliers, and partners.

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Customer relationship management (CRM). We design, develop, and implement advanced CRM solutions that facilitate customer acquisition, service and support, and sales and marketing by understanding our customers’ needs through interviews, requirement gathering sessions, call center analysis, developing an iterative prototype driven solution, and integrating the solution to legacy processes and applications.

•  
Custom applications. We design, develop, implement, and integrate custom application solutions that deliver enterprise-specific functionality to meet the unique requirements and needs of our clients. Perficient'sOur substantial experience with platforms including J2EE, .Net, and open-source - plus our flexible delivery structure -Open-source enables enterprises of all types to leverage cutting-edge technologies to meet business-driven needs.

§•  
Enterprise portals and collaboration. We design, develop, implement and integrate secure and scalable enterprise portals for our clients and their customers, suppliers and partners that include searchable data systems, collaborative systems for process improvement, transaction processing, unified and extended reporting and content management and personalization.
§
eCommerceTechnology platform implementations. We design, develop, and implement securetechnology platform implementations that allow our clients to establish a robust, reliable Internet-based infrastructure for integrated business applications which extend enterprise technology assets to employees, customers, suppliers, and reliable ecommerce infrastructures that dynamically integrate with back-end systemspartners. Our platform services include application server selection, architecture planning, installation and complementary applications that provideconfiguration, clustering for transaction volume scalabilityavailability, performance assessment and sophisticated content management.issue remediation, security services, and technology migrations.

§•  
Customer relationship management (CRM)Business intelligence. We design, develop, and implement advanced CRMbusiness intelligence solutions that facilitate customer acquisition, serviceallow companies to interpret and support, sales,act upon accurate, timely, and marketingintegrated information. Business intelligence solutions help our clients make more informed business decisions by understandingclassifying, aggregating, and correlating data into meaningful business information. Our business intelligence solutions allow our customers' needs through interviews, facilitated requirements gathering sessionsclients to transform data into knowledge for quick and call center analysis, developing an iterative, prototype driven solutioneffective decision making and integrating the solution to legacy processescan include information strategy, data warehousing, and applications.business analytics and reporting.

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Enterprise content management (ECM). We design, develop, and implement ECM solutions that enable the management of all unstructured information regardless of file type or format. Our ECM solutions can facilitate the creation of new content and/or provide easy access and retrieval of existing digital assets from other enterprise tools such as enterprise resource planning (ERP), customer relationship management, or legacy applications. Perficient'sOur ECM solutions include Enterprise Imaging and Document Management, Web Content Management, Digital Asset Management, Enterprise Records Management, Compliance and Control, Business Process Management and Collaboration, and Enterprise Search.

§•  
Business intelligenceEnterprise performance management (EPM). We design, develop, and implement business intelligence solutions that allow companies to interpret and act upon accurate, timely and integrated information. By classifying, aggregating and correlating data into meaningful business information, business intelligence solutions help our clients make more informed business decisions. Our business intelligence solutions allow our clients to transform data into knowledge for quick and effective decision making and can include information strategy, data warehousing and business analytics and reporting.
§
Business integration. We design, develop and implement business integration solutions that allow our clients to integrate all of their business processes end-to-end and across the enterprise. Truly innovative companies are extending those processes, and eliminating functional friction, between the enterprise and core customers and partners. Our business integration solutions can extend and extract core applications, reduce infrastructure strains and cost, Web-enable legacy applications, provide real-time insight into business metrics and introduce efficiencies for customers, suppliers and partners.
§
Mobile technology solutions. We design, develop and implement mobile technology solutions that deliver wireless capabilities to carriers, Mobile Virtual Network Operators (MVNO), Mobile Virtual Network Enablers (MVNE), and the enterprise. Perficient's expertise with wireless technologies such as SIP, MMS, WAP, and GPRS are coupled with our deep expertise in mobile content delivery. Our secure and scalable solutions can include mobile content delivery systems; wireless value-added services including SIP, IMS, SMS, MMS and Push-to-Talk; custom developed applications to pervasive devices including Symbian, WML, J2ME, MIDP, Linux; and customer care solutions including provisioning, mediation, rating and billing.
§
Technology platform implementations. We design, develop and implement technology platform implementations that allow our clients to establish a robust, reliable Internet-based infrastructure for integrated business applications which extend enterprise technology assets to employees, customers, suppliers and partners. Our Platform Services include application server selection, architecture planning, installation and configuration, clustering for availability, performance assessment and issue remediation, security services and technology migrations.



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§
Service oriented architectures and enterprise service bus. We design, develop and implement service oriented architecture and enterprise service busEPM solutions that allow our clients to quickly adapt their business processes to respond to new market opportunities or competitive threats by taking advantage of business strategies supported by flexible business applications and IT infrastructures.

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Business Process Management & Analysis. We design, develop, and implement business strategy solutions, technology roadmaps, competitor benchmarks, and current-state assessments. Our business consultants analyze existing initiatives, infrastructure, and investments and counsel our clients on how to leverage technology to achieve maximum return-on-investment and business impact.
•  
Interactive Design. We design, develop, and implement interactive data solutions that provide our clients with a quality user experience, which ensures our clients will be able to achieve their goals easily and efficiently through expertise in custom multimedia design, information architecture, rich-media interfaces, and innovative interactive platforms such as Microsoft Surface and iPhone. We combine creative expertise, inspired ideas, and emerging technologies including social networking, collaboration tools, and multi-touch interfaces with broad vertical industry expertise to build rich, relevant, compelling business solutions. These end-to-end interactive design and technology solutions allow our clients to connect with their clients, employees, and partners, drive revenue, e ncourage people to work smarter, and innovate the way the world does business.

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Maintenance and Support Offerings. We design, develop, and implement maintenance and support offerings for our clients who are interested in the ongoing support of applications.  These arrangements are typically structured on a fee retainer basis and provide a recurring revenue stream for Perficient.

We conceive, build, and implement these solutions through a comprehensive set of services including business strategy, user-centered design, systems architecture, custom application development, technology integration, package implementation, and managed services.
 
In addition to our business-driven technology solution services, we offer education and mentoring services to our clients. We operate an IBM-certified advancedconduct IBM- and Oracle-certified training, facility in Chicago, Illinois, where we provide our clients both a customized and established curriculum of courses and other education services in areas including object-oriented analysis and design immersion, J2EE, user experience, and an IBM Course Suite with over 20 distinct courses covering the IBM WebSphere product suite. We also leverage our education practice and training facility to provide continuing education and professional development opportunities for our colleagues.services.
 
Our Solutions Methodology
Our approach to solutions design and delivery is user-centered, technology-based and business-driven and is:
§iterative and results oriented;
§centered around a flexible and repeatable framework;
§collaborative and customer-centered in that we work with not only our clients but with our clients' customers in developing our solutions;
§focused on delivering high value, measurable results; and
§grounded by industry leading project management.
The eNable Methodology allows for repeatable, high quality services delivery through a unique and proven execution process map. Our methodology is grounded in a thorough understanding of our clients' overall business strategy and competitive environment. The eNable Methodology leverages the thought leadership of our senior strategists and practitioners and focuses on transforming our clients' business processes, applications and technology infrastructure. The eNable Methodology focuses on business value or return-on-investment, with specific objectives and benchmarks established at the outset.
Our Strategy
 
Our goal is to be the premier technology management consulting firm primarily focused on the United States.in North America. To achieve our goal, our strategy is:is to: 

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Grow Relationships with Existing and New Clients. We intend to continue to solidify and expand enduring relationships with our existing clients and to develop long-term relationships with new clients by providing them with solutions that generate a demonstrable, positive return-on-investment. Our incentive plan rewards our project managers to work in conjunction with our sales people to expand the nature and scope of our engagements with existing clients.

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Continue Making Disciplined Acquisitions. With the return to growth in 2010, we have resumed our disciplined acquisition strategy that was suspended in 2008.  This is evidenced by our acquisition of Kerdock in March and speakTECH in December.  The information technology consulting market is a fragmented industry and we believe there are a substantial number of smaller privately held information technology consulting firms that can be acquired and be immediately accretive to our financial results. We have a track record of successfully identifying, executing, and integrating acquisitions that add strategic value to our business. Our established culture and infrastructure positions us to successfully integrate each acquired company, while continuing to offer effective solutionssolut ions to our clients. Since April 2004, we have acquired and integrated 12 information technology consulting firms, four of which were acquired in 2007. We continue to actively look for attractive acquisitions that leverage our core expertise and look to expand our capabilities and geographic presence.

§•  
Expand and Enhance Our Industry Vertical Focus.  We have industry focused practices such as healthcare, communications, and consumer products.  The goal of these industry verticals is to recruit and retain consultants with specific industry expertise and to ‘mine’ and leverage the intellectual property we have as we serve clients within these industries.  Expanding these verticals will help us in terms of revenue generation as well as market expansion beyond our geographic and solution focused business units.  

•  
Expand Technical Skill and Geographic Base.We believe we have built one of the leading independent information technology consulting firms in the United States. We serve our customers from our network oflocations in 18 officesmarkets throughout North America. InAmerica and, in addition, we have over 500 colleaguesbillable employees who are part of “national” business units whoand travel extensively to serve clients primarily in the United States.North America and Europe. Our future growth plan includes expanding our business throughout the United States through expansion of our national travel practices, both organically and through acquisition. We believeacquisitions, with a primary focus on the United States.  This growth plan also includes expanding the technical skills we offer our network provides a competitive platform from whichclients as evidenced by our acquisition of Kerdock and speakTECH.  These acquisitions allow us to expand nationally.offer more specialized Oracle EPM and Microsoft SharePoint solutions.
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§•  
Enhance Brand Visibility. Our focus on a core set of business-driven technology solutions, applications, and software platforms and a targeted customer and geographic market has given us significant marketbrand visibility. In addition, we believe we have achieved critical mass inthe size which has significantly enhancednecessary to enhance our visibility among prospective clients, employees, and software vendors. As we continue to grow our business, we intend to highlight to customerscurrent and prospective customers our thought leadership in business-driven technology solutions and infrastructure software technology platforms.
•  §
Leverage Offshore Capabilities. Our solutions and services are primarily delivered at the customer site and require a significant degree of customer participation, interaction, and specialized technology expertise.  We can complement this with lower cost offshore technology colleagues to perform less specialized roles on our solution engagements, enabling us to fully leverage our United States colleagues while offering our clients a highly competitive blended average rate. We own and operate a CMMI Level 5 certified global development center in Hangzhou, China that is staffed with colleagues who provide offshore custom application development, quality assurance, and testing services and we have a relationship with an offshore development facility in Bitola, Macedonia. I n addition to our offshore capabilities, we employ a substantial number of H1-B foreign nationals in the United States.  A recruiting and development facility in Chennai, India is maintained to continue to grow our base of H1-B foreign national colleagues.  As of December 31, 2010 we had 170 colleagues at the Hangzhou, China facility and 178 colleagues with H1-B visas.  We intend to continue to leverage our existing offshore capabilities to support our growth and provide our clients flexible options for project delivery.

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Invest in Our People and Culture. We have developed a culture built on teamwork, a passion for technology, and client service and a focus on cost control and the bottom line. As a people-based business, we continue to invest in the development of our professionalscolleagues and to provide them with entrepreneurial opportunities and career development and advancement. Our technology, business consulting, and project management ensure that client team best practices are being developed across the company and our recognition program rewards teams for implementing those practices. We believe this results in a team of motivated professionalscolleagues with the ability to deliver high-quality and high-value services for our clients.

§•  
Leverage Existing and Pursue New Strategic Alliances. We intend to continue to develop alliances that complement our core competencies. Our alliance strategy is targeted at leading business advisory companies and technology providers and allows us to take advantage of compelling technologies in a mutually beneficial and cost-competitive manner. Many of these relationships, and in particular IBM, result in our partners, or their clients, or clients using IBM platforms; utilizing us as the services firm of choice.

§
Use Offshore Services When Appropriate. Our solutions and services are primarily delivered at the customer site and require a significant degree of customer participation, interaction and specialized technology expertise, which we can use lower cost offshore technology professionals to perform less specialized roles on our solution engagements, enabling us to fully leverage our United States colleagues while offering our clients a highly competitive blended average rate. We own a CMMI Level 4 certified global development center in Hangzhou, China that is staffed with Perficient colleagues who provide offshore custom application development, quality assurance and testing services and we maintain an arrangement with an offshore development and delivery firm in Macedonia. In addition to our offshore capabilities, we employ a substantial number of H1-B foreign nationals in the United States.  In 2007, we acquired a recruiting facility in Chennai, India, to continue to grow our base of H1-B foreign national colleagues.
Sales and Marketing
 
As of December 31, 2007,2010, we had a 4936 person direct solutions-oriented sales force. Our sales team is experienced and connected through a common services portfolio, sales process, and performance management system. Our sales process utilizes project pursuit teams that include those of our information technology professionalscolleagues best suited to address a particular prospective client'sclient’s needs. We reward our sales force for developing and maintaining relationships with our clients and seeking out follow-onfollow-up engagements as well as leveraging those relationships to forge new onesrelationships in different areas of the business and with our clients'clients’ business partners.  More than 90%Approximately 82% of our sales are executed by our direct sales force.  In addition to our di rect sales team, we also have 22 dedicated sales support employees, 18 general managers and three vice-presidents who are engaged in the sales and marketing efforts.
 
Our primary target client base includes companies in North America with annual revenues in excess of $500 million. We believe this market segment can generate the repeat business that is a fundamental part of our growth plan. We primarily pursue only solutions opportunities where our domain expertise and delivery track record give us a competitive advantage. We also typically target engagements of up to $3$5 million in fees, which we believe to be below the target project range of most large systems integrators and beyond the delivery capabilities of most local boutiques.

We have sales and marketing partnerships with software vendors including IBM, Corporation,Oracle, Microsoft, TIBCO, Software, Inc., Microsoft Corporation, ECM Documentum, Oracle-Siebel, BEA, and webMethods, Inc.Documentum. These companies are key vendors of open standards basedstandards-based software commonly referred to as middleware application servers, enterprise application integration platforms, business process management, business activity monitoring and business intelligence applications, and enterprise portal server software. Our direct sales force works in tandem with the sales and marketing groups of our partners to identify potential new clients and projects. Our partnerships with these companies enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our partners'partners’ marketing efforts and endorsements. In particular, the IBM software sales channel provides us with significant sales lead flow and joint selling opportunities.

As we continue to grow our business, we intend to highlight our thought leadership in solutions and infrastructure software technology platforms. Our efforts will include technology white papers, by-lined articles by our colleagues in technology and trade publications, media and industry analyst events, sponsorship of and participation in targeted industry conferences and trade shows.
Clients


 
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Clients
During the year ended December 31, 2007,2010, we provided services to more than 470481 customers. No one customer provided more than 10% of our total revenues in 2007, 20062010, 2009 or 2005.2008.

Competition
 
The market for the information technology consulting services we provide is competitive and has low barriers to entry. We believe that our competitors fall into several categories, including:

§•  small local consulting firms that operate in no more than one or two geographic regions;

•  §regionalboutique consulting firms such as Brulant, MSI Systems IntegratorsProlifics and Prolifics;Avanade;
§•  national consulting firms, such as Answerthink, Inc., Accenture, BearingPoint, Inc., Ciber, Inc., Electronic Data Systems CorporationDeloitte Consulting, and Sapient Corporation;Sapient;
§•  in-house professional services organizations of software companies; and
•  §to a limited extent, offshore providers such as Cognizant Technology Solutions Corporation, Infosys Technologies Limited, Satyam Computer Services Limited and Wipro Limited.

We believe that the principal competitive factors affecting our market include domain expertise, track record and customer references, quality of proposed solutions, service quality and performance, efficiency, reliability, scalability and features of the software platforms upon which the solutions are based, and the ability to implement solutions quickly and respond on a timely basis to customer needs. In addition, because of the relatively low barriers to entry into this market, we expect to face additional competition from new entrants. We expect competition from offshore outsourcing and development companies to continue.
 

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Some of our competitors have longer operating histories, larger client bases, and greater name recognitionrecognition; and possess significantly greater financial, technical, and marketing resources than we do. As a result, these competitors may be better able to attract customers to which we market our services and adapt more quickly to new technologies or evolving customer or industry requirements.

Employees
 
As of December 31, 2007,2010, we had 1,427 employees, 1,2601,088 colleagues, 924 of which were billable professionals, including(excludes 185 subcontractors,billable subcontractors) and 167 of164 which were involved in sales, general administration, and marketing. None of our employeescolleagues are represented by a collective bargaining agreement and we have never experienced a strike or similar work stoppage. We considerare committed to the continued development of our relations with our employees to be good.colleagues.

Recruiting. We are dedicated to hiring, developing, and retaining experienced, motivated technology professionals who combine a depth of understanding of current Internet and legacy technologies with the ability to implement complex and cutting-edge solutions.
 
Our recruiting efforts are an important element of our continuing operations and future growth. We generally target technology professionals with extensive experience and demonstrated expertise. To attract technology professionals, we use a broad range of sources including on-staff recruiters, outside recruiting firms, internal referrals, other technology companies and technical associations, and the Internet and advertising in technical periodicals.Internet. After initially identifying qualified candidates, we conduct an extensive screening and interview process.

Retention. We believe that our rapid growth, focus on a core set of business-driven technology solutions, applications, and software platforms and our commitment to career development through continued training and advancement opportunities makemakes us an attractive career choice for experienced professionals. Because our strategic partners are established and emerging market leaders, our technology professionalscolleagues have an opportunity to work with cutting-edge information technology. We foster professional development by training our technology professionalscolleagues in the skills critical to successful consulting engagements such as implementation methodology and project management. We believe in promoting from within wheneverwhene ver possible. In addition to an annual review process that identifies near-term and longer-term career goals, we make a professional development plan available to assist our professionalscolleagues with assessing their skills and developing a detailed action plan for guiding their career development. For the year ended December 31, 2007, our voluntary attrition rate was approximately 19%.

 
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Training. To ensure continued development of our technical staff, we place a high priority on training. We offer extensive training for our professionalscolleagues around industry-leading technologies. We utilize our education practice and IBM-certified advanced training facility in Chicago, Illinois to provide continuing education and professional development opportunities for our colleagues. Additionally, most newly-hired Perficient colleagues attend Perficient 101, an orientation training course held frequently at our operational headquarters location in St. Louis where they learn general company procedures and protocols and benefit from a role-based curriculum.

Compensation. Our employees have a compensation model that includes a base salary and an incentive compensation component. Our tiered incentive compensation plans help us reach our overall goals by rewarding individuals for their influence on key performance factors. Key performance metrics include client satisfaction, revenues generated, utilization, profit, and personal skills growth.  Senior level employees are eligible to receive restricted stock awards, which generally vest ratably over a minimum three year period.

Leadership CouncilsCompany Wide Practice (CWP) Leaders. Our technologyCWP leadership council performs a critical role in maintaining our technology leadership. Consisting of key employees from each of ourseveral practice areas, the council frames ourCWP leadership assesses new strategic partner strategiestechnologies, partnership opportunities, and conducts regular Internet webcasts with our technology professionals on specific partner and general technology issues and trends.serves as lead internal subject matter experts for their respective domain. The councilCWP leaders also coordinatescoordinate thought leadership activities, including white paper authorship and publication and speaking engagements by our professionals.colleagues. Finally, the councilCWP team identifies services opportunities between and among our strategic partners'partners’ products, oversees our quality assurance programs, and assists in acquisition-related technology due diligence.dilige nce.
 
Culture
 
The Perficient Promise. We have developed the “Perficient Promise,” which consists of the following six simple commitments our colleagues make to each other:

§•  we believe in long-term client and partnervendor relationships built on investment in innovative solutions, delivering more value than the competition, and a commitment to excellence;
§•  we believe in growth and profitability and building meaningful scale;
§•  we believe each of us is ultimately responsible for our own career development and has a commitment to mentor others;
§•  we believe that Perficient has an obligation to invest in our consultants'consultants’ training and education;
§•  we believe the best career development comes on the job; and
§•  we love challenging new work opportunities.
 
We take these commitments extremely seriously because we believe that we can succeed only if the Perficient Promise is kept.

Knowledge Management
 
MyPerficient.com--The Corporate Portal. To ensure easy access to a wide range of information and tools, we have created a corporate portal, MyPerficient.com. It is a secure, centralized communications tool. It allows each of our colleagues unlimited access to information, productivity tools, time and expense entry, benefits administration, corporate policies and forms and quality management information directories and documentation.

 
Professional Services Automation Technology. We maintain a Professional Services application as the enabling technology for many of our business processes, including knowledge management. We possess and continue to aggregate significant knowledge including marketing collateral, solution proposals, work product and client deliverables. Primavera's technology allows us to store this knowledge in a logical manner and provides full-text search capability allowing our colleagues to deliver solutions more efficiently and competitively.
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General Information
 
Our stock is traded on theThe Nasdaq Global Select Market a tier of The NASDAQ Stock Market LLC, under the symbol “PRFT.” Our website can be visited at www.perficient.com. We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after we electronically file such material, or furnish it to, the Securities and Exchange Commission. The information contained or incorporated in our website is not part of this document.



  
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Item 1A. Risk Factors.
 
You should carefully consider the following risk factors together with the other information contained in or incorporated by reference into this annual report before you decide to buy our common stock. If any of these risks actually occur, our business, financial condition, operating results, or cash flows could be materially and adversely affected. This could cause the trading price of our common stock to decline and you may lose part or all of your investment.
 
Risks Related to Our Business
 
Prolonged economic weakness, particularly in the middleware, software, and services market, could adversely affect our business, financial condition, and results of operations.
 
Our results of operations are affected by the levels of business activities of our clients, which can be affected by economic conditions in the U.S. and globally.  During periods of economic downturns, our clients may decrease their demand for information technology services.  Our business is particularly influenced by the market for middleware, software and services which has changed rapidly and experienced volatility over the last eight years. The market for middleware and software and services expanded dramatically during 1999 and most of 2000, but declined significantly in 2001 and 2002. Market demand for software and services began to stabilize and improve from 2003 through the first half of 2007. As we enter 2008, it appears that the United States economy is beginning to experience a slowdown(“U.S.”) and worldwide.  For example, the general worldwide economic downturn in growth.  It is clear that the slowdown will have an effect on the information technology consulting industry in general2008 and on2009 reduced demand for our services and caused clients to request additional price concessions.  Changes in particular, but the amount of that impact is uncertain. Our future growth is dependent upon the demand for software and services, and, in particular, the information technology consulting services we provide. Demand and market acceptance for services are subject to a high level of uncertainty. Prolonged weakness in the middleware, software and services industry has caused in the past, and mayeconomic conditions could cause in the future, business enterprisesour clients to delay or cancel information technology projects, reduce their overall information technology budgets and/or reduce or cancel orders for our services. This, in turn, may lead to longer sales cycles, delays in purchase decisions, payment and collection issues, and may also result in price pressures, causing us to realize lower revenues and operatingoperatin g margins.  Additionally, if our clients cancel or delay their business and technology initiatives or choose to move these initiatives in-house,On-going economic uncertainties also affect our business financial condition and results of operations could be materially and adversely affected.
Pursuing and completing potential acquisitions could divert management's attention and financial resources and may not produce the desired business results.
If we pursue any acquisition, our management could spendin a significant amount of time and financial resources to pursue and integrate the acquired business with our existing business. To pay for an acquisition, we might use capital stock, cash or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our stockholders will experience dilution. If we use cash or debt financing, our financial liquidity may be reduced and the interest on any debt financing could adversely affect our results of operations. From an accounting perspective, an acquisition that does not perform as well as originally anticipated may involve amortization or the write-off of significant amounts of intangible assets that could adversely affect our results of operations.
Despite the investment of these management and financial resources, and completion of due diligence with respect to these efforts, an acquisition may not produce the anticipated revenues, earnings or business synergies for a variety of reasons, including:
§
difficulties in the integration of services and personnel of the acquired business;
§
the failure of management and acquired services personnel to perform as expected;
§
the risks of entering markets in which we have no, or limited, prior experience, including offshore operations in countries in which we have no prior experience;
§
the failure to identify or adequately assess any undisclosed or potential liabilities or problems of the acquired business including legal liabilities;
§
the failure of the acquired business to achieve the forecasts we used to determine the purchase price; or
§
the potential loss of key personnel of the acquired business.
These difficulties could disrupt our ongoing business, distract our management and colleagues, increase our expenses and materially and adversely affect our results of operations.


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If we do not effectively manage our growth, our results of operations and cash flows could be adversely affected.
Our ability to operate profitably with positive cash flows depends partially on how effectively we manage our growth. In order to create the additional capacity necessary to accommodate the demand for our services, we may need to implement new or upgraded operational and financial systems, procedures and controls, open new offices and hire additional colleagues. Implementation of these new or upgraded systems, procedures and controls may require substantial management efforts and our efforts to do so may not be successful. The opening of new offices (including international locations) or the hiring of additional colleagues may result in idle or underutilized capacity. We continually assess the expected capacity and utilization of our offices and professionals. We may not be able to achieve or maintain optimal utilization of our offices and professionals. If demand for our services does not meet our expectations, our revenues and cash flows may not be sufficient to offset these expenses and our results of operations and cash flows could be adversely affected.

We may not be able to attract and retain information technology consulting professionals, which could affect our ability to compete effectively.
Our business is labor intensive. Accordingly, our success depends in large part upon our ability to attract, train, retain, motivate, manage and effectively utilize highly skilled information technology consulting professionals. There is often considerable competition for qualified personnel in the information technology services industry. Additionally, our technology professionals are primarily at-will employees. We also use independent subcontractors where appropriate to supplement our employee capacity. Failure to retain highly skilled technology professionals or hire qualified independent subcontractors would impair our ability to adequately manage staff and implement our existing projects and to bid for or obtain new projects, which in turn would adversely affect our operating results.
Our success depends on attracting and retaining senior management and key personnel.
The information technology services industry is highly specialized and the competition for qualified management and key personnel is intense. We believe that our success depends on retaining our senior management team and key technical and business consulting personnel. Retention is particularly important in our business as personal relationships are a critical element of obtaining and maintaining strong relationships with our clients. In addition, as we continue to grow our business, our need for senior experienced management and implementation personnel increases. If a significant number of these individuals depart the Company, orother ways, making it more difficult to accurately forecast and plan our future business activities.  Specifically, if we are unable to attract top talent, our level of management, technical, marketing and sales expertise could diminish or otherwise be insufficientforecast client demand for our growth. We mayservices accurately, we might be unable to achieveeffectively plan for or respond to economic changes.  This could result, for example, in not having the appropriate personnel where they are needed, and could have a significant negative impact on our revenues and operating performance objectives unless we can attract and retain technically qualified and highly skilled sales, technical, business consulting, marketing and management personnel. These individuals would be difficult to replace, and losing themresults of operations.  Any of these economic conditions could seriously harmhave a material adverse effect on our business.results of operations.

We may have difficulty in identifying and competing for strategic acquisition and partnership opportunities.
Our business strategy includes the pursuit of strategic acquisitions. We may acquire or make strategic investments in complementary businesses, technologies, services or products, or enter into strategic partnerships or alliances with third parties in the future in order to expand our business. We may be unable to identify suitable acquisition, strategic investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on terms commercially favorable to us, or at all. We have historically paid a portion of the purchase price for acquisitions with shares of our common stock.  Volatility in our stock prices, or a sustained price decline, could adversely affect our ability to attract acquisition candidates. If we fail to identify and successfully complete these transactions, our competitive position and our growth prospects could be adversely affected. In addition, we may face competition from other companies with significantly greater resources for acquisition candidates, making it more difficult for us to acquire suitable companies on favorable terms.
The market for the information technology consulting services we provide is competitive, has low barriers to entry, and is becoming increasingly consolidated, which may adversely affect our market position.
 
The market for the information technology consulting services we provide is competitive, rapidly evolving, and subject to rapid technological change. In addition, there are relatively low barriers to entry into this market and therefore new entrants may compete with us in the future. For example, due to the rapid changes and volatility in our market, many well-capitalized companies, including some of our partners, that have focused on sectors of the software and services industry that are not competitive with our business may refocus their activities and deploy their resources to be competitive with us.
 
An increasing amount of information technology services are being provided by lower-cost non-domestic resources. The increased utilization of these resources for US-basedU.S.-based projects could result in lower revenues and margins for US-basedU.S.-based information technology companies. Our ability to compete utilizing higher-cost domestic resources and/or our ability to procure comparably priced off-shoreoffshore resources could adversely impact our results of operations and financial condition.



 
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Our future financial performance will depend, in large part, on our ability to establish and maintain an advantageous market position. We currently compete with regional and national information technology consulting firms and, to a limited extent, offshore service providers and in-house information technology departments. Many of the larger regional and national information technology consulting firms have substantially longer operating histories, more established reputations and potential partnervendor relationships, greater financial resources, sales and marketing organizations, market penetration, and research and development capabilities, as well as broader product offerings, and greater market presence, and name recognition. We may face increasing competitive pressures from these competitors as the market for software and services continues to grow.thes e competitors. This may place us at a disadvantage to our competitors, which may harm our ability to grow, maintain revenues, or generate net income.
 

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In recent years, there has been substantial consolidation in our industry and we expect that there will be significant additional consolidation in the future. As a result of this increasing consolidation, we expect that we will increasingly compete with larger firms that have broader product offerings and greater financial resources than we have. We believe that this competition could have a significant negative effect on our marketing, distribution and reselling relationships, pricing of services and products, and our product development budget and capabilities. One or more of our competitors may develop and implement methodologies that result in superior productivity and price reductions without adversely affecting their profit margins. In addition, competitors may win client engagements by significantly discounting theirt heir services in exchange for a client’s promise to purchase other goods and services from the competitor, either concurrently or in the future. These activities may potentially force us to lower our prices and suffer reduced operating margins. Any of these negative effects could significantly impair our results of operations and financial condition. We may not be able to compete successfully against new or existing competitors. 

Our business will suffer if we do not keep up with rapid technological change, evolving industry standards, or changing customer requirements.
 
Rapidly changing technology, evolving industry standards, and changing customer needs are common in the software and services market. We expect technological developments to continue at a rapid pace in our industry. Technological developments, evolving industry standards and changing customer needs could cause our business to be rendered obsolete or non-competitive, especially if the market for the core set of business-driven technology solutions and software platforms in which we have expertise does not grow or if such growth is delayed due to market acceptance, economic uncertainty, or other conditions. Accordingly, our success will depend, in part, on our ability to:

•  §
continue to develop our technology expertise;
•  §
enhance our current services;
•  §
develop new services that meet changing customer needs;
•  §
advertise and market our services; and
•  §
influence and respond to emerging industry standards and other technological changes.
 
We must
Our success will depend on our ability to accomplish all of these tasks in a timely and cost-effective manner. We might not succeed in effectively doing any of these tasks, and our failure to succeed could have a material and adverse effect on our business, financial condition, or results of operations, including materially reducing our revenues and operating results.
 
We may also incur substantial costsOur results of operations could materially suffer if we are not able to keep up with changes surrounding the Internet. Unresolved critical issues concerning the commercial useobtain favorable pricing.
If we are not able to obtain favorable pricing for our services, our revenues and government regulationprofitability could materially suffer. The rates we are able to charge for our services are affected by a number of the Internet include the following:factors, including:
 
•  §general economic and political conditions;
•  
security;
our ability to differentiate, and/or clearly convey the value of, our services;
•  the pricing practices of our competitors, including the aggressive use by our competitors of offshore resources to provide lower-cost service delivery capabilities, or the introduction of new services or products by our competitors;
•  our clients’ desire to reduce their costs;
•  our ability to charge higher prices where market demand or the value of our services justifies it;
•  our ability to accurately estimate, attain, and sustain contract revenues, margins, and cash flows over long contract periods; and
•  procurement practices of clients and their use of third-party advisors.
 
International operations subject us to additional political and economic risks that could have an adverse impact on our business.
We maintain a global development center in Hangzhou, China and a technology consulting recruiting and development facility in Chennai, India. We are subject to certain risks related to expanding our presence into non-U.S. regions, including risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain technologies, and multiple and possibly overlapping tax structures. In addition, we may face competition from companies that may have more experience with operations in such countries or with international operations generally. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries in to our existing corporate culture.
Furthermore, there are risks inherent in operating in and expanding into non-U.S. regions, including, but not limited to:

•  §political and economic instability;
•  
global health conditions and potential natural disasters;
•  unexpected changes in regulatory requirements;
•  international currency controls and exchange rate fluctuations;
•  reduced protection for intellectual property ownership;rights in some countries; and
•  additional vulnerability from terrorist groups targeting American interests abroad.
§
privacy;
 
§
taxation; and
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§
liability issues.
Any costs we incur becauseone or more of thesethe factors set forth above could materiallyhave a material adverse effect on our international operations and, consequently, on our business, financial condition, and operating results.

Immigration restrictions related to H1-B visas could hinder our growth and adversely affect our business, financial condition and results of operations, including reduced net income.operations.
 
Approximately 19% of our billable workforce is comprised of skilled foreign nationals holding H1-B visas.  We also own a recruiting and development facility in Chennai, India to continue to grow our base of H1-B foreign national colleagues.  The H1-B visa classification enables us to hire qualified foreign workers in positions that require the equivalent of at least a bachelor’s degree in the U.S. in a specialty occupation such as technology systems engineering and analysis.  The H1-B visa generally permits an individual to work and live in the U.S. for a period of three to six years, with some extensions available.  The number of new H1-B petitions approved in any federal fiscal year is limited, making the H1-B visas necessary to bring foreign employees to the U.S. unobtainable in years in which the limit is reached.  If we are unable to obtain all of the H1-B visas for which we apply, our growth may be hindered.
 
11We may not be able to attract and retain information technology consulting professionals, which could affect our ability to compete effectively.
Our success depends, in large part, upon our ability to attract, train, retain, motivate, manage, and effectively utilize highly skilled information technology consulting professionals. There is often considerable competition for qualified personnel in the information technology services industry. Additionally, our technology colleagues are primarily at-will employees. We also use independent subcontractors where appropriate to supplement our employee capacity. Failure to retain highly skilled technology professionals or hire qualified independent subcontractors would impair our ability to adequately manage staff and implement our existing projects and to bid for or obtain new projects, which in turn would adversely affect our operating results.
 
Our success depends on attracting and retaining senior management and key personnel.


The information technology services industry is highly specialized and the competition for qualified management and key personnel is intense. We believe that our success depends on retaining our senior management team and key technical and business consulting personnel. Retention is particularly important in our business as personal relationships are a critical element of obtaining and maintaining strong relationships with our clients. In addition, as we grow our business, our need for senior experienced management and implementation personnel increases. If a significant number of these individuals resign, or if we are unable to attract top talent, our level of management, technical, marketing, and sales expertise could diminish or otherwise be insufficient for our growth. We may be unable to achieve our revenues and operating performance objectives unless we can attract and retain technically qualified and highly skilled sales, technical, business consulting, marketing, and management personnel. These individuals would be difficult to replace, and losing them could seriously harm our business.

A significant portion of our revenue is dependent upon building long-term relationships with our clients and our operating results could suffer if we fail to maintain these relationships.
 
Our professional services agreements with clients are, in most cases, terminable on 10 to 30 days'days notice. A client may choose at any time to use another consulting firm, or choose to perform services we provide through their own internal resources. A sustained decreaseresources, choose not to retain us for additional stages of a project that involves multiple stages, or try to renegotiate the terms of its contract or cancel or delay additional planned work.  Terminations, cancellations, or delays could result from factors that are beyond our control and unrelated to our work product or the progress of the project, including the business or financial conditions of the client, changes in a client’s business activityownership or management at our clients, and changes in client strategies, the economy, or markets generally. When contracts are terminated, we lose the anticipated revenues and might not be able to replace, or it may take significant time to replace, the lost revenue with other work or eliminated associated costs.  Consequently, our results of operations in subsequent periods could cause the cancellation of projects. Accordingly, we rely on our clients' interests in maintaining the continuity of our services ratherbe materially lower than on contractual requirements. Terminationexpected. Additionally, termination of a relationship with a significant client or with a group of clients that account for a significant portion of our revenues could adversely affect our revenues and results of operations.
 
If we fail to meet our clients' performance expectations, our reputation may be harmed.
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As a services provider, our
Our ability to attract and retain clients depends to a large extentbusiness may depend on our relationships withreputation in the marketplace.

Our services are marketed to clients and prospective clients based on a number of factors. Our corporate reputation is a significant factor in our clientsclients’ evaluation of whether to engage our services. We believe the Perficient brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented employees. However, our corporate reputation is potentially susceptible to material damage by events such as disputes with clients, information technology security breaches or service outages, or other delivery failures. Similarly, our reputation could be damaged by actions or statements of current or former clients, competitors, vendors, as well as members of the investment community and the media. There is a r isk that negative information could adversely affect our business. Damage to our reputation could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for high quality servicesnew engagements, resulting in a loss of business, and integrity. We also believe that the importance of reputation and name recognition is increasing and will continue to increase duecould adversely affect our efforts with regard to the numberrecruitment and retention of providersemployees and subcontractors. Damage to our reputation could also reduce the value and effectiveness of the Perficient brand name and could reduce investor confidence in us, materially adversely affecting our share price.

We could have liability or our reputation could be damaged if we do not protect client data or information systems or if our information systems are breached.

We are dependent on information technology services.networks and systems to process, transmit, and store electronic information and to communicate among our locations and with our partners and clients. Security breaches of this infrastructure could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information. We are also required at times to manage, utilize, and store sensitive or confidential client or employee data. As a result, if awe are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as various U.S. federal and state laws governing the protection of individually identifiable information. If any person, including any of our employees, negligently disregards or inten tionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines, and/or criminal prosecution. Unauthorized disclosure of sensitive or confidential client is not satisfied with our services or does not perceive our solutions to be effectiveemployee data, whether through systems failure, employee negligence, fraud or of high quality,misappropriation could damage our reputation may be damaged and cause us to lose clients. Similarly, unauthorized access to or through our information systems or those we may be unabledevelop for our clients, whether by our employees or third parties, could result in negative publicity, legal liability, and damage to attract new, or retain existing, clients and colleagues.our reputation.

We may face potential liability to customers if our customers'customers’ systems fail.
 
Our business-driven technology solutions are often critical to the operation of our customers'customers’ businesses and provide benefits that may be difficult to quantify. If one of our customers'customers’ systems fails, the customer could make a claim for substantial damages against us, regardless of our responsibility for that failure. The limitations of liability set forth in our contracts may not be enforceable in all instances and may not otherwise protect us from liability for damages. Our insurance coverage may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims. In addition, a given insurer might disclaim coverage as to any future claims. In addition, dueDue to the nature of our business, it is possible that we will be sued in the future. If we experienceexpe rience one or more large claims against us that exceed available insurance coverage or result in changes in our insurance policies, including premium increases, or the imposition of large deductible, or co-insurance requirements, our business and financial results could suffer.

Our services may infringe upon the intellectual property rights of others.
 
We cannot be sure that our services do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us.  These claims may harm our reputation, cause our management to expend significant time in connection with any defense, and cost us money.  We may be required to indemnify clients for any expense or liabilities they incur resulting from claimed infringement and these expenses could exceed the amounts paid to us by the client for services we have performed.  Any claims in this area, even if won by us, can be costly, time-consuming, and harmful to our reputation.

We have only a limited ability to protect our intellectual property rights, which are important to our success.
Our success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property. Existing laws of some countries in which we provide services or solutions might offer only limited protection of our intellectual property rights. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure, and other contractual arrangements to protect our intellectual property rights. The steps we take in this regard might not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we might not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property rights.
Depending on the circumstances, we might need to grant a specific client greater rights in intellectual property developed in connection with a contract than we otherwise generally do. In certain situations, we might forego all rights to the use of intellectual property we help create, which would limit our ability to reuse that intellectual property for other clients. Any limitation on our ability to provide a service or solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future projects.
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If our negotiated fees do not accurately anticipate the cost and complexity of performing our work, then our contracts could be unprofitable.
We negotiate fees with our clients utilizing a range of pricing structures and conditions, including time and materials and fixed fee contracts. Our fees are highly dependent on our internal forecasts and predictions about our projects and the marketplace, which might be based on limited data and could turn out to be inaccurate. If we do not accurately estimate the costs and timing for completing projects, our contracts could prove unprofitable for us or yield lower profit margins than anticipated. We could face greater risk when negotiating fees for our contracts that involve the coordination of operations and workforces in multiple locations and/or utilizing workforces with different skillsets and competencies. There is a risk that we will under-price our contracts, fail to accurately estimate the costs of performing the work, or fail to accurately assess the risks associated with potential contracts. In particular, any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of this work, including those caused by factors outside our control, could make these contracts less profitable or unprofitable, which could have an adverse effect on our profit margin.

We could be subject to liabilities if our subcontractors or the third parties with whom we partner cannot deliver their project contributions on time or at all.
Large and complex arrangements often require that we utilize subcontractors or that our services and solutions incorporate or coordinate with the software, systems, or infrastructure requirements of other vendors and service providers. Our ability to serve our clients and deliver and implement our solutions in a timely manner depends on the ability of these subcontractors, vendors, and service providers to meet their project obligations in a timely manner, as well as on our effective oversight of their performance. The quality of our services and solutions could suffer if our subcontractors or the third parties with whom we partner do not deliver their products and services in accordance with project requirements. If our subcontractors or these third parties fail to deliver their contributions on time or at all or if their contributions do not meet project requirements or require us to incur unanticipated costs to meet these requirements, then our ability to perform could be adversely affected and we might be subject to additional liabilities, which could have a material adverse effect on our business, revenues, profitability, or cash flow.

Our profitability could suffer if we are not able to control our costs.
Our ability to control our costs and improve our efficiency affects our profitability. As the continuation of pricing pressures could result in permanent changes in pricing policies and delivery capabilities, we must continuously improve our management of costs. Our short-term cost reduction initiatives, which focus primarily on reducing variable costs, might not be sufficient to deal with all pressures on our pricing. Our long-term cost-reduction initiatives, which focus on reductions in costs for service delivery and infrastructure, rely upon our successful introduction and coordination of multiple geographic and competency workforces and a growing focus on our offshore capabilities. As we increase the number of our colleagues and execute our strategies for growth, we mig ht not be able to manage significantly larger and more diverse workforces, control our costs or improve our efficiency, and our profitability could be negatively affected.

We are subject to credit risk related to our accounts receivable.
We provide credit to our customers in the normal course of business and we do not generally obtain collateral or up-front payments.  Accordingly, we are not protected against accounts receivable default or bankruptcy by our customers.  Although we perform ongoing credit evaluations of our customers and maintain allowances for potential credit losses, such actions and procedures may not be effective in reducing our credit risks and our business, financial condition and results of operations could be materially and adversely affected. During periods of economic decline, our exposure to credit risks related to our accounts receivable increases.
If we are unable to collect our receivables or unbilled services, our results of operations, financial condition, and cash flows could be adversely affected.

Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. In limited circumstances, we also extend financing to our clients. We maintain allowances against receivables and unbilled services. Actual losses on client balances could differ from those that we currently anticipate and as a result we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients. Macroeconomic conditions could also result in financial difficulties for our clients, and as a result could cause clients to delay payments to us, request modifications to their payment arrangements that could increase our receivables ba lance, or default on their payment obligations to us. Recovery of client financing and timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect our contracted revenues. If we are unable to meet our contractual requirements, we might experience delays in collection of and/or be unable to collect our client balances, and if this occurs, our results of operations, financial condition, and cash flows could be adversely affected. In addition, if we experience an increase in the time to bill and collect for our services, our cash flows could be adversely affected.

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The loss of one or more of our significant software business partnersvendors would have a material and adverse effect on our business and results of operations.
 
Our business relationships with software vendors enable us to reduce our cost of sales and increase win rates through leveraging our partners’vendors’ marketing efforts and strong vendor endorsements. The loss of one or more of these relationships and endorsements could increase our sales and marketing costs, lead to longer sales cycles, harm our reputation and brand recognition, reduce our revenues, and adversely affect our results of operations.

If we do not effectively manage expected future growth, our results of operations and cash flows could be adversely affected.
Our ability to operate profitably with positive cash flows depends partially on how effectively we manage our expected future growth. In particular, aorder to create the additional capacity necessary to accommodate an increase in demand for our services, we may need to implement new or upgraded operational and financial systems, procedures and controls, open new offices, and hire additional colleagues. Implementation of these new or upgraded systems, procedures, and controls may require substantial portionmanagement efforts and our efforts to do so may not be successful. The opening of new offices (including international locations) or the hiring of additional colleagues may result in idle or underutilized capacity. We continually assess the expected capacity and utilization of our solutions are built on IBM WebSphere platformsoffices and a significant numbercolleagues. We may not be able to achieve or maintain optimal utilization of our clients are identified through joint selling opportunities conducted with IBMoffices and through sales leads obtained fromcolleagues. If demand for our relationship with IBM. The loss ofservices does not meet our relationship with, or a significant reduction in the services we perform for IBM, would have a material adverse effect onexpectations, our businessrevenues and cash flows may not be sufficient to offset these expenses and our results of operations.operations and cash flows could be adversely affected.

Our quarterly operating results may be volatile and may cause our stock price to fluctuate.
 
Our quarterly revenues, expenses, and operating results have varied in the past and are likely tocould vary significantly in the future, which could lead to volatility in our stock price. In addition, many factors affecting our operating results are outside of our control, such as:

§•  demand for software and services;
§•  customer budget cycles;
§•  changes in our customers'customers’ desire for our partners'partners’ products and our services;
§•  pricing changes in our industry; and
§•  government regulation and legal developments regarding the use of the Internet.

As a result, if we experience unanticipated changes in the number or nature of our projects or in our employee utilization rates, we could experience large variations in quarterly operating results in any particular quarter.
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results. 
 


Our services revenues may fluctuate quarterly due to seasonality or timing of completion of projects.
 
We may experience seasonal fluctuations in our services revenues. We expect that services revenues in the fourth quarter of a given year may typically be lower than in other quarters in that year as there are fewer billable days in this quarter as a result of vacations and holidays. In addition, we generally perform services on a project basis. While we seek wherever possible to counterbalance periodic declines in services revenues on completion of large projects with newwhen a project or engagement is completed or canceled by entering into arrangements to provide additional services to the same client or others,other clients, we may not be able to avoid declines in services revenues when large projects are completed. Our inability to obtain sufficient new projects to counterbalance any decreases in work upon completion of large projects could adverselymay materially affect our quarter-to-quarter revenues, margins and results of operations.operating results.

Our software revenues may fluctuate quarterly, leading to volatility in our results of operations.
 
Our software revenues may fluctuate quarterly and be higher in the fourth quarter of a given year as procurement policies of our clients may result in higher technology spending towards the end of budget cycles. This seasonal trend may materially affect our quarter-to-quarter revenues, margins, and operating results.

Our overall gross margin fluctuates quarterly based on our services and software revenues mix, impacting our results of operations.
The gross margin on our services revenues is, in most instances, greater than the gross margin on our software revenues. As a result, our gross margin will be higher in quarters where our services revenues, as a percentage of total revenues, has increased, and will be lower in quarters where our software revenues, as a percentage of total revenues, has increased. In addition, gross margin on software revenues may fluctuate as a result of variances in gross margin on individual software products. Our stock price may be negatively affected in quarters in which our gross margin decreases.
Our services gross margins are subject to fluctuations as a result of variances in utilization rates and billing rates.
 
Our services gross margins are affected by trends in the utilization rate of our professionals,colleagues, defined as the percentage of our professionals'colleagues’ time billed to customers divided by the total available hours in a period, and in the billing rates we charge our clients. Our operating expenses, including employee salaries,salary, rent, and administrative expenses, are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number or size of projects in process. If a project ends earlier than scheduled, we may need to redeploy our project personnel. Any resulting non-billable time may adversely affect our gross margins.
 

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The average billing rates for our services may decline due to rate pressures from significant customers and other market factors, including innovations and average billing rates charged by our competitors. If there is a sustained downturn in the U.S. economy or in the information technology services industry, rate pressure may increase. Also, our average billing rates will decline if we acquire companies with lower average billing rates than ours. To sell our products and services at higher prices, we must continue to develop and introduce new services and products that incorporate new technologies or high-performance features. If we experience pricing pressures or fail to develop new services, our revenues and gross margins could decline, which could harm our business, financialfin ancial condition, and results of operations.
 
Many of our contracts include performance payments that link some of our fees to the attainment of performance or business targets. This could increase the variability of our revenues and margins.

Many of our contracts include performance clauses that require us to achieve agreed-upon performance standards or milestones. If we fail to satisfy these measures, it could reduce our fees under the contracts, increase the cost to us of meeting performance standards or milestones, delay expected payments or subject us to potential damage claims under the contract terms. These provisions could increase the variability in revenues and margins earned on those contracts.

If we fail to complete fixed-feefixed fee contracts within budget and on time, our results of operations could be adversely affected.
 
In 2007,2010, approximately 13% of our projectsservices revenues were earned from engagements performed on a fixed-feefixed fee basis, rather than on a time-and-materialstime and materials basis. Under these contractual arrangements, we bear the risk of cost overruns, completion delays, wage inflation, and other cost increases. If we fail to accurately estimate accurately the resources and time required to complete a project or fail to complete our contractual obligations within the scheduled timeframe, our results of operations could be adversely affected. We cannot guarantee that in the future we will not price these contracts inappropriately,appropriately in the future, which may result in losses.
 
We may not be able to maintain our level of profitability.
 
Although we have been profitable for the past fourseven years, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future and in fact could experience decreased profitability. If we fail to meet public market analysts'analysts’ and investors'investors’ expectations, the price of our common stock will likely fall.

Our services may infringe upon the intellectual property rights of others.

We cannot be sure thatChanges in our services do not infringe on the intellectual property rightslevel of third parties,taxes, and we may have infringement claims asserted against us.  These claims may harm our reputation, cause our management to expend significant time in connection with any defensetax audits, investigations and cost us money.  We may be required to indemnify clients for any expense or liabilities they incur resulting from claimed infringement and these expenses could exceed the amounts paid to us by the client for services we have performed.  Any claims in this area, even if won by us, can be costly, time-consuming and harmful to our reputation.



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International operations subject us to additional political and economic risks that could have an adverse impact on our business.
In connection with our acquisition of BoldTech Systems, Inc. (“BoldTech”) in 2007, we acquired a global development center in Hangzhou, China.  In connection with our acquisition of ePairs, Inc. (“ePairs”), we acquired an 80% equity interest in ePairs India Private Limited, which operates a technology consulting recruiting office in Chennai, India. We also have an agreement with a third party offshore facility in Eastern Europe to provide the Company offshore resources on an exclusive basis.  Because of our limited experience with facilities outside of the United States, we are subject to certain risks related to expanding our presence into non-U.S. regions, including risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain technologies and multiple and possibly overlapping tax structures. In addition, we may face competition from companies that may have more experience with operations in such countries or with international operations generally. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture.
       Furthermore, there are risks inherent in operating in and expanding into non-U.S. regions, including, but not limited to:
§political and economic instability;
§global health conditions and potential natural disasters;
§unexpected changes in regulatory requirements;
§international currency controls and exchange rate fluctuations;
§reduced protection for intellectual property rights in some countries; and
§additional vulnerability from terrorist groups targeting American interests abroad.

Any one or more of the factors set forth aboveproceedings, could have a material adverse effect on our internationalresults of operations and consequently, on our business, financial condition and operating results.condition.

Immigration restrictions related
We are subject to H-1B visasincome taxes in numerous jurisdictions. We calculate and provide for income taxes in each tax jurisdiction in which we operate. Tax accounting often involves complex matters and judgment is required in determining our corporate provision for income taxes and other tax liabilities. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our judgments. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax liabilities. However, our judgments might not be sustained as a result of these audits, and the amounts ultimately paid could hinderbe different from the amounts previously recorded. In addition, our growtheffective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws. Furthermore, changes in tax laws, treaties, or regulations, or their interpretation or enforcement, may be unpredictable and could materially adversely affect our tax position. Any of these occurrences could have a material adverse effect on our results of operations and financial condition.

Pursuing and completing potential acquisitions could divert management's attention and financial resources and may not produce the desired business results.
If we pursue any acquisition, our management could spend a significant amount of time and financial conditionresources to pursue the potential acquisition. To pay for an acquisition, we might use capital stock, cash, or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use capital stock, our stockholders will experience dilution. If we use cash or debt financing, our financial liquidity may be reduced and the interest on any debt financing could adversely affect our results of operations. From an accounting perspective, an acquisition that does not perform as well as originally anticipated may involve amortization or the impairment of significant amounts of intangible assets that could adversely affect our results of operations.
 
Approximately 25% of our work force is comprised of skilled foreigners holding H-1B visas.  In 2007, we acquired a recruiting facility in Chennai, India, to continue to grow our base of H-1B foreign national colleagues.  The H-1B visa classification enables us to hire qualified foreign workers in positions that require the equivalent of at least a bachelor’s degree in the U.S. in a specialty occupation such as technology systems engineering and analysis.  The H-1B visa generally permits an individual to work and live in the U.S. for a period of three to six years, with some extensions available.  The number of new H-1B petitions approved in any federal fiscal year is limited, making the H-1B visas necessary to bring foreign employees to the U.S. unobtainable in years in which the limit is reached.  If we are unable to obtain all of the H-1B visas for which we apply, our growth may be hindered.

There are strict labor regulations associated with the H-1B visa classification and users of the H-1B visa program are subject to investigations by the Wage and Hour Division of the United States Department of Labor.  If we are investigated, a finding by the United States Department of Labor of willful or substantial failure by us to comply with existing regulations on the H-1B classification could result in back-pay liability, substantial fines, or a ban on future use of the H-1B program and other immigration benefits, any of which could materially and adversely affect our business, financial condition and results of operations.

We have recorded deferred offering costs in connection with a shelf registration statement, and our inability to offset these costs against the proceeds of future offerings from our shelf registration statement could result in a non-cash expense in our Statement of Income in a future period.
We initially filed a registration statement with the Securities and Exchange Commission in March 2005 to register the offer and sale by the Company and certain selling stockholders of shares of our common stock. Due to overall market conditions in 2006, we converted our registration statement into a shelf registration statement to allow for offers and sales of common stock from time to time as market conditions permit. As of December 31, 2007, we have recorded approximately $943,000 of deferred offering costs (approximately $579,000 after tax, if ever expensed) in connection with the offering and have classified these costs as prepaid expenses in other non-current assets on our balance sheet.
If we sell shares of common stock from our shelf registration statement, we will offset these accumulated deferred offering costs against the proceeds of the offering. If we do not raise funds through an equity offering from the shelf registration statement or fail to maintain the effectiveness of the shelf registration statement, the currently capitalized deferred offering costs will be expensed. Such expense would be a non-cash accounting charge as all of these expenses have already been paid.



 
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Despite the investment of these management and financial resources, and completion of due diligence with respect to these efforts, an acquisition may not produce the anticipated revenues, earnings, or business synergies for a variety of reasons, including:

•  the failure of management and acquired services personnel to perform as expected;
•  the acquisition of fixed fee customer agreements that require more effort than anticipated to complete;
•  the risks of entering markets in which we have no, or limited, prior experience, including offshore operations in countries in which we have no prior experience;
•  the failure to identify or adequately assess any undisclosed or potential liabilities or problems of the acquired business including legal liabilities;
•  the failure of the acquired business to achieve the forecasts we used to determine the purchase price; or
•  the potential loss of key personnel of the acquired business.
  
These difficulties could disrupt our ongoing business, distract our management and colleagues, increase our expenses, and materially and adversely affect our results of operations.

We may not be successful at identifying, acquiring, or integrating other businesses.

We have resumed our disciplined acquisition strategy designed to enhance our capabilities, expand in emerging markets or develop new services and solutions. We may not successfully identify suitable acquisition candidates, succeed in completing targeted transactions, or achieve desired results of operations. Furthermore, we face risks in successfully integrating any businesses we might acquire. We might need to dedicate additional management and other resources, and our organizational structure could make it difficult for us to efficiently integrate acquired businesses into our ongoing operations and assimilate employees of those businesses into our culture and operations. Accordingly, we might fail to realize the expected benefits or strategic objectives of any acquisition we undertake. We might not achieve our expected return o n investment, or may lose money. If we are unable to complete the number and kind of acquisitions for which we plan, or if we are inefficient or unsuccessful at integrating any acquired businesses into our operations, we may not be able to achieve our planned rates of growth or improve our market share, profitability, or competitive position in specific markets or services.

Risks Related to Ownership of Our Common Stock
 
Our stock price has been volatile and may continue to fluctuate widely.
 
Our common stock is traded on theThe Nasdaq Global Select Market a tier of The NASDAQ Stock Market LLC, under the symbol “PRFT.” Our common stock price has been volatile. Our stock pricevolatile and may continue to fluctuate widely as a result of announcements of new services and products by us or our competitors, quarterly variations in operating results, the gain or loss of significant customers, and changes in public market analysts'analysts’ estimates and market conditions for information technology consulting firms and other technology stocks in general.

We periodically review and consider possible acquisitions of companies that we believe will contribute to our long-term objectives. In addition, depending on market conditions, liquidity requirements, and other factors, from time to time we consider accessing the capital markets. These events may also affect the market price of our common stock.

Our officers, directors, and 5% and greater stockholders own a large percentage of our voting securities and their interests may differ from other stockholders.
 
Our executive officers, directors, and 5% and greater stockholders beneficially own or control approximately 18%26% of the voting power of our common stock. This concentration of voting power of our common stock may make it difficult for our other stockholders to successfully approve or defeat matters that may be submitted for action by our stockholders. It may also have the effect of delaying, deterring, or preventing a change in control of our company.
 

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We may need additional capital in the future, which may not be available to us. The raising of any additional capital may dilute your ownership percentage in our stock.
 
We had unrestricted cash, cash equivalents, and investments totaling $26 million and a borrowing capacity of $50 million, and a commitment to increase our borrowing capacity by $25 million, at December 31, 2010.  We intend to continue to make investments to support our business growth and may require additional funds if our capital is insufficient to pursue business opportunities and respond to business challenges. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer dilution, and any new equity securities we issue could have rights,rig hts, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

It may be difficult for another company to acquire us, and this could depress our stock price.
 
In addition to the large percentage of our voting securities held by our officers, directors, and 5% and greater stockholders, provisions contained in our certificate of incorporation, bylaws, and Delaware law could make it difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Our certificate of incorporation and bylaws may discourage, delay, or prevent a merger or acquisition that a stockholder may consider favorable by authorizing the issuance of “blank check” preferred stock. In addition, provisions of the Delaware General Corporation Law also restrict some business combinations with interested stockholders. These provisions are intended to encourage potential acquirers to negotiate with us and allow the boardBoard of directorsDirectors the opportunity to consider alternative proposals in the interest of maximizing stockholder value. However, these provisions may also discourage acquisition proposals, or delay or prevent a change in control, which could harm our stock price.

Item 1B.
Unresolved Staff Comments.
 
None.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not purely historical statements discuss future expectations, contain projections of results of operations or financial condition or state other forward-looking information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The “forward-looking” information is based on various factors and was derived using numerous assumptions. In some cases, you can identify these so-called forward-looking statements by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of those words and other comparable words. You should be aware that those statements only reflect our predictions. Actual events or results may differ substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements are disclosed under the heading “Risk Factors” in this annual report.


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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform such statements to actual results. 

All forward-looking statements, express or implied, included in this report and the documents we incorporate by reference and attributable to Perficient are expressly qualified in their entirety by this cautionary statement.  This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Perficient or any persons acting on our behalf may issue.

Item 2. Properties.
 
Our principal executive administrative, finance and marketing operations are located in St. Louis, Missouri where we have leased approximately 20,5945,100 square feet of office space, and Austin, TX, where we have leased approximately 2,700 square feet of office space.for these functions. We lease 1831 offices in major cities acrossmarkets throughout North America, China, and China.India. We do not own any real property. We believe our facilities are adequate to meet our needs in the near future.

Item 3.Legal Proceedings.
 
Although we may become a partyWe are involved from time to litigation and claimstime in various legal proceedings arising in the ordinary course of our business, managementbusiness.  Although the outcome of lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect any currently does not believe the results of these actions willpending matters to have a material adverse effect on the financial position, results of operations, or cash flows of our business or financial condition.company.

Item 4.Submission of Matters to a Vote of Security Holders.Reserved.
 
No matters were submitted to a shareholder vote during the quarter ended December 31, 2007.


 
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PART II
Item 5.Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Our common stock is quoted on theThe Nasdaq Global Select Market a tier of The NASDAQ Stock Market LLC, under the symbol “PRFT.” The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on theThe Nasdaq Global Select Market a tier of The NASDAQ Stock Market LLC, since January 1, 2006.2009.
 
 High  Low  High Low 
Year Ending December 31, 2007:      
Year Ending December 31, 2010:     
First Quarter $21.50  $16.31  $12.01  $8.50 
Second Quarter  23.03   18.62   12.99   8.91 
Third Quarter  24.61   19.35   9.71   8.21 
Fourth Quarter  24.19   15.09   13.00   9.17 
                
Year Ending December 31, 2006:      
Year Ending December 31, 2009:     
First Quarter $12.01  $8.76  $5.71  $3.10 
Second Quarter  14.29   11.52   7.44   5.12 
Third Quarter  15.68   11.55   8.64   6.31 
Fourth Quarter  19.16   15.31   9.50   7.73 
 
On February 27, 2008,28, 2011, the last reported sale price of our common stock on theThe Nasdaq Global Select Market a tier of The NASDAQ Stock Market LLC, was $8.44$12.43 per share. There were approximately 190296 stockholders of record of our common stock as of February 27, 2008.28, 2011, including 190 restricted account holders.
 
We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Our credit facility currently prohibits the payment of cash dividends without the prior written consent of the lenders.

Information on our Equity Compensation Plan has been included at Part III, Item 12,11 of this Form 10-K.

Unregistered Sales of Securities

Our acquisition of substantially all of the consolidated financial statements.assets of Kerdock Consulting, LLC (“Kerdock”) in March 2010 included an earnings-based contingency, pursuant to which additional consideration could be realized by Kerdock if certain earnings-based requirements were met.  This contingency was achieved during 2010 and, as such, we paid the additional consideration on November 15, 2010.  In connection with this payment, we issued 108,173 unregistered shares of our common stock to Kerdock.  We relied on Section 4(2) of the Securities Act of 1933, as amended, as the basis for exemption from registration.  These shares were issued to Kerdock in a privately negotiated transaction and not pursuant to a public solicitation.

Issuer Purchases of Equity Securities
 

Prior to 2010, our Board of Directors authorized the repurchase of up to $40.0 million of our common stock.  In 2010, the Board of Directors authorized the repurchase of up to an additional $10.0 million of our common stock for a total repurchase program of $50.0 million.  The repurchase program expires June 30, 2011.  While it is not our intention, the program could be suspended or discontinued at any time, based on market, economic, or business conditions.  The timing and amount of repurchase transactions will be determined by our management based on its evaluation of market conditions, share price, and other factors.

 
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Since the program’s inception in 2008, we have repurchased approximately $42.2 million of our outstanding common stock through December 31, 2010.  
Period Total Number of Shares Purchased  
Average Price Paid Per
Share (1)
  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 
Beginning Balance as of October 1, 2010 5,977,474  $6.82  5,977,474  $9,210,066 
October 1-31, 2010  --   --   --  $9,210,066 
November 1-30, 2010  50,000   11.25   50,000  $8,647,490 
December 1-31, 2010  70,000   12.17   70,000  $7,795,387 
Ending Balance as of December 31, 2010  6,097,474  $6.92   6,097,474     
(1)  Average price paid per share includes commission.

Item 6.Selected Financial Data.
 
The selected financial data presented for, and as of the end of, each of the years in the five-year period ended December 31, 2007,2010, has been prepared in accordance with United Statesaccounting principles generally accepted accounting principles. All amounts shown are in thousands.the United States. The financial data presented is not directly comparable between periods as a result of the adoption of Statement of Financial Accounting Standards No. 123R (As Amended), Share Based Payment (“SFAS 123R”)two acquisitions in 2006, and2010, four acquisitions in 2007, three acquisitions in 2006, two acquisitions in 2005, and three acquisitions in 2004.2006.

The following data should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements appearing in Part II, Item 8, and Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II, Item 7.

  Year Ended December 31, 
  2010  2009  2008  2007  2006 
Income Statement Data:       (In thousands)       
Revenues  $214,952  $188,150  $231,488  $218,148  $160,926 
Gross margin  $62,767  $48,333  $73,502  $75,690  $53,756 
Selling, general and administrative  $45,477  $40,042  $47,242  $41,963  $32,268 
Depreciation and amortization $4,784  $5,750  $6,949  $6,265  $4,406 
Acquisition costs $993  $--  $--  $--  $-- 
Impairment of intangible assets $--  $--  $1,633  $--  $-- 
Income from operations  $11,513  $2,541  $17,678  $27,462  $17,082 
Net interest income (expense) $163  $209  $528  $172  $(407)
Net other income (expense)  $72  $260  $(915) $20  $174 
Income before income taxes  $11,748  $3,010  $17,291  $27,654  $16,849 
Net income $6,480  $1,463  $10,000  $16,230  $9,567 
  As of December 31, 
  2010  2009  2008  2007  2006 
Balance Sheet Data: (In thousands) 
Cash, cash equivalents, and short-term investments $24,008  $24,302  $22,909  $8,070  $4,549 
Working capital  $47,632  $50,205  $56,176  $41,368  $24,859 
Long-term investments $2,254  $3,652  $--  $--  $-- 
Property and equipment, net  $2,355  $1,278  $2,345  $3,226  $1,806 
Goodwill and intangible assets, net  $124,056  $111,773  $115,634  $121,339  $81,056 
Total assets  $207,678  $184,810  $194,247  $189,992  $131,000 
Current portion of long-term debt and line of credit  $--  $--  $--  $--  $1,201 
Long-term debt and line of credit, less current portion $--  $--  $--  $--  $137 
Total stockholders' equity  $177,164  $168,348  $174,818  $165,562  $107,352 
 
     Year Ended December 31,    
  2007  2006  2005  2004  2003 
Income Statement Data:        (In thousands)       
Revenues  $218,148  $160,926  $96,997  $58,848  $30,192 
Gross margin  $75,690  $53,756  $32,418  $18,820  $11,375 
Selling, general and administrative  $41,963  $32,268  $17,917  $11,068  $7,993 
Depreciation and intangibles amortization $6,265  $4,406  $2,226  $1,209  $1,281 
Income from operations  $27,462  $17,082  $12,275  $6,543  $2,102 
Interest income (expense) $172  $(407) $(643) $(134) $(283)
Other income (expense)  $20  $174  $43  $32  $(13)
Income before income taxes  $27,654  $16,849  $11,675  $6,441  $1,805 
Net income $16,230  $9,567  $7,177  $3,913  $1,050 

  As of December 31, 
  2007  2006  2005  2004  2003 
Balance Sheet Data: (In thousands) 
Cash and cash equivalents  $8,070  $4,549  $5,096  $3,905  $1,989 
Working capital  $41,368  $24,859  $17,078  $9,234  $4,013 
Property and equipment, net  $3,226  $1,806  $960  $806  $699 
Goodwill and intangible assets, net  $121,339  $81,056  $52,031  $37,340  $11,694 
Total assets  $189,992  $131,000  $84,935  $62,582  $20,260 
Current portion of long term debt and line of credit  $--  $1,201  $1,581  $1,379  $367 
Long-term debt and line of credit, less current portion   $--  $137  $5,338  $2,902  $436 
Total stockholders' equity  $165,562  $107,352  $65,911  $44,622  $16,016 



 
18
 


Item 7.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not purely historical statements discuss future expectations, contain projections of results of operations or financial condition, or state other forward-looking information. Those statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The “forward-looking” information is based on various factors and was derived using numerous assumptions. In some cases, you can identify these so-called forward-looking statements by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes, ” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. You should be aware that those statements only reflect our predictions. Actual events or results may differ substantially. Important factors that could cause our actual results to be materially different from the forward-looking statements are disclosed under the heading “Risk Factors” in this annual report.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform such statements to actual results. 
All forward-looking statements, express or implied, included in this report and the documents we incorporate by reference and that are attributable to Perficient, Inc. are expressly qualified in their entirety by this cautionary statement.  This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Perficient, Inc. or any persons acting on our behalf may issue.

You should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this annual report and in the documents that we incorporate by reference into this annual report. This annual report may contain certain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. This information involves risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in “Risk Factors.”
 
Overview
 
We are an information technology consulting firm serving Forbes Global 2000 (“Global 2000”) and other large enterprise companies primarily inwith a primary focus on the United States. We help our clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with their customers, suppliers and partners, improve productivity, and reduce information technology costs. We design, build, and deliver business-driven technology solutions using third party software products. Our solutions include business analysis, portals and collaboration, business integration, user experience, enterprise content management, customer relationship management, interactive design, enterpri se performance management, business process management, business intelligence, eCommerce, mobile platforms, custom applications, and technology platform implementations, among others. Our solutions enable these benefits by integrating, automating and extendingour clients to operate a real-time enterprise that dynamically adapts business processes technology infrastructure and software applications end-to-end withinthe systems that support them to meet the changing demands of an organizationincreasingly global, Internet-driven, and with key partners, suppliers and customers. This provides real-time access to critical business applications and information and a scalable, reliable, secure and cost-effective technology infrastructure.competitive marketplace.

Services Revenues
 
Services revenues are derived from professional services performedthat include developing, implementing, integrating, automating and extending business processes, technology infrastructure, and software applications. Most of our projects are performed on a time and materials basis, andwhile a smaller amountportion of our revenues isare derived from projects performed on a fixed fee basis. Fixed fee engagements represented approximately 13% of our services revenues for the year ended December 31, 2007.2010 compared to 11% for the year ended December 31, 2009. For time and material projects, revenues are recognized and billed by multiplying the number of hours our professionalscolleagues expend in the performance of the project by the established billing rates. For fixed fee projects, revenues are generally recognizedrecog nized using an input method based on the proportionate performance method. Revenues on uncompleted projects are recognized on a contract-by-contract basis in the period in which the portionratio of the fixed fee is complete.hours expended to total estimated hours. Amounts invoiced to clientsand collected in excess of revenues recognized are classified as deferred revenues. The Company’s average bill rates increased slightly from $109 per hour in 2006 to $114 per hour in 2007. The Company is anticipating modest increases in billing rates in 2008. On most projects, we are also reimbursed for out-of-pocket expenses such as airfare, lodging, and meals. These reimbursements are included as a component of revenues. The aggregate amount of reimbursed expenses will fluctuate depending on the location of our customers, the total number of our projects that require travel, and whether our arrangements with our clients provide for the reimbursement of travel and other project related expenses.

Software and Hardware Revenues
 
Software and hardware revenues are derived from sales of third-party software.software and hardware. Revenues from sales of third-party software and hardware are generally recorded on a gross basis provided we act as a principal in the transaction. In the eventOn rare occasions, we do not meet the requirements to be considered a principal in the software sale transaction and act as an agent, theagent.  In these cases, revenues are recorded on a net basis. Software and hardware revenues are expected to fluctuate from quarter-to-quarter depending on our customers'customers’ demand for softwarethese products.
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If we enter into contracts for the sale of services and software Companyor hardware, management evaluates whether the services are essential to the functionality of the software or hardware and whether the Company has objective fair value evidence exists for each deliverable in the transaction.  If management concludes the services to be provided are not essential to the functionality of the software or hardware and can determine objective fair value evidence exists for each deliverable of the transaction, then we account for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of our multiple element arrangements meet these separation criteria.
 
Cost of revenues
 
Cost of revenues consists primarily of cash and non-cash compensation and benefits, including bonuses and non-cash compensation related to equity awards, associated with our technology professionals and subcontractors. Non-cash compensation includes stock compensation expenses arising from restricted stock and option grants to employees.colleagues.  Cost of revenues also includes third-partythe costs associated with subcontractors.  Third-party software and hardware costs, reimbursable expenses, and other unreimbursed project related expenses.expenses are also included in cost of revenues. Project related expenses will fluctuate generally depending on outside factors including the cost and frequency of travel and the location of our customers. Cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers, servers, and other ITinformation technology related equipment.


equipme nt.
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Gross Margins
 
Our gross margins for services are affected by the utilization rates of our professionals, definedcolleagues (defined as the percentage of our professionals'colleagues’ time billed to customers divided by the total available hours in the respective period,period), the salaries we pay our consulting professionalscolleagues, and the average billing rate we receive from our customers. If a project ends earlier than scheduled, or we retain professionals in advance of receiving project assignments, or if demand for our services declines, our utilization rate will decline and adversely affect our gross margins. Subject to fluctuations resulting from our acquisitions, we expect these key metrics of our services business to remain relatively constant for the foreseeable future assuming there are no further declines in the demand for information technology software and services. Gross margin percentages of third partythird-party software and hardware sales are typically lower than gross margin percentages for services, and the mix of services and software and hardware for a particular period can significantly impact our total combined gross margin percentage for such period. In addition, gross margin for software and hardware sales can fluctuate due to pricing and other competitive pressures.     

Selling, General and Administrative Expenses
 
Selling, general and administrative expenses (“SG&A”) consistare primarily composed of sales related costs, general and administrative salaries, benefits, bonuses, non-cashvariable compensation costs, office costs, recruiting, professional fees, sales and marketing activities, training,stock compensation expense, bad debts, and other miscellaneous expenses. Non-cash compensation includes stock compensation expenses related to restricted stock and option grants to employees and non-employee directors.  We work to minimize selling costs by focusing on repeat business with existing customers and by accessing sales leads generated by our software business partners,vendors, most notably IBM, Oracle, and Microsoft, whose products we use to design and implement solutions for our clients. These partnershipsrelationships enable us to reduce our selling costs and sales cycle times and increase win rates through leveraging our partners'partners’ marketing efforts and endorsements. A substantial portion of our SG&A costs are relatively fixed.

Plans for Growth and Acquisitions
 
Our goal is to continue to build one of the leading independent information technology consulting firms in North America by expanding our relationships with existing and new clients leveragingand through the continuation of our operations to expand nationally and continuing to make disciplined acquisitions. We believe the United States represents an attractive market foracquisition strategy.  Our future growth primarily through acquisitions. As demand forplan includes expanding our services grows, we believe we will attempt to increase the number of professionals in our 18 North American offices and to add new offices throughoutbusiness with a primary focus on the United States, both organically and through acquisitions.  Given the economic conditions during 2008 and 2009 we suspended acquisition activity pending improved visibility into the health of the economy.  With the return to growth in 2010 we have resumed our disciplined acquisition strateg y as evidenced by our acquisition of Kerdock Consulting, LLC (“Kerdock”) in March and speakTECH in December.  We also intend to continue tofurther leverage our existing ‘offshore’offshore capabilities to support our future growth and provide our clients flexible options for project delivery. In addition, we believe our track record for identifying acquisitions and our ability to integrate acquired businesses helps us complete acquisitions efficiently and productively, while continuing to offer quality services to our clients, including new clients resulting from the acquisitions.
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Consistent with our strategy of growth through disciplined acquisitions, we consummated nine acquisitions since January 1, 2005, including four in 2007.
Results of Operations

The following table summarizes our results of operations as a percentage of total revenues:
Revenues:  2007  2006  2005 
   Services revenues   87.8%   85.6%   86.3% 
   Software revenues  6.5   9.0   9.7 
   Reimbursable expenses  5.7   5.4   4.0 
Total revenues  100.0   100.0   100.0 
Cost of revenues (exclusive of depreciation and amortization, shown separately below):            
   Project personnel costs  52.6   52.3   52.7 
   Software costs  5.5   7.5   8.0 
   Reimbursable expenses  5.7   5.4   4.0 
   Other project related expenses  1.5   1.3   1.9 
Total cost of revenues  65.3   66.5   66.6 
Services gross margin  38.4   37.4   36.7 
Software gross margin  15.9   16.1   17.8 
Total gross margin  34.7   33.5   33.4 
Selling, general and administrative  19.2   20.1   18.5 
Depreciation and amortization  2.9   2.7   2.3 
Income from operations  12.6   10.6   12.6 
Interest income (expense), net  0.1   (0.2)  (0.7)
Income before income taxes  12.7   10.5   11.9 
Provision for income taxes  5.2   4.5   4.6 
Net income  7.5%  6.0%  7.3%
Revenues:  2010  2009  2008 
   Services revenues   86.1%   88.4%   89.6% 
   Software and hardware revenues  9.6   6.9   4.6 
   Reimbursable expenses  4.3   4.7   5.8 
 Total revenues  100.0   100.0   100.0 
Cost of revenues (depreciation and amortization, shown separately below):            
   Project personnel costs  55.5   61.0   56.6 
   Software and hardware costs  8.4   6.2   3.7 
   Reimbursable expenses  4.3   4.7   5.7 
   Other project related expenses  2.6   2.4   2.2 
 Total cost of revenues  70.8   74.3   68.2 
   Services gross margin  32.6   28.2   34.4 
   Software and hardware gross margin  11.9   10.2   19.4 
 Total gross margin  29.2   25.7   31.8 
Selling, general and administrative  21.2   21.3   20.4 
Depreciation and amortization  2.2   3.0   3.0 
Acquisition costs  0.5   0.0   0.0 
Impairment of intangible assets  0.0   0.0   0.7 
Income from operations  5.3   1.4   7.7 
Net interest income  0.1   0.1   0.2 
Net other income (expense)  0.0   0.1   (0.4) 
Income before income taxes  5.4   1.6   7.5 
Provision for income taxes  2.5   0.8   3.2 
Net income  2.9%  0.8%  4.3%



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Year Ended December 31, 20072010 Compared to Year Ended December 31, 20062009

RevenuesRevenues.. Total revenues increased 36%14% to $218.1$215.0 million for the year ended December 31, 20072010 from $160.9$188.2 million for the year ended December 31, 2006.2009.

  Financial Results  Explanation for Increases Over Prior Year Period
  (in thousands)  (in thousands)
  For the Year Ended December 31, 2007  For the Year Ended December 31, 2006  Total Increase Over Prior Year Period  Increase Attributable to Acquired Companies*  Increase Attributable to Base Business**  % Increase in Total Revenue Attributable to Base Business 
Services Revenues $191,395  $137,722  $53,673  $43,437  $10,236   19%
Software Revenues  14,243   14,435   (192)  1,570   (1,762)  921%
Reimbursable Expenses  12,510   8,769   3,741   2,578   1,163   31%
Total Revenues $218,148  $160,926  $57,222  $47,585  $9,637   17%

 Financial Results Explanation for Increases Over Prior Year Period 
 (in thousands) (in thousands) 
 
For the Year Ended December
31, 2010
 
For the Year Ended December
31, 2009
 Total Increase Over Prior Year Period Increase Attributable to Acquired Companies* Increase Attributable to Base Business** 
Services Revenues $185,173  $166,397  $18,776  $7,956  $10,820 
Software and Hardware Revenues  20,556   12,968   7,588   1,667   5,921 
Reimbursable Expenses  9,223   8,785   438   470   (32)
Total Revenues $214,952  $188,150  $26,802  $10,093  $16,709 

*Defined as companies acquired during 2006 and 2007.2010; no companies were acquired in 2009.
**Defined as businesses owned as of January 1, 2006.2010.

Services revenues increased 39%11% to $191.4$185.2 million for the year ended December 31, 20072010 from $137.7$166.4 million for the year ended December 31, 2006. Base business accounted for 19% of the2009.  The increase in services revenues is due to an increase in demand for our services and the year ended December 31, 2007 compared to the year ended December 31, 2006. The remaining 81%acquisition of the increase is attributable to revenues generated from the companies acquired during 2006Kerdock and 2007.

Software revenues decreased 1% to $14.2 million in 2007 from $14.4 million in 2006. SoftwarespeakTECH.  Services revenues attributable to our base business decreased $1.8increased $10.8 million while softwareservices revenues attributable to acquired companies increased $1.6$8.0 million, resulting in a net decreasetotal increase of $192,000. Reimbursable expenses increased 43% to $12.5 million in 2007 from $8.8 million in 2006 due to acquisitions and an increased number of projects requiring consultant travel. We do not realize any profit on reimbursable expenses.$18.8 million.
Cost of revenues. Cost of revenues increased 33% to $142.5 million for the year ended December 31, 2007 from $107.2 million for the year ended December 31, 2006. Base business accounted for 14% of the $35.3 million increase in cost of revenues for the year ended December 31, 2007 compared to the year ended December 31, 2006.  The remaining increase in cost of revenues is attributable to the acquired companies. The average number of professionals performing services, including subcontractors, increased to 1,026 for the year ended December 31, 2007 from 686 for the year ended December 31, 2006.

Costs associated with software sales decreased 1% to $12.0 million for year ended December 31, 2007 from $12.1 million for the year ended December 31, 2006 due to an increase in sales of our higher margin internally developed software. Costs associated with software sales attributable to our base business decreased $1.4 million, while costs associated with software sales attributable to acquired companies increased $1.3 million, resulting in a net decrease of $135,000.
Gross Margin. Gross margin increased 41% to $75.7 million for the year ended December 31, 2007 from $53.8 million for the year ended December 31, 2006. Gross margin as a percentage of revenues increased to 34.7% for the year ended December 31, 2007 from 33.4% for the year ended December 31, 2006 due primarily to an increase in services gross margin offset by a slight decrease in margin from software. Services gross margin, excluding reimbursable expenses, increased to 38.4% in 2007 from 37.4% in 2006 primarily due to lower bonus as a percent of revenues and lower direct labor cost as a percent of revenues driven by improved billing rates. The average utilization rate of our professionals, excluding subcontractors, decreased slightly to 81% for the year ended December 31, 2007 from 83% for the year ended December 31, 2006. Average billing rates were $114 for 2007 and $109 for 2006. Software gross margin decreased to 15.9% in 2007 from 16.1% in 2006 primarily as a result of fluctuations in vendor and competitive pricing based on market conditions at the time of the sales.
 
 

 
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Selling, General
Software and Administrative. Selling, general and administrative expenseshardware revenues increased 30%59% to $42.0$20.6 million for the year ended December 31, 20072010 from $32.3$13.0 million for the year ended December 31, 20062009 due to an increase in the sale of new software licenses and renewals of software licenses. Reimbursable expenses increased 5% to $9.2 million for the year ended December 31, 2010 from $8.8 million for the year ended December 31, 2009 as a result of the increase in services revenue. We do not realize any profit on reimbursable expenses.
Cost of Revenues. Cost of revenues increased 9% to $152.2 million for the year ended December 31, 2010 from $139.8 million for the year ended December 31, 2009.  The increase in cost of revenues is directly related to the increase in revenues, specifically the increase in services revenues. The average number of colleagues performing services, including subcontractors, increased to 1,065 for the year ended December 31, 2010 from 1,028 for the year ended December 31, 2009.  Management will continue to manage the cost structure to match demand.

Gross Margin. Gross margin increased 30% to $62.8 million for the year ended December 31, 2010 from $48.3 million for the year ended December 31, 2009. Gross margin as a percentage of revenues increased to 29.2% for the year ended December 31, 2010 from 25.7% for the year ended December 31, 2009 primarily due to an increase in services gross margin. Services gross margin, excluding reimbursable expenses, increased to 32.6% or $60.3 million for the year ended December 31, 2010 from 28.2% or $47.0 million for the year ended December 31, 2009.  The increase in services gross margin is primarily a result of higher utilization and management’s continued efforts to manage the cost structure.  The average utilization rate of our colleagues, excluding subcontractors, increased to 81% for the year ended December 31, 2010 compared to 75% for the year ended December 31, 2009. The average bill rate for our colleagues, excluding subcontractors, remained flat at $106 per hour for the year ended December 31, 2010 compared to the year ended December 31, 2009.  The average bill rate for our colleagues, excluding subcontractors and offshore employees, increased to $119 for the year ended December 31, 2010 from $114 for the year ended December 31, 2009.  Software and hardware gross margin increased to 11.9% or $2.4 million for the year ended December 31, 2010 from 10.2% or $1.3 million for the year ended December 31, 2009.  The increase in software and hardware margin is directly related to the increase in higher margin software and hardware sales during 2010.

Selling, General and Administrative. SG&A expenses increased 14% to $45.5 million for the year ended December 31, 2010 from $40.0 million for the year ended December 31, 2009 due primarily to fluctuations in expenses as detailed in the following table:
  Increase / (Decrease) 
Selling, General, and Administrative Expense (in millions) 
Sales related costs $3.4 
Stock compensation expense  2.5 
Salary expense  1.9 
Bad debts  0.8 
Office and technology-related costs  1.6 
Recruiting and training-related costs  0.8 
Other  0.5 
Bonus expense  (1.8)
Net increase $9.7 

Selling, general and administrative
  Increase 
Selling, General and Administrative Expense (in millions) 
Bonus expense $ 1.9 
Stock compensation expense  1.5 
Bad debt expense  0.5 
Recruiting expense  0.5 
Salary expense  0.4 
Sales-related costs  0.3 
Other  0.4 
Net increase $5.5 

SG&A expenses, as a percentage of revenues, decreased slightly to 19%21.2% for the year ended December 31, 20072010 from 20%21.3% for the year ended December 31, 2006, primarily driven by lower bonus costs as a percent of revenue2009.  Bonus and the Company leveraging its infrastructure. Bonus costs,stock compensation expense increased as a percentage of service revenues excluding reimbursablecompared to the prior year period as a result of achieving the company-wide performance goals and the separation of the Chairman of the Board, respectively. These increases were offset by a decrease in sales-related costs and salary expenses as a percentage of revenues. These decreases were primarily related to management’s continued efforts to manage the cost structure.
Depreciation. Depreciation expense decreased 44% to 1.6%$0.8 million for the year ended December 31, 2007 compared to 3.5%2010 from $1.5 million for the year ended December 31, 2006 due to increasingly challenging growth and profitability targets in 2007. Stock compensation expense, as a percentage of services revenues, excluding reimbursed expenses, increased to 2.4% for the year ended December 31, 2007 compared to 1.6% for the year ended December 31, 2006. 

Depreciation. Depreciation expense increased 64% to $1.6 million during 2007 from approximately $0.9 million during 2006.2009. The increasedecrease in depreciation expense is duemainly attributable to various assets becoming fully depreciated and the additionmodification of software programs, servers, and otherthe estimated useful life of computer equipmenthardware from two to enhance our technology infrastructure and support our growth, both organic and acquisition-related.three years in first quarter of 2010.  Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 0.8%0.4% and 0.7%0.9% for the yearsyear ended December 31, 20072010 and 2006,2009, respectively.

IntangibleAmortization. Amortization. Intangible amortization expense increased 36%decreased 7% to $4.7$4.0 million for the year ended December 31, 20072010 from approximately $3.5$4.3 million for the year ended December 31, 2006. The increase in2009 due to the completion of amortization expense reflectsof certain acquired intangible assets during 2009 and 2010, partially offset by the addition of amortization related to acquired intangible assets.
Acquisition Costs. Acquisition-related costs of $1.0 million were incurred during 2010 related to the acquisition of intangibles acquired in 2006Kerdock and 2007, as well as the amortization of capitalizedspeakTECH.  Acquisition-related costs associated with internal use software.  The valuationswere incurred for legal, accounting, and estimated useful lives of acquired identifiable intangible assets are outlined in Note 13, Business Combinations, of our consolidated financial statements.valuation services performed by third parties.
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Net Interest Income or Expense. We had interest income of $163,000, net of interest expense, of $172,000 for the year ended December 31, 20072010, compared to interest expense,income of $209,000, net of interest income, of $407,000 duringexpense, for the year ended December 31, 2006.2009.  Net interest income in 2009 included interest received on the outstanding balance of a client note receivable.
Net Other Income or Expense. We repaid all outstanding debt in May 2007 and incurred no debt or interesthad other income of $72,000, net of other expense, for the year ended December 31, 2010 compared to other income of $260,000, net of other expense, for the year ended December 31, 2009.  Net other income during the rest of the fiscal year.2009 was primarily related to government incentives received by our China operations. 
 
Provision for Income Taxes. We providedprovide for federal, state, and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate decreased to 41.3%44.8% for the year ended December 31, 20072010 from 43.2%51.4% for the year ended December 31, 2006.2009. The effective income tax rate decreased as a result of the increased tax benefit of certain dispositions of incentive stock options by holders and a decrease in the effective rate is due primarily to the effect of state taxes and permanent items over a larger income taxes, net of the federal benefit.base and larger earnings in certain nontaxable foreign jurisdictions.

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Year Ended December 31, 20062009 Compared to Year Ended December 31, 20052008

RevenuesRevenues.. Total revenues increased 66%decreased 19% to $160.9$188.2 million for the year ended December 31, 20062009 from $97.0$231.5 million for the year ended December 31, 2005.
  Financial Results  Explanation for Increases Over Prior Year Period
  (in thousands)  (in thousands)
  For the Year Ended December 31, 2006  For the Year Ended December 31, 2005  Total Increase Over Prior Year Period  Increase Attributable to Acquired Companies*  Increase Attributable to Base Business**  % Increase in Total Revenue Attributable to Base Business 
Services Revenues $137,722  $83,740  $53,982  $38,715  $15,267   28%
Software Revenues  14,435   9,387   5,048   1,201   3,847   76%
Reimbursable Expenses  8,769   3,870   4,899   2,735   2,164   44%
Total Revenues $160,926  $96,997  $63,929  $42,651  $21,278   33%
*Defined as companies acquired during 2005 and 2006.
**Defined as businesses owned as of January 1, 2005.

2008.  Services revenues increased 65%decreased 20% to $137.7$166.4 million for the year ended December 31, 20062009 from $83.7$207.5 million for the year ended December 31, 2005. Base business accounted2008.  Revenue contraction during the year is due to the decreased demand for 28% ofinformation technology services market wide and delays in information technology spending by customers, which we believe is related to the increase in servicesgeneral economic slowdown.

Software and hardware revenues increased 21% to $13.0 million for the year ended December 31, 2006 compared to the year ended December 31, 2005. The remaining 72% of the increase is attributable to revenues generated2009 from the companies acquired during 2005 and 2006.

Software revenues increased 54% to $14.4$10.7 million in 2006 from $9.4 million in 2005. Base business accounted for 76% of the increase in software revenues for the year ended December 31, 2006 compared2008 due mainly to the renewal of several larger software licenses and an overall increase in software sales during the first and third quarters of 2009. Reimbursable expenses decreased 34% to $8.8 million for the year ended December 31, 2005. The remaining 24%2009 from $13.3 million for the year ended December 31, 2008 as a result of the increase is attributable to revenues generated from the companies acquired during 2005 and 2006. Reimbursable expenses increased 127% to $8.8 milliondecline in 2006 from $3.9 million in 2005 due to acquisitions and an increased number of projects requiring consultant travel.services revenue. We do not realize any profit on reimbursable expenses.
 
Cost of revenuesRevenues.. Cost of revenues increased 66%decreased 12% to $107.2$139.8 million for the year ended December 31, 20062009 from $64.6$158.0 million for the year ended December 31, 2005. Base business accounted for 40% of the $42.6 million increase2008.  The decrease in cost of revenues is directly related to the decrease in revenues and management’s efforts in managing costs, primarily headcount. The average number of colleagues performing services, including subcontractors, decreased to 1,028 for the year ended December 31, 2006 compared to the year ended December 31, 2005.  The remaining increase in cost of revenues is attributable to the acquired companies. The average number of professionals performing services, including subcontractors, increased to 6862009 from 1,165 for the year ended December 31, 2006 from 431 for2008.  Management will continue to manage the year ended December 31, 2005. Stock compensation expense included in cost of revenues for the year ended December 31, 2006 was nearly $1 million. No stock compensation expense was recognized in cost of revenues priorstructure to January 1, 2006. The increase in stock compensation expense is the result of our adoption of Statement of Financial Accounting Standards No. 123 (revised) (“SFAS 123R”), Share Based Payment,match demand. on January 1, 2006.

Costs associated with software sales increased 57%
Gross Margin. Gross margin decreased 34% to $12.1 million for year ended December 31, 2006 from $7.7$48.3 million for the year ended December 31, 2005 in connection with the increased software revenues in 2006 compared to 2005.  Base business accounted for 76% of the $4.4 million increase in costs associated with software sales for the year ended December 31, 2006 compared to the year ended December 31, 2005.  The remaining 24% increase in costs associated with software sales is attributable to acquired companies.
Gross Margin. Gross margin increased 66% to $53.82009 from $73.5 million for the year ended December 31, 20062008. Gross margin as a percentage of revenues decreased to 25.7% for the year ended December 31, 2009 from $32.431.8% for the year ended December 31, 2008 primarily due to a decrease in services gross margin. Services gross margin, excluding reimbursable expenses, decreased to 28.2% or $47.0 million for the year ended December 31, 2005. Gross margin as a percentage of revenues remained consistent at 33.4% for the years ended December 31, 2006 and 2005. Services gross margin, excluding reimbursable expenses, increased to 37.4% in 20062009 from 36.7% in 2005 primarily due to an increase in average billing rates and improved project pricing.  This increase is partially offset by $1.0 million of stock compensation expense recognized in cost of revenues during the year ended December 31, 2006, as discussed above.  The average utilization rate of our professionals, excluding subcontractors, remained consistent at 83% for the years ended December 31, 2006 and 2005. Average billing rates were $109 for 2006 and $110 for 2005. Software gross margin decreased to 16.1% in 2006 from 17.7% in 2005, primarily as a result of fluctuations in vendor and competitive pricing based on market conditions at the time of the sales.
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Selling, General and Administrative. Selling, general and administrative expenses increased 80% to $32.334.4% or $71.4 million for the year ended December 31, 20062008.  The decrease in services gross margin is primarily a result of lower utilization due to the decreased demand for informatio n technology services.  The average utilization rate of our colleagues, excluding subcontractors, decreased to 75% for the year ended December 31, 2009 compared to 79% for the year ended December 31, 2008. The average bill rate for our colleagues, excluding subcontractors, decreased to $106 per hour for the year ended December 31, 2009 from $17.9$109 per hour for the year ended December 31, 2008, primarily due to competition in the marketplace and increased usage of China offshore resources.   Software and hardware gross margin decreased to 10.2% or $1.3 million for the year ended December 31, 20052009 from 19.4% or $2.1 million for the year ended December 31, 2008.  Software revenues have increased while margin is down primarily due to the competition in the marketplace causing lower margin software sales.

Selling, General and Administrative. SG&A expenses decreased 15% to $40.0 million for the year ended December 31, 2009 from $47.2 million for the year ended December 31, 2008 due primarily to fluctuations in expenses as detailed in the following table:

  Increase / (Decrease) 
Selling, General and Administrative Expense (in millions) 
Stock compensation expense $ 0.7 
Bonus expense  (0.1)
Office and technology-related costs  (0.5) 
Salary expense  (0.6) 
Sales-related costs  (1.7) 
Bad debt expense  (3.1) 
Other  (1.9) 
Net decrease $(7.2) 
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  Increase /(Decrease) 
Selling, General, and Administrative Expense (in millions) 
Bonus expense $3.5 
Sales related costs  3.2 
Salary expense  1.9 
Stock compensation expense  1.9 
Recruiting and training-related costs  1.4 
Office and technology-related costs  1.2 
Other  0.9 
Bad debts  0.4 
Net increase $14.4 

Selling, general and administrativeSG&A expenses, as a percentage of revenues, increased to 20%21.3% for the year ended December 31, 20062009 from 19%20.4% for the year ended December 31, 2005, primarily due to higher bonus2008.  Stock compensation expense, salary expense, office and recruiting, partially offset by lower officetechnology-related costs, salaries, and professional fees. Bonussales-related costs all increased as a percentage of service revenues excluding reimbursable expenses, increased to 3.5% for the year ended December 31, 2006 compared to 1.6% for the prior year ended December 31, 2005 due to strong operating performance.period.  Stock compensation expense, as a percentage of services revenues, excluding reimbursed expenses, increased due to 1.6%lower revenues and the restricted stock awards granted in 2008 and 2009.  The increase in salary expense, as a percentage of revenues, was primarily the result of lower revenues and the addition of new marketing roles during 2009.  Office and technology-related costs, as a percentage of revenues, increased primarily due to the costs associated with the abandonment of office space and lower revenues during 2009.  These increases were offset by a decrease in bad debt expense.  During 2008, the allowance for doubtful accounts increased due to additional uncertainties regarding collectibility as a result of the overall economic downturn and its impact on certain outstanding receivables.  The reserve has decreased in 2009 due to either the collection of previously reserved for balances or write-off of such amounts.
Depreciation. Depreciation expense decreased 31% to $1.5 million for the year ended December 31, 2006 compared to 0.3%2009 from $2.1 million for the year ended December 31, 2005. 

Depreciation. Depreciation expense increased 54% to $948,000 during 2006 from approximately $615,000 during 2005.2008. The increasedecrease in depreciation expense is duemainly attributable to the addition of software programs, servers,various assets becoming fully depreciated during 2008 and other computer equipment to enhance our technology infrastructure2009 and support our growth, both organic and acquisition-related.lower spending on capital assets during 2009.  Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was 0.6%0.9% and 1.0% for the yearsyear ended December 31, 20062009 and 2005.2008, respectively.

IntangibleAmortization. Amortization. Intangible amortization expense increased 115%decreased 11% to $3.5$4.3 million for the year ended December 31, 20062009 from approximately $1.6$4.8 million for the year ended December 31, 2005.2008. The increasedecrease in amortization expense reflects the acquisitioncompletion of intangiblesthe amortization of certain acquired intangible assets and the impact of the impairment charge recorded in 2005 and 2006.the fourth quarter of 2008.  The impairment charge will also result in lower amortization expense in future periods.
 
Impairment of Intangible Assets. During the fourth quarter of 2008, we performed an impairment test as of December 31, 2008.  As a result of the test performed, we recorded a $1.6 million impairment charge primarily related to customer relationships we acquired from e tech solutions, Inc. (“E Tech”).  The value of these relationships was affected primarily by the loss of a key customer acquired from E Tech, which caused cash flows from the asset group to be lower than originally projected.

Net Interest ExpenseIncome. InterestWe had interest income of $0.2 million, net of interest expense, decreased 23% to $509,000 for the year ended December 31, 20062009, compared to approximately $658,000 during the year ended December 31, 2005. This decrease is primarily due to a lower average amountinterest income of debt outstanding during 2006 compared to 2005. As$0.5 million, net of December 31, 2006, there was approximately $1.3 million outstanding on the acquisition line of credit and no amounts outstanding on the accounts receivable line of credit. Our outstanding borrowings on the acquisition line of credit had an average interest rate of 7.0%expense, for the year ended December 31, 20062008.  The decrease in interest income in 2009 resulted from a decrease in the interest earned on the note receivable and the money market account.  The note receivable was fully repaid in October 2009 and while our average cash and investments balances increased during 2009, the average interest raterates on our accounts receivable linedecreased compared to the same prior year period.
Net Other Income or Expense. We had other income of credit borrowings$0.3 million, net of other expense, for the year ended December 31, 2006 was 7.96%. During 2006,2009 compared to other expense of $0.9 million, net of other income, for the year ended December 31, 2008.  Other income for the year ended December 31, 2009 is primarily related to government incentives received by our China operations.  Additionally, during the third quarter 2008, we drew down $34.9expensed $0.9 million on the accounts receivable line of credit and repaid $38.9 million.previously capitalized deferred offering costs related to our shelf registration statement.
 
Provision for Income Taxes. We providedprovide for federal, state and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate increased to 43.2%51.4% for the year ended December 31, 20062009 from 38.5%42.2% for the year ended December 31, 20052008. The increase in the effective rate is due primarily to the magnified effect of certain state taxes, which are generally based on gross receipts instead of income, permanent items such as a result ofmeals and entertainment, and non-deductible stockexecutive compensation related to incentive stock options included in our statement of operations in 2006 as a result of the adoption of SFAS 123R on January 1, 2006 and certain non-deductible compensation related tounder Section 162(m) of the Internal Revenue Code, which imposesrelative to a limitation on the deductibility of certain compensation in excess of $1 million paid to covered employees.smaller income base.

Liquidity and Capital Resources

Selected measures of liquidity and capital resources are as follows (in millions):
 
  As of December 31, 
  2007  2006 
Cash and cash equivalents $8.1  $4.5 
Working capital $41.4  $24.9 
Amounts available under credit facilities $49.8  $49.5 

  As of December 31, 
  2010  2009  2008 
Cash, cash equivalents, and investments $26.3  $28.0  $22.9 
Working capital (including cash and cash equivalents) $47.6  $50.2  $56.2 
Amounts available under credit facilities $50.0  $50.0  $49.9 
 

 
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Net Cash Provided By Operating Activities
 
We expect to fund our operations from cash generated from operations and short-term borrowings as necessary from our credit facilities. We believe that these capital resources will be sufficient to meet our needs for at least the next twelve months.
Net cash provided by operationsoperating activities for the year ended December 31, 20072010 was $23.1$18.7 million compared to $13.1$22.6 million and $25.1 million for the yearyears ended December 31, 2006.2009 and 2008, respectively. For the year ended December 31, 2007,2010, the components of operating cash flows were net income of $16.2$6.5 million plus non-cash charges of $12.0$14.3 million, werepartially offset by investments in working capital of $5.1$2.1 million.  The primary components of operating cash flows for the year ended December 31, 20062009 were net income of $9.6$1.5 million plus non-cash expensescharges of $8.9$15.0 million offset by investments inand net working capital reductions of $5.4$6.1 million.  The Company’sprimary components of operating cash flows for the year ended December 31, 2008 were net income of $10.0 million plus non-cash charges o f $15.0 million and net working capital reductions of $0.1 million.  Lower accounts receivable balances due to decreased revenue during 2009 caused a decline in net cash provided by operating activities for the year ended December 31, 2010 compared to the year ended December 31, 2009.  Our days sales outstanding as of December 31, 2007 increased to2010 remained flat at 73 days days compared to December 31, 2009 and increased from 7071 days at December 31, 2006.2008.

Net Cash Used in Investing Activities
 
For the year ended December 31, 2007,2010, we used approximately $26.8$4.3 million in cash netto purchase investments, $4.9 million for the purchase of cash acquired, to acquire E Tech, Tier1, BoldTech,Kerdock and ePairs. In addition, we used approximately $2.2speakTECH, and $1.3 million during 2007in cash to purchase equipment and develop certain software.  For the year ended December 31, 2006,2009, we used approximately $17.2$10.0 million in cash net ofto purchase investments and $0.7 million in cash acquired, to acquire Bay Street, Insolexen, and EGG. In addition, during 2006 we used approximately $1.7 million to purchase equipment and develop software.  For the year ended December 31, 2008, we used $0.8 million in cash to pay certain software,acquisition-related costs and $250,000$1.5 million in cash to repay the promissory notes related to the Javelin acquisition.purchase equipment and develop software.  

Net Cash Provided By Financing Activities
 
During the year ended December 31, 2007 our financing activities consisted of $1.3 million of payments on long-term debt. Also,2010, we received $3.9proceeds of $1.5 million primarily from proceeds related to exercises of stock options and purchases undersales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefitsbenefit of $1.5 million related to vesting of stock awards and stock option exercisesexercises.  We used $1.9 million to settle the contingent consideration for the purchase of Kerdock and restricted$14.7 million to repurchase shares of our common stock vesting of $6.9 million during 2007. Duringthrough the stock repurchase program.  For the year ended December 31, 2006 our financing activities consisted2009, we received proceeds of net payments totaling $4.0$1.0 million on our accounts receivable line of credit and $1.3 million of payments on long-term debt. We received $4.2 million primarily from proceeds related to exercises of stock options and warrants, and purchases undersales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefitsbenefit of $0.6 million related to vesting of stock awards and stock option exercises.&# 160; We used $18.4 million to repurchase shares of our common stock through the stock repurchase program.  For the year ended December 31, 2008, we made payments of $0.4 million in fees to establish our new credit facility.  We received proceeds of $0.9 million from exercises of $6.6stock options and sales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefit of $0.7 million during 2006.related to vesting of stock awards and stock option exercises.  We used $9.2 million to repurchase shares of our common stock through the stock repurchase program.  
 
Availability of Funds from Bank Line of Credit Facilities
 
We have
In May 2008, we entered into a $50 million credit facilityCredit Agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”) and KeyKeyBank National Association (“KeyBank”).  The Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $50.0 million, subject to a commitment increase of $25.0 million.  The Credit Agreement also allows for the issuance of letters of credit in the aggregate amount of up to $500,000 at any one time; outstanding letters of credit reduce the credit available for revolving credit borrowings.  Substantially all of our assets are pledged to secure the credit facility.  In July 2009, U.S. Bank National Association (“Key Bank”) comprising a $25assumed $10.0 million accounts receivable line of creditKeyBank’s commit ment.  In March 2010, Bank of America, N.A. assumed the remaining $15.0 million of KeyBank’s commitment.
All outstanding amounts owed under the Credit Agreement become due and a $25 million acquisition linepayable no later than the final maturity date of credit.May 30, 2012.  Borrowings under the accounts receivable line of credit facility bear interest at the bank'sour option of SVB’s prime rate (7.25%(4.00% on December 31, 2007)2010) plus a margin ranging from 0.00% to 0.50% or one-month LIBOR (0.26% on December 31, 2010) plus a margin ranging from 2.50% to 3.00%.  The additional margin amount is dependent on the level of outstanding borrowings. As of December 31, 2007, there was no outstanding balance under the accounts receivable line of credit and $24.82010, we had $50.0 million of availablemaximum borrowing capacity due to an outstanding letter of credit to secure an office lease.  Additionally, the line of credit bearscapacity.  We incur an annual commitment fee of 0.12%0.30% on the unused portion of the line of credit.

   Our $25 million term acquisition line of credit with Silicon Valley Bank and Key Bank provides an additional source of financing for certain qualified acquisitions. As of December 31, 2007, there was no balance outstanding under this acquisition line of credit. Borrowings under this acquisition line of credit bear interest equal to the four year U.S. Treasury note yield plus 3% based on the spot rate on the day the draw is processed (6.29% on December 31, 2007). Draws under this acquisition line may be made through June 2008. We currently have $25 million of available borrowing capacity under this acquisition line of credit.  Additionally, the line of credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.

As of December 31, 2007,2010, we were in compliance with all covenants under our credit facility and we expect to be in compliance during the next twelve months. Substantially all

Stock Repurchase Program

Prior to 2010, our Board of Directors authorized the repurchase of up to $40.0 million of our assets are pledgedcommon stock.  In 2010, the Board of Directors authorized the repurchase of up to secure the credit facility.an additional $10.0 million of our common stock for a total repurchase program of $50.0 million.  The repurchase program expires June 30, 2011.  
 
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We established a written trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”), under which we made a portion of our stock repurchases.  Additional repurchases will be at times and in amounts as the Company deems appropriate and will be made through open market transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other factors.   

Since the program’s inception in 2008, we have repurchased approximately $42.2 million of our outstanding common stock through December 31, 2010.

Lease Obligations
During 2009 and 2010, we vacated certain office space as part of ongoing cost reduction initiatives.  We subleased some of the vacated office space.  The accounting for costs associated with the abandonment of office space was calculated using the guidance in Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Subtopic 420-10, Exit or Disposal Cost Obligations.  A liability of approximately $0.2 million for lease abandonment costs was recorded as of December 31, 2010.  The lease abandonment costs were classified as “Selling, general and administ rative” expense in our Consolidated Statement of Operations.

There were no other material changes outside the ordinary course of our business in lease obligations or other contractual obligations in 2007. We believe that2010 as disclosed in Note 12, Commitments and Contingencies, in the current available funds, accessNotes to capital from our credit facilities, possible capital from registered placements of equity through the shelf registration, and cash flows generated from operations will be sufficient to meet our working capital requirements and meet our capital needs to finance acquisitions for the next twelve months.Consolidated Financial Statements.

Shelf Registration Statement

We have
In July 2008, we filed a shelf registration statement with the U.S. Securities and Exchange Commission (“SEC”) to allow for offers and sales of our common stock from time to time.  Approximately 5four million shares of common stock may be sold under this registration statement if we choose to do so.


  The shelf registration will expire in July 2011.
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Contractual Obligations
 
In connection with an acquisition, we were required to establish a letter of credit totaling $150,000 to serve as collateral to secure a facility lease. The letter of credit reduces the borrowings available under our accounts receivable line of credit.

We have incurred commitments to make future payments under contracts such as leases. Maturities under these contracts are set forth in the following table as of December 31, 20072010 (in thousands):
 
Payments Due by Period  Payments Due by Period 
Contractual Obligations
Total 
Less Than
1 Year
 
1-3
Years
 
3-5
Years
 
More
Than 5
Years
  Total 
Less Than
1 Year
 
1-3
Years
 
3-5
Years
 
More
Than 5
Years
 
Operating lease obligations$8,268 $ 2,363 $ 3,832 $1,853 $220  $6,057  $2,451  $2,482  $942  $182 
Total$8,268 $2,363 $3,832 $1,853 $220  $6,057  $2,451  $2,482  $942  $182 
See Note 9, 11, Income Taxes, in the Notes to Consolidated Financial Statements for information related to the Company'sour obligations for taxes.

Conclusion
If our capital is insufficient to fund our activities in either the shortshort- or long term,long-term, we may need to raise additional funds. In the ordinary course of business, we may engage in discussions with various persons in connection with additional financing. If we raise additional funds through the issuance of equity securities, our existing stockholders'stockholders’ percentage ownership will be diluted. These equity securities may also have rights superior to our common stock. Additional debt or equity financing may not be available when needed or on satisfactory terms. If adequate funds are not available on acceptable terms, we may be unable to expand our services, respond to competition, pursue acquisition opportunities, or continue our operations.
We believe that the currently available funds, access to capital from our credit facility, and cash flows generated from operations will be sufficient to meet our working capital requirements and other capital needs for the next twelve months.
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Critical Accounting Policies
 
The Company'sOur accounting policies are described in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements. The Company believes itsWe believe our most critical accounting policies include revenue recognition, estimating the allowance for doubtful accounts, accounting for goodwill and intangible assets, purchase accounting, allocation, accounting for stock-based compensation, deferredand income taxes and estimating the related valuation allowance.taxes.

Revenue Recognition and Allowance for Doubtful Accounts
 
Revenues are primarily derived from professional services provided on a time and materials basis. For time and material contracts, revenues are recognized and billed by multiplying the number of hours expended in the performance of the contract by the established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performancean input method based on the ratio of hours expended to total estimated hours. BillingsAmounts invoiced and collected in excess of costs plus earningsrevenues recognized are classified as deferred revenues. On many projects the Company iswe are also reimbursed for out-of-pocket expenses such as airfare, lodging, and meals.  These reimbursements are included as a component of revenues. Revenues from software and hardware sales are generally recorded on a gross basis based on the Company'sour role as a principal in the transaction.  On rare occasions, we enter into a transaction where we are not the principal.  In these cases, revenue is recorded on a net basis.

Unbilled revenues represent the project time and expenses that have been incurred, but not yet billed to the client, prior to the end of the fiscal period.  For time and materials projects, the client is invoiced for the amount of hours worked multiplied by the billing rates as stated in the contract. For fixed fee arrangements, the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract.  Clients are typically billed monthly for services provided during that month, but can be billed on a more or less frequent basis as determined by the contract.  If the time and expenses are worked/incurred and approved at the end of a fiscal period and the invoice has not yet been sent to the client , the amount is recorded as unbilled revenue once we verify all other revenue recognition criteria have been met.

Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists, (2) fees are fixed and determinable, (3) delivery and acceptance have occurred, and (4) collectibility is deemed probable. The Company'sOur policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same counterparty is in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2,ASC Subtopic 985-605, Software – Revenue Recognition, Emerging Issues Task Force ("EITF") Issue No. 00-21, ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements with Multiple Deliverables), and SEC StaffASC Section 605-10-S99 (Staff Accounting Bulletin No. 104,(“SAB”) Topic 13, Revenue Recognition). Specifically, if the Company enterswe enter into contracts for the sale of services and software then the Company evaluatesor hardware, we evaluate whether the services are essential to the functionality of the software or hardware and whether it hasthere is objective fair value evidence for each deliverable in the transaction. If the Company has concluded thatwe conclude the services to be provided are not essential to the functionality of the software or hardware and itwe can determine objective fair value evidence for each deliverable of the transaction, then it accountswe account for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of the Company'sour multiple element arrangements meet these criteria. The Company followsWe may provide multiple services under the terms of an arrangement and are required to assess whether one or more units of accounting are present.  Service fees are typically accounted for as one unit of accounting as fair value evidence for individual tasks or milestones is not available.  We follow the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to determine revenues recognized in any accounting period. MaterialIf estimates are revised, material differences may result in the amount and timing of revenues recognized for any period if different conditions were to prevail.  a given period.

Revenues are presented net of taxes assessed by governmental authorities.  Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.
 
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Our allowanceAllowance for doubtful accounts is based upon specific identification of likely and probable losses. Each accounting period, we evaluate accounts receivable is evaluated for risk associated with a client'sclient’s inability to make contractual payments, or unresolved issues with the adequacy of our services.historical experience and other currently available information. Billed and unbilled receivables that are specifically identified as being at risk are provided for with a charge to revenue or bad debts as appropriate in the period the risk is identified. We use considerableConsiderable judgment is used in assessing the ultimate realization of these receivables, including reviewing the financial stability of the client, evaluating the successful mitigation of service delivery disputes, and gauging current market conditions. If ourthe evaluation of service deliverydeliv ery issues or a client'sclient’s ability to pay is incorrect, we may incur future reductions to revenue or bad debt expense.expense may be incurred.


Goodwill, Other Intangible Assets, and Impairment of Long-Lived Assets

Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, ASC Topic 350, Intangibles – Goodwill and Other Intangible Assets (“SFAS 142”ASC Topic 350”), the Company performswe perform an annual impairment test of goodwill. The Company evaluatesWe evaluate goodwill at the enterprise level as of October 1 each year orand more frequently if events or changes in circumstances indicate that goodwill might be impaired.  As required by SFAS 142,ASC Topic 350, the impairment test is accomplished using a two-steppedtwo-step approach.  The first step screens for impairment and, when impairment is indicated, a secondsecon d step is employed to measure the impairment. The Company also reviewed other factors to determine the likelihood of impairment. No
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Our annual goodwill impairment test was indicated using dataperformed as of October 1, 2007.2010.  Our fair value as of the annual testing date exceeded our book value and consequently, no impairment was indicated.

Our fair value was determined by weighting the results of two valuation methods: 1) market capitalization based on the average price of our common stock, including a control premium, for a reasonable period of time prior to the evaluation date (generally 15 days) and 2) a discounted cash flow model.  The fair value calculated using our average common stock price (including a control premium) was weighted 40% while the value calculated by the discounted cash flow model was weighted 60% in our determination of our overall fair value.  While the use of our average common stock price, plus a control premium, may be considered the best evidence of fair value in ASC Topic 350, we believe the declines in our stock price over the past two years, and in the marke t overall, are not consistently aligned with our financial results or outlook.  The discounted cash flow approach allows us to calculate our fair value based on operating performance and meaningful financial metrics.
A key assumption used in the calculation of our fair value using our average common stock price was the consideration of a control premium.  We reviewed industry premium data and determined an appropriate control premium for the analysis based on the low end of any premium received in transactions over the past several years.
Significant estimates used in the discounted cash flow model included projections of revenue growth, net income margins, discount rate, and terminal business value. The forecasts of revenue growth and net income margins are based upon our long-term view of the business and are used by senior management and the Board of Directors to evaluate operating performance. The discount rate utilized was estimated using the weighted average cost of capital for our industry. The terminal business value was determined by applying a growth factor to the latest year for which a forecast exists. 

Other intangible assets include customer relationships, non-compete arrangements, customer backlog, trade name, and internally developed software, andwhich are being amortized over the assets'assets’ estimated useful lives using the straight-line method. Estimated useful lives range from threeseven months to eight years. Amortization of customer relationships, non-compete arrangements, customer backlog, trade name, and internally developed software areis considered an operating expensesexpense and areis included in “Amortization of intangible assets”“Amortization” in the accompanying consolidatedConsolidated Statements of Income. The CompanyOperations. We periodically reviewsreview the estimated useful lives of itsour identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revisedrev ised useful life.

Purchase Price AllocationAccounting

We allocate the purchase price of our acquisitions to the assets and liabilities acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Some of the items, including accounts receivable, propertySuch fair market value assessments require significant judgments and equipment, other intangible assets, certain accrued liabilities, and other reserves require a high degree of management judgment. Certain estimates maythat can change materially as additional information becomes available. Goodwill is assigned at the enterprise level and is deductible for tax purposes for certain types of acquisitions. The purchase price is allocated to intangibles based on management'sour estimate and an independent valuation. Management finalizesWe finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting valuation estimates are resolved.finalized.

Accounting for Stock-Based Compensation
 
We adopted SFAS No. 123R, Share-Based Payment (“SFAS No. 123R”), on January 1, 2006, using the modified prospective application transition method. SFAS No. 123R requires that the costs of employee share-based payments be measured at fair value on the awards' grant date and recognized in the financial statements over the requisite service period.
The Company estimatesestimate the fair value of stock option awards on the date of grant utilizing a modified Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. However, certain assumptions used in the Black-Scholes model, such as expected term, can be adjusted to incorporate the unique characteristics of the Company’sour stock option awards. Option valuation models require the input of somewhat subjective assumptions including expected stock price volatility and expected term. The Company believesWe believe it is unlikely that materially different estimates for the assumptions used in estimating the fair value of stock options granted would be made based on the conditions suggested by actual historical experience and other data available at the time estimates were made. Restricted stock awards are valued at the price of our common stock on the date of the grant.

Prior to January 1, 2006, the Company accounted for share-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations and elected the disclosure option of SFAS No. 123 (“SFAS No. 123”) as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure (“SFAS No. 148”). SFAS No. 123 required that companies either recognize compensation expense for grants of stock, stock options and other equity instruments based on fair value, or provide pro-forma disclosure of net income and earnings per share in the notes to the financial statements. Accordingly, the Company measured compensation expense for stock options as the excess, if any, of the estimated fair market value of the Company's stock at the date of grant over the exercise price. The Company provided pro-forma effects of this measurement in a footnote to its financial statements for the year ended December 31, 2005.

  
27

Income Taxes
 
To record income tax expense, we are required to estimate our income taxes in each of the jurisdictions in which we operate. In addition, income tax expense at interim reporting dates requires us to estimate our expected effective tax rate for the entire year. This involves estimating our actual current tax liability together with assessing temporary differences that result in deferred tax assets and liabilities and expected future tax rates.
 
28

Recent Accounting Pronouncements
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which is a revision of SFAS No. 141, Business Combinations.  SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009.  The revised statement will require that transaction costs be expensed instead of recognized as purchase price. The Company is currently evaluating the impact of SFAS 141R on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect that the pronouncement will have a material impact on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements.  SFAS 157 will be applied prospectively and will be effective for periods beginning after November 15, 2007.  The FASB issued Staff Position No. 157-2 (“FSP 157-2”) in February 2008, which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008. The Company is currently evaluating the effect, if any, of SFAS 157 and does not expect that the pronouncement will have a material impact on its consolidated financial statements.

In June 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. The Company adopted the provisions of FIN 48 on January 1, 2007 as required and such adoption did not have a material impact to the consolidated financial statements.

In June 2006, the EITF ratified EITF Issue No. 06-3, How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”).  A consensus was reached that entities may adopt a policy of presenting taxes in the income statement on either a gross or net basis. An entity should disclose its policy of presenting taxes and the amount of any taxes presented on a gross basis should be disclosed, if significant. The Company adopted EITF 06-3 on January 1, 2007.  There was no effect of the adoption on the consolidated financial statements as of December 31, 2007. The Company presents revenues net of taxes as disclosedOur recent accounting pronouncements are fully described in Note 2, Summary of Significant Accounting Policies.Policies, in the Notes to Consolidated Financial Statements.

Off-Balance Sheet Arrangements
 
The Company currently hasWe have no off-balance sheet arrangements, except operating lease commitments as disclosed in Note 10, 12, Commitments and Contingencies,.
in the Notes to Consolidated Financial Statements.
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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks related to changes in foreign currency exchange rates and interest rates.  We believe our exposure to market risks is immaterial.

Exchange Rate Sensitivity
 
During the year ended December 31, 2007, $1.0 million and $0.6 million of our total revenues were attributable
We are exposed to our Canadian operations and revenues generated in Europe, respectively. Our exposure tomarket risks associated with changes in foreign currency exchange rates primarily arises from short-term intercompanybecause we generate a portion of our revenues and incur a portion of our expenses in currencies other than the U.S. dollar.  As of December 31, 2010, we were exposed to changes in exchange rates between the U.S. dollar and the Canadian dollar, between the U.S. dollar and the Chinese Yuan, and between the U.S. dollar and the Indian Rupee.  We have not hedged foreign currency exposures related to transactions with our Canadian, Chinese, and India subsidiaries and from client receivables denominated in currencies other than our functional currency.U.S. dollars. Our exposure to foreign subsidiaries incur a significant portion of their expenses in their applicable currency as well, which helps minimize our risk of exchange rate fluctuations.  Based on the amount of revenues attributed to clients in Canada, and Europe during the year ended December 31, 2007, this exchange rate risk willis not have a material impact on our financial position or results of operations.significant.

Interest Rate Sensitivity
 
We had unrestricted cash, and cash equivalents, and investments totaling $8.1 million and $4.5$26.3 million at December 31, 20072010 and $28.0 million at December 31, 2006, respectively.  These amounts were invested primarily in money market funds.2009.  The unrestricted cash and cash equivalents consist of commercial paper and time deposits, and the investments consist of corporate bonds, commercial paper, U.S. treasury bills, and U.S. agency bonds, which are held for working capital purposes.subject to market risk due to changes in interest rates.  Fixed interest rate securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.  We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fairmarket value of our investment portfolio as a result of changes in interest rates.r ates. Declines in interest rates, however, will reduce future investmentinterest income.

 



 
29
 

 
Item 8.
Financial Statements and Supplementary Data.
 
PERFICIENT, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 20072010 AND 20062009

  December 31, 
  2010  2009 
ASSETS (In thousands, except share information) 
Current assets:      
Cash and cash equivalents  $12,707  $17,975 
Short-term investments  11,301   6,327 
Total cash, cash equivalents, and short-term investments  24,008   24,302 
Accounts receivable, net of allowance for doubtful accounts of $228 in 2010 and $315 in 2009  48,496   38,244 
Prepaid expenses  1,270   1,258 
Other current assets   2,584   1,534 
Total current assets   76,358   65,338 
Long-term investments  2,254   3,652 
Property and equipment, net   2,355   1,278 
Goodwill   115,227   104,168 
Intangible assets, net  8,829   7,605 
Other non-current assets   2,655   2,769 
Total assets $207,678  $184,810 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable  $6,072  $3,657 
Other current liabilities   22,654   11,476 
Total current liabilities   28,726   15,133 
Other non-current liabilities  1,788   1,329 
Total liabilities  $30,514  $16,462 
         
Commitments and contingencies (see Note 12)      -- 
         
Stockholders’ equity:        
Common stock ($0.001 par value per share; 50,000,000 shares authorized and 33,373,410 shares issued and 27,275,936 shares outstanding as of December 31, 2010; 31,621,089 shares issued and 27,082,569 shares outstanding as of December 31, 2009)   $33  $32 
Additional paid-in capital   224,966   208,003 
Accumulated other comprehensive loss   (225)   (273)
Treasury stock, at cost (6,097,474 shares as of December 31, 2010; 4,538,520 shares as of December 31, 2009)  (42,205)   (27,529)
Accumulated deficit   (5,405)   (11,885)
Total stockholders’ equity   177,164   168,348 
Total liabilities and stockholders’ equity  $207,678  $184,810 
See accompanying notes to consolidated financial statements.
30

  December 31, 
  2007  2006 
ASSETS (In thousands, except share data) 
Current assets:      
Cash and cash equivalents  $8,070  $4,549 
Accounts receivable, net of allowance for doubtful accounts of $1,475 in 2007 and $707 in 2006   50,855   38,600 
Prepaid expenses  1,182   1,171 
Other current assets   4,142   2,799 
Total current assets   64,249   47,119 
Property and equipment, net   3,226   1,806 
Goodwill   103,686   69,170 
Intangible assets, net  17,653   11,886 
Other non-current assets   1,178   1,019 
Total assets $189,992  $131,000 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable  $4,160  $5,025 
Current portion of long-term debt   --   1,201 
Other current liabilities   18,721   16,034 
Total current liabilities   22,881   22,260 
Long-term debt, less current portion   --   137 
Deferred income taxes    1,549   1,251 
Total liabilities  $24,430  $23,648 
         
Commitments and contingencies (see Note 4 and 10)       
         
Stockholders' equity:        
Common stock ($0.001 par value per share; 50,000,000 shares authorized and 29,423,296 shares issued and outstanding as of December 31, 2007; 26,699,974 shares issued and outstanding as of December 31, 2006)   $29  $27 
Additional paid-in capital   188,998   147,028 
Accumulated other comprehensive loss   (117)  (125)
Accumulated deficit   (23,348)  (39,578)
Total stockholders' equity   165,562   107,352 
Total liabilities and stockholders' equity  $189,992  $131,000 
 
PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

  Year Ended December 31, 
  2010  2009  2008 
Revenues: (In thousands, except share and per share information) 
   Services $185,173  $166,397  $207,480 
   Software and hardware  20,556   12,968   10,713 
   Reimbursable expenses  9,223   8,785   13,295 
Total revenues   214,952   188,150   231,488 
Cost of revenues (exclusive of depreciation and amortization, shown separately below):            
   Project personnel costs  119,304   114,877   131,019 
   Software and hardware costs  18,108   11,641   8,639 
   Reimbursable expenses  9,223   8,785   13,295 
   Other project related expenses  5,550   4,514   5,033 
Total cost of revenues   152,185   139,817   157,986 
             
Gross margin  62,767   48,333   73,502 
             
Selling, general and administrative   45,477   40,042   47,242 
Depreciation   830   1,483   2,139 
Amortization  3,954   4,267   4,810 
Acquisition costs  993   --   -- 
Impairment of intangible assets  --   --   1,633 
Income from operations   11,513   2,541   17,678 
             
Net interest income   163   209   528 
Net other income (expense)  72   260   (915)
Income before income taxes   11,748   3,010   17,291 
Provision for income taxes   5,268   1,547   7,291 
             
Net income   $6,480  $1,463  $10,000 
             
Basic net income per share $0.24  $0.05  $0.34 
Diluted net income per share $0.23  $0.05  $0.33 
Shares used in computing basic net income per share   26,856,481   27,538,300   29,412,329 
Shares used in computing diluted net income per share   28,303,547   28,558,160   30,350,616 

See accompanying notes to consolidated financial statements.
 
 

30

PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

  Year Ended December 31, 
  2007  2006  2005 
Revenues: (In thousands, except share data) 
Services $191,395  $137,722  $83,740 
Software  14,243   14,435   9,387 
Reimbursable expenses  12,510   8,769   3,870 
Total revenues   218,148   160,926   96,997 
Cost of revenues (exclusive of depreciation and amortization, shown separately below):            
Project personnel costs  114,692   84,161   51,140 
Software costs  11,982   12,118   7,723 
Reimbursable expenses  12,510   8,769   3,870 
Other project related expenses  3,274   2,122   1,846 
Total cost of revenues   142,458   107,170   64,579 
             
Gross margin  75,690   53,756   32,418 
             
Selling, general and administrative   41,963   32,268   17,917 
Depreciation   1,553   948   615 
Amortization of intangible assets   4,712   3,458   1,611 
Income from operations   27,462   17,082   12,275 
Interest income   239   102   15 
Interest expense   (67)  (509)  (658)
Other income  20   174   43 
Income before income taxes   27,654   16,849   11,675 
Provision for income taxes   11,424   7,282   4,498 
             
Net income   $16,230  $9,567  $7,177 
             
Basic net income per share $0.58  $0.38  $0.33 
Diluted net income per share $0.54  $0.35  $0.28 
Shares used in computing basic net income per share   27,998,093   25,033,337   22,005,154 
Shares used in computing diluted net income per share   30,121,962   27,587,449   25,242,496 

See accompanying notes to consolidated financial statements.


 
31
 

PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 20062010, 2009 AND 20052008
(In thousands)

  
Common
 Stock
 Shares
  
Common
 Stock
 Amount
  
Additional
 Paid-in
 Capital
  
Accumulated
 Other
Comprehensive
 Loss
  
Accumulated
 Deficit
  
Total
 Stockholders'
 Equity
 
Balance at January 1, 2005   20,657  $21  $100,982  $(58) $(56,322) $44,623 
Warrants exercised   88   --   157   --   --   157 
Stock options exercised   1,354   1   2,703   --   --   2,704 
iPath and Vivare acquisitions  1,196   1   8,708   --   --   8,709 
Tax benefit of stock option exercises   --   --   2,306   --   --   2,306 
Stock compensation   --   --   264   --   --   264 
Foreign currency translation adjustment   --   --   --   (29)  --   (29)
Net income   --   --   --   --   7,177   7,177 
Total comprehensive income  --   --   --   --   --   7,148 
Balance at December 31, 2005   23,295  $ 23  $ 115,120  $ (87) $ (49,145) $ 65,911 
Bay Street, Insolexen, and EGG acquisitions   1,499   2   17,989   --   --   17,991 
Warrants exercised   145   --   146   --   --   146 
Stock options exercised   1,672   2   4,001   --   --   4,003 
Purchases of stock from Employee Stock Purchase Plan  6   --   86   --   --   86 
Tax benefit of stock option exercises and restricted stock vesting  --   --   6,554   --   --   6,554 
Stock compensation   83   -- �� 3,132   --   --   3,132 
Foreign currency translation adjustment   --   --   --   (38)  --   (38)
Net income   --   --   --   --   9,567   9,567 
Total comprehensive income  --   --   --   --   --   9,529 
Balance at December 31, 2006    26,700  $27  $147,028  $(125) $(39,578) $107,352 
E-Tech, Tier1, BoldTech, and ePairs acquisitions   1,250   1   24,975   --   --   24,976 
Stock options exercised   1,160   1   3,696   --   --   3,697 
Purchases of stock from Employee Stock Purchase Plan  11   --   206   --   --   206 
Tax benefit of stock option exercises and restricted stock vesting  --   --   6,889   --   --   6,889 
Stock compensation   302   --   6,204   --   --   6,204 
Foreign currency translation adjustment   --   --   --   8   --   8 
Net income   --   --   --   --   16,230   16,230 
Total comprehensive income  --   --   --   --       16,238 
Balance at December 31, 2007    29,423  $29  $188,998  $(117) $(23,348) $165,562 
  Common  Common  Additional  
Accumulated
 Other
        Total 
  Stock  Stock  Paid-in  Comprehensive  Treasury  Accumulated  Stockholders' 
  Shares  Amount  Capital  Loss  Stock  Deficit  Equity 
Balance at December 31, 2007  29,423  $29  $188,998  $(117) $--  $(23,348) $165,562 
Acquisition purchase accounting adjustments  (19)   --   (290)   --   --   --   (290) 
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan  367   1   922   --   --   --   923 
Net tax shortfall from stock option exercises and restricted stock vesting  --   --   (922)   --   --   --   (922) 
Stock compensation related to restricted stock vesting and retirement savings plan contributions  579   --   8,945   --   --   --   8,945 
Purchases of treasury stock  (1,848)   --   --   --   (9,179)  --   (9,179)
Foreign currency translation adjustment   --   --   --   (221)   --   --   (221) 
Net income   --   --   --   --   --   10,000   10,000 
Total comprehensive income  --   --   --   --   --   --   9,779 
Balance at December 31, 2008  28,502  $30  $197,653  $(338) $(9,179) $(13,348) $174,818 
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan  298   1   974   --   --   --   975 
Net tax shortfall from stock option exercises and restricted stock vesting  --   --   (459)  --   --   --   (459)
Stock compensation related to restricted stock vesting and retirement savings plan contributions  973   1   9,835   --   --   --   9,836 
Purchases of treasury stock  (2,690)  --   --   --   (18,350)  --   (18,350)
Net unrealized loss on investments  --   --   --   (5)  --   --   (5)
Foreign currency translation adjustment   --   --   --   70   --   --   70 
Net income   --   --   --   --   --   1,463   1,463 
Total comprehensive income  --   --   --   --   --   --   1,528 
Balance at December 31, 2009  27,083  $32  $208,003  $(273) $(27,529) $(11,885) $168,348 
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan  381   --   1,468   --   --   --   1,468 
Net tax benefit from stock option exercises and restricted stock vesting  --   --   1,038   --   --   --   1,038 
Stock compensation related to restricted stock vesting and retirement savings plan contributions  920   1   10,830   --   --   --   10,831 
Purchases of treasury stock  (1,559)  --   --   --   (14,676)  --   (14,676)
Issuance of stock for acquisitions  451   --   3,627   --   --   --   3,627 
Net unrealized gain on investments  --   --   --   25   --   --   25 
Foreign currency translation adjustment   --   --   --   23   --   --   23 
Net income   --   --   --   --   --   6,480   6,480 
Total comprehensive income  --   --   --   --   --   --   6,528 
Balance at December 31, 2010  27,276  $33  $224,966  $(225) $(42,205) $(5,405) $177,164 

See accompanying notes to consolidated financial statements. 
 
 
 
32
 


PERFICIENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 20062010, 2009 AND 20052008

 Year Ended December 31,  Year Ended December 31, 
 2007  2006  2005  2010 2009 2008 
OPERATING ACTIVITIES    (In thousands)       (In thousands)    
Net income  $16,230  $9,567  $7,177  $6,480  $1,463  $10,000 
Adjustments to reconcile net income to net cash provided by operations:                    
Depreciation   1,553   948   615   830   1,483   2,139 
Amortization of intangibles   4,712   3,458   1,611 
Amortization   3,954   4,267   4,810 
Impairment of intangible assets -- -- 1,633 
Deferred income taxes  (495)  1,393   (219)  205   (18)   (1,769) 
Non-cash stock compensation   6,204   3,132   264 
Non-cash interest expense   --   6   24 
Tax benefit on stock options  --   --   2,306 
Non-cash stock compensation and retirement savings plan contributions  10,831   9,836   8,945 
Tax benefit from stock option exercises and restricted stock vesting   (1,531)   (583)   (700) 
Adjustment to fair value of contingent consideration for purchase of business   (4)   --   -- 
                       
Changes in operating assets and liabilities, net of acquisitions:                    
Accounts receivable  (1,589)  (5,771)  148 
Accounts and note receivable  (5,491)   9,427   3,081 
Other assets  3,256   (294)  (1,714)  1,626   (342)   (568) 
Accounts payable  (1,694)  1,251   (3,155)  642   (884)   399 
Other liabilities  (5,126)  (543)  2,157   1,189   (2,086)   (2,824)
Net cash provided by operating activities   23,051   13,147   9,214   18,731   22,563   25,146 
                    
INVESTING ACTIVITIES                    
Purchase of investments  (4,252)   (9,984)   -- 
Purchase of property and equipment   (2,035)  (1,518)  (691)  (1,161)   (415)   (1,320)
Capitalization of software developed for internal use   (181)  (136)  (599)  (160)   (311)   (185)
Purchase of businesses, net of cash acquired   (26,774)  (17,210)  (11,231)
Payments on Javelin notes   --   (250)  (250)
Cash paid for acquisitions and related costs   (4,941)   --   (836)
Net cash used in investing activities   (28,990)  (19,114)  (12,771)  (10,514)   (10,710)   (2,341)
                    
FINANCING ACTIVITIES                    
Proceeds from short-term borrowings  11,900   34,900   12,000 
Payments on short-term borrowings  (11,900)  (38,900)  (8,000)
Payments on long-term debt   (1,338)  (1,338)  (1,135)
Deferred offering costs   --   --   (942)
Tax benefit on stock options and restricted stock vesting  6,889   6,554   -- 
Proceeds from the exercise of stock options and Employee Stock Purchase Plan  3,903   4,089   2,704 
Proceeds from the exercise of warrants   --   146   157 
Net cash provided by financing activities   9,454   5,451   4,784 
Payments for credit facility financing fees   --   --   (420) 
Payment of contingent consideration for purchase of business  (1,875)   --   -- 
Tax benefit from stock option exercises and restricted stock vesting  1,531   583   700 
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan  1,468   975   923 
Purchases of treasury stock  (14,676)   (18,350)   (9,179) 
Net cash provided by (used in) financing activities   (13,552)   (16,792)   (7,976) 
Effect of exchange rate on cash and cash equivalents   6   (31)  (37)  67   5   10 
Change in cash and cash equivalents   3,521   (547)  1,190   (5,268)   (4,934)   14,839 
Cash and cash equivalents at beginning of period   4,549   5,096   3,906   17,975   22,909   8,070 
Cash and cash equivalents at end of period  $8,070  $4,549  $5,096  $12,707  $17,975  $22,909 
                    
Supplemental disclosures:                    
Cash paid for interest $40  $540  $594  $22  $50  $15 
Cash paid for income taxes  $3,680  $3,156  $3,684  $4,265  $1,831  $10,206 
Non-cash activities:                    
Stock issued for purchase of businesses  $24,976  $17,991  $8,709 
Change in goodwill  $(1,957) $318  $670 
Stock issued for purchase of businesses (stock reacquired for escrow claim) $2,859  $--  $(290) 
Stock issued for settlement of contingent consideration for purchase of business $768  $--  $-- 
Estimated fair value of contingent consideration for purchase of business $3,339  $--  $-- 
See accompanying notes to consolidated financial statements.
 

 
33
 

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
 
1.   Description of Business and Principles of Consolidation
 
Perficient, Inc. (the “Company”) is an information technology consulting firm. The Company helps its clients use Internet-based technologies to make their businesses more responsive to market opportunities and threats,threats; strengthen relationships with customers, suppliers, and partners,partners; improve productivityproductivity; and reduce information technology costs. The Company designs, builds, and delivers solutions using a core set of middleware software products developed by third party vendors. The Company's solutions enable its clients to meet the changing demands of an increasingly global, Internet-driven, and competitive marketplace.
 
The Company is incorporated in Delaware. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

2.   Summary of Significant Accounting Policies
 
Use of Estimates
 
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 periods. Actual results could differ from those estimates, and such differences could be material to the financial statements.

Reclassification

Revision of Previously Issued Financial Statements
During the third quarter of 2009, the Company identified a cash flow presentation adjustment related to the reversal of a deferred tax asset resulting from the exercise of stock options or vesting of stock awards.  The Company has reclassifieddetermined the presentationimpact of certain prior period information to conformthe adjustment is not considered material to the currentconsolidated results of operations, financial position, or cash flows for the year presentation.ended December 31, 2008.  The Company revised the previously issued Consolidated Statement of Cash Flows for the year ended December 31, 2008, as presented in this Form 10-K.

The revision decreased the “Net cash provided by operating activities” and decreased the “Net cash used in financing activities” in the Consolidated Statement of Cash Flows for the year ended December 31, 2008 by approximately $1.6 million.  The adjustment had no impact on the Consolidated Balance Sheet or the Consolidated Statement of Operations for the year ended December 31, 2008.
Revenue Recognition and Allowance for Doubtful Accounts
 
Revenue Recognition
Revenues are primarily derived from professional services provided on a time and materials basis. For time and material contracts, revenues are recognized and billed by multiplying the number of hours expended in the performance of the contract by the established billing rates. For fixed fee projects, revenues are generally recognized using the proportionate performancean input method based on the ratio of hours expended to total estimated hours. BillingsAmounts invoiced and collected in excess of costs plus earningsrevenues recognized are classified as deferred revenues. On many projects the Company is also reimbursed for out-of-pocket expenses such as airfare, lodging, and meals.  These reimbursements are included as a component of revenues. Revenues from software and hardware sales are recordedgenerally recor ded on a gross basis based on the Company'sCompany’s role as a principal in the transaction.  On rare occasions, the Company enters into a transaction where it is not the principal.  In these cases, revenue is recorded on a net basis.

Unbilled revenues represent the project time and expenses that have been incurred, but not yet billed to the client, prior to the end of the fiscal period.  For time and materials projects, the client is invoiced for the amount of hours worked multiplied by the billing rates as stated in the contract. For fixed fee arrangements, the client is invoiced according to the agreed-upon schedule detailing the amount and timing of payments in the contract.  Clients are typically billed monthly for services provided during that month, but can be billed on a more or less frequent basis as determined by the contract.  If the time and expenses are worked/incurred and approved at the end of a fiscal period and the invoice has not yet been sent to the client , the amount is recorded as unbilled revenue once the Company verifies all other revenue recognition criteria have been met.
34


PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists, (2) fees are fixed and determinable, (3) delivery and acceptance have occurred, and (4) collectibility is deemed probable. The Company'sCompany’s policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same counterparty is in accordance with American Institute of Certified Public AccountantsFinancial Accounting Standards Board Accounting Standards Codification (“AICPA”ASC”) Statement of Position 97-2,Subtopic 985-605, Software – Revenue Recognition Emerging Issues Task Force ("EITF") Issue No. 00-21, (“ASC Subtopic 985-605”), ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements with Multiple Deliverables), and SEC StaffASC Section 605-10-S99 (Staff Accounting Bulletin No. 104,(“SAB”) Topic 13, Revenue Recognition). Specifically, if the Company enters into contracts for the sale of services and software or hardware, then the Company evaluates whether the services are essential to the functionality of the software or hardware and whether it has objective fair value evidence for each deliverable in the transaction. If the Company has concluded that the services to be provided are not essential to the functionality of the softwaresof tware or hardware and it can determine objective fair value evidence exists for each deliverable of the transaction, then it accounts for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of the Company'sCompany’s multiple element arrangements meet these criteria. The Company may provide multiple services under the terms of an arrangement and is required to assess whether one or more units of accounting are present.  Service fees are typically accounted for as one unit of accounting as fair value evidence for individual tasks or milestones is not available.  The Company follows the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to determine revenues recognized in any accounting period. MaterialIf estimates are revised, material differences may result in the amount and timing of revenues recognized for any period if different conditions were to prevail.a given period.

Revenues are presented net of taxes assessed by governmental authorities.  Sales taxes are generally collected and subsequently remitted on all software and hardware sales and certain services transactions as appropriate.

Allowance for doubtful accounts is based upon specific identification of likely and probable losses. Each accounting period, accounts receivable is evaluated for risk associated with a client’s inability to make contractual payments, historical experience, and other currently available information.

Cash and Cash Equivalents
 
Cash equivalents consist primarily of cash deposits and investments with original maturities of ninety90 days or less when purchased.


34Investments

The Company invests a portion of its excess cash in short-term and long-term investments.  The short-term investments consist of U.S treasury bills, U.S. agency bonds, corporate bonds, and commercial paper with original maturities greater than three months and remaining maturities of less than one year.  The long-term investments consist of corporate bonds with original maturities of greater than one year (maximum original maturity is 24 months as of December 31, 2010).  At December 31, 2010, all of the Company’s investments were classified as available-for-sale and were valued in accordance with the fair value hierarchy specified in ASC Subtopic 820-10, F air Value Measurements and Disclosures (“ASC Subtopic 820-10”).

Property and Equipment
 
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of uncollectible amounts in its existing accounts receivable. Management analyzes historical collection trends and changes in its customer payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of its allowance for doubtful accounts. The Company includes any receivables balances that are determined to be uncollectible in its overall allowance for doubtful accounts. The Company reviews its allowance for doubtful accounts monthly.

Property and Equipment
Property and equipment are recorded at cost. Depreciation of property and equipment is computed using the straight-line method over the useful lives of the assets (generally one to five years). Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful life of the assets.

Goodwill, Other Intangible Assets and Impairment of Long-Lived Assets
 
Goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed, in a business combination. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, ASC Topic 350, Intangibles – Goodwill and Other Intangible Assets (“SFAS 142”ASC Topic 350”), the Company performs an annual impairment test of goodwill. The Company evaluates goodwill at the enterprise level as of October 1 each year orand more frequently if events or changes in circumstances indicate that goodwill might be impaired.  As required by SFAS 142,ASC Topic 350, the impairment test is accomplished using a two-steppedtwo-step approach.  The first step screens for impairment and, when impairment isi s indicated, a second step is employed to measure the impairment. The Company also reviewed other factors to determine the likelihood of impairment. No impairment was indicated using data as of October 1, 2007.
35

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

Other intangible assets include customer relationships, non-compete arrangements, customer backlog, trade name, and internally developed software, andwhich are being amortized over the assets'assets’ estimated useful lives using the straight-line method. Estimated useful lives range from threeseven months to eight years. Amortization of customer relationships, non-compete arrangements, customer backlog, trade name, and internally developed software areis considered an operating expensesexpense and areis included in “Amortization of intangible assets”“Amortization” in the accompanying consolidatedConsolidated Statements of Income.Operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverabilityrecoverabil ity or revised useful life.
Deferred Offering Costs

Costs incurred related
The Company will continue to equity offerings under effective registration statements are deferred untilmonitor the offering occurs or management does not intendtrend of its stock price, other market indicators, and its operating results to completedetermine whether there is a triggering event that may require the offering. AtCompany to perform an interim impairment test in the time thatfuture and record impairment charges to earnings, which could adversely affect the issuance of new equity occurs, these costs are netted against the proceeds received. These costs are expensed if the offering does not occur. Approximately $943,000 of these costs were recorded as part of Other Non-Current Assets on the Balance Sheet as of December 31, 2007 and 2006.Company’s financial results.

Income Taxes
 
The Company accounts for income taxes in accordance with SFAS No. 109, ASC Subtopic 740-10, Accounting for Income Taxes (“SFAS 109”ASC Subtopic 740-10”), and Financial Accounting Standards Interpretation No. 48, ASC Section 740-10-25, Accounting for Uncertainty in Income Taxes – an interpretation of SFAS 109Recognition (“FIN 48”ASC Section 740-10-25”).  SFAS 109ASC Subtopic 740-10 prescribes the use of the asset and liability method whereby deferred tax asset andan d liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are subject to tests of recoverability. A valuation allowance is provided for such deferred tax assets to the extent realization is not judged to be more likely than not.  FIN 48ASC Subtopic 740-10-25 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48ASC Subtopic 740-10-25 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. The Company adopted the provisions of FIN 48 on January 1, 2007 as required and such adoption did not have a material impact to the consolidated financial statements.
 
Earnings Per Share
 
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share includes the weighted average number of common shares outstanding and the number of equivalent shares which would be issued related to the stock options, unvested restricted stock, and warrants using the treasury method, contingently issuance shares, and convertible preferred stock using the if-converted method, unless such additional equivalent shares are anti-dilutive.


Stock-Based Compensation

 
35

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock-Based Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation
– Stock CompensationEffective January 1, 2006, the Company adopted the provisions of SFAS No. 123R (As Amended), Share Based Payment (“SFAS 123R”ASC Topic 718”), using the modified prospective application transition method.. Under this method, compensation cost for the portion of awards for which the requisite service has not yet been rendered that are outstanding as of the adoption date is recognized over the remaining service period. The compensation cost for that portion of awards is based on the grant-date fair value of those awards as calculated for pro-forma disclosures under SFAS No. 123. All new awards and awards that are modified, repurchased, or cancelled after the adoption date are accounted for under the provisions of SFAS 123R. Prior periods are not restated under this transition method. The Company recognizes share-based compensation ratably using the straight-line attribution method over the requisite service period. In addition, pursuant to SFAS 123R,ASC Topic 718, the Company is required to estimate the amount of expected forfeitures when calculating share-based compensation, instead of accounting for forfeitures as they occur, which was the Company's practice prior to the adoption of SFAS 123R.ASC Topic 718.

Deferred Rent

Certain of the Company’s operating leases contain predetermined fixed escalations of minimum rentals during the original lease terms. For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease and records the difference between the amounts charged to operations and amounts paid as accrued rent expense.

Fair Value of Financial Instruments
 
Cash equivalents, accounts receivable, accounts payable, other accrued liabilities, and debt are stated at amounts which approximate fair value due to the near term maturities of these instruments.  Investments are stated at amounts which approximate fair value based on quoted market prices or other observable inputs.

Treasury Stock
The Company uses the cost method to account for repurchases of its own stock.
36

Recently Issued Accounting Standards
PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010
Segment Information
 
In December 2007,The Company operates as one reportable operating segment according to ASC Topic 280, Segment Reporting, which establishes standards for the Financialway that business enterprises report information about operating segments. The chief operating decision maker formulates decisions about how to allocate resources and assess performance based on consolidated financial results. The Company also has one reporting unit for purposes of the goodwill impairment analysis discussed above.

Recent Accounting Pronouncements
Effective January 1, 2010, the Company adopted ASC Topic 810, Consolidation (“ASC Topic 810”).  This statement changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.  The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impacts the entity’s economic performance.  The adoption of ASC Topic 810 did n ot have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2010, the Company adopted FASB Accounting Standards BoardUpdate No. 2010-06, Fair Value Measurements and Disclosures(ASC Topic 820): Improving Disclosures about Fair Value Measurements.  This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods.  Specifically, this standard requires new disclosures for significant transfers of assets or liabilities between Leve l 1 and Level 2 in the fair value hierarchy; separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on a gross, rather than net basis; and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3 assets and liabilities.  The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Effective January 1, 2009, the Company adopted ASC Paragraph 350-30-50-2, General Intangibles Other than Goodwill – Disclosure (“FASB”ASC Paragraph 350-30-50-2”) issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which is.  ASC Paragraph 350-30-50-2 requires companies estimating the useful life of a revisionrecognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of SFAS No. 141, historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for ASC Topic 350’s entity-specific factors. The adoption of ASC Paragraph 350-30-50-2 did not have a material impact on the CompanyR 17;s consolidated financial statements.
Effective January 1, 2009, the Company adopted ASC Topic 805, Business Combinations (“ASC Topic 805”).  SFAS 141RASC Topic 805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrollingnon-controlling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141RThe revised statement requires, among other things, that transaction costs be expensed instead of recognized as purchase price. ASC Topic 805 applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. 

Effective January 1, 2009, the Company adopted ASC Subtopic 805-20, Business Combinations – Identifiable Assets and Liabilities, and Any Noncontrolling Interest (“ASC Subtopic 805-20”), to amend and clarify the initial recognition and measurement, subsequent measurement and accounting, and related disclosures arising from contingencies in a business combination under ASC Topic 805. Under the new guidance, assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value on the acquisition date if fair value can be determined during the measurement period.  If fair valu e cannot be determined, acquired contingencies should be accounted for using existing guidance.  ASC Subtopic 805-20 applies to business combinations for which the acquisition date is on or after January 1, 2009.

In June 2009, the FASB issued SFAS 168.  This statement modifies the GAAP hierarchy by establishing only two levels of GAAP, authoritative and non-authoritative. Effective July 1, 2009, the ASC is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the SEC.  The revisedCodification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance.  It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation.  This statement will require that transaction costs be expensed insteadwas applied beginning in the third quarter of recognized as purchase price.2009.  All accounting references herein have been updated with ASC references.
37

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

In October 2009, the FASB issued ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements (“ASC Subtopic 605-25”).  This statement is an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminates the use of the residual method for allocating arrangement consideration and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010.  The Company is currently evaluating the impact of SFAS 141RASC Subtopic 605-25 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Companystatements; however, management does not expectbelieve that the pronouncementit will have a material impact on itsthe Company’s consolidated financial statements.

In September 2006,October 2009, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a frameworkan amendment to ASC Subtopic 985-605.  This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition accounting standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for measuring fair valueeach element of the arrangement. This standard is effective prospectively for revenue arrangements entered into or materially modified in GAAP, and expands disclosures about fair value measurements.  SFAS 157 will be applied prospectively and will be effective for periods beginning after November 15, 2007.  The FASB issued Staff Position No. 157-2 (“FSP 157-2”) in February 2008, which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities to fiscal years beginning on o r after NovemberJune 15, 2008.2010.  The Company is currently evaluating the effect, if any,impact of SFAS 157 andASC Subtopic 985-605 on its financial statements; however, management does not expectbelieve that the pronouncementit will have a material impact on itsthe Company’s consolidated financial statements.

In June 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. The Company adopted the provisions of FIN 48 on January 1, 2007 as required and such adoption did not have a material impact to the consolidated financial statements.

In June 2006, the EITF ratified EITF Issue No. 06-3, How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”).  A consensus was reached that entities may adopt a policy of presenting taxes in the income statement on either a gross or net basis. An entity should disclose its policy of presenting taxes and the amount of any taxes presented on a gross basis should be disclosed, if significant. The Company adopted EITF 06-3 on January 1, 2007.  There was no effect of the adoption on the consolidated financial statements as of December 31, 2007. The Company presents revenues net of taxes as disclosed in Note 2, Summary of Significant Accounting Policies.


36

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.   Net Income Per Share
 
The following table presents the calculation of basic and diluted net income per share (in thousands, except per share information):

   Year Ended December 31, 
  2010  2009  2008 
Net income $6,480  $1,463  $10,000 
Basic:            
Weighted-average shares of common stock outstanding  26,856   27,538   29,338 
Weighted-average shares of common stock subject to contingency (i.e. restricted stock)  --   --   74 
Shares used in computing basic net income per share  26,856   27,538   29,412 
             
Effect of dilutive securities:            
Stock options  659   610   835 
Warrants  7   6   6 
Restricted stock subject to vesting  774   404   98 
Shares issuable for acquisition consideration (1)  8   --   -- 
Shares used in computing diluted net income per share (2)  28,304   28,558   30,351 
             
Basic net income per share $0.24  $0.05  $0.34 
Diluted net income per share $0.23  $0.05  $0.33 

  (1)  Represents the shares held in escrow pursuant to the Merger Agreement with speakTECH as part of the consideration paid. These shares were not included in the calculation of basic net income per share due to the uncertainty of their ultimate status.
  (2)  As of December 31, 2010, approximately 26,000 options for shares and 512,000 shares of restricted stock were excluded.  These shares were excluded from shares used in computing diluted net income per share because they would have had an anti-dilutive effect.
 
  Year Ended December 31, 
  2007  2006  2005 
Net income $16,230  $9,567  $7,177 
Basic:            
Weighted-average shares of common stock outstanding  27,442   23,783   20,868 
Weighted-average shares of common stock subject to contingency (i.e., restricted stock)  556   1,250   1,137 
Shares used in computing basic net income per share  27,998   25,033   22,005 
             
Effect of dilutive securities:            
Stock options  1,707   2,281   3,088 
Warrants  8   74   149 
Restricted stock subject to vesting  409   199   -- 
Shares used in computing diluted net income per share  30,122   27,587   25,242 
             
Basic net income per share $0.58  $0.38  $0.33 
Diluted net income per share $0.54  $0.35  $0.28 
38

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

4.   Investments and Fair Value Measurement

During 2009, the Company began investing a portion of its excess cash in short-term and long-term investments.  The short-term investments consist of U.S. treasury bills, U.S. agency bonds, corporate bonds, and commercial paper with original maturities greater than three months and remaining maturities of less than one year.  The long-term investments consist of corporate bonds with original maturities of greater than one year (maximum original maturity is 24 months as of December 31, 2010).  At December 31, 2010, all of the Company’s investments were classified as available-for-sale and were valued in accordance with the fair value hierarchy specified in ASC Subtopic 820-10.  As of December 31, 2010, gross accumulated unrealize d gains and losses for these investments were immaterial.

ASC Subtopic 820-10 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures.  The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable.  Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.  The fair value hierarchy consists of the following three levels:

•  Level 1 – Quoted prices in active markets for identical assets or liabilities.
•  Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices 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 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Investments were classified as the following (in thousands):

  
As of
December 31, 2010
  
Quoted Prices in
Active Markets
(Level 1)
  
Observable Inputs
(Level 2)
  
Unobservable Inputs
(Level 3)
 
Short-term investments:                
   U.S. treasury bills $ 1,614  $1,614  $-  $- 
   U.S. agency bonds  2,031   -   2,031   - 
   Corporate bonds  7,077   -   7,077   - 
   Commercial paper  579   -   579   - 
Long-term investments:                
   Corporate bonds  2,254   -   2,254   - 
Total investments $13,555  $1,614  $11,941  $- 
                 
   Cash and cash equivalents  12,707             
Total cash, cash equivalents, & investments $26,262             

Investments are generally classified as Level 1 or Level 2 because they are valued using quoted market prices in active markets, quoted prices in less active markets, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.  U.S. treasury bills are valued based on unadjusted quoted prices in active markets for identical securities.  The Company uses consensus pricing, which is based on multiple observable pricing sources, to value its investment in corporate bonds and U.S. agency bonds.
39

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

5.   Concentration of Credit Risk and Significant Customers
 
Cash and accounts receivable potentially expose the Company to concentrations of credit risk. Cash is placed with highly rated financial institutions. The Company provides credit, in the normal course of business, to its customers. The Company generally does not require collateral or up-front payments. The Company performs periodic credit evaluations of its customers and maintains allowances for potential credit losses. Customers can be denied access to services in the event of non-payment. ADuring 2010, a substantial portion of the services the Company provides areprovided were built on IBM, WebSphere  (R)Oracle, Microsoft, and TIBCO platforms, among others, and a significant number of itsthe Company’s clients are identified through joint selling opportunities conducted with IBM and through sales leadslea ds obtained from the relationshiprelationships with IBM. Revenues from IBM accounted for approximately 8%, 8%, and 9% of total revenues for 2007, 2006 and 2005, respectively, and accounts receivable from IBM accounted for approximately 4% of total accounts receivable as of December 31, 2007 and approximately 9% of total accounts receivable as of December 31, 2006 and 2005. While the dollar amount of revenues from IBM has remained relatively constant over the past three years, the percentage of total revenues from IBM has decreased as a result of the Company's growth and corresponding customer diversification. The loss of the Company's relationship with IBM or a significant reduction in the services the Company provides for IBM would result in significantly decreased revenues.these vendors.  Due to the Company'sCompany’s significant fixed operating expenses, the loss of sales to IBM or any significant customer could result in the Company'sCompany’s inability to generate net income or positive cash flow from operations for some time in the future.  However, the Company has remained relatively diversified, with no one customer providing more than 10% of total revenues during 2010, 2009 or 2008.

6.   Employee Benefit Plans
 
5.   Employee Benefit Plan
The Company has a qualified 401(k) profit sharing plan available to full-time employees who meet the plan'splan’s eligibility requirements. This defined contribution plan permits employees to make contributions up to maximum limits allowed by the Internal Revenue Code.Code of 1986 (the “Code”). The Company, at its discretion, matches a portion of the employee'semployee’s contribution under a predetermined formula based on the level of contribution and years of vesting services. Theservice.  For 2010, the Company made matching contributions equal toof 50% (25% in cash and 25% in Company stock) of the first 6% of employee contributions totaling approximately $0.8eligible compensation deferred by the participant.  The Company recognized $2.5 million, $0.5$2.6 million, and $0.5$2.8 million during 2007, 2006of expense for the matching cash and 2005, respectively, whichCompany stock contribution in 2010, 2009, and 2008, respectively.  All matching contributions vest over a three year period of service.

In 2007, the
The Company initiatedhas a deferred compensation plan for officers, directors, and certain sales personnel. The plan is designed to allow eligible participants to accumulate additional income through a nonqualified deferred compensation plan that enables them to make elective deferrals of compensation to which they will become entitled in the future. As of December 31, 2007,2010, the deferred compensation liability balance was $0.2 million.$1.5 million compared to $1.1 million as of December 31, 2009.


7. Business Combinations

Acquisition of Kerdock Consulting, LLC (“Kerdock”)
 
37
On March 26, 2010, the Company acquired substantially all of the assets of Kerdock, pursuant to the terms of an Asset Purchase Agreement.  Kerdock is located in Houston, Texas and is an Oracle business intelligence and enterprise performance management consulting firm.  The acquisition of Kerdock provides the Company with high-end expertise in enterprise performance management solutions and existing client relationships with enterprise customers, as well as extends the Company’s presence in the Southwest United States.

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.   Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the year ended December 31, 2007 and 2006 are as follows (in thousands): 

  Goodwill 
Balance at December 31, 2005 $46,263 
Acquisitions consummated during 2006 (Note 13)  22,589 
Utilization of net operating loss carryforwards and adjustment to goodwill related to deferred taxes associated with acquisitions  318 
Balance at December 31, 2006  69,170 
Acquisitions consummated during 2007 (Note 13)  36,473 
Utilization of net operating loss carryforwards and adjustment to goodwill related to deferred taxes associated with acquisitions (Note 9)  (1,957
 
) 
Balance at December 31, 2007 $103,686 

Intangible Assets with Definite Lives
Following is a summary of the Company's intangible assets that are subject to amortization (in thousands):
 Year ended December 31, 
 2007 2006 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
 
             
Customer relationships $21,130  $(5,285) $15,845  $12,860  $(2,808) $10,052 
Non-compete agreements  2,633   (1,550)  1,083   2,393   (1,094)  1,299 
Internally developed software  1,173   (448)  725   755   (220)  535 
 Total $24,936  $(7,283) $17,653  $16,008  $(4,122) $11,886 

The estimated useful lives of acquired identifiable intangible assets are as follows:
 Customer relationships 3 - 8 years
 Non-compete agreements 3 - 5 years
 Internally developed software 3 - 5 years
The weighted average amortization periods for customer relationships and non-compete agreements are 6 years and 5 years, respectively. Total amortization expense for the years ended December 31, 2007, 2006, and 2005 was approximately $4.7 million, $3.5 million, and $1.6 million respectively.
Estimated annual amortization expense for the next five years ended December 31 is as follows (in thousands):
2008 $4,732 
2009 $4,348 
2010 $3,581 
2011 $2,959 
2012 $1,233 
Thereafter $801 


38

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.   Stock-Based Compensation 
Stock Option Plans
In May 1999,The Company has estimated the Company's Boardtotal allocable purchase price consideration to be $5.3 million.  The purchase price estimate is comprised of Directors$1.5 million in cash paid and stockholders approved the 1999 Stock Option/Stock Issuance Plan (the “1999 Plan”). The 1999 Plan contains programs for (i) the discretionary granting$1.1 million of stock options to employees, non-employee board members and consultants for the purchase of shares of the Company's commons stock, (ii) the discretionary issuance ofCompany common stock directly to eligible individuals, and (iii) the automatic issuance of stock options to non-employee board members. The Compensation Committee of the Board of Directors administers the 1999 Plan, and determines the exercise price and vesting period for each grant. Options granted under the 1999 Plan have a maximum term of 10 years. In the event that the Company is acquired, whetherissued at closing, increased by merger or asset sale or board-approved sale by the stockholders of more than 50% of the Company's voting stock, each outstanding option under the discretionary option grant program which is not to be assumed by the successor corporation or otherwise continued will automatically accelerate in full, and all unvested shares under the discretionary option grant and stock issuance programs will immediately vest, except to the extent the Company's repurchase rights with respect to those shares are to be assigned to the successor corporation or otherwise continued in effect. The Compensation Committee may grant options under the discretionary option grant program that will accelerate in the event of an acquisition even if the options are assumed or that will accelerate if the optionee's service is subsequently terminated.
 The Compensation Committee may grant options and issue shares that accelerate in connection with a hostile change in control effected through a successful tender offer for more than 50% of the Company's outstanding voting stock or by proxy contest for the election of board members, or the options and shares may accelerate upon a subsequent termination of the individual's service.

On December 4, 2007, the Company granted restricted stock awards of approximately 892,000 shares of common stock under the 1999 Stock Option/Stock Issuance Plan. This equity grant vests ratably over five years. On December 21, 2006, the Company granted restricted stock awards of approximately 843,000 shares of common stock under the 1999 Stock Option/Stock Issuance Plan. This equity grant vests ratably over five years. On December 28, 2005, the Company granted restricted stock awards of approximately 323,000 shares of common stock under the 1999 Stock Option/Stock Issuance Plan. A portion of this equity grant vests over six years, with an original vesting schedule that was back-end loaded but in 2007 was converted to pro-rata or straight-line vesting over the six year period due to the achievement of certain performance targets and compensation committee approval. The other portion of this equity grant vests ratably over five years.



39


PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of changes in common stock options during 2007, 2006 and 2005 is as follows (in thousands, except exercise price information): 
    Shares  Range of Exercise Prices  
Weighted-Average
Exercise Price
  Aggregate Intrinsic Value 
Options outstanding at January 1, 2005  6,439  $0.02 - 26.00  $2.97    
Options granted  415  $7.34 - 9.19  $7.81    
Options exercised  (1,354) $0.03 - 8.10  $2.00    
Options canceled  (232) $0.03 - 16.00  $5.37    
Options outstanding at December 31, 2005   5,268  $0.02 - 16.94  $3.53    
                
Options granted  --   --   --    
Options exercised  (1,672) $0.02 - 12.13  $2.40    
Options canceled  (44) $1.01 - 13.25  $5.41    
Options outstanding at December 31, 2006   3,552  $0.02 - 16.94  $4.03    
                
Options granted  9  $3.00 - 3.00  $3.00    
Options exercised  (1,160) $0.02 - 16.94  $3.18    
Options canceled  (22) $2.28 - 7.48  $3.36    
Options outstanding at December 31, 2007   2,379  $0.02 - 16.94  $4.44  $26,908 
                 
Options vested, December 31, 2005   3,305  $0.02 - 16.94  $3.00     
Options vested, December 31, 2006   2,347  $0.02 - 16.94  $3.62     
Options vested,  December 31, 2007   1,887  $0.02 - 16.94  $4.03  $22,116 

The total aggregate intrinsic value of options exercised during the years ended December 31, 2007, 2006, and 2005, was $21.1$2.7 million $18.6 million, and $8.4 million, respectively.
40

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted stock activity for the year ended December 31, 2007 was as follows (in thousands, except fair value information):
 Shares  
Weighted-Average
Grant Date Fair
Value
 
Restricted stock awards outstanding at January 1, 2007  1,429 $12.74 
Awards granted973 $15.97 
Awards vested(303) $12.29 
Awards canceled or forfeited(46) $13.00 
Restricted stock awards outstanding at December 31, 20072,053 $14.33 

The total fair value of restricted shares vesting during the year ended December 31, 2007, 2006, and 2005 was $5.2 million, $1.4 million, and $0, respectively.

The following is additional information related to stock options outstanding at December 31, 2007 (in thousands, except exercise price information):
  Options Outstanding Options Exercisable
Range of Exercise
Prices
 Options 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (Years)
 Options
Weighted
Average
Exercise
Price
$0.02 - $1.15 280 $0.58 3.65 280 $0.58
$1.21 - $2.28 615 $2.10 5.41 615 $2.10
$2.77 - $3.75 528 $3.49 4.19 462 $3.55
$4.40 - $6.31 645 $6.12 6.73 289 $5.94
$7.48 - $16.94 311 $10.70 4.74 241 $11.64
$0.02 - $16.94 2,379 $4.44 5.20 1,887 $4.03

For years in which stock options were granted,representing the fair value of optionsadditional earnings-based contingent consideration.  The contingency was calculated at the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions:
Year End
 December 31,
 
Risk-Free
Interest Rate
 
Dividend
Yield
 
Volatility
 Factor
2007 4.73% 0% 0.4195
2005 3.72% 0% 1.4050
There were no stock options granted in 2006. A weighted-average life of 0.25 years was used for stock options grantedachieved during 2007 and 5 years was used for stock options granted during 2005.

At December 31, 2007, 2006 and 2005, the weighted-average remaining contractual life of outstanding options was 5.20, 6.27, and 7.17 years, respectively. The weighted-average grant-date fair value per share of options granted during 2007 was $16.96.  No option grants occurred in 2006.  The weighted-average grant-date fair value per share of options granted during 2005 was $7.81. There were no option grants at below or above market prices during 2007 or 2005.

The Company recognized $6.1 million, $3.1 million, and $0.3 million of stock compensation expense during 2007, 2006, and 2005, respectively. The associated current and future income tax benefit recognized during 2007, 2006, and 2005 was $2.1 million, $0.8 million and $0.2 million, respectively. As of December 31, 2007, there was $30.0 million of total unrecognized compensation cost related to non-vested share-based awards. This cost is expected to be recognized over a weighted-average period of 4.2 years. Our estimated forfeiture rate for the year ended December 31, 2007 of approximately 7% for share based awards was calculated using our historical forfeiture experience to anticipate actual forfeitures in the future.


41

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Prior to the adoption of SFAS No. 123R, the Company accounted for employee stock-based compensation using the intrinsic value method prescribed by APB 25. As presented below, the Company applied the disclosure provisions of SFAS 123, as amended by SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure, as if the fair value method had been applied. If this method had been used, the Company’s net income and net income per share for the year ended December 31, 2005 would have been adjusted to the pro-forma amounts below (in thousands except per share data):
  Year ended December 31, 
  2005 
Net income -- as reported  $7,177 
Total stock-based compensation costs, net of tax, included in the determination of net income as reported  162 
The stock-based employee compensation cost, net of tax, that would have been included in the determination of net income if the fair value based method had been applied to all awards  (2,609) 
Pro-forma net income $4,730 
     
Earnings per share    
Basic - as reported $0.33 
Basic - pro-forma $0.23 
     
Diluted - as reported $0.28 
Diluted -  pro-forma $0.20 

At December 31, 2007, 2.4 million shares were reserved for future issuance upon exercise of outstanding options and 8,075 shares were reserved for future issuance upon exercise of outstanding warrants. The majority of the outstanding warrants expire in December 2011. At December 31, 2007, there were 2.1 million shares of restricted stock outstanding under the 1999 Plan and classified as equity.
Employee Stock Purchase Plan
In 2005, the Compensation Committee approved the Employee Stock Purchase Plan (the “ESPP”) to be available to employees starting January 1, 2006. The ESPP is a broadly-based stock purchase plan in which any eligible employee may elect to participate by authorizing the Company to make payroll deductions in a specific amount or designated percentage to pay the exercise price of an option. In no event will an employee be granted an option under the ESPP that would permit the purchase of Common Stock with a fair market value in excess of $25,000 in any calendar year and the Compensation Committee of the Company has set the current annual participation limit at $12,500. During the year ended December 31, 2007, approximately 11,000 shares were purchased under the ESPP.
There are four three-month offering periods in each calendar year beginning on January 1, April 1, July 1, and October 1, respectively. The exercise price of options granted under the ESPP is an amount equal to 95% of the fair market value of the Common Stock on the date of exercise (occurring on, respectively, March 31, June 30, September 30, and December 31). The ESPP is designed to comply with Section 423 of the Code and thus is eligible for the favorable tax treatment afforded by Section 423.


42

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.   Line of Credit and Long Term Debt
In June 2006, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank and KeyBank National Association. The amended agreement is a senior bank credit facility of $50 million which includes a line of credit of $25 million and an acquisition term line of credit of $25 million.

The accounts receivable line of credit, which expires in June 2009, provides for a borrowing capacity equal to all eligible accounts receivable, including 80% of unbilled revenues, subject to certain borrowing base calculations as defined in the agreement, but in no event more than $25 million. Borrowings under this line of credit bear interest at the bank's prime rate (7.25% on December 31, 2007). As of December 31, 2007, there were no amounts outstanding under the accounts receivable line of credit and $24.8 million of available borrowing capacity due to an outstanding letter of credit to secure an office lease.  Additionally, the line of credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.
The Company's $25 million term acquisition line of credit provides an additional source of financing for certain qualified acquisitions. As of December 31, 2007, there were no amounts outstanding under the acquisition line of credit. Borrowings under this acquisition line of credit bear interest equal to the four year U.S. Treasury note yield plus 3% based on the spot rate on the day the draw is processed (6.29% on December 31, 2007). Draws under this acquisition line may be made through June 2008. The Company currently has $25 million of available borrowing capacity under this acquisition line of credit.  Additionally, the line of credit bears an annual commitment fee of 0.12% on the unused portion of the line of credit.

The Company is required to comply with various financial covenants under the $50 million credit facility. Specifically, the Company is required to maintain a ratio of after tax earnings before interest, depreciation and amortization, and other non-cash charges, including but not limited to stock and stock option compensation expense on trailing three months annualized, to current maturities of long-term debt and capital leases plus interest of at least 1.50 to 1.00, a ratio of cash plus eligible accounts receivable including 80% of unbilled revenues less principal amount of all outstanding advances on accounts receivable line of credit to advances under the term acquisition line of credit of at least 0.75 to 1.00, and a maximum ratio of all outstanding advances under the entire credit facility to earnings before taxes, interest, depreciation, amortization and other non-cash charges, including but not limited to, stock and stock option compensation expense, including pro-forma adjustments for acquisitions on a trailing twelve month basis of no more than 2.50 to 1.00. As of December 31, 2007, the Company was in compliance with all covenants under this facility. This credit facility is secured by substantially all assets of the Company.
9.   Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, 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 before 2005. The Internal Revenue Service (IRS) has completed examinations of the Company’s U.S. income tax returns for 2002, 2003 and 2004. As of December 31, 2007, the IRS has proposed no significant adjustments to any of the Company’s tax positions.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the implementation of Interpretation 48, the Company recognized no increases or decreases in the total amounts of previously unrecognized tax benefits.  The Company had no unrecognized tax benefits as of January 1, 2007 or December 31, 2007.

As of December 31, 2007, the Company had U.S. Federal tax net operating loss carry forwards of approximately $6.7 million that will begin to expire in 2020 if not utilized. Utilization of net operating losses may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenues Code of 1986. The annual limitation may result in the expiration of net operating losses before utilization.



43

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Significant components of the provision for income taxes are as follows (in thousands):
  Year Ended December 31, 
  2007  2006  2005 
Current:         
Federal $4,110  $1,138  $1,148 
State  752   260   241 
Foreign  26   102   223 
Total current   4,888   1,500   1,612 
             
Tax benefit on acquired net operating loss carryforward   385   246   353 
Tax benefit from stock options   6,889   6,554   2,306 
             
Deferred:            
Federal  (668)  (902)  201 
State  (70)  (116)  26 
Total deferred   (738)  (1,018)  227 
Total provision for income taxes  $11,424  $7,282  $4,498 

The components of pretax income for the years ended December 31, 2007, 2006 and 2005 are as follows (in thousands):

 Year Ended December 31, 
 2007 2006 2005 
Domestic$27,640 $16,565 $11,267 
Foreign 14  284  408 
Total$27,654 $16,849 $11,675 
Foreign operations include Canada and the United Kingdom for the year ended December 31, 2005. In 2006, foreign operations only included Canada.  For the year ended December 31, 2007, foreign operations included Canada, China, and India.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred taxes as of December 31, 2007 and 2006 are as follows:

  December 31, 
  2007  2006 
Deferred tax assets: (In thousands) 
Current deferred tax assets:      
Accrued liabilities  $384  $298 
Net operating losses   273   243 
Bad debt reserve  511   268 
   1,168   809 
Valuation allowance  (24)  (457)
Net current deferred tax assets $1,144  $352 
Non-current deferred tax assets:        
Net operating losses  $2,380  $2,339 
Fixed assets   169   53 
Deferred compensation   1,031   435 
   3,580   2,827 
Valuation allowance  (106)  (1,599)
Net non-current deferred tax assets $3,474  $1,228 


44

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


  December 31, 
  2007  2006 
Deferred tax liabilities: (In thousands) 
Current deferred tax liabilities:      
Deferred income $307  $308 
    Net current deferred tax liabilities $307  $308 
Non-current deferred tax liabilities:        
Deferred income $402  $431 
Deferred compensation  214   -- 
Foreign withholding tax on undistributed earnings  --   65 
Intangibles  4,407   1,983 
Total non-current deferred tax liabilities $5,023  $2,479 
         
Net current deferred tax asset $837  $44 
Net non-current deferred tax liability $(1,549) $(1,251)

The Company established a valuation allowance in 2005 to offset a portion of the Company's deferred tax assets due to uncertainties regarding the realization of deferred tax assets based on the Company's earnings history and limitations on the utilization of acquired net operating losses.  The valuation allowance decreased by approximately $0.3 million during 2006 and decreased by approximately $0.7 million during 2005. These decreases were primarily due to the benefit of acquired net operating loss carryforwards.

During 2007, the Company released approximately $1.9 million of its valuation allowance after determining that the acquired net operating losses would be realized. As the valuation allowance related to acquired net operating losses, the release of the valuation allowance resulted in a decrease in goodwill of $1.9 million. As of December 31, 2007, the remaining valuation allowance relates mainly to a capital loss carryforward from an acquired entity,2010 and as such, if realized, will reduce goodwill or other non-current assets prior to resulting in an income tax benefit.

Changes to the valuation allowance are summarized as follows forCompany accelerated the years presented (in thousands):

  Year ended December 31, 
  2007  2006  2005 
Balance, beginning of year $2,056  $2,345  $3,027 
Additions  31   --   -- 
Additions/(Reductions) from purchase accounting  (1,957)  (289)  (446)
Write-offs  --   --   (236)
Balance, end of year  $130  $2,056  $2,345 
Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income.  To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established.

The federal corporate statutory rate is reconciled to the Company’s effective income tax rate as follows:

  Year Ended December 31, 
  2007  2006  2005 
Federal corporate statutory rate  34.3%  34.3%  34.0%
State taxes, net of federal benefit  4.2   4.6   4.3 
Effect of foreign operations  0.1   --   0.1 
Stock compensation  1.9   3.6   -- 
Other  0.8   0.7   0.1 
 Effective income tax rate  41.3%  43.2%  38.5%
The effective income tax rate decreased to 41.3% for the year ended December 31, 2007 from 43.2% for the year ended December 31, 2006 as a resultpayment of the increased tax benefit of certain dispositions of incentivecontingent consideration and paid $1.9 million in cash and issued stock options by holders and a decreaseworth $0.8 million in the state income taxes, net of the federal benefit.



November 2010. The Company incurred approximately $0.4 million in transaction costs, which were expensed when incurred.
45


PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Commitments and Contingencies
The Company leases its office facilities and certain equipment under various operating lease agreements. The Company has estimated the option to extend the term of certain of its office facilities leases. Future minimum commitments under these lease agreements as of December 31, 2007 are as follows (in thousands):
  
Operating
Leases
 
2008 $2,363 
2009  2,077 
2010  1,755 
2011  1,377 
2012  476 
Thereafter  220 
Total minimum lease payments $8,268 
Rent expense for the years ended December 31, 2007, 2006 and 2005 was approximately $2.3 million, $1.7 million and $1.5 million respectively.
As of December 31, 2007, the Company had one letter of credit outstanding for $150,000 to serve as collateral to secure an office lease.  This letter of credit expires in October 2009 and reduces the borrowings available under the Company’s account receivable line of credit.

11. Balance Sheet Components

  December 31, 
  2007  2006 
  (In thousands) 
Accounts receivable:      
Accounts receivable $36,894  $29,461 
Unbilled revenues  15,436   9,846 
Allowance for doubtful accounts  (1,475)  (707)
Total $50,855  $38,600 
         
Other current assets:        
Income tax receivable $1,174  $2,150 
Deferred current tax asset  837   44 
Other current assets  2,131   605 
Total $4,142  $2,799 
         
Other current liabilities:        
Accrued bonus $9,378  $9,851 
Payroll related costs  1,862   1,258 
Accrued subcontractor fees  2,399   1,803 
Deferred revenues  1,439   1,318 
Accrued medical claims expense  850   -- 
Other accrued expenses  2,793   1,804 
Total $18,721  $16,034 

46

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

  December 31, 
  2007  2006 
  (In thousands) 
Property and Equipment:      
Computer hardware (useful life of 2 years) $5,805  $3,933 
Furniture and fixtures (useful life of 5 years)  1,248   980 
Leasehold improvements (useful life of 5 years)  884   275 
Software (useful life of 1 year)  920   702 
Less: Accumulated depreciation  (5,631)  (4,084)
Total $3,226  $1,806 
12. Allowance for Doubtful Accounts

Activity in the allowance for doubtful accounts is summarized as follows for the years presented (in thousands):

  Year ended December 31, 
  2007  2006  2005 
Balance, beginning of year $707  $367  $654 
Charged to expense  1,060   264   32 
Additions resulting from purchase accounting  153   371   24 
Uncollected balances written off, net of recoveries  (445)  (295)  (343)
Balance, end of year  $1,475  $707  $367 

13. Business Combinations
Acquisition of Bay Street Solutions, Inc.
On April 7, 2006, the Company acquired Bay Street Solutions, Inc. (“Bay Street”), a national customer relationship management consulting firm, for approximately $9.8 million.  The purchase price consists of approximately $4.1 million in cash, transaction costs of $636,000, and 464,569 sharesallocation of the Company's common stock valued at approximately $12.18 per share (approximately $5.7 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $630,000, as determined by a third party valuation firm.  The total purchase price has been allocated to theconsideration between tangible assets, acquired, including identifiableidentified intangible assets, based on their respective fair values at the date of acquisition. The purchase price was allocated to intangibles based on management's estimateliabilities, and an independent valuation. The results of Bay Street's operations have been included in the Company's consolidated financial statements since April 7, 2006.
The purchase price allocation isgoodwill as follows (in millions):
Intangibles:   
Customer relationships $1.6 
Customer backlog  0.2 
Non-compete agreements  0.1 
     
Goodwill  6.4 
     
Tangible assets acquired:    
Accounts receivable  2.4 
Other assets  0.6 
Property and equipment  0.1 
Accrued expenses  (1.6)
Net assets acquired $9.8 

Acquired tangible assets $ 2.1 
Acquired intangible assets  1.6 
Liabilities assumed  (1.2)
Goodwill  2.8 
   Total purchase price $5.3 

The Company estimates that the intangible assets acquired have useful lives of fournine months to sixfive years.

 
 
4740
 

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

The amounts above represent the fair value estimates as of December 31, 2010 and are subject to subsequent adjustment as the Company obtains additional information during the measurement period and finalizes its fair value estimates.  Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in an adjustment to goodwill or income, as applicable.

Acquisition of Insolexen, Corp.speakTECH

On May 31, 2006,December 10, 2010, the Company acquired Insolexen, Corp. (“Insolexen”), a business integrationspeakTECH, pursuant to the terms of an Agreement and Plan of Merger.  speakTECH is located in Costa Mesa, California and is an interactive design firm and Microsoft National Systems Integrator partner.  The acquisition of speakTECH provides the Company with expertise in interactive design, social media, and collaboration consulting firm, for approximately $15.0capabilities, as well as extends the Company’s presence in California and Texas.

The Company has estimated the total allocable purchase price consideration to be $9.4 million.  The purchase price consistsestimate is comprised of approximately $7.7$4.3 million in cash paid (includes $0.9 million in assumed shareholder debt) and $1.8 million of Company common stock issued at closing, increased by $3.3 million representing the fair value estimate of additional earnings-based contingent consideration that may be realized by speakTECH’s interest holders 12 months after the closing date of the acquisition.  The first 40% of the earnings-based contingent consideration is to be paid in Company common stock while the remaining 60% is to be paid equally in cash and stock.  The contingent consideration is recorded in “Other current liabilities ” on the Consolidated Balance Sheet as of December 31, 2010.  The Company incurred approximately $0.6 million in transaction costs, of $657,000, and 522,944 shareswhich were expensed when incurred.

The Company has estimated the allocation of the Company's common stock valued at approximately $13.72 per share (approximately $7.2 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $613,000, as determined by a third party valuation firm. The total purchase price has been allocated to theconsideration between tangible assets, acquired, including identifiableidentified intangible assets, based on their respective fair values at the date of acquisition. The purchase price was allocated to intangibles based on management's estimateliabilities, and an independent valuation. The results of Insolexen's operations have been included in the Company's consolidated financial statements since May 31, 2006.

The purchase price allocation isgoodwill as follows (in millions):
Intangibles:   
Customer relationships $2.8 
Customer backlog  0.4 
Non-compete agreements  0.1 
     
Goodwill  10.4 
     
Tangible assets and liabilities acquired:    
Accounts receivable  3.9 
Other assets  2.1 
Accrued expenses  (4.7)
Net assets acquired $15.0 

Acquired tangible assets $ 5.0 
Acquired intangible assets  3.3 
Liabilities assumed  (7.2)
Goodwill  8.3 
   Total purchase price $9.4 

The Company estimates that the intangible assets acquired have useful lives of seven months to sixfive years.

Acquisition
The amounts above represent the fair value estimates as of the Energy, GovernmentDecember 31, 2010 and General Business (EGG) division of Digital Consulting & Software Services, Inc.

On July 21, 2006,are subject to subsequent adjustment as the Company acquiredobtains additional information during the Energy, Governmentmeasurement period and General Business (“EGG”) division of Digital Consulting & Software Services, Inc., a systems integration consulting business, for approximately $13.1 million. The purchase price consists of approximately $6.4 millionfinalizes its fair value estimates.  Any subsequent adjustments to these fair value estimates occurring during the measurement period will result in cash, transaction costs of approximately $275,000, and 511,382 shares of the Company's common stock valued at approximately $12.71 per share (approximately $6.5 million worth of the Company's common stock) less the value of those shares subjectan adjustment to a lapse acceleration right of approximately $92,000,goodwill or income, as determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The purchase price was allocated to intangibles based on management's estimate and an independent valuation.applicable.

 The results of EGG'sthe Kerdock and speakTECH operations have been included in the Company'sCompany’s consolidated financial statements since July 21, 2006.

the acquisition date.  The purchase price allocationamounts of revenue and net income of Kerdock and speakTECH included in the Company’s Consolidated Statements of Operations from the acquisition date to December 31, 2010 is as follows (in millions)thousands):
Intangibles:   
Customer relationships $3.7 
Customer backlog  0.5 
Non-compete agreements  0.1 
     
Goodwill  6.2 
     
Tangible assets and liabilities acquired:    
Accounts receivable  3.8 
Other assets  0.4 
Accrued expenses  (1.6)
Net assets acquired $13.1 

The Company estimates that the intangible assets acquired have useful lives of five months to six years.
 
Acquisition Date to
December 31, 2010
 
  
Revenues $10,093 
Net income $648 



 
4841
 

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2010
Acquisition of e tech solutions, Inc.
On February 20, 2007, the Company acquired e tech solutions, Inc. (“E Tech”), a solutions-oriented IT consulting firm, for approximately $12.3 million. The purchase price consists of approximately $5.9 million in cash, transaction costs of approximately $663,000, and 306,247 shares of the Company's common stock valued at approximately $20.34 per share (approximately $6.2 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $474,000, as determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition.  The purchase price was allocated to intangibles based on management's estimate and an independent valuation. Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of E Tech's operations have been included in the Company's consolidated financial statements since February 20, 2007.

The preliminary purchase price allocation is as follows (in millions):
Intangibles:   
Customer relationships $3.0 
Customer backlog  0.5 
Non-compete agreements  0.1 
     
Goodwill  8.9 
     
Tangible assets and liabilities acquired:    
Accounts receivable  2.1 
Property and equipment  0.1 
Other assets  0.1 
Accrued expenses  (2.5)
Net assets acquired $12.3 

The Company estimates that the intangible assets acquired have useful lives of ten months to eight years.

Acquisition of Tier1 Innovation, LLC
On June 25, 2007, the Company acquired Tier1 Innovation, LLC (“Tier1”), a national customer relationship management consulting firm, for approximately $15.1 million. The purchase price consists of approximately $7.1 million in cash, transaction costs of approximately $762,500, and 355,633 shares of the Company's common stock valued at approximately $20.69 per share (approximately $7.4 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $144,000 as determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition.  The purchase price was allocated to intangibles based on management's estimate and an independent valuation. Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of Tier1's operations have been included in the Company's consolidated financial statements since June 25, 2007.

The preliminary purchase price allocation is as follows (in millions):
Intangibles:   
Customer relationships $0.9 
Customer backlog  0.4 
Non-compete agreements  0.1 
Internally developed software  0.2 
     
Goodwill  11.9 
     
Tangible assets and liabilities acquired:    
Accounts receivable  2.3 
Property and equipment  0.1 
Accrued expenses  (0.8)
Net assets acquired $15.1 

The Company estimates that the intangible assets acquired have useful lives of six months to five years.



49

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Acquisition of BoldTech Systems, Inc.

On September 20, 2007, the Company acquired BoldTech Systems, Inc. (“BoldTech”), an information technology consulting firm, for approximately $20.9 million. The purchase price consists of approximately $10.0 million in cash, transaction costs of $1.0 million, and 449,683 shares of the Company's common stock valued at approximately $23.69 per share (approximately $10.6 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $723,000 as determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition.  The purchase price was allocated to intangibles based on management's estimate and an independent valuation.  Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of BoldTech's operations have been included in the Company's consolidated financial statements since September 20, 2007.

The preliminary purchase price allocation is as follows (in millions):
 Intangibles:   
Customer relationships $3.8 
Customer backlog  0.1 
Non-compete agreements  0.1 
     
Goodwill  13.0 
     
Tangible assets and liabilities acquired:    
Cash  4.3 
Accounts receivable  5.2 
Property and equipment  0.7 
Other assets  2.4 
Accrued expenses  (8.7) 
Net assets acquired $20.9 

The Company estimates that the intangible assets acquired have useful lives of three months to four years.

Acquisition of ePairs, Inc.
On November 21, 2007, the Company acquired ePairs, Inc. (“ePairs”), a California-based consulting firm focused on Oracle-Siebel with a recruiting center in Chennai, India, for approximately $5.0 million. The purchase price consists of approximately $2.5 million in cash, transaction costs of $500,000, and 138,604 shares of the Company's common stock valued at approximately $16.25 per share (approximately $2.2 million worth of the Company's common stock) less the value of those shares subject to a lapse acceleration right of approximately $174,000 as determined by a third party valuation firm. The total purchase price has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition.  The purchase price was allocated to intangibles based on management's estimate and an independent valuation.  Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of ePairs' operations have been included in the Company's consolidated financial statements since November 21, 2007.

The preliminary purchase price allocation is as follows (in millions):

Intangibles:   
Customer relationships $1.2 
     
Goodwill  2.7 
     
Tangible assets and liabilities acquired:    
Accounts receivable  1.0 
Other assets  0.6 
Accrued expenses  (0.5)
Net assets acquired $5.0 

The Company estimates that the intangible asset acquired has a useful life of five years.


50

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Pro-forma Results of Operations (Unaudited)

The following presents the unaudited pro-forma combined results of operations of the Company with Bay Street, Insolexen, EGG, E Tech, Tier1, BoldTech,Kerdock and ePairsspeakTECH for the years ended December 31, 20072010 and 2006,2009, after giving effect to certain pro-forma adjustments related to the amortization of acquired intangible assets and assuming these companies were acquired as of the beginning of each period presented. These unaudited pro-forma results are not necessarily indicative of the actual consolidated results of operations had the acquisitions actually occurred on January 1, 20062009 and January 1, 20072010 or of future results of operations of the consolidated entities (in thousands):
  December 31, 
  2010  2009 
Revenues $232,170  $208,466 
Net income (loss) $5,743  $(237)
8.   Goodwill and Intangible Assets
The Company performed its annual impairment test of goodwill as of October 1, 2010.  As required by ASC Topic 350, the impairment test is accomplished using a two-step approach. The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment. The Company also reviews other factors to determine the likelihood of impairment.  Based on the test performed, the Company’s fair value as of the annual testing date exceeded its book value and consequently, no impairment was indicated.
The Company’s fair value was determined by weighting the results of two valuation methods: 1) market capitalization based on the average price of the Company’s common stock, including a control premium, for a reasonable period of time prior to the evaluation date (generally 15 days) and 2) a discounted cash flow model.  The fair value calculated using the Company’s average common stock price (including a control premium) was weighted 40% while the value calculated by the discounted cash flow model was weighted 60% in the Company’s determination of its overall fair value.  
Goodwill
Activity related to goodwill consisted of the following (in thousands): 
  2010  2009 
Balance, beginning of year $104,168  $104,178 
Preliminary purchase price allocations for acquisitions (Note 7) ��11,059   -- 
Adjustments to preliminary purchase price allocations for acquisitions  --   (10) 
Balance, end of year $115,227  $104,168 

Intangible Assets with Definite Lives

Following is a summary of the Company’s intangible assets that are subject to amortization (in thousands):
 Year ended December 31, 
 2010 2009 
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying Amount
 
Customer relationships $19,543  $(12,169) $7,374  $16,613  $(9,752) $6,861 
Non-compete agreements  1,031   (413)  618   683   (483)  200 
Customer backlog  151   (100)  51   --   --   -- 
Trade name  169   (25)  144   --   --   -- 
Internally developed software  1,039   (397)  642   1,669   (1,125)  544 
 Total $21,933  $(13,104) $8,829  $18,965  $(11,360) $7,605 
42

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

The estimated useful lives of identifiable intangible assets are as follows:
       Customer relationships
4 - 8 years
       Non-compete agreements
3 - 5 years
       Internally developed software
3 - 5 years
       Trade name
1 - 3 years
       Customer backlog
7 - 9 months
The weighted average amortization periods for customer relationships and non-compete agreements are 6 years and 5 years, respectively. Total amortization expense for the years ended December 31, 2010, 2009, and 2008 was approximately $4.0 million, $4.3 million, and $4.8 million, respectively.  In addition, the Company recorded an impairment charge of $1.6 million related to customer relationships in 2008.
Estimated annual amortization expense for the next five years ended December 31 is as follows (in thousands):
2011 $4,398 
2012 $2,163 
2013 $1,342 
2014 $847 
2015 $79 
Thereafter $-- 

9.   Stock-Based Compensation 
Stock Option Plans
The Company made various stock option and award grants under the 1999 Stock Option/Stock Issuance Plan (the “1999 Plan”) prior to May 2009.  In April 2009, the Company’s stockholders approved the 2009 Long-Term Incentive Plan (the “Incentive Plan”), which had been previously approved by the Company’s Board of Directors.  The Incentive Plan allows for the granting of various types of stock awards, not to exceed a total of 1.5 million shares, to eligible individuals.  The Compensation Committee of the Board of Directors will administer the Incentive Plan and determine the terms of all stock awards made under the Incentive Plan.

A summary of changes in stock options during 2010, 2009, and 2008 is as follows (in thousands, except per shareexercise price information): 
 
  December 31, 
  2007  2006 
Revenues $249,439  $225,639 
Net income $18,223  $10,837 
Basic income per share $0.64  $0.40 
Diluted income per share $0.59  $0.37 
  Shares  Range of Exercise Prices  Weighted-Average Exercise Price  Aggregate Intrinsic Value 
Options outstanding at January 1, 2008  2,379  $0.02 – 16.94  $4.44    
Options granted  --   --   --     
Options exercised  (338)  0.02 – 10.00   2.15  $2,726 
Options canceled  (11)  0.50 – 13.25   7.57     
Options outstanding at December 31, 2008  2,030  $0.03 – 16.94  $4.81     
                 
Options granted  --   --   --     
Options exercised  (279)  0.10 –   7.48   3.04  $1,043 
Options canceled  (47)  0.03 – 13.25   5.35     
Options outstanding at December 31, 2009  1,704   $0.03 – 16.94  $5.08     
                 
Options granted  --   --   --     
Options exercised  (369)  0.03 – 10.00   3.66  $2,480 
Options canceled  (136)  1.01 – 16.94   13.53     
Options outstanding at December 31, 2010  1,199   $0.03 –  9.19  $4.56  $9,514 
                 
Options vested, December 31, 2008   1,773  $0.03 – 16.94  $4.59     
Options vested, December 31, 2009   1,532  $0.03 – 16.94  $4.95     
Options vested, December 31, 2010  1,113  $0.03  –  9.19  $4.43  $8,983 
43

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

The following is additional information related to stock options outstanding at December 31, 2010: 

   Options Outstanding  Options Exercisable 
Range of Exercise
Prices
  Options  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Life (Years)
  Options  
Weighted
Average
Exercise
Price
 
$0.03 – 2.28   302,137  $1.65   1.68   302,137  $1.65 
$2.77 – 4.40   300,532  $3.61   0.94   300,532  $3.61 
$4.50 – 4.72   13,887  $4.63   2.02   13,887  $4.63 
$6.31 – 9.19   582,143  $6.56   1.77   496,428  $6.61 
$0.03 – 9.19   1,198,699  $4.56   1.54   1,112,984  $4.43 

At December 31, 2010, 2009, and 2008, the weighted-average remaining contractual life of outstanding options was 1.54, 3.40, and 4.21 years, respectively.  Generally stock options have a maximum contractual term of ten years.

Restricted stock activity for the year ended December 31, 2010 was as follows (in thousands, except fair value information): 

  Shares  
Weighted-Average
Grant Date Fair
Value
 
Restricted stock awards outstanding at January 1, 2010  3,133  $8.79 
Awards granted  745  $10.42 
Awards vested  (832)  $9.78 
Awards canceled or forfeited  (440)  $8.64 
Restricted stock awards outstanding at December 31, 2010  2,606  $8.97 
The total fair value of restricted shares vesting during the years ended December 31, 2010, 2009, and 2008 was $9.3 million, $6.7 million, and $2.3 million, respectively.

The Company recognized $10.8 million, $9.8 million, and $8.9 million of share-based compensation expense during 2010, 2009, and 2008, respectively, which included $0.9 million, $0.9 million, and $1.0 million of expense for retirement savings plan contributions, respectively.  The associated current and future income tax benefit recognized during 2010, 2009, and 2008 was $3.8 million, $3.4 million, and $2.9 million, respectively. As of December 31, 2010, there was $17.0 million of total unrecognized compensation cost related to non-vested share-based awards. This cost is expected to be recognized over a weighted-average period of three years. The Company’s average estimated forfeiture rate for share based awards for the year ended December 31, 2010 was 9%, wh ich was calculated using historical forfeiture experience.  Generally restricted stock awards vest over a five year requisite service period.
At December 31, 2010, 1.2 million shares were reserved for future issuance upon exercise of outstanding options and 8,075 shares were reserved for future issuance upon exercise of outstanding warrants. The majority of the outstanding warrants expire in December 2011. At December 31, 2010, there were 2.6 million shares of restricted stock outstanding under the 1999 Plan and the Incentive Plan.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “ESPP”) was initiated January 1, 2006 and is a broadly-based stock purchase plan in which any eligible employee may elect to participate by authorizing the Company to make payroll deductions in a specific amount or designated percentage to pay the exercise price of an option. In no event will an employee be granted ability under the ESPP that would permit the purchase of common stock with a fair market value in excess of $25,000 in any calendar year and the Compensation Committee of the Company has set the current annual participation limit at $12,500. During the year ended December 31, 2010, approximately 12,000 shares were purchased under the ESPP.
44

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010
There are four three-month offering periods in each calendar year beginning on January 1, April 1, July 1, and October 1, respectively. The purchase price of shares offered under the ESPP is an amount equal to 95% of the fair market value of the common stock on the date of purchase (occurring on, respectively, March 31, June 30, September 30, and December 31). The ESPP is designed to comply with Section 423 of the Code and thus is eligible for the favorable tax treatment afforded by Section 423.
10.   Line of Credit
In May 2008, the Company entered into a Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”) and KeyBank National Association (“KeyBank”).  The Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of $50.0 million, subject to a commitment increase of $25.0 million.  The Credit Agreement also allows for the issuance of letters of credit in the aggregate amount of up to $500,000 at any one time; outstanding letters of credit reduce the credit available for revolving credit borrowings.  Substantially all of the Company’s assets are pledged to secure the credit facility.  In July 2009, U.S. Bank National Association assumed $10.0 million of KeyBank’s commitment.  In March 2010, Bank of America, N.A. assumed the remaining $15.0 million of KeyBank’s commitment.
All outstanding amounts owed under the Credit Agreement become due and payable no later than the final maturity date of May 30, 2012.  Borrowings under the credit facility bear interest at the Company’s option of SVB’s prime rate (4.00% on December 31, 2010) plus a margin ranging from 0.00% to 0.50% or one-month LIBOR (0.26% on December 31, 2010) plus a margin ranging from 2.50% to 3.00%.  The additional margin amount is dependent on the level of outstanding borrowings. As of December 31, 2010, the Company had $50.0 million of maximum borrowing capacity.  An annual commitment fee of 0.30% is incurred on the unused portion of the line of credit.
The Company is required to comply with various financial covenants under the Credit Agreement. Specifically, the Company is required to maintain a ratio of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) plus stock compensation and minus income taxes paid and capital expenditures to interest expense and scheduled payments due for borrowings on a trailing three months basis annualized of not less than 2.00 to 1.00 and a ratio of current maturities of long-term debt to EBITDA plus stock compensation and minus income taxes paid and capital expenditures of not more than 2.75 to 1.00.  
11.  Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  The Internal Revenue Service (“IRS”) has completed examinations of the Company’s U.S. income tax returns for 2002, 2003 and 2004 and the statute for review has passed for 2005 and 2006. As of December 31, 2010, the IRS has proposed no significant adjustments to any of the Company’s tax positions.  The Company was notified in January 2011 that its 2009 income tax return will be audited by the IRS.
Under the provisions of the ASC Subtopic 740-10-25, the Company had no unrecognized tax benefits as of December 31, 2010 or 2009.

As of December 31, 2010, the Company had U.S. Federal tax net operating loss carry forwards of approximately $4.5 million that will begin to expire in 2020 if not utilized. Utilization of net operating losses may be subject to an annual limitation due to the “change in ownership” provisions of the Code. The annual limitation may result in the expiration of net operating losses before utilization.
45

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010
Significant components of the provision for income taxes are as follows (in thousands):
  Year Ended December 31, 
  2010  2009  2008 
Current:         
Federal $4,009  $1,173  $7,278 
State  1,043   385   1,463 
Foreign  11   7   (9)
Total current   5,063   1,565   8,732 
             
Deferred:            
Federal  192   (16)  (1,304)
State  13   (2)  (137)
Total deferred   205   (18)  (1,441)
Total provision for income taxes  $5,268  $1,547  $7,291 

The components of pretax income for the years ended December 31, 2010, 2009, and 2008 are as follows (in thousands):

 Year Ended December 31, 
 2010 2009 2008 
Domestic $9,770  $2,995  $16,879 
Foreign  1,978   15   412 
Total $11,748  $3,010  $17,291 
For the year ended December 31, 2010, 2009, and 2008, foreign operations included Canada, China, and India.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes as of December 31, 2010 and 2009 are as follows (in thousands):

  December 31, 
  2010  2009 
Deferred tax assets:   
Current deferred tax assets:      
  Accrued liabilities  $539  $426 
  Net operating losses   273   272 
  Bad debt reserve  260   118 
   1,072   816 
  Valuation allowance  --   (13)
Net current deferred tax assets $1,072  $803 
Non-current deferred tax assets:        
  Net operating losses and capital loss $1,407  $1,773 
  Fixed assets   183   599 
  Deferred compensation   2,785   1,988 
  Intangibles  456   678 
  Accrued liabilities  170   222 
  Foreign tax credits  --   253 
  Acquisition-related costs  152   -- 
  Foreign earnings previously taxed  1,406   -- 
   6,559   5,513 
  Valuation allowance  --   (125)
Net non-current deferred tax assets $6,559  $5,388 
46


PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

  December 31, 
  2010  2009 
Deferred tax liabilities:   
Current deferred tax liabilities:      
  Deferred income $53  $-- 
  Prepaid expenses  363   367 
Net current deferred tax liabilities $416  $367 
Non-current deferred tax liabilities:        
  Equity in undistributed foreign earnings $1,363  $82 
  Deferred compensation  275   258 
  Goodwill and intangibles  5,338   4,217 
Total non-current deferred tax liabilities $6,976  $4,557 
         
Net current deferred tax asset $656  $436 
Net non-current deferred tax asset (liability) $(417)  $831 
The Company established a valuation allowance in 2005 to offset a portion of the Company’s deferred tax assets due to uncertainties regarding the realization of deferred tax assets based on the Company’s earnings history and limitations on the utilization of acquired net operating losses.  During 2007, the Company released approximately $1.9 million of its valuation allowance after determining that the acquired net operating losses would be realized.  The remaining valuation allowance of $0.1 million was released during 2010.  Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income.  To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established.  Management believes it is more likely than not that the Company will generate sufficient taxable income in future years to realize the benefits of its deferred tax assets, except for those deferred tax assets for which an allowance has been provided.  The Company’s net current deferred tax asset is included in other assets and the net non-current deferred tax liability is included in other non-current liabilities on the Consolidated Balance Sheet.

Changes to the valuation allowance are summarized as follows for the years presented (in thousands):

  Year ended December 31, 
  2010  2009  2008 
Balance, beginning of year $138  $140  $130 
Additions (Reductions)  (138)   (2)  9 
Additions (Reductions) from purchase accounting  --   --   1 
Balance, end of year  $--  $138  $140 
The federal corporate statutory rate is reconciled to the Company’s effective income tax rate as follows:

  Year Ended December 31, 
  2010  2009  2008 
Federal corporate statutory rate  34.2%  34.0%  35.0%
    State taxes, net of federal benefit
  5.7   8.4   4.5 
    Effect of foreign operations
  (3.7)   --   -- 
    Stock compensation
  4.5   7.4   0.9 
    Non-deductible acquisition costs
  1.7   --   -- 
    Other
  2.4   1.6   1.7 
 Effective income tax rate  44.8%  51.4%  42.1%
The effective income tax rate decreased to 44.8% for the year ended December 31, 2010 from 51.4% for the year ended December 31, 2009 primarily due to the effect of state taxes and permanent items over a larger income base and a larger benefit for certain nontaxable foreign income.
47

PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010
12.  Commitments and Contingencies
The Company leases office space under various operating lease agreements. The Company has the option to extend the term of certain lease agreements. Future minimum commitments under these lease agreements as of December 31, 2010 are as follows (in thousands):
   
Operating
Leases
 
2011 $2,451 
2012  1,424 
2013  1,058 
2014  681 
2015  261 
Thereafter  182 
Total minimum lease payments $6,057 
Rent expense for the years ended December 31, 2010, 2009, and 2008 was approximately $2.5 million, $2.7 million, and $2.9 million, respectively.

13.  Balance Sheet Components
  December 31, 
  2010  2009 
  (In thousands) 
Accounts and note receivable:      
Accounts receivable $33,406  $26,632 
Unbilled revenues  15,318   11,927 
Allowance for doubtful accounts  (228)  (315)
Total $48,496  $38,244 

Other current liabilities:        
Accrued variable compensation $8,456  $4,561 
Estimated fair value of contingent consideration liability (Note 7)  3,339   -- 
Accrued subcontractor fees  2,631   1,847 
Acquired liabilities  2,172   -- 
Payroll related costs  1,986   1,510 
Deferred revenues  1,121   898 
Accrued medical claims expense  810   703 
Other current liabilities  2,139   1,957 
Total $22,654  $11,476 
Other non-current liabilities:      
Deferred compensation liability $1,162  $1,104 
Deferred income taxes  417   -- 
Other non-current liabilities  209   225 
Total $1,788  $1,329 

Property and Equipment:      
Computer hardware (useful life of 3 years) $5,064  $4,724 
Software (useful life of 1 year)  1,287   1,002 
Leasehold improvements (useful life of 5 years)  1,159   1,016 
Furniture and fixtures (useful life of 5 years)  1,160   1,409 
Less: Accumulated depreciation  (6,315)  (6,873)
Total $2,355  $1,278 
48


PERFICIENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
DECEMBER 31, 2010

14.  Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as follows for the years presented (in thousands):

  Year ended December 31, 
  2010  2009  2008 
Balance, beginning of year $315  $1,497  $1,475 
Charges (reductions) to expense  (68)   (448)  1,822 
Additions (reductions) resulting from purchase accounting  --   --   (203)
Uncollected balances written off, net of recoveries  (19)  (734)  (1,597)
Balance, end of year  $228  $315  $1,497 

15.  Quarterly Financial Results (Unaudited)
 
The following tables set forth certain unaudited supplemental quarterly financial information for the years ended December 31, 20072010 and 2006.2009. The quarterly operating results are not necessarily indicative of future results of operations. The financial data presented is not directly comparable between periods as a result of the four acquisitions in 2007 and three acquisitions in 2006operations (in thousands except per share data):.

   Three Months Ended, 
  
March 31,
2010
  
June 30,
2010
  
September 30,
2010
  
December 31,
2010
 
  (Unaudited) 
Total revenues $48,915  $55,460  $54,648  $55,929 
Gross margin $13,419  $16,952  $16,451  $15,945 
Income from operations $1,542  $3,240  $3,546  $3,185 
Income before income taxes $1,575  $3,303  $3,599  $3,271 
Net income $868  $2,051  $2,253  $1,308 
Basic net income per share $0.03  $0.08  $0.08  $0.05 
Diluted net income per share $0.03  $0.07  $0.08  $0.05 

  Three Months Ended, 
  March 31,  June 30,  September 30,  December 31, 
  2007  2007  2007  2007 
  (Unaudited) 
Revenues:            
Services $43,297  $45,961  $48,387  $53,750 
Software  4,192   3,696   1,582   4,773 
Reimbursable expenses  2,560   2,938   3,115   3,897 
Total revenues $50,049  $52,595  $53,084  $62,420 
Gross margin $17,052  $18,185  $19,046  $21,407 
Income from operations $5,570  $6,907  $7,569  $7,416 
Income before income taxes $5,575  $6,958  $7,649  $7,472 
Net income $3,160  $4,014  $4,541  $4,515 
Basic net income per share $0.12  $0.15  $0.16  $0.15 
Diluted net income per share $0.11  $0.13  $0.15  $0.15 
   Three Months Ended, 
  
March 31,
2009
  
June 30,
2009
  
September 30,
2009
  
December 31,
2009
 
  (Unaudited) 
Total revenues $51,292  $44,929  $44,489  $47,440 
Gross margin $13,339  $11,703  $10,857  $12,434 
Income (loss) from operations $1,242  $56  $(294)  $1,537 
Income (loss) before income taxes $1,516  $228  $(282)  $1,548 
Net income (loss) $915  $(196)  $115  $629 
Basic net income (loss) per share $0.03  $(0.01)  $--  $0.02 
Diluted net income (loss) per share $0.03  $(0.01)  $--  $0.02 
 
 
  Three Months Ended, 
  
March 31,
2006
  
June 30,
2006
  
September 30,
2006
  
December 31,
2006
 
  (Unaudited) 
Revenues:   
Services $25,606  $32,751  $40,219  $39,145 
Software  2,682   2,587   1,532   7,635 
Reimbursable expenses  1,356   2,172   2,543   2,698 
Total revenues $29,644  $37,510  $44,294  $49,478 
Gross margin $9,288  $13,178  $15,854   15,437 
Income from operations $3,057  $4,027  $4,840  $5,159 
Income before income taxes $3,034  $3,900  $4,675  $5,241 
Net income $1,705  $2,255  $2,834  $2,774 
Basic net income per share $0.07  $0.09  $0.11  $0.10 
Diluted net income per share $0.07  $0.08  $0.10  $0.10 


 
5149
 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
Perficient, Inc.:

We have audited the accompanying consolidated balance sheetsheets of Perficient, Inc. and subsidiaries (the Company) as of December 31, 2007,2010 and 2009, and the related consolidated statementstatements of income,operations, stockholders’ equity, and cash flows for each of the year then ended. Theseyears in the three-year period ended December 31, 2010. We also have audited the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessm ent of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.  The accompanying financial statements of the Company as of December 31, 2006, and for each of the years in the two year period then ended, were audited by other auditors whose report thereon dated March 1, 2007, except Note 2 as to which date is August 13, 2007, expressed an unqualified opinion on those statements.audits.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includesmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well asand evaluating the overall financial statement presentation. We believe that ourOur audit provides a reasonable basis for our opinion.
In our opinion, the 2007 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Perficient, Inc. and subsidiaries as of December 31, 2007, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Perficient, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 3, 2008 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
St. Louis, Missouri
March 3, 2008

52


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Perficient, Inc.:

We have audited Perficient, Inc.’s (the Company) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessingasse ssing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.opinions.

A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations author izations
50
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Perficient, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired e tech solutions, Inc. (E Tech), Tier1 Innovation,Kerdock Consulting, LLC (Tier 1), BoldTech Systems, Inc. (BoldTech),(Kerdock) and ePairs, Inc. (ePairs)speakTECH during 2007,2010, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007, E Tech, Tier 1, BoldTech,2010, Kerdock’s and ePairs’speakTECH’s internal control over financial reporting associated with 25%9% and 10%4% of the Company’s total assets and total revenues, respectively, as of and for the year ended December 31, 2007.2010. Our audit of internal control over financial reporting of Perficient, Inc.the Company as of December 31, 20072010 also excluded an evaluation of the internal control over financial reporting of E Tech, Tier 1, BoldTech,Kerdock and ePairs.speakTECH.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Perficient, Inc. as of December 31, 2007, and the related consolidated statement of income, stockholders’ equity, and cash flows for the year then ended, and our report dated March 3, 2008 expressed an unqualified opinion on those consolidated financial statements.


/s/ KPMG LLP
St. Louis, Missouri
March 3, 2008



53




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
Perficient, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheet of Perficient, Inc. as of December 31, 2006 and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2006.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Perficient, Inc. atas of December 31, 2006,2010 and 2009, and the results of itstheir operations and itstheir cash flows for each of the two years in the three-year period ended December 31, 2006,2010, in conformity with accounting principlesU.S. generally accepted accounting principles. Also in our opinion, the United StatesCompany maintained, in all material respects, effective internal control over financial reporting as of America.December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

/s/ KPMG LLP

St. Louis, Missouri
March 2, 2011
 
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.
/s/ BDO Seidman, LLP
Houston, Texas
March 1, 2007, except Note 2 to the 2006 financial
statements as to which date is August 13, 2007


 
5451
 


Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.
Item 9A.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company'sCompany’s financial reports and to other members of senior management and the Board of Directors.
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company'sCompany’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer of the Company, as appropriate, to allow timely decisions regarding required disclosure. The Company'sCompany’s management, with the participation of the Company'sCompany’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures as of the end of the fiscal yearye ar covered by this Annual Report on Form 10-K. As described below under Management's Annual ReportBased on Internal Control Over Financial Reporting,that evaluation, the Company’s principal executive and principal financial officers have determined that the Company’s disclosure controls and procedures were effective.

Prior to the issuance of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, the Company determined that its Consolidated Statements of Cash Flows included in its Annual Report on Form 10-K for the year ended December 31, 2006 and Unaudited Condensed Consolidated Statements of Cash Flows included in its Quarterly Report on Form 10-Q for the period ended March 31, 2007 should be restated.  The restatement resulted from an error regarding certain previously reported payments associated with acquisitions that were incorrectly included as a component of cash flows provided by operating activities in the Company's Consolidated Statements of Cash Flows.  These errors resulted from a significant deficiency in the procedures and controls to reconcile and review the impact of acquisitions on the Consolidated Statements of Cash Flows. Such deficiency did not result in a material weakness in the design or operation of the internal control. The controls in place regarding reconciliation and review of cash flows related to acquisition activity represent a very narrow subset of the Company's financial disclosure controls and an even narrower element of the Company's overall financial control structure.  The Company does not believe that this restatement resulted from a breakdown in its general controls; rather this was an isolated error for specific types of acquisition payments. 

In connection with implementing the Company’s remediation plan to address this internal control deficiency, the Company has instituted controls and procedures to ensure the proper reconciliation and review of the impact of certain acquisition payments on the Consolidated Statements of Cash Flows.  The Company plans to continue to enhance its controls in the area and monitor the effectiveness of these controls.
Management'sManagement’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management'smanagement’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America.States. Under the supervision andan d with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under those criteria, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2007.2010.

The Company acquired e tech solutions, Inc. (“E Tech”), Tier1 Innovation,Kerdock Consulting, LLC (“Tier1”Kerdock”), BoldTech Systems, Inc. (“BoldTech”), and ePairs, Inc. (“ePairs”)speakTECH in February, June, September,March and NovemberDecember of 2007,2010, respectively. As permitted by SEC guidance, management excluded these acquired companies from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007.2010. In total, E Tech, Tier1, BoldTech,Kerdock and ePairsspeakTECH represented 25%9% and 10%4% of the Company'sCompany’s total assets and total revenues, respectively, as of and for the year ended December 31, 2007.2010. Excluding identifiable intangible assets and goodwill recorded in the business combination, E Tech, Tier1, BoldTech,Kerdock and ePairsspeakTECH represented 1%2% of the Company'sCompany’s total assets as of December 31, 2007.2010.

KPMG LLP, our independent registered public accounting firm, has audited our financial statements for the year ended December 31, 20072010 included in this Form 10-K, and has issued its report on the effectiveness of internal control over financial reporting as of December 31, 2007,2010, which is included herein.

55


Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2007, we continued our remediation efforts from the prior quarters in order to fully remediate our previously reported significant deficiency related to the classification of certain acquisition payments on the Consolidated Statements of Cash Flows. This included enhancement of our detailed cash flow statement review and the addition of executive review.

Except as described above, thereThere have not been any significant changes in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended December 31, 2007,2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management obtained sufficient evidence of the operating effectiveness of such additional controls during the year ended December 31, 2007 and concluded that our previously reported significant deficiency has been remediated.
Item 9B.
Other Information.
 
None.


 
5652
 



PART III

Item 10.
Directors, Executive Officers and Corporate Governance.

Executive Officers
 
Our executive officers, and directors, including their ages as of the date of this filing are as follows:
 
Name Age Position
John T. McDonaldJeffrey S. Davis 44  46 Chairman of the BoardPresident and Chief Executive Officer
Jeffrey S. DavisKathryn J. Henely 43  46 President and Chief Operating Officer
Paul E. Martin 47  50 Chief Financial Officer, Treasurer and Secretary
Richard T. Kalbfleish52Controller and Vice President of Finance and Administration
Ralph C. Derrickson49Director
Max D. Hopper73Director
Kenneth R. Johnsen54Director
David S. Lundeen46Director
 
John T. McDonald joined us in April 1999 as Chief Executive Officer and was elected Chairman of the Board in March 2001. From April 1996 to October 1998, Mr. McDonald was president of VideoSite, Inc., a multimedia software company that was acquired by GTECH Corporation in October 1997, 18 months after Mr. McDonald became VideoSite's president. From May 1995 to April 1996, Mr. McDonald was a Principal with Zilkha & Co., a New York-based merchant banking firm. From June 1993 to April 1996, Mr. McDonald served in various positions at Blockbuster Entertainment Group, including Director of Corporate Development and Vice President, Strategic Planning and Corporate Development of NewLeaf Entertainment Corporation, a joint venture between Blockbuster and IBM. From 1987 to 1993, Mr. McDonald was an attorney with Skadden, Arps, Slate, Meagher & Flom in New York, focusing on mergers and acquisitions and corporate finance. Mr. McDonald currently serves as a member of the board of directors of a number of privately held companies and nonprofit organizations. Mr. McDonald received a B.A. in Economics from Fordham University and a J.D. from Fordham Law School.
Jeffrey S. Davis became ourthe Chief Executive Officer and a member of the Board on September 1, 2009.  He previously served as the Chief Operating Officer uponof the Company after the closing of the acquisition of Vertecon in April 2002 and was named ourthe Company’s President in 2004. He previously served the same role sinceof Chief Operating Officer at Vertecon from October 1999 at Vertecon prior to its acquisition by Perficient. Mr. Davis has 14 years of experience in technology management and consulting. Prior toBefore Vertecon, Mr. Davis was a Senior Manager and member of the leadership team in Arthur Andersen'sAndersen’s Business Consulting Practice, starting in January 1999 where he was responsible for defining and managing internal processes, while managing business development and delivery of all products, services and solutions to a number of large accounts.  Prior to Arthur Andersen, Mr. Davis workedalso served in a leadership p osition at Ernst & Young LLP for two years,in the Management Consulting practice and in industry at Boeing, Inc. and Mallinckrodt, Inc.  for two years,Mr. Davis is an active volunteer member of the board of directors of the Cystic Fibrosis Foundation of St. Louis and spent five years at McDonnell Douglas in many different technical and managerial positions.a member of the University of Missouri Trulaske College of Business advisory board. Mr. Davis has a M.B.A. from Washington University and a B.S. degree in Electrical Engineering from the University of Missouri.
Kathryn J. Henely was appointed the Company’s Chief Operating Officer on November 3, 2009.  Ms. Henely joined the Company in 1999 as a Director in the St. Louis office.  She was promoted to General Manager in 2001 and to Vice President of Corporate Operations in 2006.  Ms. Henely has been the Vice President for the Company’s largest business group including several local and national business units along with our offshore development center in China.  She actively participated in the due diligence and integration of several acquisitions within her business group.  Additionally, she led the establ ishment of our Company Wide Practices and Corporate Recruiting organization.  Ms. Henely received her M.S. in Computer Science from the University of Missouri-Rolla and her B.S. in Computer Science from the University of Iowa. 

Paul E. Martin joined usthe Company in August 2006 as Chief Financial Officer, Treasurer and Secretary. From August 2004 until February 2006, Mr. Martin was the Interim co-Chief Financial Officer and Interim Chief Financial Officer of Charter Communications, Inc. ("Charter"(“Charter”), a publicly traded multi-billion dollar in revenue domestic cable television multi-system operator. From April 2002 through April 2006, Mr. Martin was the Senior Vice President, Principal Accounting Officer and Corporate Controller of Charter and was Charter'sCharter’s Vice President and Corporate Controller from March 2000 to April 2002. Prior to Charter, Mr. Martin was Vice President and Controller for Operations and Logistics for Fort James Corporation, a manufacturer of paper products with multi-billionmulti - -billion dollar revenues. From 1995 to February 1999, Mr. Martin was Chief Financial Officer of Rawlings Sporting Goods Company, Inc., a publicly traded multi-million dollar revenue sporting goods manufacturer and distributor. Mr. Martin received a B.S. degree with honors in accounting from the University of Missouri -– St. Louis.  Mr. Martin is also a member of the University of Missouri – St. Louis School of Business Leadership Council.
Richard T. Kalbfleish joined us as Controller in November 2004 and became Vice President of Finance & Administration and Assistant Treasurer in May 2005. Prior to joining Perficient, Mr. Kalbfleish served as Vice President of Finance & Administration with IntelliMark/Technisource, a national IT staffing company, for 11 years. Mr. Kalbfleish has over 22 years of experience at the Controller level and above in a number of service industries with an emphasis on acquisition integration and accounting, human resources and administrative support. Mr. Kalbfleish has a B.S.B.A. in Accountancy from the University of Missouri at Columbia.


57

Ralph C. Derrickson became a member of our board of directors in July 2004. Mr. Derrickson has more than 26 years of technology management experience in a wide range of settings including start-up, interim management and restructuring situations. Currently Mr. Derrickson is President and CEO of Carena, Inc. Prior to joining Carena, Inc., Mr. Derrickson was managing director of venture investments at Vulcan Inc., an investment management firm with headquarters in Seattle, Washington from October 2001 to July 2004. Mr. Derrickson is a founding partner of Watershed Capital, an early-stage venture capital firm, and is the managing member of RCollins Group, LLC, a management advisory firm. He served as a board member of Metricom, Inc., a publicly traded company, from April 1997 to November 2001 and as Interim CEO of Metricom from February 2001 to August 2001. Metricom, Inc. voluntarily filed a bankruptcy petition in US Bankruptcy Court for the Northern District of California in July of 2001. He served as vice president of product development at Starwave Corporation, one of the pioneers of the Internet. Earlier, Mr. Derrickson held senior management positions at NeXT Computer, Inc. and Sun Microsystems, Inc. He has served on the boards of numerous start-up technology companies. Mr. Derrickson is on the faculty of the Michael G Foster School of Business at the University of Washington, and serves on the Executive Advisory Board of the Center for Entrepreneurship and Innovation at the University of Washington, as well as a member of the President’s Circle of the National Academy of Sciences, The National Academy of Engineering and the Institute of Medicine. Mr. Derrickson holds a bachelor’s degree in systems software from the Rochester Institute of Technology.
Max D. Hopper became a member of our board of directors in September 2002. Mr. Hopper began his information systems career in 1960 at Shell Oil and served with EDS, United Airlines and Bank of America prior to joining American Airlines. During Mr. Hopper's twenty-year tenure at American Airlines he served as CIO, and as CEO of several business units. Most recently, he founded Max D. Hopper Associates, Inc., a consulting firm that specializes in the strategic use of information technology and business-driven technology. Mr. Hopper currently serves on the board of directors for several companies such as Gartner Group, and several other private corporations.
Kenneth R. Johnsen became a member of our board of directors in July 2004. Mr. Johnsen is currently the CEO and Chairman of the Board of HG Food, LLC.  He also serves as a Director on the Board of BooKoo Beverages, Inc.  Prior to joining HG Food, LLC, Mr. Johnsen was a partner with Aspen Advisors, LP. From January 1999 to October 2006, Mr. Johnsen served as President, CEO and Chairman of the Board of Parago Inc., a marketing services transaction processor. Before joining Parago Inc. in 1999, he served as President, Chief Operating Officer and Board Member of Metamor Worldwide Inc., an $850 million public technology services company specializing in information technology consulting and implementation. Metamor was later acquired by PSINet for $1.7 billion. At Metamor, Mr. Johnsen grew the IT Solutions Group revenues from $20 million to over $300 million within two years. His experience also includes 22 years at IBM where he held general management positions, including Vice President of Business Services for IBM Global Services and General Manager of IBM China/Hong Kong Operations. He achieved record revenues, profit and customer satisfaction levels in both business units.
David S. Lundeen became a member of our board of directors in April 1998. From March 1999 through 2002, Mr. Lundeen was a partner with Watershed Capital, a private equity firm based in Mountain View, California. From June 1997 to February 1999, Mr. Lundeen was self-employed, managed his personal investments and acted as a consultant and advisor to various businesses. From June 1995 to June 1997, he served as the Chief Financial Officer and Chief Operating Officer of BSG. From January 1990 until June 1995, Mr. Lundeen served as President of Blockbuster Technology and as Vice President of Finance of Blockbuster Entertainment Corporation. Prior to that time, Mr. Lundeen was an investment banker with Drexel Burnham Lambert in New York City. Mr. Lundeen currently serves as a member of the board of directors of Parago, Inc., and as Chairman of the Board of Interstate Connections, Inc. Mr. Lundeen received a B.S. in Engineering from the University of Michigan in 1984 and an M.B.A. from the University of Chicago in 1988. The board of directors has determined that Mr. Lundeen is an audit committee financial expert, as such term is defined in the rules and regulations promulgated by the Securities and Exchange Commission.

Codes of Conduct and Ethics
The Company has adopted a Corporate Code of Business Conduct and Ethics that applies to all employees and directors of the Company while acting on the Company's behalf and has adopted a Financial Code of Ethics applicable to the chief executive officer, the chief financial officer, and other senior financial officials.


58


Audit Committee of the Board of Directors
The board of directors has created an audit committee. Each committee member is independent as defined by Nasdaq Global Select Market listing standards.
The audit committee has the sole authority to appoint, retain and terminate our independent accountants and is directly responsible for the compensation, oversight and evaluation of the work of the independent accountants. The independent accountants report directly to the audit committee. The audit committee also has the sole authority to approve all audit engagement fees and terms and all non-audit engagements with our independent accountants and must pre-approve all auditing and permitted non-audit services to be performed for us by the independent accountants, subject to certain exceptions provided by the Securities Exchange Act of 1934. The members of the audit committee are Max D. Hopper, David S. Lundeen and Ralph C. Derrickson. Mr. Lundeen serves as chairman of the audit committee. The board of directors has determined that Mr. Lundeen is qualified as our audit committee financial expert within the meaning of Securities and Exchange Commission regulations and that he has accounting and related financial management expertise within the meaning of the listing standards of the Nasdaq Global Select Market. The board of directors has affirmatively determined that Mr. Lundeen qualified as an independent director as defined by the Nasdaq Global Select Market listing standards.

Additional information with respect to Directors and Executive Officers of the Company is incorporated by reference to the Proxy Statement under the captions "Nominees“Directors and Continuing Directors"Executive Officers”, "Composition“Composition and Meetings of the Board of Directors and Committees"Committees”, and "Section“Section 16(a) Beneficial Ownership Reporting Compliance."” The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company's fiscal year.
 
Item 11.
Executive Compensation.
Codes of Conduct and Ethics
 
Information on this subject is found in the Proxy Statement under the captions "Compensation of Directors and Executive Officers” and "Nominees and Continuing Directors" and is incorporated herein by reference. The proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company's fiscal year.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information on this subject is found in the Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management ", "Nominees and Continuing Directors", and "Equity Compensation Plan Information" and is incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulations 14A within 120 days of the end of the Company's fiscal year.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.

Information on this subject is found in the Proxy Statement under the caption "Certain“Certain Relationships and Related Transactions"Transactions” and is incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company's fiscal year.
 
Item 14.
Principal Accounting Fees and Services.
 
Audit Committee of the Board of Directors
Information on this subject is found in the Proxy Statement under the caption "Principal Accounting Firm Fees“Compensation and Services"Meetings of the Board of Directors and Committees” and is incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company’s fiscal year.


Item 11.Executive Compensation.
Information on this subject is found in the Proxy Statement under the captions “Compensation of Directors and Executive Officers,” “Directors and Executive Officers,” “Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company's fiscal year.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information on this subject is found in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management,” “Directors and Executive Officers,” and “Equity Compensation Plan Information” and is incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulations 14A within 120 days of the end of the Company’s fiscal year.


Item 13.Certain Relationships and Related Transactions, and Director Independence.
Information on this subject is found in the Proxy Statement under the caption “Certain Relationships and Related Transactions” and incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company’s fiscal year.
Item 14.Principal Accounting Fees and Services.
Information on this subject is found in the Proxy Statement under the caption “Principal Accounting Firm Fees and Services” and incorporated herein by reference. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the end of the Company’s fiscal year.
 
5954
 



PART IV
Item 15.
Exhibits, Financial Statement Schedules.
 
(a) 1.Financial Statements
 
The following consolidated statements are included within Item 8 under the following captions:
 
Index Page(s) 
Consolidated Balance Sheets  30 
Consolidated Statements of IncomeOperations  31 
Consolidated Statements of Changes in Stockholders'Stockholders’ Equity  32 
Consolidated Statements of Cash Flows  33 
Notes to Consolidated Financial Statements  34 
ReportsReport of Independent Registered Public Accounting FirmsFirm  52-5450-51 
2.Financial Statement Schedules

No financial statement schedules are required to be filed by Items 8 and 15(d)15(b) because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto.

3.Exhibits
 
See Index to Exhibits starting on page 62.57.
 


 
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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. 
   
 PERFICIENT, INC.
By:  /s/ John T. McDonald
Date: March 4, 2008John T. McDonald
Chief Executive Officer (Principal Executive Officer)

   
 By:  /s/ Paul E. Martin
Date: March 4, 2008  3, 2011Paul E. Martin
 
Chief Financial Officer (Principal(Principal Financial Officer)
By:  /s/ Richard T. Kalbfleish
Date: March 4, 2008  Richard T. Kalbfleish
Vice President of FinanceOfficer and Administration (PrincipalPrincipal Accounting Officer)

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John T. McDonaldJeffrey S. Davis and Paul E. Martin, and each of them (with full power to each of them to act alone), his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign on his or her behalf individually and in each capacity stated below any and all amendments (including post-effective amendments) to this annual report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authorityauthorit y to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
 
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/ John T. McDonaldJeffrey S. DavisDirector, President and Chief Executive OfficerMarch 3, 2011
Jeffrey S. Davis(Principal Executive Officer)
/s/ Paul E. Martin Chief ExecutiveFinancial Officer and March 4, 20083, 2011 
John T. McDonaldPaul E. Martin 
Chairman of the Board (Principal ExecutiveFinancial Officer and Principal Accounting Officer)
  
      
/s/ Ralph C. Derrickson Director March 4, 20083, 2011 
Ralph C. Derrickson     
      
/s/ Max D. HopperEdward L. Glotzbach Director March 4, 20083, 2011 
Max D. HopperEdward L. Glotzbach
/s/ John S. HamlinDirectorMarch 3, 2011
John S. Hamlin     
      
/s/ KennethJames R. JohnsenKackley Director March 4, 20083, 2011 
KennethJames R. JohnsenKackley     
      
/s/ David S. Lundeen Director March 4, 20083, 2011 
David S. Lundeen     
/s/ David D. MayDirectorMarch 3, 2011
David D. May



 
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INDEX TO EXHIBITS
 
Exhibit Number 
Description
2.1
Agreement and Plan of Merger, dated as of April 6, 2006, by and among Perficient, Inc., PFT MergeCo, Inc., Bay Street Solutions, Inc. and the other signatories thereto, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on April 12, 2006 and incorporated herein by reference
2.2
Agreement and Plan of Merger, dated as of May 31, 2006, by and among Perficient, Inc., PFT MergeCo II, Inc., Insolexen, Corp., HSU Investors, LLC, Hari Madamalla, Steve Haglund and Uday Yallapragada, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on June 5, 2006 and incorporated herein by reference
2.3
Asset Purchase Agreement, dated as of July 20, 2006, by and among Perficient, Inc., Perficient DCSS, Inc. and Digital Consulting & Software Services, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and incorporated herein by reference
2.4
Agreement and Plan of Merger, dated as of February 20, 2007, by and among Perficient, Inc., PFT MergeCo III, Inc., e tech solutions, Inc., each of the Principals of e tech solutions, Inc., and Gary Rawding, as Representative, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on February 23, 2007 and incorporated herein by reference
2.5
Asset Purchase Agreement, dated as of June 25, 2007, by and among Perficient, Inc., Tier1 Innovation, LLC, and Mark Johnston and Jay Johnson, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on June 28, 2007 and incorporated herein by reference
2.6Agreement and Plan of Merger, dated as of September 20, 2007, by and among Perficient, Inc., PFT MergeCo IV, Inc., BoldTech Systems, Inc., a Colorado corporation, BoldTech Systems, Inc., a Delaware corporation, each of the Principals (as defined therein) and the Representative (as defined therein), previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed September 21, 2007 and incorporated herein by reference
2.7Asset Purchase Agreement, dated as of November 21, 2007, by and among Perficient, Inc., ePairs, Inc., the Principal (as defined therein) and  the Seller Shareholders (as defined therein), previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed November 27,2007 and incorporated herein by reference
3.1
 
Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference
  
3.2
 
Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Form 8-A filed with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 on February 15, 2005 and incorporated herein by reference
  
3.3
 
Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form S-8 (File No. 333-130624) filed on December 22, 2005 and incorporated herein by reference
  
3.4
Bylaws of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed November 9, 2007 and incorporated herein by reference
  
4.1
 
Specimen Certificate for shares of Perficient, Inc. common stock, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration StatementQuarterly Report on Form SB-210-Q (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission001-15169) filed May 7, 2009 and incorporated herein by reference
  
4.2
Warrant granted to Gilford Securities Incorporated, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference

62


Exhibit Number
Description
4.3
 
Form of Common Stock Purchase Warrant, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K (File No.001-15169) filed on January 17, 2002 and incorporated herein by reference
  
4.4
Form of Warrant, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form S-3 (File No. 333-117216) and incorporated by reference herein
10.110.1†
 
Perficient, Inc. Amended and Restated 1999 Stock Option/Stock Issuance Plan, previously filed with the Securities and Exchange Commission as an Exhibit to our annual reportAnnual Report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein
  
10.210.2†
Perficient, Inc. 2009 Long-Term Incentive Plan, as amended, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed February 25, 2010 and incorporated herein by reference
10.3†
 
Form of Stock Option Agreement, previously filed with the Securities and Exchange Commission as an Exhibit to our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004 and incorporated herein by reference
  
10.310.4†
 
Perficient, Inc. Employee Stock Purchase Plan, previously filed with the Securities and Exchange Commission as Appendix A to the Registrant's Schedule 14A (File No. 001-15169) on October 13, 2005 and incorporated herein by reference
  
10.410.5†Form of Restricted Stock Agreement, previously filed with the Securities and Exchange Commission as an Exhibit to our annual reportAnnual Report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein
  
10.5
10.6†		Form of IndemnityRestricted Stock Agreement, between Perficient, Inc. and each of our directors and officers, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration StatementQuarterly Report on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by10-Q for the Securities and Exchange Commissionquarter ended March 31, 2010 and incorporated herein by reference herein

10.610.7†
 
Offer Letter, dated July 20, 2006, by and between Perficient, Inc. and Mr. Paul E. Martin, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and incorporated herein by reference
57

Exhibit Number
Description
10.710.8†
 
Offer Letter Amendment, dated August 31, 2006, by and between Perficient, Inc. and Mr. Paul E. Martin, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on September 1, 2006 and incorporated herein by reference
  
10.8†10.9† 
Employment Agreement between Perficient, Inc. and Paul E. Martin dated and effective May 5, 2010, previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference
10.10† 
 
Employment Agreement between Perficient, Inc. and John T. McDonald dated April 20, 2007,March 3, 2009, and effective as of January 1, 2007,2009, previously filed with the Securities and Exchange Commission as an Exhibit to our annual reportAnnual Report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein
10.9†
Employment Agreement between Perficient, Inc. and Jeffrey Davis dated August 3, 2006, and effective as of July 1, 2006 filed with the Securities and Exchange Commission as an Exhibit to our Quarterly Report on Form 10-Q filed on August 9, 20062008 and incorporated herein by reference
  
10.10
 10.11†
AmendedEmployment Agreement between Perficient, Inc. and Restated LoanJeffrey S. Davis dated March 3, 2009, and Securityeffective as of January 1, 2009, previously filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2008 and incorporated herein by reference
10.12†Transition Agreement between John T. McDonald and Perficient, Inc. dated October 25, 2010, and effective November 2, 1010, previously filed as an Exhibit to our Current Report on Form 8-K filed on November 2, 2010 and incorporated herein by reference
10.13†Form of Letter Agreement between Perficient, Inc. and Richard Kalbfleish, dated July 30, 2010, previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010
10.14Credit Agreement by and among Silicon Valley Bank, KeyBank National Association, Perficient, Inc., Perficient Canada Corp., Perficient Genisys, Inc., Perficient Meritage, Inc.U.S. Bank National Association, and Perficient, Zettaworks, Inc. dated effective as of June 3, 2005, previously filed with the Securities and Exchange Commission as an Exhibit to our annual report on Form 10-K for the year ended December 31, 2005 and incorporated herein by reference
10.11Amendment to Amended and Restated Loan and Security Agreement, dated as of June 29, 2006, by and among Silicon Valley Bank, KeyBank National Association, Perficient, Inc., Perficient Genisys, Inc., Perficient Canada Corp., Perficient Meritage, Inc., Perficient Zettaworks, Inc., Perficient iPath, Inc., Perficient Vivare, Inc., Perficient Bay Street, LLC and Perficient Insolexen, LLC,May 30, 2008, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K (File No. 001-15169) filed on July 5, 2006June 3, 2008 and incorporated herein by reference


 
63


Exhibit Number
Description
10.12Lease by and between Cornerstone Opportunity Ventures, LLC and Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our annual report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein
10.1310.15First Amended and Restated Investor Rights Agreements dated as of June 26, 2002 by and between Perficient, Inc. and the Investors listed on Exhibits A and B thereto, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K (File No. 001-15169) filed on July 18, 2002 and incorporated by reference herein
  
10.1410.16
 
Securities Purchase Agreement, dated as of June 16, 2004, by and among Perficient, Inc., Tate Capital Partners Fund, LLC, Pandora Select Partners, LP, and Sigma Opportunity Fund, LLC, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on June 23, 2004 and incorporated by reference herein
  
14.1
Corporate Code of Business Conduct and Ethics, previously filed with the Securities and Exchange Commission on Form 10-KSB/A for the year ended December 31, 2003 and incorporated by reference herein
14.2
Financial Code of Ethics, previously filed with the Securities and Exchange Commission on Form 10-KSB/A for the year ended December 31, 2003 and incorporated by reference herein
21.1*Subsidiaries
  
23.1*Consent of BDO Seidman, LLP
23.2*Consent of KPMG LLP
  
24.124.1*Power of Attorney (included on the signature page hereto)
  
31.1*Certification by the Chief Executive Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of 2002
  
31.2*Certification by the Chief Financial Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of 2002
  
32.1*
Certification by the Chief Executive Officer and Chief Financial Officer of Perficient, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  †
Identifies an Exhibit that consists of or includes a management contract or compensatory plan or arrangement.
*
Filed herewith.
 


 
6458