FORM 10-K

~~(Mark~~

(Mark one)

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, ~~2008~~2011

Transition 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 ~~220~~400

~~Austin, Texas 78746~~Saint 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 Global Select Market

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 Noþ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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. ¨þ

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

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 ~~$288.8~~$294.5 million based on the last reported sale price of the Company's common stock on The Nasdaq Global Select Market on June 30, ~~2008.~~2011.

As of February 27, ~~2009,~~2012, there were ~~32,039,383~~31,269,447 shares of Common Stock outstanding.

Portions of the definitive proxy statement in connection with the ~~2008~~2012 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission no later than April 30, ~~2008,~~2012, 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.	105
Item 1B.	Unresolved Staff Comments.	1713
Item 2.	Properties.	1813
Item 3.	Legal Proceedings.	1813
Item 4.	~~Submission of Matters to a Vote of Security Holders.~~Reserved.	1813

PART II
Item 5.	Market for ~~Registrant's~~Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.		1914
Item 6.	Selected Financial Data.	2015
Item 7.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2115
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	3225
Item 8.	Financial Statements and Supplementary Data.	3326
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.	5447
Item 9A.	Controls and Procedures.	5447
Item 9B.	Other Information.	5447

PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	5648
Item 11.	Executive Compensation.	5849
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.		5849
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	5849
Item 14.	Principal Accounting Fees and Services.	5849

PART IV
Item 15.	Exhibits, ~~and~~ Financial Statement Schedules.	5950

PART I

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.

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. Our solutions include ~~custom applications,~~business integration, portals and collaboration, ~~eCommerce, online~~custom applications, technology platform implementations, customer relationship management, enterprise performance management, enterprise content management, and business intelligence, ~~business integration, mobile technology, technology platform implementations and 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~~our clients, we have acquired 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.

~~Our goal is to continue to build one of the leading independent information technology consulting firms~~We serve our clients from locations in 20 markets throughout North America by ~~expanding our relationships with existing and new clients,~~ leveraging ~~our operations to expand and continuing to make disciplined acquisitions. 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 identifying, executing and integrating acquisitions that add strategic value to our business. From April 2004 through November 2007, we acquired and integrated 12 information technology consulting firms. Given the current economic conditions, the Company has temporarily suspended making additional acquisitions pending improved visibility into the health of the economy and the information technology sector.

We believe we have built one of the leading independent information technology consulting firms in the United States. We serve our customers from locations in 19 markets throughout North America. In addition, as of December 31, 2008, we had 546 colleagues (defined as billable employees and subcontractors) who are part of “national” business units, who travel extensively to serve clients throughout North America and Europe. Our future growth plan includes expanding our business with a primary focus on the United States, both through increasing the number of professionals and through opening new offices, both organically and through acquisitions. We also intend to continue to leverage our existing offshore capabilities to support our growth and provide our clients flexible options for project delivery. In 2008, 97% of our revenues were derived from clients in the United States while 3% of our revenues were derived from clients in Canada and Europe. In 2007 and 2006, 99% of our revenues were derived from clients in the United States while 1% of our revenues were derived from clients in Canada and Europe. Over 98% of our total assets were located in the United States in 2008 and 2007 with the remainder located in Canada, China, and India.

We place strong emphasis on building lasting relationships with clients. Over the past three years ending December 31, 2008, an average of 82% of revenues was 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 relationships with software providers whose products we use to design and implement solutions for our clients. These relationships enable us to reduce our cost of sales and sales cycle times and increase success rates through leveraging our 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 Econom~~y. Beginning in 2008, the United States economy began to experience a slowdown in growth. It is clear that the slowdown has had an effect on the information technology consulting industry in general and on demand for our services in particular, but the amount of the impact is uncertain as the slowdown is continuing as we enter 2009. According to the most recent forecast from independent market research firm Forrester Research, the decline in the economy will cause the growth in purchases of IT goods and services to decline to 1.6% in 2009, from 4.1% growth in 2008. We have provided services revenue guidance for 2009 of $180 million to $200 million which would represent a decline from 2008 services revenue, including reimbursable expenses, of 19% to 10%.

~~Need to Rationalize Complex, Heterogeneous Enterprise Technology Environments~~. Over the past two decades, the information systems of many Global 2000 and large enterprise companies have evolved 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 processes and enable communication and collaboration.

As a result of investment in these different technologies, organizations now 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 of 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-time business.” Real-time business refers to the use of current information in business to execute critical business processes.

These factors continue 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. Companies are expected to continue to spend on integration broker suites, enterprise portal services, application platform suites and message-oriented middleware. As companies continue to spend on software and related consulting services, their spending on services will also 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 are impacted by professional staff vacation and holidays, as well as the timing of buying decisions by clients. 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. 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, among others, custom applications, portals and collaboration, eCommerce, customer relationship management, enterprise content management, business intelligence, business integration, mobile technology solutions, technology platform implementations and service oriented architectures and enterprise service bus. The platforms in which we have significant domain expertise and on which these solutions are built include IBM WebSphere, Lotus, Information Management and Rational, TIBCO BusinessWorks, Microsoft.NET, Oracle-Seibel, BEA (acquired by Oracle), Cognos (acquired by IBM) and Documentum, among others.

~~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, a proven execution process map we developed, allows for repeatable, high quality services delivery. The eNable Methodology leverages the thought leadership of our senior strategists and practitioners to support the client project team and focuses on transforming our clients' business processes to provide enhanced customer value and operating efficiency, enabled by Web 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.

~~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, 2008, an average of 82% of revenues was 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 Relationship and Endorsements~~. We have built meaningful relationships with software providers, whose products we use to design and implement solutions for our clients. These relationships enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our 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, a Microsoft Gold Certified Partner, a Certified Oracle Partner, and an EMC Documentum Select Services Team Partner. Our vendors have recognized our relationships with several awards. Most recently, the Company was honored with IBM’s Information Management 2007 Most Distinguished Partner (North America) Award and IBM’s Lotus 2008 Most Distinguished Partner (North America) 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 locations in 19 markets throughout North America. In addition, as of December 31, 2008, we had 546 colleagues who are part of “national” business units, who travel extensively to serve clients primarily in North America and Europe. Our future growth plan includes expanding our business with a primary focus on the United States, both through increasing the number of professionals and through opening new offices, both organically and through acquisitions. We also intend to continue to leverage our existing offshore capabilities to support our growth and provide our clients flexible options for project delivery.

~~Offshore Capability~~. We own and operate a CMMI Level 5 certified global development center in Hangzhou, China that was acquired in 2007. 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 facility we contract with a team of professionals with expertise in IBM, TIBCO and Microsoft 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. In 2007, we acquired a recruiting facility in Chennai, India, to continue to grow our base of H1-B foreign national colleagues. As of December 31, 2008, we had 133 colleagues at the Hangzhou, China facility and 215 colleagues with H1-B visas.

~~Our Solutions~~

We help clients gain competitive advantage by using Internet-based technologies to make their businesses more responsive to market opportunities and threats, strengthen relationships with customers, suppliers and partners, improve productivity 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-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

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

~~Our business-driven technology solutions include the following:~~

~~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.

~~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.

~~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's 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.

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

~~Service oriented architectures (SOA) and enterprise service bus~~. We design, develop and implement SOA and enterprise service bus 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.

~~Business intelligence~~. 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.

·	~~eCommerce~~. We design, develop and implement secure and reliable eCommerce infrastructures that dynamically integrate with back-end systems and complementary applications that provide for transaction volume scalability and sophisticated content management.

~~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.

~~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's substantial experience with platforms including J2EE, .Net and open-source - plus our flexible delivery structure - enables enterprises of all types to leverage cutting-edge technologies to meet business-driven needs.

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 advanced training facility in the Chicago, Illinois area, where we provide our clients both 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.

~~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. To achieve our goal, our strategy is:~~

~~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.

~~Continue Making Purchases of Equity Securities~~. In an ongoing effort to provide the most value to our stockholders, the Board of Directors authorized the repurchase of up to $20.0 million of our common stock as part of a program that expires at the end of June 2010. We believe our stock is undervalued and the repurchase program is the best use of a portion of our excess cash at this time. We will continually re-evaluate the position of our stock price and will seek additional authorization to repurchase our common stock if we believe appropriate.

~~Continue Making Disciplined Acquisitions Once the Economic Environment and Relative Valuations Improve~~. 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 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 solutions to our clients. From April 2004 through November 2007, we have acquired and integrated 12 information technology consulting firms. Given the current economic conditions, the Company has temporarily suspended making additional acquisitions pending improved visibility into the health of the economy and the information technology sector and improvement of the relative valuation between the Company’s common stock price and the private market valuations of potential acquisitions.

~~Expand 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 of 19 offices throughout North America. In addition, as of December 31, 2008, we had 546 colleagues who are part of “national” business units, who travel extensively to serve clients primarily in North America and Europe. Our future growth plan includes expanding our business with a primary focus on the United States, both through increasing the number of professionals and through opening new offices, both organically and through acquisitions. We also intend to continue to leverage our existing ‘offshore’ capabilities to support our growth and provide our clients flexible options for project delivery.

~~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 market visibility. In addition, we believe we have achieved critical mass in size, which has enhanced our visibility among prospective clients, employees and software vendors. As we continue to grow our business, we intend to highlight to customers and prospective customers our leadership in business-driven technology solutions and infrastructure software technology platforms.

~~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 professionals 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 professionals 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, utilizing us as the services firm of choice.

~~Expand and Enhance Our Industry Vertical Focus~~. In 2008 we launched two industry focused practices, healthcare and communications. The goals of these industry verticals is to recruit and retain consultants with specific industry expertise and to ‘mine’ and leverage the intellectual property the Company has and accumulates as we serve clients within these industries. Expanding these verticals will help the Company in terms of revenue generation as well as market expansion beyond our geographic and solution focused business units. Some other industries we have meaningful expertise in include energy, consumer product goods, manufacturing and distribution, and financial services.

~~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 compliment this with 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 and operate a CMMI Level 5 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 exclusive 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. As of December 31, 2008 we had 133 colleagues at the Hangzhou, China facility and 215 colleagues with H1-B visas.

~~Sales and Marketing~~

~~As of December 31, 2008, we had a 48 person direct solutions-oriented sales force. Our~~ sales team that is experienced and connected through a common ~~services~~service portfolio, sales process, and performance management system. Our sales process utilizes project pursuit teams that include those of our information technology ~~professionals~~colleagues best suited to address a particular prospective ~~client's~~client’s needs. We reward our sales force for developing and maintaining relationships with our clients and seeking out follow-up engagements as well as leveraging those relationships to forge new ones in different areas of the business and with our clients' business partners. Approximately 85% of our sales are executed by our direct sales force. In addition to our direct sales team we also have 24 dedicated sales support employees, four regional vice-presidents and 13 business unit general managers 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 solutions opportunities where our domain expertise and delivery track record give us a competitive advantage. We also typically target engagements of up to $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.~~boutique consulting firms.

During 2011, we continued to implement a strategy focused on: expanding our relationships with existing and new clients; continuing to make disciplined acquisitions by acquiring Exervio Consulting, Inc. (“Exervio”) in April 2011 and JCB Partners, LLC (“JCB”) in July 2011; expanding our technical skill and geographic base by expanding our business both organically and through acquisitions, with a primary focus on the United States; expanding our brand visibility among prospective clients, employees, and software vendors; leveraging our offshore capabilities in Canada, Europe, China, and India; and leveraging our existing and pursuing new strategic alliances by targeting leading business advisory companies and technology providers.

Our Solutions

We ~~have sales~~help clients gain competitive advantage by using technology to make their businesses more responsive to market opportunities; strengthen relationships with customers, suppliers, and ~~marketing partnerships~~partners; improve productivity; 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 ~~software vendors including IBM Corporation, TIBCO Software, Inc., Microsoft Corporation, Documentum, Oracle-Siebel, BEA (acquired by Oracle),~~key partners, suppliers, and ~~webMethods, Inc. These companies are key vendors of open standards based software commonly referred~~customers. This provides real-time access to ~~as middleware application servers, enterprise application integration platforms,~~critical business ~~process management, business activity monitoring and business intelligence~~ applications and ~~enterprise portal server software.~~ 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-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
•	increase employee productivity through better information flow and collaboration capabilities and by automating routine processes to enable focus on unique problems and opportunities.

Our ~~direct sales force works in tandem with~~business-driven technology solutions include 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' marketing efforts and endorsements. In particular, the IBM and Oracle software sales channels provide us with significant sales lead flow and joint selling opportunities.following:

•

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.

•

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.

•

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. Our substantial experience with platforms including J2EE, .Net, and Open-source enables enterprises of all types to leverage cutting-edge technologies to meet business-driven needs.

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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.

•

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.

•

Enterprise performance management (EPM). We design, develop, and implement EPM 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.

•

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. Our 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 intelligence. We design, develop, and implement business intelligence solutions that allow companies to interpret and act upon accurate, timely, and integrated information. Business intelligence solutions help our clients make more informed business decisions by classifying, aggregating, and correlating data into meaningful business information. 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.

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 technology solution services, we ~~continue~~offer education and mentoring services to ~~grow~~ our ~~business,~~clients. We conduct IBM- and Oracle-certified training, where we ~~intend to highlight~~provide our ~~leadership in solutions~~clients both a customized and ~~infrastructure software technology platforms. Our efforts will include technology white papers, by-lined articles by~~established curriculum of courses and other education services.

Competitive Strengths

We believe our ~~colleagues in technology and trade publications, media and industry analyst events, sponsorship of and participation in targeted industry conferences and trade shows.~~competitive strengths include:

•

Domain Expertise. We have acquired significant domain expertise in a core set of technology solutions and software platforms. These solutions include business integration, portals and collaboration, custom applications, technology platform implementations, customer relationship management, enterprise performance management, enterprise content management, and business intelligence, among others. The platforms in which we have significant domain expertise and on which these solutions are built include IBM, Oracle and Microsoft, among others.

•	Industry Expertise. We serve many of the world’s largest and most respected companies with deep business process experience across a variety of industries. These industries include healthcare, financial services and banking, telecommunications, automotive, and energy, among others.

•

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 methodology includes a proven execution process map we developed, which allows for repeatable, high quality services delivery. The methodology leverages the thought leadership of our senior strategists and practitioners to support the client project team and focuses on transforming our clients’ business processes to provide enhanced customer value and operating efficiency, enabled by web 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.

•

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. For the years ending December 31, 2011, 2010 and 2009, 81%, 84% and 92%, respectively, of services revenues were derived from clients who continued to utilize our services from the prior year, excluding any revenues from acquisitions completed in that year.

•

Vendor Relationship and Endorsements. We have built meaningful relationships with software providers, whose products we use to design and implement solutions for our clients. These relationships enable us to reduce our cost of sales and sales cycle times and increase win rates by leveraging our 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 an IBM Premier Business Partner, an Oracle Platinum Partner, a Microsoft Gold Certified Partner and National Systems Integrator, a TeamTIBCO Partner, and an EMC Consulting Preferred Partner. Our vendors have recognized our relationships with several awards. In 2011 we were named IBM’s Lotus North America Distinguished Partner, making us a three-time winner of this award. We also received the IBM Information Management Solution Excellence Award and the IBM Information Management Business Analytics Solution Provider Achievement Award.

•

Offshore Capability. We serve our clients from locations in 20 markets throughout North America and, in addition, we operate global development centers in Hangzhou, China and Chennai, India. These facilities are staffed with colleagues who have specializations that include application development, adapter and interface development, quality assurance and testing, monitoring and support, product development, platform migration, and portal development with expertise in IBM, Oracle and Microsoft technologies. In addition to our offshore capabilities, we employ a number of foreign nationals in the United States on H1-B visas. The facility in Chennai, India is also a recruiting and development facility used to continue to grow our base of H1-B foreign national colleagues. As of December 31, 2011, we had 204 colleagues at the Hangzhou, China facility and 205 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.

~~Clients~~

~~During the year ended December 31, 2008, we provided services to 530 customers. No one customer provided more than 10% of our total revenues in 2008, 2007 or 2006.~~

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;

·•	~~regional~~boutique consulting firms, such as ~~Brulant,~~ Prolifics and ~~MSI Systems Integrators;~~Avanade;

·•	national consulting firms, such as Accenture, ~~BearingPoint,~~ Deloitte Consulting ~~Ciber,~~ and Sapient;

·•	in-house professional services organizations of software companies; and

·•	~~to a limited extent,~~ offshore providers, such as Infosys Technologies 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.

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

Clients

During the year ended December 31, 2011, we provided services to 597 customers. No one customer provided more than 10% of our total revenues for the years ended 2011, 2010 or 2009.

Employees

~~Employees~~

As of December 31, ~~2008,~~2011, we had ~~1,186 employees, 1,019~~1,484 colleagues, 1,240 of which were billable ~~professionals~~(excludes 171 billable subcontractors) and ~~167~~244 which were involved in sales, ~~general~~ administration, and marketing. None of our ~~employees~~colleagues are represented by a collective bargaining agreement and we have never experienced a strike or similar work stoppage. We ~~consider~~are committed to the continued development of our ~~relations~~colleagues.

Sales and Marketing. As of December 31, 2011, we had a 57 person direct solutions-oriented sales force. We reward our sales force for developing and maintaining relationships with our clients and seeking out follow-up engagements as well as leveraging those relationships to forge new relationships in different areas of the business and with our clients’ business partners. Approximately 85% of our sales are executed by our direct sales force. In addition to our direct sales team, we also have 28 dedicated sales support employees, ~~to be good.~~19 general managers and three vice-presidents who are engaged in the sales and marketing efforts.

We have sales and marketing partnerships with software vendors including IBM, Oracle and Microsoft, among others. These companies are key vendors of open standards-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’ marketing efforts and endorsements.

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 ~~make~~makes us an attractive career choice for experienced professionals. Because our strategic partners are established and emerging market leaders, our technology ~~professionals~~colleagues have an opportunity to work with cutting-edge information technology. We foster professional development by training our technology ~~professionals~~colleagues in the skills critical to successful consulting engagements such as implementation methodology and project management. We believe in promoting from within whenever 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 ~~professionals~~colleagues with assessing their skills and developing a detailed action plan for guiding their career development. ~~For the year ended December 31, 2008, our voluntary attrition rate was approximately 22%. The annualized voluntary attrition rate for the second half of 2008 was 19%.~~

Training. To ensure continued development of our technical staff, we place a ~~high~~ priority on training. We offer extensive training for our ~~professionals~~colleagues around industry-leading technologies. We utilize our education practice 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 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 ~~(approximately 16% of our employees)~~ are eligible to receive restricted stock ~~awards. These~~ awards, which generally vest ratably over a ~~five~~minimum three year period.

Company Wide Practice (CWP) Leaders

~~Leadership Councils~~. Our ~~technology~~CWP leadership ~~council~~ performs a critical role in maintaining our technology leadership. Consisting of key employees from ~~each of our~~several practice areas, the ~~council frames our~~CWP leadership assesses new ~~strategic partner strategies~~technologies, 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 ~~council~~CWP leaders also ~~coordinates~~coordinate thought leadership activities, including white paper authorship and publication and speaking engagements by our ~~professionals.~~colleagues. Finally, the ~~council~~CWP 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.

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 vendor 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 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.

~~Wiki~~. We maintain an internal wiki where multiple sites are set up to foster collaboration and knowledge-sharing around various solution areas, technologies and functional disciplines. The wiki is a collaborative webpage designed to efficiently educate colleagues and enable and enhance productivity.

General Information

Our stock is traded on ~~the~~The Nasdaq Global Select Market 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.

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~~Our results of ~~operations.~~operations could be adversely affected by volatile, negative or uncertain economic conditions and the effects of these conditions on our clients’ businesses and levels of business activity.

Our results of operations are affected by the levels of business activities of our clients, which can be affected by economic conditions in the United States and ~~globally. During periods~~worldwide. Volatile, negative or uncertain economic conditions in our significant markets could undermine business confidence, both in those markets and other markets and cause our clients to reduce or defer their spending on new technologies or initiatives or terminate existing contracts, which would negatively affect our business. Growth in markets we serve could be at a slow rate, or could stagnate, for an extended period of time. Differing economic conditions and patterns of economic ~~downturns, our clients~~growth and contraction in the geographical regions in which we operate and the industries we serve may ~~decrease their~~affect demand for information technology services. In 2008, general worldwide economic conditions have experienced a downturn due to slower economic activity, concerns about inflation and deflation, decreased consumer confidence, reduced corporate profits, capital spending, and adverse business conditions. These conditions may cause our customers to delay or cancel information technology projects, reduce their overall information technology budgets and/or reduce or cancel orders for our services. A material portion of our revenues and profitability is derived from our clients in North America. Weakening in this market as a result of high government deficits, credit downgrades or otherwise, could have a material adverse effect on our results of operations. Ongoing economic volatility and uncertainty affects our business in a number of other ways, including making it more difficult to accurately forecast client demand beyond the short term and effectively build our revenue and resource plans, particularly in consulting. This could result, for example, in us not having the level of appropriate personnel where they are needed, and could have a significant negative impact on our results of operations.

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’ notice. A client may choose at any time to use another consulting firm, choose to perform services we provide through their own internal resources, 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 ownership 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 be materially lower than expected. 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.

We 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 ~~lead~~be unable to ~~longer sales cycles, delays in purchase decisions, payment and collection issues, and may also result in price pressures, causing us to realize lower~~achieve our revenues and operating ~~margins. Additionally, if~~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 clients cancel or delay their business and technology initiatives or choose to move these initiatives in-house, our business, financial condition and results of operations could be materially and adversely affected.business.

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~~

A significant amount of information technology services are being provided by lower-cost non-domestic resources. The increased utilization of these resources for U.S.-based projects could result in lower revenues and margins for U.S.-based information technology companies. Our ability to compete utilizing higher-cost domestic resources and/or our ability to procure comparably priced ~~off-shore~~offshore resources could adversely impact our results of operations and financial condition.

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 vendor 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. This may place us at a disadvantage to our competitors, which may harm our ability to grow, maintain revenues, or generate net income.

In recent years, there has been ~~substantial~~ consolidation in our industry and we expect that there will be 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 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 their 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~~We could have liability or our reputation could be damaged if we do not ~~keep up with rapid technological change, evolving industry standards~~protect client data or ~~changing customer requirements.~~information systems or if our information systems are breached.

~~Rapidly changing~~

We are dependent on information technology ~~evolving industry standards~~networks and ~~changing customer needs~~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 ~~common in~~also required at times to manage, utilize, and store sensitive or confidential client or employee data. As a result, we 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 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 setprotection 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 accomplish all of these tasks in a timely and cost-effective manner. We might not succeed in effectively doing~~individually identifiable information. If any person, including any of ~~these tasks,~~our employees, negligently disregards or intentionally 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 or employee data, whether through systems failure, employee negligence, fraud or misappropriation could damage our reputation and cause us to lose clients. Similarly, unauthorized access to or through our ~~failure~~information systems or those we develop for our clients, whether by our employees or third parties, could result in negative publicity, legal liability, and damage 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.~~reputation.

We may also incur substantial costs to keep up with changes surrounding the Internet. Unresolved critical issues concerning the commercial use and government regulation of the Internet include the following:

·	~~security;~~

·	~~intellectual property ownership;~~

·	~~privacy;~~

·	~~taxation; and~~

·	~~liability issues.~~

~~Any costs we incur because of these factors could materially and adversely affect our business, financial condition and results of operations, including reduced net income.~~

International operations subject us to additional political and economic risks that could have an adverse impact on our business.

~~In 2007, we acquired~~

We maintain a global development center in Hangzhou, ~~China. Also in 2007, we acquired a subsidiary which operates~~China and a technology consulting recruiting ~~office~~and development facility in Chennai, India. ~~Because of our limited experience with facilities outside of the United States, we~~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 above could have a material adverse effect on our international operations and, consequently, on our business, financial condition, and operating results.

117

Immigration restrictions related to H1-B visas could hinder our growth and adversely affect our business, financial condition and results of operations.

Approximately ~~19%~~16% of our billable workforce is comprised of skilled ~~foreigners~~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.

Our results of operations could materially suffer if we are not able to obtain favorable pricing.

There are strict labor regulations associated with the H1-B visa classification and users of the H1-B 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 U.S. Department of Labor of willful or substantial failure by us to comply with existing regulations on the H1-B classification could result in back-pay liability, substantial fines, or a ban on future use of the H1-B program and other immigration benefits, any of which could materially and adversely affect our business, financial condition and results of operations.

~~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, or if we are unable to attract top talent, our level of management, technical, marketing and sales expertise could diminish or otherwise be insufficientfavorable pricing for our ~~growth. We may be unable to achieve~~services, our revenues and ~~operating performance objectives unless~~profitability could materially suffer. The rates we ~~can attract and retain technically qualified and highly skilled sales, technical, business consulting, marketing and management personnel. These individuals would be difficult~~are able 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 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 decrease in a client’s business activity could cause the cancellation of projects. Accordingly, we rely on our clients' interests in maintaining the continuity ofcharge for our services ~~rather than on contractual requirements. Termination of~~are affected by 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.~~

As a services provider, our ability to attract and retain clients depends to a large extent on our relationships with our clients and our reputation for high quality services and integrity. We also believe that the importance of reputation and name recognition is increasing and will continue to increase due to the number of providers of information technology services. As a result, if a client is not satisfied with our services or does not perceive our solutions to be effective or of high quality, our reputation may be damaged and we may be unable to attract new, or retain existing, clients and colleagues.

factors, including:

•	general economic and political conditions;
•	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.

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 underprice 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 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, due~~Due to the nature of our business, it is possible that we will be sued in the future. If we experience 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.

~~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~~

Our results of operations and ~~complex arrangements often require that~~ability to grow could be materially negatively affected if we ~~utilize subcontractors or that~~cannot adapt and expand our services and solutions ~~incorporate or coordinate with the software, systems or infrastructure requirements of other vendors~~in response to ongoing changes in technology and ~~service providers.~~ offerings by new entrants.

Our success depends on our ability to ~~serve our clients and deliver~~continue to develop and implement services and solutions that anticipate and respond to rapid and continuing changes in technology and industry developments and offerings by new entrants to serve the evolving needs of our ~~solutions in a timely manner depends~~clients. Current areas of significant change include mobility, cloud-based computing and the processing and analyzing of large amounts of data. Technological developments such as these may materially affect the cost and use of technology by our clients. Our growth strategy focuses on ~~the ability~~responding to these types of ~~these subcontractors, vendors and service providers to meet their project obligations in a timely manner,~~developments by driving innovation for our core business as well as onthrough new business initiatives beyond our ~~effective oversight of their performance. The quality of~~core business that will enable us to differentiate our services and solutions. If we do not sufficiently invest in new technology and industry developments, or if we do not make the right strategic investments to respond to these developments and successfully drive innovation, our services and solutions, our results of operations, and our ability to develop and maintain a competitive advantage and continue to grow could ~~suffer if~~be negatively affected.

In addition, we operate in a quickly evolving environment, in which there currently are, and we expect will continue to be, new technology entrants. New services or technologies offered by competitors or new entrants may make our ~~subcontractors~~offerings less differentiated or less competitive, when compared to other alternatives, which may adversely affect our results of operations.

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 ~~whom~~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 ~~partner do~~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 ~~deliver their products~~be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and ~~services~~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 ~~accordance~~intellectual property developed in connection with ~~project requirements. If~~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 ~~subcontractors~~ability to reuse that intellectual property for other clients. Any limitation on our ability to provide a service or ~~these third parties fail~~solution could cause us to ~~deliver their contributions on time or at all or if their contributions do not meet project requirements or~~lose revenue-generating opportunities and require us to incur ~~unanticipated costs~~additional expenses to ~~meet these requirements, then our~~develop new or modified solutions for future projects.

Our ability to ~~perform~~attract and retain business may depend on our reputation 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 clients’ 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 risk that negative information could adversely ~~affected~~affect our business. Damage to our reputation could be difficult and ~~we might be subject~~time-consuming to ~~additional liabilities, which~~repair, could make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business, and could adversely affect our efforts with regard to the recruitment and retention of employees 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.

The loss of one or more of our significant software vendors 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 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.

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 resources 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.

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 continued 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 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 make. We might not achieve our expected return on 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 ~~cash flow.~~competitive position in specific markets or services.

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. AsSince 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 ~~professionals~~colleagues and execute our strategies for growth, we might 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.

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 ~~negotiated~~ fees ~~do not accurately anticipate~~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 ~~complexity of performing our work, then our contracts could be unprofitable.~~margins earned on those contracts.

We negotiate fees with our clients utilizing a range of pricing structures and conditions. Depending on the particular contract, these include time-and-materials, fixed-fee, and contracts with features of both of these pricing models. 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 entail the coordination of operations and workforces in multiple locations, 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 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.

1310

~~The loss~~

Changes in our level of ~~one or more of our significant software business vendors would~~taxes, and tax audits, investigations and proceedings could have a material ~~and~~ adverse effect on our ~~business and~~ results of ~~operations.~~operations and financial condition.

~~Our business relationships~~

We are subject to income 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 ~~software vendors enable us to reduce~~ our ~~cost of sales and increase win rates through leveraging our vendors’ marketing efforts and strong vendor endorsements. The loss of one or more~~judgments. We regularly assess the likely outcomes of these ~~relationships~~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 ~~endorsements~~the amounts ultimately paid could ~~increase~~be different from the amounts previously recorded. In addition, our ~~sales~~effective 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 ~~marketing costs, lead to longer sales cycles, harm our reputation~~liabilities, and ~~brand recognition, reduce our revenues~~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.~~operations and financial condition.

If we do not effectively manage ~~our~~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 order to create the additional capacity necessary to accommodate ~~the~~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 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.~~colleagues. We may not be able to achieve or maintain optimal utilization of our offices and ~~professionals.~~colleagues. 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.

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 balance, 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.

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 could vary 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.~~ results.

Our ~~services~~ revenues may fluctuate quarterly due to seasonality or timing of completion of projects.

We may experience seasonal fluctuations in our services and software 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 revenues on completion of large projects with new arrangements to provide services to the same client or others, we may not be able to avoid declines in 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 adversely affect our revenues and results of operations.

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~~While we seek to counterbalance periodic fluctuations in revenues, we may not be able to avoid declines in services revenues or increases in software revenues. Our inability to counterbalance these seasonal ~~trend~~trends 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.

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, financial condition, and results of operations.

~~If we fail to complete fixed-fee contracts within budget and on time, our results of operations could be adversely affected.~~

In 2008, approximately 13% of our projects were performed on a fixed-fee basis, rather than on a time-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 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, which may result in losses.

We may not be able to maintain ~~our level of~~ profitability.

Although we have been profitable for the past ~~five~~eight 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 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.

~~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 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 impairment 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 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 have difficulty in identifying and competing for strategic acquisition and vendor 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 vendor 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 vendor 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.

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 ~~the~~The Nasdaq Global Select Market under the symbol “PRFT.” Our common stock price has been ~~volatile. Our stock price~~volatile 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.

~~Declines in our stock price and/or operating performance could result in a future impairment of our goodwill or long-lived assets.~~

We assess potential impairments to goodwill annually and when there is evidence that events or changes in circumstances indicate that an impairment condition may exist. We assess potential impairments to our long-lived assets, including property and equipment and certain intangible assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. General economic conditions in the U.S. have recently adversely impacted the trading prices of securities of many companies, including ours, due to concerns regarding recessionary economic conditions, the lending and financial crisis, a substantial slowdown in economic activity, decreased consumer confidence and other factors. In addition, the trading prices of the securities in our industry have been highly volatile. Subsequent to December 31, 2008 our stock price has declined. If the trading price of our common stock were to continue to be adversely affected due to worsening general economic conditions, significant changes in our financial performance or other factors, these events could result in a non-cash impairment charge related to our goodwill or long-lived assets. A significant impairment loss could have a material adverse effect on our operating results and on the carrying value of our goodwill and/or our long-lived assets on our balance sheet.

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%~~24% 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.

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 $9.7 million and a borrowing capacity of $50 million, and a commitment to increase our borrowing capacity by $25 million, at December 31, 2011. 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, 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 ~~if 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 ~~board~~Board of ~~directors~~Directors 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.

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 ~~and Austin, Texas,~~ where we have leased approximately ~~10,079~~5,100 square feet ~~and 2,700 square feet, respectively,~~ for these functions. We lease 1926 offices in major ~~cities across~~markets 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 party~~

We are involved from time to ~~litigation and claims~~time in various legal proceedings arising in the ordinary course of ~~our business, management~~business. 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 will~~pending 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, 2008.~~

1813

PART II

Item 5.

Market for ~~Registrant's~~Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is quoted on ~~the~~The Nasdaq Global Select Market 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 ~~the~~The Nasdaq Global Select Market since January 1, ~~2007.~~2010.

	High		Low
Year Ending December 31, 2011:
First Quarter	$	13.16	$	10.68
Second Quarter		12.76		9.22
Third Quarter		11.32		7.09
Fourth Quarter		10.32		6.41

Year Ending December 31, 2010:
First Quarter	$	12.01	$	8.50
Second Quarter		12.99		8.91
Third Quarter		9.71		8.21
Fourth Quarter		13.00		9.17

High Low
Year Ending December 31, 2008:
First Quarter $ 17.08 $ 6.43
Second Quarter 11.91 7.82
Third Quarter 10.94 6.04
Fourth Quarter 6.80 2.31

Year Ending December 31, 2007:
First Quarter $ 21.55 $ 16.02
Second Quarter 23.29 18.51
Third Quarter 25.19 18.91
Fourth Quarter 24.75 14.65

On February 27, ~~2009,~~2012, the last reported sale price of our common stock on ~~the~~The Nasdaq Global Select Market ~~a tier of The NASDAQ Stock Market LLC,~~ was ~~$3.52~~$12.06 per share. There were approximately ~~377~~323 stockholders of record of our common stock as of February 27, ~~2009,~~2012, including ~~237~~205 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 speakTECH in December 2010 included an earnings-based contingency, pursuant to which additional consideration could be realized by speakTECH if certain earnings-based requirements were met. This contingency was achieved during 2011 and, as such, we paid the additional consideration on December 10, 2011. In connection with this payment, we issued 383,101 unregistered shares of our common stock to speakTECH. We relied on Section 4(2) and Regulation D of the Securities Act of 1933, as amended, as the basis for exemption from registration. These shares were issued to speakTECH in a privately negotiated transaction and not pursuant to a public solicitation.

Issuer Purchases of Equity Securities

~~In December 2008, the Company’s~~

Prior to 2011, our Board of Directors ~~approved an increase under~~authorized the ~~share~~ repurchase ~~program by up to $10.0 million. This is in addition to the remaining share repurchase authority under the March 2008 program~~ of up to ~~$10.0~~$50.0 million ~~for a combined total~~of our common stock. In 2011, the Board of Directors authorized the repurchase of up to ~~$20.0 million.~~an additional $10.0 million of our common stock for a total repurchase program of $60.0 million at December 31, 2011. The repurchase program expires June 30, ~~2010. While it is not the Company’s intention, the~~2012. 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 ~~the Company’s~~our management based on its evaluation of market conditions, share price, and other factors.

~~The Company had~~

Since the program’s inception in 2008, we have repurchased approximately ~~$9.2~~$54.0 million of ~~its~~our outstanding common stock ~~under the program as of~~through December 31, ~~2008.~~ 2011.

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, 2011	7,097,567	$	7.29	7,097,567	$	8,271,213
October 1-31, 2011	--		--	--	$	8,271,213
November 1-30, 2011	55,000		9.36	55,000	$	7,756,483
December 1-31, 2011	215,000		8.15	215,000	$	6,004,112
Ending Balance as of December 31, 2011	7,367,567	$	7.33	7,367,567

(1) Average price paid per share includes commission.

1914

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 (2)
Beginning Balance as of October 1, 2008 637,031 637,031 $ 5,213,570
October 1-31, 2008 91,018 5.22 91,018 $ 4,745,283
November 1-30, 2008 671,887 3.59 671,887 $ 2,672,362
December 1-31, 2008 448,364 4.25 448,364 $ 10,821,786
Ending Balance as of December 31, 2008 1,848,300 1,848,300

~~(1)~~

~~Average price paid per share includes commission.~~

~~(2)~~

The additional program to repurchase up to $10.0 million of the Company’s outstanding common stock was approved by the Company’s Board of Directors on December 17, 2008. This is in addition to the repurchase authority for up to $10.0 million of the Company’s common stock approved by the Company’s Board of Directors on March 26, 2008. The repurchase program expires June 30, 2010.

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, ~~2008,~~2011, has been prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles.~~in the United States. The financial data presented is not directly comparable between periods as a result of ~~the adoption~~two acquisitions in each of ~~Statement of Financial Accounting Standards No. 123R (As Amended),~~ ~~Share Based Payment~~ ~~(“SFAS 123R”)~~2011 and in ~~2006,~~2010 and four acquisitions in ~~2007, three acquisitions in 2006, two acquisitions in 2005, and three acquisitions in 2004.~~2007.

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's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II, Item 7.

				Year Ended December 31,											Year Ended December 31,
	2008			2007		2006			2005			2004			2011		2010			2009		2008			2007
Income Statement Data:						(In thousands)														(In thousands)
Revenues	$	231,488		$	218,148	$	160,926		$	96,997		$	58,848		$	262,439	$	214,952		$	188,150	$	231,488		$	218,148
Gross margin	$	73,502		$	75,690	$	53,756		$	32,418		$	18,820		$	81,134	$	62,767		$	48,333	$	73,502		$	75,690
Selling, general and administrative	$	47,242		$	41,963	$	32,268		$	17,917		$	11,068		$	51,672	$	45,477		$	40,042	$	47,242		$	41,963
Depreciation and amortization	$	6,949		$	6,265	$	4,406		$	2,226		$	1,209		$	8,095	$	4,784		$	5,750	$	6,949		$	6,265
Acquisition costs															$	1,249	$	993		$	--	$	--		$	--
Adjustment to fair value of contingent consideration															$	1,586	$	(4	)	$	--	$	--		$	--
Impairment of intangible assets	$	1,633		$	--	$	--		$	--		$	--		$	--	$	--		$	--	$	1,633		$	--
Income from operations	$	17,678		$	27,462	$	17,082		$	12,275		$	6,543		$	18,532	$	11,517		$	2,541	$	17,678		$	27,462
Net interest income (expense)	$	528		$	172	$	(407	)	$	(643	)	$	(134	)
Net interest income															$	68	$	163		$	209	$	528		$	172
Net other income (expense)	$	(915	)	$	20	$	174		$	43		$	32		$	45	$	68		$	260	$	(915	)	$	20
Income before income taxes	$	17,291		$	27,654	$	16,849		$	11,675		$	6,441		$	18,645	$	11,748		$	3,010	$	17,291		$	27,654
Net income	$	10,000		$	16,230	$	9,567		$	7,177		$	3,913		$	10,747	$	6,480		$	1,463	$	10,000		$	16,230

	As of December 31,										As of December 31,
	2008		2007		2006		2005		2004		2011		2010		2009		2008		2007
Balance Sheet Data:	(In thousands)										(In thousands)
Cash and cash equivalents	$	22,909	$	8,070	$	4,549	$	5,096	$	3,905
Cash, cash equivalents, and short-term investments											$	9,732	$	24,008	$	24,302	$	22,909	$	8,070
Working capital	$	56,176	$	41,368	$	24,859	$	17,078	$	9,234	$	51,476	$	47,632	$	50,205	$	56,176	$	41,368
Long-term investments											$	--	$	2,254	$	3,652	$	--	$	--
Property and equipment, net	$	2,345	$	3,226	$	1,806	$	960	$	806	$	3,490	$	2,355	$	1,278	$	2,345	$	3,226
Goodwill and intangible assets, net	$	115,634	$	121,339	$	81,056	$	52,031	$	37,340	$	142,166	$	124,056	$	111,773	$	115,634	$	121,339
Total assets	$	194,247	$	189,992	$	131,000	$	84,935	$	62,582	$	223,932	$	207,678	$	184,810	$	194,247	$	189,992
Current portion of long term debt and line of credit	$	--	$	--	$	1,201	$	1,581	$	1,379
Long-term debt and line of credit, less current portion	$	--	$	--	$	137	$	5,338	$	2,902
Total stockholders' equity	$	174,818	$	165,562	$	107,352	$	65,911	$	44,622	$	198,959	$	177,164	$	168,348	$	174,818	$	165,562

Item 7.

~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 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,~~business analysis, portals and collaboration, ~~eCommerce,~~business integration, user experience, enterprise content management, customer relationship management, interactive design, enterprise ~~content~~performance management, business process management, business intelligence, ~~business integration,~~eCommerce, mobile ~~technology,~~platforms, custom applications, and technology platform implementations, ~~and 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.

Services Revenues

Services revenues are derived from professional services ~~performed~~that 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, ~~and~~while a smaller ~~amount~~portion of our revenues is derived from projects performed on a fixed fee basis. Fixed fee engagements represented approximately ~~13%~~11% of our services revenues for the ~~twelve months~~year ended December 31, ~~2008.~~2011 compared to 13% and 11% for the years ended December 31, 2010 and 2009, respectively. For time and material projects, revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates. For fixed fee projects, revenues are generally recognized 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 portion~~ratio of ~~the fixed fee is complete.~~hours expended to total estimated hours. Amounts invoiced ~~to clients~~and collected in excess of revenues recognized are classified as deferred revenues. 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,~~clients, 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 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 event~~On rare occasions, we do not meet the requirements to be considered a principal in the transaction and act as an ~~agent, the~~agent. 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’~~clients’ demand for these products.

If we enter into contracts for the sale of services and software or hardware, ~~Company~~ management evaluates whether each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of software and services, management also evaluates whether the services are essential to the functionality of the software ~~or hardware~~ and ~~whether the Company~~ has ~~objective~~ fair value evidence for each ~~deliverable in the transaction.~~deliverable. If management ~~concludes~~concluded that the ~~services to be provided~~separation criteria are ~~not essential to the functionality of the software or hardware and can determine objective fair value evidence for each deliverable of the transaction,~~met, then ~~we account~~it accounts 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.~~criteria and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein.

Further, delivery of software and hardware sales, when sold contemporaneously with services, can generally occur at varying times depending on the specific client project arrangement. Delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract.

There are no significant cancellation or termination-type provisions for our software and hardware sales. Contracts for professional services provide for a general right, to the client or us, to cancel or terminate the contract within a given period of time (generally a 10 to 30 day notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.

Cost of revenues

~~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.~~awards. Cost of revenues also includes the costs associated with subcontractors. Third-party software and hardware costs, reimbursable expenses, and other unreimbursed project related 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.~~clients. Cost of revenues does not include depreciation of assets used in the production of revenues which are primarily personal computers, servers, and other information technology related equipment.

Gross Margins

Our gross margins for services are affected by the utilization rates of our professionals ~~defined~~(defined as the percentage of our professionals’ time billed to ~~customers~~clients divided by the total available hours in the respective ~~period,~~period), the salaries we pay our ~~consulting~~ professionals, and the average billing rate we receive from our ~~customers.~~clients. 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. Gross margin percentages of ~~third party~~third-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”) ~~consist~~are primarily composed of sales-related costs, general and administrative salaries, ~~benefits, bonuses, non-cash~~stock compensation expense, recruiting expense, office costs, ~~recruiting, professional fees, sales and marketing activities, training,~~bad debts, variable compensation cost, and other miscellaneous expenses. ~~Non-cash compensation includes stock compensation expenses related to restricted stock, option grants to employees and non-employee directors, and retirement savings plan contributions.~~ We work to minimize selling costs by focusing on repeat business with existing ~~customers~~clients and by accessing sales leads generated by our software vendors, most notably IBM, Oracle, and Microsoft, whose products we use to design and implement solutions for our clients. These relationships enable us to reduce our selling costs and sales cycle times and increase win rates through leveraging our ~~partners'~~partners’ marketing efforts and endorsements.

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 ~~leveraging~~and through the continuation of our ~~operations to expand and continuing to make~~ disciplined ~~acquisitions. As demand for~~acquisition strategy. Our future growth plan includes expanding our ~~services grows, we anticipate increasing the number of professionals~~business with a primary focus on customers in ~~our 19 North American offices and adding new offices throughout~~ 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 strategy as evidenced by our acquisition of Kerdock Consulting, LLC (“Kerdock”) in March 2010, speakTECH in December 2010, Exervio Consulting, Inc. (“Exervio”) in April 2011, JCB Partners, LLC (“JCB”) in July 2011 and PointBridge Solutions, LLC in February 2012. We also intend to ~~continue to~~further leverage our existing 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 help us complete acquisitions efficiently and productively, while continuing to offer quality services to our clients, including new clients resulting from the acquisitions.

Consistent with our strategy of growth through disciplined acquisitions, we consummated nine acquisitions since January 1, 2005, including four in 2007. Given the current economic conditions, the Company has temporarily suspended making additional acquisitions pending improved visibility into the health of the economy.

Results of Operations

The following table summarizes our results of operations as a percentage of total revenues:

Revenues: 2008 2007 2006
   Services revenues 89.6 % 87.8 % 85.6 %
   Software and hardware revenues 4.6 6.5 9.0
   Reimbursable expenses 5.8 5.7 5.4
Total revenues 100.0 100.0 100.0
Cost of revenues (exclusive of depreciation and amortization, shown separately below):
   Project personnel costs 56.6 52.6 52.3
   Software and hardware costs 3.7 5.5 7.5
   Reimbursable expenses 5.7 5.7 5.4
   Other project related expenses 2.2 1.5 1.3
Total cost of revenues 68.2 65.3 66.5
Services gross margin 34.4 38.4 37.4
Software and hardware gross margin 19.4 15.9 16.1
Total gross margin 31.8 34.7 33.5
Selling, general and administrative 20.4 19.2 20.1
Depreciation and intangibles amortization 3.0 2.9 2.7
Impairment of intangibles 0.7 0.0 0.0
Income from operations 7.7 12.6 10.6
Interest income (expense), net 0.2 0.1 (0.3 )
Other income (expense), net (0.4 ) 0.0 0.1
Income before income taxes 7.5 12.7 10.5
Provision for income taxes 3.2 5.2 4.5
Net income 4.3 % 7.5 % 6.0 %

Revenues:	2011			2010			2009
Services revenues		88.8	%		86.1	%		88.4	%
Software and hardware revenues		6.0			9.6			6.9
Reimbursable expenses		5.2			4.3			4.7
Total revenues		100.0			100.0			100.0
Cost of revenues (depreciation and amortization, shown separately below):
Project personnel costs		56.9			55.5			61.0
Software and hardware costs		5.2			8.4			6.2
Reimbursable expenses		5.2			4.3			4.7
Other project related expenses		1.8			2.6			2.4
Total cost of revenues		69.1			70.8			74.3
Services gross margin		33.9			32.6			28.2
Software and hardware gross margin		13.5			11.9			10.2
Total gross margin		30.9			29.2			25.7
Selling, general and administrative		19.7			21.2			21.3
Depreciation and amortization		3.1			2.2			3.0
Acquisition costs		0.5			0.5			0.0
Adjustment to fair value of contingent consideration		0.5			0.0			0.0
Income from operations		7.1			5.3			1.4
Net interest income		0.0			0.1			0.1
Net other income		0.0			0.0			0.1
Income before income taxes		7.1			5.4			1.6
Provision for income taxes		3.0			2.5			0.8
Net income		4.1	%		2.9	%		0.8	%

2217

Year Ended December 31, ~~2008~~2011 Compared to Year Ended December 31, ~~2007~~2010

~~Revenues~~Revenues.. Total revenues increased 6%22% to ~~$231.5~~$262.4 million for the year ended December 31, ~~2008~~2011 from ~~$218.1~~$215.0 million for the year ended December 31, ~~2007.~~2010.

	Financial Results										Explanation for Increases Over Prior Year Period
	(in thousands)										(in thousands)
	For the Year Ended December 31, 2011			For the Year Ended December 31, 2010			Total Increase/ (Decrease) Over Prior Year Period				Increase Attributable to Acquired Companies*			Increase/ (Decrease) Attributable to Base Business**
Services Revenues		$	233,166		$	185,173		$	47,993			$	38,014		$	9,979
Software and Hardware Revenues			15,624			20,556			(4,932	)			26			(4,958	)
Reimbursable Expenses			13,649			9,223			4,426				931			3,495
Total Revenues		$	262,439		$	214,952		$	47,487			$	38,971		$	8,516

Financial Results Explanation for Increases/(Decreases) Over Prior Year Period
(in thousands) (in thousands)

For the Year Ended
December 31, 2008

For the Year Ended
December 31, 2007
Total Increase/ (Decrease) Over Prior Year Period Increase Attributable to Acquired Companies* Increase/ (Decrease) Attributable to Base Business**
Services Revenues $ 207,480 $ 191,395 $ 16,085 $ 29,611 $ (13,526 )
Software and Hardware Revenues 10,713 14,243 (3,530 ) 1,871 (5,401 )
Reimbursable Expenses 13,295 12,510 785 1,372 (587 )
Total Revenues $ 231,488 $ 218,148 $ 13,340 $ 32,854 $ (19,514 )

*Defined as revenues generated by professionals from companies acquired during ~~2007; no companies were acquired in 2008.~~2010 and 2011.

**Defined as businesses owned as of January 1, ~~2007.~~2010.

Services revenues increased 8%26% to ~~$207.5~~$233.2 million for the year ended December 31, ~~2008~~2011 from ~~$191.4~~$185.2 million for the year ended December 31, ~~2007.~~2010. The increase in services revenues is primarily due to acquisitions during 2010 and 2011. Services revenues attributable to our base business ~~decreased $13.5~~increased $10.0 million while services revenues attributable to ~~the~~acquired companies ~~acquired in 2007~~ increased ~~$29.6~~$38.0 million, resulting in a ~~net~~total increase of ~~$16.1~~$48.0 million. ~~We experienced a slowdown in demand during the year related to the deterioration of the U.S. economy.~~

Software and hardware revenues decreased ~~25%~~24% to $10.7 million in 2008 from $14.2 million in 2007. Software and hardware revenues attributable to our base business decreased $5.4 million while software and hardware revenues attributable to acquired companies increased $1.9 million, resulting in a net decrease of $3.5 million. Reimbursable expenses increased 6% to $13.3 million in 2008 from $12.5 million in 2007 due to acquisitions and an increased number of projects requiring consultant travel. We do not realize any profit on reimbursable expenses.

~~Cost of revenues. Cost of revenues increased 11% to $158.0~~$15.6 million for the year ended December 31, ~~2008~~2011 from ~~$142.5~~$20.6 million for the year ended December 31, ~~2007. Cost of revenues attributable to our base business decreased $7.9 million while cost of revenues attributable~~2010 due to the ~~companies acquired~~decrease in ~~2007~~the volume and magnitude of software renewals as compared to 2010. Reimbursable expenses increased ~~$23.4 million, resulting in a net increase of $15.5 million. The average number of professionals performing services, including subcontractors, increased~~48% to 1,165 for the year ended December 31, 2008 from 984 for the year ended December 31, 2007 primarily related to acquisitions and partially offset with head count reductions related to lower demand for services.

~~Costs associated with software and hardware sales decreased 28% to $8.6 million for year ended December 31, 2008 from $12.0~~$13.6 million for the year ended December 31, 2007 which directly relates to the decline in software and hardware revenues discussed above. Costs associated with software and hardware sales attributable to our base business decreased $4.9 million, while costs associated with software and hardware sales attributable to acquired companies increased $1.5 million, resulting in a net decrease of $3.4 million.

~~Gross Margin. Gross margin decreased 3% to $73.5~~2011 from $9.2 million for the year ended December 31, ~~2008 from $75.7~~2010 primarily as a result of the increase in services revenue. We did not realize any profit on reimbursable expenses.

Cost of Revenues. Cost of revenues increased 19% to $181.3 million for the year ended December 31, ~~2007.~~2011 from $152.2 million for the year ended December 31, 2010. The increase in cost of revenues was directly related to the increase in revenues, specifically the increase in headcount to support the Company’s ongoing revenue-producing projects. The average number of colleagues performing services, including subcontractors, increased to 1,317 for the year ended December 31, 2011 from 1,065 for the year ended December 31, 2010.

Gross Margin. Gross margin increased 29% to $81.1 million for the year ended December 31, 2011 from $62.8 million for the year ended December 31, 2010. Gross margin as a percentage of revenues ~~decreased~~increased to ~~31.8%~~30.9% for the year ended December 31, ~~2008~~2011 from ~~34.7%~~29.2% for the year ended December 31, ~~2007~~2010, primarily due ~~primarily~~ to ~~a decrease~~an increase in services gross ~~margin offset by an increase in margin from software and hardware.~~margin. Services gross margin, excluding reimbursable expenses, decreased to 34.4% in 2008 from 38.4% in 2007 primarily as a result of higher labor costs associated with a soft revenue cycle and delays in the start dates of projects. The average utilization rate of our professionals, excluding subcontractors, decreased to 79% for the year ended December 31, 2008 from 81% for the year ended December 31, 2007. Average hourly billing rates decreased to $109 for 2008 from $118 for 2007, primarily due to lower rates associated with the acquisition of the China offshore business and the ePairs business in the second half of 2007. The average hourly bill rate for 2008 excluding China, ePairs, and subcontractors was $116 compared to $119 for 2007. Software and hardware gross margin increased to ~~19.4% in 2008 from 15.9% in 2007 primarily as a result of increased sales of our higher margin internally developed software.~~

~~Selling, General and Administrative. Selling, general and administrative expenses increased 13% to $47.2~~33.9% or $79.0 million for the year ended December 31, ~~2008~~2011 from ~~$42.0~~32.6% or $60.3 million for the year ended December 31, ~~2007~~2010. The increase in services gross margin was primarily a result of a higher average bill rate. The average bill rate for our professionals, excluding subcontractors, increased to $116 per hour for the year ended December 31, 2011 from $106 per hour for the year ended December 31, 2010, primarily due to the improved pricing opportunities as the market for our services continues to improve. The average bill rate for the year ended December 31, 2011, excluding China, was $125 per hour compared to $119 per hour for the year ended December 31, 2010.

Selling, General and Administrative. SG&A expenses increased 14% to $51.7 million for the year ended December 31, 2011 from $45.5 million for the year ended December 31, 2010 due primarily to fluctuations in expenses as detailed in the following table:

	For the Year Ended		For the Year Ended		Increase
Selling, General and Administrative Expense (in millions)	December 31, 2011		December 31, 2010		/ (Decrease)
Sales-related costs	$	14.9	$	11.9	$	3.0
Salary expense		11.3		9.2		2.1
Stock compensation expense		6.9		8.6		(1.7	)
Recruiting expense		3.9		2.3		1.6
Bad debt expense		1.0		--		1.0
Variable compensation expense		0.7		2.3		(1.6	)
Other		13.0		11.2		1.8
Total	$	51.7	$	45.5	$	6.2

Increase / (Decrease)
Selling, General, and Administrative Expense (in millions)
Stock compensation expense $ 1.7
Office and technology-related costs 1.5
Salary expense 1.4
Sales related costs 1.0
Bad debt expense 0.8
Customer dispute settlement 0.8
Other 0.6
Bonus expense (2.6 )
Net increase $ 5.2

~~Selling, general and administrative~~ SG&A expenses, as a percentage of revenues, ~~increased~~decreased slightly to ~~20%~~19.7% for the year ended December 31, ~~2008~~2011 from ~~19%~~21.2% for the year ended December 31, ~~2007, primarily driven by an increase~~2010. Bonus expense decreased as a percentage of revenues compared to the prior year period as a result of more aggressive bonus targets in ~~stock compensation expense, office and technology-related costs, and salary expense.~~2011. Stock compensation expense ~~increased primarily~~decreased as a percentage of revenues due to ~~additional restricted stock awards granted~~less expense recorded in 2007 and 2008. Investments in our technology infrastructure and offshore resources, as well as increases in our facility costs, caused our office and technology-related costs to rise in 2008. The increase in salary expense was associated with development of our healthcare and communications industry verticals. These increases were offset by a decrease in bonus costs. Bonus costs decreased2011 as a result of the ~~Company not achieving~~separation of our former Chairman of the ~~projected performance goals.~~Board of Directors in the fourth quarter 2010. These decreases were offset by an increase in recruiting and bad debt expense as a percentage of revenues, which were directly related to the increase in headcount and sales, respectively.

Depreciation. Depreciation expense increased ~~38%~~111% to ~~$2.1~~$1.8 million ~~during 2008~~for the year ended December 31, 2011 from ~~$1.6~~$0.8 million ~~during 2007.~~for the year ended December 31, 2010. The increase in depreciation expense ~~is due~~was mainly attributable to ~~both organic~~increased capital expenditures during 2010 and ~~acquisition-related additions~~2011 and the increase in leasehold improvements related to the expansion of ~~software programs, servers, and other computer equipment to enhance~~ our ~~technology infrastructure.~~facility in China. Depreciation expense as a percentage of services revenue, excluding reimbursable expenses, was ~~1.0%~~0.8% and ~~0.8%~~0.4% for the ~~years~~year ended December 31, ~~2008~~2011 and ~~2007,~~2010, respectively.

Amortization. Amortization~~. Amortization~~ expense increased 2%60% to ~~$4.8~~$6.3 million for the year ended December 31, ~~2008~~2011 from ~~$4.7~~$4.0 million for the year ended December 31, ~~2007.~~2010. The increase in amortization expense ~~reflects~~was due to the ~~acquisition~~addition of ~~intangibles in 2007, as well as the amortization of capitalized costs associated with internal use software. The valuations and estimated useful lives of acquired identifiable~~ intangible assets ~~are outlined in Note 6,~~ ~~Goodwill and Intangible Assets,~~ ~~of our consolidated financial statements.~~

~~Impairment of Intangible Assets~~. During the fourth quarter of 2008, we determined that the continuous trading of our common stock below book value and a loss of a key customer were possible indicators of impairment to goodwill or long-lived assetsacquired as ~~defined under Statement of Financial Accounting Standards (“SFAS”) No. 142,~~ ~~Goodwill and Other Intangible Assets~~ ~~(“SFAS 142”), and SFAS No. 144,~~ ~~Accounting for the Impairment or Disposal of Long-Lived Assets~~ ~~(“SFAS 144”), triggering the necessity of impairment tests as of December 31, 2008. As~~ a result of the ~~tests~~Company’s acquisition activity during 2010 and 2011.

Acquisition Costs. Acquisition-related costs of $1.2 million were incurred during 2011 related to the acquisition of Exervio and JCB compared to $1.0 million during 2010 related to the acquisition of Kerdock and speakTECH. Acquisition-related costs were incurred for legal, accounting and valuation services performed ~~we recorded a~~by third parties.

Adjustment to Fair Value of Contingent Consideration. An adjustment of $1.6 million ~~impairment 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 by E Tech, which caused cash flows from the asset group to be lower than originally projected.~~

~~Net Interest Income or Expense. We had interest income, net of interest expense, of $0.5 million for the year ended December 31, 2008 compared to interest income, net of interest expense, of $0.2 million~~made during the year ended December 31, ~~2007. The increase in interest income in 2008 resulted from higher cash balances throughout 2008 compared~~2011 for the accretion of the fair value estimate for the earnings-based contingent consideration related to ~~prior year~~the speakTECH and ~~the receipt of interest payments in connection with a promissory note entered into with a customer in June 2008.~~Exervio acquisitions.

~~Other Expense.~~ We expensed $0.9 million of previously capitalized deferred offering costs during the third quarter of 2008. We no longer intend to use the current shelf registration statement associated with these costs for an equity offering. As required, we wrote off the deferred offering costs.

Provision for Income Taxes. We provide for federal, state, and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses. Our effective tax rate ~~increased~~decreased to ~~42.2%~~42.4% for the year ended December 31, ~~2008~~2011 from ~~41.3%~~44.8% for the year ended December 31, ~~2007.~~2010. The decrease in the effective rate was due primarily to the effect of state taxes and permanent items over a larger income ~~tax rate increased primarily as a result of the decreased tax benefit of certain dispositions of incentive~~base and lower non-deductible stock ~~options by holders.~~compensation.

Year Ended December 31, ~~2007~~2010 Compared to Year Ended December 31, ~~2006~~2009

~~Revenues~~Revenues.. Total revenues increased ~~36%~~14% to ~~$218.1~~$215.0 million for the year ended December 31, ~~2007~~2010 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, 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

Financial Results Explanation for Increases/(Decreases) Over Prior Year Period
(in thousands) (in thousands)

For the Year Ended
December 31, 2007

For the Year Ended
December 31, 2006
Total Increase/ (Decrease) Over Prior Year Period Increase Attributable to Acquired Companies* Increase/ (Decrease) Attributable to Base Business**
Services Revenues $ 191,395 $ 137,722 $ 53,673 $ 43,437 $ 10,236
Software and Hardware Revenues 14,243 14,435 (192 ) 1,570 (1,762 )
Reimbursable Expenses 12,510 8,769 3,741 2,578 1,163
Total Revenues $ 218,148 $ 160,926 $ 57,222 $ 47,585 $ 9,637

*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, ~~2007~~2010 from ~~$137.7~~$166.4 million for the year ended December 31, ~~2006. Base business accounted for 19% of the~~2009. The increase in services revenues was 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 2006~~Kerdock and ~~2007.~~

~~Software revenues decreased 1% to $14.2 million in 2007 from $14.4 million in 2006. Software~~speakTECH. Services revenues attributable to our base business ~~decreased $1.8~~increased $10.8 million while ~~software~~services revenues attributable to acquired companies increased ~~$1.6~~$8.0 million, resulting in a ~~net decrease~~total increase of ~~$192,000. Reimbursable expenses increased 43% to $12.5 million in 2007 from $8.8 million in 2006 due to acquisitions~~$18.8 million.

Software and ~~an increased number of projects requiring consultant travel. We do not realize any profit on reimbursable expenses.~~

~~Cost of revenues. Cost of~~hardware revenues increased ~~33%~~59% to ~~$142.5~~$20.6 million for the year ended December 31, ~~2007~~2010 from ~~$107.2~~$13.0 million for the year ended December 31, ~~2006. Base business accounted for 14% of the $35.3 million~~2009 due to an increase in ~~cost~~the sale of ~~revenues for the year ended December 31, 2007 compared~~new software licenses and renewals of software licenses. Reimbursable expenses increased 5% 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~~$9.2 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 $0.1 million.

~~Gross Margin. Gross margin increased 41% to $75.7~~2010 from $8.8 million for the year ended December 31, ~~2007 from $53.8~~2009 as a result of the increase in services revenue. We did 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, ~~2006.~~2010 from $139.8 million for the year ended December 31, 2009. The increase in cost of revenues was 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 ~~34.7%~~29.2% for the year ended December 31, ~~2007~~2010 from ~~33.4%~~25.7% for the year ended December 31, ~~2006~~2009 primarily due ~~primarily~~ to an increase in services gross ~~margin offset by a slight decrease in margin from software.~~margin. Services gross margin, excluding reimbursable expenses, increased to ~~38.4%~~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 ~~2007 from 37.4% in 2006~~services gross margin was primarily ~~due~~a result of higher utilization and management’s continued efforts to ~~lower bonus as a percent of revenues and lower direct labor~~manage the cost ~~as a percent of revenues driven by improved billing rates.~~structure. The average utilization rate of our ~~professionals,~~colleagues, excluding subcontractors, ~~decreased slightly~~increased to 81% for the year ended December 31, ~~2007 from 83%~~2010 compared to 75% for the year ended December 31, ~~2006. Average hourly billing rates were $118~~2009. The average bill rate for ~~2007~~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 ~~$115~~offshore employees, increased to $119 for ~~2006.~~the year ended December 31, 2010 from $114 for the year ended December 31, 2009. Software and hardware gross margin ~~decreased~~increased 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.~~

~~Selling, General and Administrative. Selling, general and administrative expenses increased 30% to $42.0~~11.9% or $2.4 million for the year ended December 31, ~~2007~~2010 from ~~$32.3~~10.2% or $1.3 million for the year ended December 31, ~~2006~~2009. The increase in software and hardware margin was 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 debt expense 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

	For the Year Ended		For the Year Ended
Selling, General and Administrative Expense (in millions)	December 31, 2010		December 31, 2009			Increase
Sales-related costs	$	11.9	$	11.6		$	0.3
Salary expense		9.2		8.8			0.4
Stock compensation expense		8.6		7.1			1.5
Recruiting expense		2.3		1.8			0.5
Variable compensation expense		2.3		0.4			1.9
Bad debt expense		--		(0.5	)		0.5
Other		11.2		10.8			0.4
Total	$	45.5	$	40.0		$	5.5

~~Selling, general and administrative~~SG&A expenses, as a percentage of revenues, decreased slightly to ~~19%~~21.2% for the year ended December 31, ~~2007~~2010 from ~~20%~~21.3% for the year ended December 31, ~~2006, primarily driven by lower bonus costs as a percent of revenue~~2009. Bonus and ~~the Company leveraging its infrastructure. Bonus costs,~~stock compensation expense increased as a percentage of ~~service~~ revenues ~~excluding reimbursable~~compared 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 ~~increase~~decrease in depreciation expense ~~is due~~was mainly attributable to various assets becoming fully depreciated and the ~~addition~~modification of ~~software programs, servers, and other~~the estimated useful life of computer ~~equipment~~hardware 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 ~~years~~year ended December 31, ~~2007~~2010 and ~~2006,~~2009, respectively.

Amortization. Amortization~~. Amortization increased 36%~~ expense decreased 7% to ~~$4.7~~$4.0 million for the year ended December 31, ~~2007~~2010 from ~~approximately $3.5~~$4.3 million for the year ended December 31, ~~2006. The increase in~~2009 due to the completion of amortization ~~expense reflects~~of 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 2006~~Kerdock and ~~2007, as well as the amortization of capitalized~~speakTECH. Acquisition-related costs ~~associated with internal use software. The valuations~~were incurred for legal, accounting, and ~~estimated useful lives of acquired identifiable intangible assets are outlined in Note 6,~~ ~~Goodwill and Intangible Assets,~~valuation services performed by third parties. ~~of our consolidated financial statements.~~

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, ~~2007~~2010, compared to interest ~~expense,~~income of $209,000, net of interest ~~income, of $407,000 during~~expense, 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 interest~~had 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 ~~provided~~provide 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, ~~2007~~2010 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 was 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.

Liquidity and Capital Resources

Selected measures of liquidity and capital resources are as follows (in millions):

As of December 31,
2008 2007
Cash and cash equivalents $ 22.9 $ 8.1
Working capital (including cash and cash equivalents) $ 56.2 $ 41.5
Amounts available under credit facilities $ 49.9 $ 49.8

	As of December 31,
	2011		2010		2009
Cash, cash equivalents, and investments	$	9.7	$	26.3	$	28.0
Working capital (including cash and cash equivalents)	$	51.5	$	47.6	$	50.2
Amounts available under credit facilities	$	50.0	$	50.0	$	50.0

Net Cash Provided By Operating Activities

Net cash provided by ~~operations~~operating activities for the year ended December 31, ~~2008~~2011 was ~~$26.8~~$14.3 million compared to ~~$23.1~~$18.7 million and $22.6 million for the years ended December 31, 2010 and 2009, respectively. For the year ended December 31, 2011, the components of operating cash flows were net income of $10.7 million plus non-cash charges of $17.6 million, partially offset by investments in working capital of $14.0 million. The primary components of operating cash flow for the year ended December 31, ~~2007. For the year ended December 31, 2008, net cash provided by operations consisted of~~2010 were net income of ~~$10.0~~$6.5 million plus non-cash charges ~~such as stock compensation, amortization, depreciation, and impairment~~ of ~~intangible assets, of $15.8~~$14.3 million, ~~plus net~~partially offset by investments in working capital ~~reductions~~ of ~~$1.0~~$2.1 million. The primary components of operating cash flows for the year ended December 31, ~~2007 are~~2009 were net income of ~~$16.2~~$1.5 million plus non-cash charges of ~~$12.0~~$15.0 million ~~which were offset by investments in~~and net working capital reductions of ~~$5.1~~$6.1 million. The ~~Company’s~~decrease in cash resulting from operating activities as of December 31, 2011 is primarily related to the decrease in accounts payable and other liabilities and the increase in accounts receivable. Accounts payable and other liabilities decreased due to paying down higher accrued software costs and variable compensation liabilities during 2011. Our days sales outstanding as of December 31, ~~2008 decreased~~2011 increased to 7178 days ~~from~~compared to 73 days at December 31, ~~2007.~~2010 and 2009. Days sales outstanding have increased as of December 31, 2011 due to slower paying customers, partially related to new customers both from existing lines of business and acquisitions made during 2010 and 2011.

Net Cash Used in Investing Activities

For the year ended December 31, ~~2008,~~2011, we used ~~approximately $0.8~~$19.4 million for the purchase of businesses and acquisition-related costs, $3.0 million primarily on leasehold improvements and to develop certain software, offset by $13.6 million in proceeds received from the sale and maturity of our investments. For the year ended December 31, 2010, we used $4.3 million in cash to ~~pay certain acquisition-related costs~~purchase investments, $4.9 million for the purchase of Kerdock and ~~$1.5~~speakTECH, and $1.3 million in cash to purchase equipment and develop ~~certain~~ software. For the year ended December 31, ~~2007,~~2009, we used ~~approximately $26.8~~$10.0 million in cash ~~net of~~to purchase investments and $0.7 million in cash ~~acquired, to acquire E Tech, Tier1, BoldTech, and ePairs. In addition, we used approximately $2.2 million during 2007~~ to purchase equipment and develop ~~certain~~ software.

Net Cash Provided By Financing Activities

During the year ended December 31, ~~2008,~~2011, we ~~made no borrowings under our line~~received proceeds of credit; however, we made payments of $0.4 million in fees related to our new credit facility and we incurred $0.9 million in income tax expense due to the decline in the Company’s share price of underlying stock awards that were exercised or vested. We used $9.2 million to repurchase shares of the Company’s common stock through the stock repurchase program which was partially offset by $0.9$3.7 million from exercises of stock options and sales of stock through our Employee Stock Purchase ~~Plan.~~Plan and we realized an excess tax benefit of $1.8 million related to vesting of stock awards and stock option exercises. We used $1.2 million to settle the contingent consideration for the purchase of speakTECH, $11.8 million to repurchase shares of our common stock through the stock repurchase program, $0.8 million to remit taxes withheld as part of a net share settlement of restricted stock vesting, and $0.3 million in fees related to our credit facility. During the year ended December 31, ~~2007, we made payments of $1.3 million on our long-term debt. Also,~~2010, we received ~~$3.9~~proceeds of $1.5 million ~~from proceeds~~ from exercises of stock options and sales ~~under~~of stock through our Employee Stock Purchase Plan and we realized an excess tax ~~benefits~~benefit of $1.5 million related to vesting of stock awards and stock option exercises. We used $1.9 million to settle the contingent consideration for the purchase of Kerdock and $14.7 million to repurchase shares of our common stock through the stock repurchase program. For the year ended December 31, 2009, we received proceeds of $1.0 million from exercises of stock options and ~~restricted~~sales of stock through our Employee Stock Purchase Plan and we realized an excess tax benefit of $0.6 million related to vesting of ~~$6.9 million.~~stock awards and stock option exercises. We used $18.4 million to repurchase shares of our common stock through the stock repurchase program.

Availability of Funds from Bank Line of Credit Facilities

On May ~~30, 2008,~~23, 2011, we renewed and extended the ~~Company entered into a~~term of our Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”) ~~and KeyBank~~, U.S. Bank National Association, ~~(“KeyBank”). The Agreement replaces the Company’s Amended~~ and ~~Restated Loan and Security Agreement dated as~~Bank of ~~September 3, 2005 and further amended on September 29, 2006.~~America, N.A. The Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of ~~$50~~$50.0 million, subject to a commitment increase of ~~$25~~$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. ~~The~~Substantially all of our assets are pledged to secure the credit ~~facility will be used for ongoing, general corporate purposes.~~facility.

All outstanding amounts owed under the Credit Agreement become due and payable no later than the final maturity date of May ~~30, 2012.~~23, 2015. Borrowings under the credit facility bear interest at ~~the Company’s~~our option atof SVB’s prime rate (4.00% on December 31, ~~2008)~~2011) plus a margin ranging from 0.00% to 0.50% or one-month LIBOR ~~(0.44%~~(0.295% on December 31, ~~2008)~~2011) plus a margin ranging from 2.50% to 3.00%. The additional margin amount is dependent on the ~~amount~~level of outstanding borrowings. As of December 31, ~~2008, the Company~~2011, we had ~~$49.9~~$50.0 million of ~~available~~maximum borrowing capacity. ~~The Company will~~We incur an annual commitment fee of 0.30% on the unused portion of the line of credit.

As of December 31, ~~2008,~~2011, 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 of our assets are pledged to secure the credit facility.~~

Stock Repurchase Program

~~In 2008, the Company’s~~

Prior to 2011, our Board of Directors authorized the repurchase of up to ~~$20.0~~$50.0 million of ~~the Company’s~~our common stock. AsIn 2011, 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 $60.0 million at December 31, ~~2008, $9.2 million of Company common stock has been repurchased under this~~2011. The repurchase program ~~and $10.8 million of Company common stock may yet be purchased under such authorization.~~expires June 30, 2012.

~~The Company has~~

We established a written trading ~~plan~~plans in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”), under which ~~it will make~~we made a portion of ~~its Company~~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. ~~The program expires on June 30, 2010.~~

Since the program’s inception on August 11, 2008, we have repurchased approximately $54.0 million of our outstanding common stock through December 31, 2011.

Lease Obligations

There were no material changes outside the ordinary course of ~~our~~ business in lease obligations or other contractual obligations in ~~2008.~~2011 as disclosed in Note 12, Commitments and Contingencies, in the Notes to Consolidated Financial Statements.

~~Shelf Registration Statement~~

In July 2008, we filed a shelf registration statement with the SEC to allow for offers and sales of our common stock from time to time. Approximately four million shares of common stock may be sold under this registration statement if we choose to do so. We determined that we currently have no intent to use the shelf registration to complete an offering.

Contractual Obligations

~~We currently have one letter of credit for $100,000 outstanding that serves as collateral to secure a facility lease. The letter of credit reduces the borrowings available under our 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, ~~2008~~2011 (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	$	7,673	$	2,258	$	3,884	$	1,216	$	315	$	10,254	$	2,458	$	4,387	$	2,851	$	558
Total	$	7,673	$	2,258	$	3,884	$	1,216	$	315	$	10,254	$	2,458	$	4,387	$	2,851	$	558

~~See Note 9,~~ ~~Income Taxes,~~ ~~in Notes to Consolidated Financial Statements for information related to the Company's obligations for taxes.~~

Conclusion

If our capital is insufficient to fund our activities in either the ~~short~~short- 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 ~~current~~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.

Critical Accounting Policies

~~The Company's~~Our accounting policies are described in Note 2,Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements. ~~The Company believes its~~We believe our most critical accounting policies include revenue recognition, accounting for goodwill and intangible assets, purchase accounting, accounting for stock-based compensation, and income 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~~an input method based on the ratio of hours expended to total estimated hours. Amounts invoiced ~~to clients~~and collected in excess of revenues recognized are classified as deferred revenues. On many projects ~~the Company is~~we 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's~~considering our role as a principal in the transaction. On rare occasions, ~~the Company enters~~we enter into a transaction where ~~it is~~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,~~exists; (2) fees are fixed and ~~determinable,~~determinable; (3) delivery and acceptance have ~~occurred,~~occurred; and (4) ~~collectibility~~collectability is deemed probable. ~~The Company’s~~Our policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same ~~counterparty~~customer 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”~~ASC Subtopic 985-605”) ~~Issue No. 00-21,~~, ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements ~~with Multiple Deliverables~~, and ~~SEC Staff~~ASC Section 605-10-S99 (Staff Accounting Bulletin ~~No. 104,~~Topic 13, Revenue Recognition). Specifically, if ~~the Company enters~~we enter into contracts for the sale of services and software or hardware, then we evaluate whether each element should be accounted for separately by considering the ~~Company evaluates~~following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of software and services, we also evaluate whether the services are essential to the functionality of the software ~~or hardware~~ and ~~whether it has objective~~we have fair value evidence for each ~~deliverable in the transaction.~~deliverable. If ~~the Company has~~we have concluded that the ~~services to be provided~~separation criteria are ~~not essential to the functionality of the software or hardware and it can determine objective fair value evidence for each deliverable of the transaction,~~met, then ~~it accounts~~we account for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of ~~the Company’s~~our multiple element arrangements meet these ~~criteria.~~criteria and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein.

There are no significant cancellation or termination-type provisions for our software and hardware sales. Contracts for professional services provide for a general right, to the client or to us, to cancel or terminate the contract within a given period of time (generally a 10 to 30 day notice is required). The ~~Company~~client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.

We may provide multiple services under the terms of an arrangement and we are required to assess whether one or more units of accounting are present. ~~Fees~~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~~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. If estimates are revised, material differences may result in the amount and timing of revenues recognized for 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.

~~Our allowance~~Allowance 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's~~client’s inability to make contractual payments, 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 considerable~~Considerable 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 ~~our~~the evaluation of service delivery issues or a ~~client's~~client’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 ~~SFAS 142, the Company performs~~ASC Topic 350, Intangibles – Goodwill and Other (“ASC Topic 350”), we perform an annual impairment test of goodwill. ~~The Company evaluates~~We evaluate goodwill as of October 1 each year and 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-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~~

Our annual goodwill impairment test was performed as of October 1, 2011. Our fair value as of the ~~likelihood of impairment.~~annual testing date exceeded our book value and consequently, no impairment was indicated.

~~The Company’s~~

Our fair value was determined by weighting the results of two valuation methods: 1) market capitalization based on the average price of ~~the Company’s~~our common stock, including a control premium, for a reasonable period of time prior to the evaluation date (generally 15 ~~to 30~~ days) and 2) a discounted cash flow model. The fair value calculated using ~~the Company’s~~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 ~~the Company’s~~our determination of ~~its~~our overall fair value. ~~Management believes that while~~While the use of ~~its~~our average common stock price, plus a control premium, may be considered the best evidence of fair value in ~~SFAS 142,~~ASC Topic 350, we believe the ~~declines~~volatility in ~~the Company’s~~our stock price, and in the market overall, are not always consistently aligned with ~~the Company’s~~our financial results or outlook. The discounted cash flow approach allows ~~the Company~~us to calculate ~~its~~our fair value based on operating performance and meaningful financial metrics.

A key assumption used in the calculation of ~~the Company’s~~our fair value using ~~its~~our average common stock price was the consideration of a control premium. ~~The Company~~We reviewed industry premium data and determined an appropriate control premium for ~~its~~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 ~~management’s~~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 ~~the Company’s~~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, trade name, and internally developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from ~~three~~one to eight years. Amortization of customer relationships, non-compete arrangements, trade name, and internally developed software ~~are~~is considered an operating ~~expenses~~expense and ~~are~~is included in “Amortization” in the accompanying Condensed Consolidated Statements of 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 recoverability or revised useful life.

The Company’s annual goodwill impairment test was performed as of October 1, 2008. The Company’s fair value as of the annual testing date exceeded its book value and consequently, no impairment was indicated.

During the fourth quarter of 2008, the Company determined that the continuous trading of its common stock below book value was a possible indicator of impairment to goodwill or long-lived assets as defined under SFAS 142 and SFAS 144, triggering the necessity of impairment tests as of December 31, 2008. In accordance with SFAS 142, the Company tested its long-lived assets for impairment prior to performing an interim test of goodwill impairment. Assets were grouped together to test recoverability based on the lowest level of identifiable cash flows directly attributable to those assets. Fair values of the identified asset groups were calculated using a discounted cash flow model. Key assumptions used in the discounted cash flow model for calculating the fair value of the asset groups were similar in nature to those described above. Based on the valuations performed, the Company determined that the cash flows of one of the identified asset groups would not be sufficient to recover the group’s carrying amount. Consequently, we recorded an impairment of $1.6 million primarily related to customer relationship intangible assets acquired from E Tech. The value of these relationships was affected primarily by the loss of a key customer acquired by E Tech, which caused cash flows from the acquired relationships to be lower than originally projected.

After recording the impairment of the E Tech customer relationships intangible asset, the Company performed the first step of the goodwill impairment test and based on the weighted average of market capitalization, including a control premium, and discounted cash flow analysis, goodwill was not impaired as of December 31, 2008. Changes in management intentions, market conditions, our stock value, operating performance, and other similar circumstances could affect the assumptions used in the future for the impairment tests described above. Changes in the assumptions could result in future impairment charges that could be material to our financial results in any given period.

Subsequent to December 31, 2008 our stock price has declined. Accordingly, the Company will continue to evaluate the carrying value of the remaining goodwill and intangible assets to determine whether the decline in stock price is an indication that there is a triggering event that may require the Company to perform an interim impairment test and record impairment charges to earnings, which could adversely affect the Company’s financial results.

Purchase Accounting

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. Such fair market value assessments require significant judgments and estimates that can change materially as additional information becomes available. The purchase price is allocated to intangibles based on ~~management's~~our estimate and an independent valuation. ~~Management finalizes~~We 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

~~The Company estimates~~

We estimate 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’s~~our stock option awards. Option valuation models require the input of somewhat subjective assumptions including expected stock price volatility and expected term. ~~The Company believes~~We 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.

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.

Recent Accounting Pronouncements

~~Effective January 1, 2008, the Company adopted SFAS No. 159,~~ ~~The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment~~Our recent accounting pronouncements are fully described in Note 2, Summary of ~~SFAS No. 115~~Significant Accounting Policies, (“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 adoption of SFAS 159 did not have a material impact on the Company’s consolidated financial statements.

~~Effective January 1, 2008, the Company adopted SFAS No. 157,~~ ~~Fair Value Measurements~~ ~~(“SFAS 157”). In February 2008, the FASB issued Staff Position No. 157-2,~~ ~~Effective Date of FASB Statement No. 157~~ ~~(“FSP 157-2”), which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities, including fair value measurements under SFAS No. 141,~~ ~~Business Combinations~~ (“SFAS 141”) and SFAS 142, to fiscal years beginning after November 15, 2008. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the ~~principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used~~Notes to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:Consolidated Financial Statements.

·	~~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.~~

As of December 31, 2008, the Company did not hold any assets or liabilities that are required to be measured at fair value on a recurring basis, and therefore the adoption of the respective provisions of SFAS 157 did not have an impact on the Company’s consolidated financial statements. On January 1, 2009, the Company will implement the previously deferred provisions of SFAS 157 for nonfinancial assets and liabilities recorded at fair value, as required. Management does not believe that the remaining provisions will have a material effect on the Company’s consolidated financial statements when they become effective.

~~In May 2008, the FASB issued SFAS No. 162,~~ ~~The Hierarchy of Generally Accepted Accounting Principles~~ (“SFAS 162”). The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in accordance with generally accepted accounting principles. Unlike Statement on Auditing Standards (“SAS”) No. 69, ~~The Meaning of Present Fairly in Conformity With GAAP~~, SFAS 162 is directed to the entity rather than the auditor. The statement was effective November 15, 2008, after approval by the SEC which occurred in September 2008. The application of this statement did not have a material impact on the Company’s consolidated financial statements.

~~In April 2008, the FASB issued FASB Staff Position No. 142-3,~~ ~~Determination of the Useful Life of Intangible Assets~~ (“FSP 142-3”). FSP 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for SFAS 142’s entity-specific factors. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements when it becomes effective.

~~In December 2007, FASB issued SFAS No. 141 (revised 2007),~~ ~~Business Combinations~~ (“SFAS 141R”), which is a revision of SFAS 141. 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. The revised statement will require, among other things, that transaction costs be expensed instead of recognized as purchase price. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009.

Off-Balance Sheet Arrangements

~~The Company currently has~~We 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.

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, 2008, $2.5 million and $2.7 million of our total revenues were attributable~~

We are exposed to ~~our Canadian operations and revenues generated in Europe, respectively. Our exposure to~~market risks associated with changes in foreign currency exchange rates ~~primarily arises from short-term intercompany~~because 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, 2011, 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 Indian 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, 2008, this exchange rate risk will~~is 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 ~~$22.9 million and $8.1~~$9.7 million at December 31, ~~2008~~2011 and $26.3 million at December 31, ~~2007, respectively. These amounts were invested primarily in money market funds.~~2010. The unrestricted cash and cash equivalents are held for working capital purposes. 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 fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future ~~investment~~interest income.

3225

Item 8.

Financial Statements and Supplementary Data.

PERFICIENT, INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, ~~2008~~2011 AND ~~2007~~2010

	December 31,						December 31,
	2008			2007			2011			2010
ASSETS	(In thousands, except share information)						(In thousands, except share information)
Current assets:
Cash and cash equivalents	$	22,909		$	8,070		$	9,732		$	12,707
Accounts and note receivable, net of allowance for doubtful accounts of $1,497 in 2008 and $1,475 in 2007		47,584			50,855
Short-term investments								--			11,301
Total cash, cash equivalents, and short-term investments								9,732			24,008
Accounts receivable, net of allowance for doubtful accounts of $1,057 in 2011 and $228 in 2010								60,892			48,496
Prepaid expenses		1,374			1,182			1,246			1,270
Other current assets		3,157			4,142			3,118			2,584
Total current assets		75,024			64,249			74,988			76,358
Long-term investments								--			2,254
Property and equipment, net		2,345			3,226			3,490			2,355
Goodwill		104,178			103,686			132,038			115,227
Intangible assets, net		11,456			17,653			10,128			8,829
Other non-current assets		1,244			1,178			3,288			2,655
Total assets	$	194,247		$	189,992		$	223,932		$	207,678

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,509		$	4,160		$	5,029		$	6,072
Other current liabilities		14,339			18,550			18,483			22,654
Total current liabilities		18,848			22,710			23,512			28,726
Deferred income taxes		--			1,549
Other non-current liabilities		581			171			1,461			1,788
Total liabilities	$	19,429		$	24,430		$	24,973		$	30,514

Commitments and contingencies (see Notes 4 and 10)
Commitments and contingencies (see Note 12)

Stockholders' equity:
Common stock ($0.001 par value per share; 50,000,000 shares authorized and 30,350,700 shares issued and 28,502,400 shares outstanding as of December 31, 2008; 29,423,296 shares issued and outstanding as of December 31, 2007)	$	30		$	29
Stockholders’ equity:
Common stock ($0.001 par value per share; 50,000,000 shares authorized and 36,217,914 shares issued and 28,742,906 shares outstanding as of December 31, 2011; 33,373,410 shares issued and 27,275,936 shares outstanding as of December 31, 2010)							$	36		$	33
Additional paid-in capital		197,653			188,998			248,855			224,966
Accumulated other comprehensive loss		(338	)		(117	)		(279	)		(225	)
Treasury stock, at cost (1,848,300 shares as of December 31, 2008)		(9,179	)		--
Accumulated deficit		(13,348	)		(23,348	)
Total stockholders' equity		174,818			165,562
Total liabilities and stockholders' equity	$	194,247		$	189,992
Treasury stock, at cost (7,475,008 shares as of December 31, 2011; 6,097,474 shares as of December 31, 2010)								(54,995	)		(42,205	)
Retained earnings (deficit)								5,342			(5,405	)
Total stockholders’ equity								198,959			177,164
Total liabilities and stockholders’ equity							$	223,932		$	207,678

See accompanying notes to consolidated financial statements.

3326

PERFICIENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, ~~2008, 2007~~2011, 2010 AND ~~2006~~2009

	Year Ended December 31,
	2011		2010			2009
Revenues:	(In thousands, except share and per share information)
Services	$	233,166	$	185,173		$	166,397
Software and hardware		15,624		20,556			12,968
Reimbursable expenses		13,649		9,223			8,785
Total revenues		262,439		214,952			188,150
Cost of revenues (exclusive of depreciation and amortization, shown separately below):
Project personnel costs		149,243		119,304			114,877
Software and hardware costs		13,521		18,108			11,641
Reimbursable expenses		13,649		9,223			8,785
Other project related expenses		4,892		5,550			4,514
Total cost of revenues		181,305		152,185			139,817

Gross margin		81,134		62,767			48,333

Selling, general and administrative		51,672		45,477			40,042
Depreciation		1,754		830			1,483
Amortization		6,341		3,954			4,267
Acquisition costs		1,249		993			--
Adjustment to fair value of contingent consideration		1,586		(4	)		--
Income from operations		18,532		11,517			2,541

Net interest income		68		163			209
Net other income		45		68			260
Income before income taxes		18,645		11,748			3,010
Provision for income taxes		7,898		5,268			1,547

Net income	$	10,747	$	6,480		$	1,463

Basic net income per share	$	0.39	$	0.24		$	0.05
Diluted net income per share	$	0.37	$	0.23		$	0.05
Shares used in computing basic net income per share		27,745,312		26,856,481			27,538,300
Shares used in computing diluted net income per share		29,184,286		28,303,547			28,558,160

See accompanying notes to consolidated financial statements.

PERFICIENT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

(In thousands)

									Accumulated
	Common			Common		Additional			Other						Retained			Total
	Stock			Stock		Paid-in			Comprehensive			Treasury			Earnings			Stockholders'
	Shares			Amount		Capital			Loss			Stock			(Deficit)			Equity
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
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan		814			1		3,711			--			--			--			3,712
Net tax benefit from stock option exercises and restricted stock vesting		--			--		1,219			--			--			--			1,219
Stock compensation related to restricted stock vesting and retirement savings plan contributions		929			1		9,177			--			--			--			9,178
Purchases of treasury stock		(1,378	)		--		--			--			(12,790	)		--			(12,790	)
Issuance of stock for acquisitions		1,102			1		9,782			--			--			--			9,783
Net unrealized loss on investments		--			--		--			(19	)		--			--			(19	)
Foreign currency translation adjustment		--			--		--			(35	)		--			--			(35	)
Net income		--			--		--			--			--			10,747			10,747
Total comprehensive income		--			--		--			--			--			--			10,693
Balance at December 31, 2011		28,743		$	36	$	248,855		$	(279	)	$	(54,995	)	$	5,342		$	198,959

Year Ended December 31,
2008 2007 2006
Revenues: (In thousands, except per share information)
Services $ 207,480 $ 191,395 $ 137,722
Software and hardware 10,713 14,243 14,435
Reimbursable expenses 13,295 12,510 8,769
Total revenues 231,488 218,148 160,926
Cost of revenues (exclusive of depreciation and amortization, shown separately below):
Project personnel costs 131,019 114,692 84,161
Software and hardware costs 8,639 11,982 12,118
Reimbursable expenses 13,295 12,510 8,769
Other project related expenses 5,033 3,274 2,122
Total cost of revenues 157,986 142,458 107,170

Gross margin 73,502 75,690 53,756

Selling, general and administrative 47,242 41,963 32,268
Depreciation 2,139 1,553 948
Amortization 4,810 4,712 3,458
Impairment of intangible assets 1,633 -- --
Income from operations 17,678 27,462 17,082

Interest income 555 239 102
Interest expense (27 ) (67 ) (509 )
Other income (expense) (915 ) 20 174
Income before income taxes 17,291 27,654 16,849
Provision for income taxes 7,291 11,424 7,282

Net income $ 10,000 $ 16,230 $ 9,567

Basic net income per share $ 0.34 $ 0.58 $ 0.38
Diluted net income per share $ 0.33 $ 0.54 $ 0.35
Shares used in computing basic net income per share 29,412,329 27,998,093 25,033,337
Shares used in computing diluted net income per share 30,350,616 30,121,962 27,587,449

See accompanying notes to consolidated financial statements.

3428

~~PERFICIENT, INC.~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY~~

~~FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006~~

~~(In thousands)~~

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, 2005 23,295 $ 23 $ 115,120 $ (87 ) $ -- $ (49,145 ) $ 65,911
Bay Street, Insolexen, and EGG acquisition purchase accounting adjustments 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 under the 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 acquisition purchase accounting adjustments 1,250 1 24,975 -- -- -- 24,976
Stock options exercised 1,160 1 3,696 -- -- -- 3,697
Purchases of stock under the 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
E Tech and ePairs acquisition purchase accounting adjustments (19 ) -- (290 ) -- -- -- (290 )
Stock options exercised 338 1 726 -- -- -- 727
Purchases of stock under the Employee Stock Purchase Plan 29 -- 196 -- -- -- 196
Tax expense of stock option exercises and restricted stock vesting -- -- (922 ) -- -- -- (922 )
Stock compensation 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

~~See accompanying notes to consolidated financial statements.~~

PERFICIENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, ~~2008, 2007~~2011, 2010 AND ~~2006~~2009

	Year Ended December 31,
	2011			2010			2009
OPERATING ACTIVITIES				(In thousands)
Net income	$	10,747		$	6,480		$	1,463
Adjustments to reconcile net income to net cash provided by operations:
Depreciation		1,754			830			1,483
Amortization		6,341			3,954			4,267
Deferred income taxes		531			205			(18	)
Non-cash stock compensation and retirement savings plan contributions		9,178			10,831			9,836
Tax benefit from stock option exercises and restricted stock vesting		(1,838	)		(1,531	)		(583	)
Adjustment to fair value of contingent consideration for purchase of business		1,586			(4	)		--

Changes in operating assets and liabilities, net of acquisitions:
Accounts and note receivable		(7,587	)		(5,491	)		9,427
Other assets		(320	)		1,626			(342	)
Accounts payable		(1,522	)		642			(884	)
Other liabilities		(4,550	)		1,189			(2,086	)
Net cash provided by operating activities		14,320			18,731			22,563

INVESTING ACTIVITIES
Proceeds from sales and maturity of investments		13,555			--			--
Purchase of investments		--			(4,252	)		(9,984	)
Purchase of property and equipment		(2,776	)		(1,161	)		(415	)
Capitalization of software developed for internal use		(179	)		(160	)		(311	)
Purchase of businesses		(19,385	)		(4,941	)		--
Net cash used in investing activities		(8,785	)		(10,514	)		(10,710	)

FINANCING ACTIVITIES
Proceeds from short-term borrowings		14,000			--			--
Payments on short-term borrowings		(14,000	)		--			--
Payments for credit facility financing fees		(306	)		--			--
Payment of contingent consideration for purchase of business		(1,244	)		(1,875	)		--
Tax benefit from stock option exercises and restricted stock vesting		1,838			1,531			583
Proceeds from the exercise of stock options and sales of stock through the Employee Stock Purchase Plan		3,712			1,468			975
Purchases of treasury stock		(11,791	)		(14,676	)		(18,350	)
Remittance of taxes withheld as part of a net share settlement of restricted stock vesting		(747	)		--			--
Net cash used in financing activities		(8,538	)		(13,552	)		(16,792	)
Effect of exchange rate on cash and cash equivalents		28			67			5
Change in cash and cash equivalents		(2,975	)		(5,268	)		(4,934	)
Cash and cash equivalents at beginning of period		12,707			17,975			22,909
Cash and cash equivalents at end of period	$	9,732		$	12,707		$	17,975

Supplemental disclosures:
Cash paid for interest	$	5		$	22		$	50
Cash paid for income taxes	$	7,810		$	4,265		$	1,831
Non-cash activities:
Stock issued for purchase of businesses (net of stock reacquired for escrow claim)	$	6,616		$	2,859		$	--
Stock issued for settlement of contingent consideration for purchase of business	$	2,915		$	768		$	--
Estimated fair value of contingent consideration for purchase of business	$	2,377		$	3,339		$	--

Year Ended December 31,
2008 2007 2006
OPERATING ACTIVITIES (In thousands)
Net income $ 10,000 $ 16,230 $ 9,567
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 2,139 1,553 948
Amortization 4,810 4,712 3,458
Impairment of intangible assets 1,633
Deferred income taxes (1,769 ) (495 ) 1,393
Non-cash stock compensation and retirement savings plan contributions 8,945 6,204 3,132
Non-cash interest expense -- -- 6

Changes in operating assets and liabilities, net of acquisitions:
Accounts and note receivable 3,081 (1,589 ) (5,771 )
Other assets 354 3,256 (294 )
Accounts payable 399 (1,694 ) 1,251
Other liabilities (2,824 ) (5,126 ) (543 )
Net cash provided by operating activities 26,768 23,051 13,147

INVESTING ACTIVITIES
Purchase of property and equipment (1,320 ) (2,035 ) (1,518 )
Capitalization of software developed for internal use (185 ) (181 ) (136 )
Cash paid for acquisitions and related costs (836 ) (26,774 ) (17,210 )
Payments on Javelin notes -- -- (250 )
Net cash used in investing activities (2,341 ) (28,990 ) (19,114 )

FINANCING ACTIVITIES
Proceeds from short-term borrowings -- 11,900 34,900
Payments on short-term borrowings -- (11,900 ) (38,900 )
Payments on long-term debt �� -- (1,338 ) (1,338 )
Payments for credit facility financing fees (420 ) -- --
Tax benefit (expense) of stock option exercises and restricted stock vesting (922 ) 6,889 6,554
Proceeds from the exercise of stock options and Employee Stock Purchase Plan 923 3,903 4,089
Proceeds from the exercise of warrants -- -- 146
Purchases of treasury stock (9,179 ) -- --
Net cash provided by financing activities (9,598 ) 9,454 5,451
Effect of exchange rate on cash and cash equivalents 10 6 (31 )
Change in cash and cash equivalents 14,839 3,521 (547 )
Cash and cash equivalents at beginning of period 8,070 4,549 5,096
Cash and cash equivalents at end of period $ 22,909 $ 8,070 $ 4,549

Supplemental disclosures:
Cash paid for interest $ 15 $ 40 $ 540
Cash paid for income taxes $ 10,206 $ 3,680 $ 3,156
Non-cash activities:
Stock issued for purchase of businesses (stock reacquired for escrow claim) $ (290 ) $ 24,976 $ 17,991
Change in goodwill $ 492 $ (1,957 ) $ 318
Write-off of deferred offering costs $ (943 ) $ -- $ --

See accompanying notes to consolidated financial statements.

3629

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2011

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 ~~productivity~~productivity; 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~~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~~

~~The Company has reclassified the presentation of certain prior period information to conform to the current year presentation.~~

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~~an input method based on the ratio of hours expended to total estimated hours. Amounts invoiced ~~to clients~~and collected in excess of revenues 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 generally recorded on a gross basis ~~based on~~considering the ~~Company's~~Company’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.

Revenues are recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement ~~exists,~~exists; (2) fees are fixed and ~~determinable,~~determinable; (3) delivery and acceptance have ~~occurred,~~occurred; and (4) ~~collectibility~~collectability is deemed probable. The Company’s policy for revenue recognition in instances where multiple deliverables are sold contemporaneously to the same ~~counterparty~~customer is in accordance with ~~American Institute of Certified Public Accountants~~Financial Accounting Standards Board (“~~AICPA”~~FASB”) ~~Statement of Position 97-2,~~Accounting Standards Codification (“ASC”) Subtopic 985-605, Software – Revenue Recognition ~~Emerging Issues Task Force~~ (“~~EITF”~~ASC Subtopic 985-605”) ~~Issue No. 00-21,~~, ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements ~~with Multiple Deliverables~~, and ~~SEC Staff~~ASC Section 605-10-S99 (Staff Accounting Bulletin ~~No. 104,~~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 each element should be accounted for separately by considering the following criteria: (1) whether the deliverables have value to the client on a stand-alone basis; and (2) whether delivery or performance of the undelivered item or items is considered probable and substantially in the control of the Company (only if the arrangement includes a general right of return related to the delivered item). Further, for sales of software and services, the Company also evaluates whether the services are essential to the functionality of the software ~~or hardware~~ and ~~whether~~if it has ~~objective~~ fair value evidence for each ~~deliverable in the transaction.~~deliverable. If the Company has concluded that the ~~services to be provided~~separation criteria are ~~not essential to the functionality of the software or hardware and it can determine objective fair value evidence for each deliverable of the transaction,~~met, then it accounts for each deliverable in the transaction separately, based on the relevant revenue recognition policies. Generally, all deliverables of the Company’s multiple element arrangements meet these ~~criteria.~~ criteria and are accounted for separately, with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price. As a result, the Company generally recognizes software and hardware sales upon delivery to the customer and services consistent with the policies described herein.

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

There are no significant cancellation or termination-type provisions for the Company’s software and hardware sales. Contracts for professional services provide for a general right, to the client or the Company, to cancel or terminate the contract within a given period of time (generally a 10 to 30 day notice is required). The client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract.

The Company may provide multiple services under the terms of an arrangement and ~~are~~is required to assess whether one or more units of accounting are present. ~~Fees~~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. If estimates are revised, material differences may result in the amount and timing of revenues recognized for a given period.

An 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.

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

Cash and Cash Equivalents

Cash equivalents consist primarily of cash deposits and investments with original maturities of 90 days or less when purchased.

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 as of October 1 each year and 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-step approach. The first step ~~of the goodwill~~screens for impairment ~~test compares the fair value of~~and, when impairment is indicated, a ~~reporting unit with its carrying amount, including goodwill. If, based on the~~ second step it is ~~determined that~~employed to measure the ~~implied fair value of the goodwill of the reporting unit is less than the carrying value, goodwill is considered impaired.~~impairment.

Other intangible assets include customer relationships, non-compete arrangements, trade names, and internally developed software, which are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from ~~three~~one to eight years. Amortization of customer relationships, non-compete arrangements, trade names, and internally developed software ~~are~~is considered an operating ~~expenses~~expense and ~~are~~is included in “Amortization” in the accompanying Condensed Consolidated Statements of 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 recoverability or revised useful life.

The Company will continue to monitor the trend of its stock price, other market indicators, and its operating results to determine whether there is a triggering event that may require the Company to perform an interim impairment test in the future and record impairment charges to earnings, which could adversely affect the Company’s financial results.

During the fourth quarter of 2008, the Company determined that the continuous trading of its common stock below book value was a possible indicator of impairment to goodwill or long-lived assets as defined under SFAS 142 and SFAS No. 144, ~~Accounting for the Impairment or Disposal of Long-Lived Assets~~ ~~(“SFAS 144”), triggering the necessity of impairment tests as of December~~

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2008. As a result of the tests performed, the Company recorded a $1.6 million impairment primarily related to the 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 by E Tech, which caused cash flows from the acquired relationships to be lower than originally projected.2011

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 109~~Recognition (“~~FIN 48”~~ASC Section 740-10-25”). ~~SFAS 109~~ASC Subtopic 740-10 prescribes the use of the asset and liability method whereby deferred tax asset and 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 48~~ASC 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 48~~ASC 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

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

~~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, unless such additional equivalent shares are anti-dilutive.

Stock-Based Compensation

~~Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R (As Amended),~~Stock-based compensation is accounted for in accordance with ASC Topic 718, Compensation – Stock Compensation ~~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.~~occur.

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.

Segment Information

The Company operates as one reportable operating segment according to ~~SFAS No. 131,~~ ASC Topic 280, ~~Disclosures about Segments of an Enterprise and Related Information~~Segment Reporting, which establishes standards for the way 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 ~~SFAS 142~~goodwill impairment analysis discussed above.

~~Recently Issued Accounting Standards~~

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

Recent Accounting Pronouncements

Effective January 1, ~~2008,~~2011, the Company adopted ~~SFAS No. 159,~~ASC Subtopic 605-25, Revenue Recognition – Multiple-Element Arrangements ~~The Fair Value Option for Financial Assets and Financial Liabilities, Including~~(“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 ~~SFAS No. 115~~ ~~(“SFAS 159”). SFAS 159 permits companies~~the arrangement. Among the amendments, this standard eliminates the use of the residual method for allocating arrangement consideration and requires an entity to ~~choose~~allocate the overall consideration to ~~measure many financial instruments~~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 ~~certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007.~~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. The adoption of ~~SFAS 159~~ASC Subtopic 605-25 did not have a material impact on the Company’s consolidated financial statements.

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

Effective January 1, ~~2008,~~2011, the Company adopted ~~SFAS No. 157,~~ASC Subtopic 985-605, ~~Fair Value Measurements~~Software – Revenue Recognition ~~(“SFAS 157”)~~. ~~In February 2008,~~This standard clarifies the ~~FASB issued Staff Position No. 157-2,~~ ~~Effective Date~~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 ~~FASB Statement No. 157~~ ~~(“FSP 157-2”), which delayed~~ the ~~effective date~~software revenue recognition accounting standards. Accordingly, sales of ~~SFAS 157~~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 ~~certain nonfinancial assets and liabilities, including fair value measurements under SFAS No. 141,~~ ~~Business Combinations~~ ~~(“SFAS 141”) and SFAS 142, to fiscal years beginning after November 15, 2008. Therefore,~~each element of the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.arrangement. The standard describes a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

·	~~Level 1 – Quoted prices in active markets for identical 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.~~

~~As of December 31, 2008, the Company did not hold any assets or liabilities that are required to be measured at fair value on a recurring basis, and therefore the~~ adoption of the respective provisions of SFAS 157 did not have an impact on the Company’s consolidated financial statements. On January 1, 2009, the Company will implement the previously deferred provisions of SFAS 157 for nonfinancial assets and liabilities recorded at fair value, as required. Management does not believe that the remaining provisions will have a material effect on the Company’s consolidated financial statements when they become effective.

~~In May 2008, the FASB issued SFAS No. 162,~~ ~~The Hierarchy of Generally Accepted Accounting Principles~~ (“SFAS 162”). The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in accordance with generally accepted accounting principles. Unlike Statement on Auditing Standards (“SAS”) No. 69, ~~The Meaning of Present Fairly in Conformity With GAAP~~, SFAS 162 is directed to the entity rather than the auditor. The statement was effective November 15, 2008, after approval by the SEC which occurred in September 2008. The application of this statementASC Subtopic 985-605 did not have a material impact on the Company’s consolidated financial statements.

In ~~April 2008,~~June 2011, the FASB issued ~~FASB Staff Position No. 142-3,~~ASU 2011-05, Presentation of Comprehensive Income ~~Determination of the Useful Life of Intangible Assets~~(“~~FSP 142-3”~~ASU 2011-05”). ~~FSP 142-3~~ASU 2011-05 requires ~~companies estimating~~entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the ~~useful life~~two-statement approach, the first statement would include components of ~~a recognized intangible asset to consider their historical experience~~net income, and the second statement would include components of other comprehensive income. This ASU does not change the items that must be reported in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for SFAS 142’s entity-specific factors. FSP 142-3 isother comprehensive income. These provisions are effective ~~for financial statements issued~~prospectively for fiscal years beginning after December 15, ~~2008. Adoption~~2011 and for interim periods within those fiscal years. Although adopting ASU 2011-05 will not impact the accounting for comprehensive income, it will affect the presentation of ~~this statement~~components of comprehensive income by eliminating the practice of showing these items within the Consolidated Statements of Changes in Stockholders’ Equity.

In August 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (“ASU 2011-08”). ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. These provisions are effective prospectively for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. The adoption of ASU 2011-08 is not expected to have a material impact on the Company’s consolidated financial ~~statements when it becomes effective.~~statements.

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

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,
	2011		2010		2009
Net income	$	10,747	$	6,480	$	1,463
Basic:
Weighted-average shares of common stock outstanding		27,745		26,856		27,538
Shares used in computing basic net income per share		27,745		26,856		27,538

Effect of dilutive securities:
Stock options		279		659		610
Warrants (1)		5		7		6
Restricted stock subject to vesting		578		774		404
Contingently issuable shares (2)		222		--		--
Shares issuable for acquisition consideration (3)		355		8		--
Shares used in computing diluted net income per share (4)		29,184		28,304		28,558

Basic net income per share	$	0.39	$	0.24	$	0.05
Diluted net income per share	$	0.37	$	0.23	$	0.05

Year Ended December 31,
2008 2007 2006
Net income $ 10,000 $ 16,230 $ 9,567
Basic:
Weighted-average shares of common stock outstanding 29,338 27,442 23,783
Weighted-average shares of common stock subject to contingency (i.e., restricted stock) 74 556 1,250
Shares used in computing basic net income per share 29,412 27,998 25,033

Effect of dilutive securities:
Stock options 835 1,707 2,281
Warrants 6 8 74
Restricted stock subject to vesting 98 409 199
Shares used in computing diluted net income per share (1) 30,351 30,122 27,587

Basic net income per share $ 0.34 $ 0.58 $ 0.38
Diluted net income per share $ 0.33 $ 0.54 $ 0.35

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

(1)	All outstanding warrants expired on December 30, 2011.
(2)	Represents the Company’s estimate of shares to be issued to speakTECH pursuant to the Agreement and Plan of Merger and Exervio Consulting, Inc. (“Exervio”) pursuant to the Asset Purchase Agreement. Refer to Note 7 for further discussion.
(3)	Represents the shares held in escrow pursuant to the Agreement and Plan of Merger with speakTECH and pursuant to the Asset Purchase Agreements with Exervio and JCB Partners, LLC (“JCB”) as part of the consideration. These shares were not included in the calculation of basic net income per share due to the uncertainty of their ultimate status.
(4)	As of December 31, ~~2008~~2011, approximately ~~0.4 million~~5,000 options for shares and ~~1.9 million~~273,000 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.

4. Investments

The Company invests a portion of its excess cash in short-term and long-term investments. The short-term investments typically consist of U.S. treasury bills, U.S. agency bonds, and corporate bonds with original maturities greater than three months and remaining maturities of less than one year. The long-term investments typically consist of corporate bonds with original maturities of greater than one year.

During the second quarter 2011, the Company sold all of its short- and long-term investments to fund acquisition activity. The realized gains and losses for these investments were immaterial. As of December 31, 2011, the Company’s investments consisted of cash equivalents with original maturities of less than three months.

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 2011, a substantial portion of the services the Company ~~provides are~~provided were built on IBM, ~~WebSphere~~® Oracle, and Microsoft platforms, among others, and a significant number of ~~its~~the Company’s clients are identified through joint selling opportunities conducted with ~~IBM~~ and through sales leads obtained from the ~~relationship~~relationships with IBM. Revenues from IBM accounted for approximately 6% of total revenues for 2008 and 8% of total revenues for 2007 and 2006. Accounts receivable from IBM accounted for approximately 6%, 4%, and 9% of total accounts receivable as of December 31, 2008, 2007, and 2006, respectively. 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.these vendors. Due to the ~~Company's~~Company’s significant fixed operating expenses, the loss of sales to ~~IBM or~~ any significant customer could result in the ~~Company's~~Company’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 2011, 2010 or 2009.

5.6. Employee Benefit ~~Plan~~Plans

The Company has a qualified 401(k) profit sharing plan available to full-time employees who meet the ~~plan's~~plan’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's~~employee’s contribution under a predetermined formula based on the level of contribution and years of ~~vesting services. In 2008,~~service. For 2011, the Company made matching contributions of 50% (25% in cash and 25% in Company stock) of the first 6% of eligible compensation deferred by the ~~participant, totaling $1.0 million.~~participant. The Company ~~made matching contributions equal to 25% of the first 6% of employee contributions totaling approximately $0.8~~recognized $3.2 million, $2.5 million, and ~~$0.5~~$2.6 million ~~during 2007~~of expense for the matching cash and ~~2006,~~Company stock contribution in 2011, 2010, and 2009, respectively. All matching contributions vest over a three year period of service.

~~In 2007, the~~

The Company ~~initiated~~has 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, ~~2008,~~2011, the deferred compensation liability balance was ~~$0.6~~$1.6 million compared to ~~$0.2~~$1.5 million as of December 31, ~~2007.~~2010.

4134

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, ~~2008~~2011

7. Business Combinations

Acquisition of Kerdock Consulting, LLC (“Kerdock”)

On March 26, 2010, the Company acquired substantially all of the assets of Kerdock, pursuant to the terms of an Asset Purchase Agreement. The Company estimated the total allocable purchase price consideration to be $5.3 million. The purchase price estimate was comprised of $1.5 million in cash paid and $1.1 million of Company common stock issued at closing, increased by $2.7 million representing the fair value of additional earnings-based contingent consideration. The contingency was achieved during 2010 and as such, the Company accelerated the payment of the contingent consideration and paid $1.9 million in cash and issued stock worth $0.8 million in November 2010. The Company incurred approximately $0.4 million in transaction costs, which were expensed when incurred. The results of the Kerdock operations have been included in the Company’s consolidated financial statements since the acquisition date.

The Company has allocated the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):

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 nine months to five years.

Acquisition of speakTECH

On December 10, 2010, the Company acquired speakTECH pursuant to the terms of an Agreement and Plan of Merger. The Company estimated the total allocable purchase price consideration to be $9.4 million. The purchase price estimate was comprised of $4.3 million in cash paid (included $0.9 million in assumed shareholder debt) and $1.8 million of Company common stock, increased by $3.3 million representing the fair value estimate of additional earnings-based contingent consideration that may be realized by speakTECH’s selling interest holders 12 months after the closing date of the acquisition. The contingency was achieved during 2011 and as such, the Company accelerated the payment of the contingent consideration and paid $1.5 million in cash and issued stock worth $2.9 million in December 2011. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred. The results of the speakTECH operations have been included in the Company’s consolidated financial statements since the acquisition date.

The Company has allocated the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):

Acquired tangible assets	$	4.3
Acquired intangible assets		3.3
Liabilities assumed		(6.1	)
Goodwill		7.9
Total purchase price	$	9.4

The Company estimated the intangible assets acquired to have useful lives of seven months to five years.

The Company made immaterial adjustments to the fair value estimates of speakTECH related to net working capital amounts and deferred taxes to reflect new information obtained as the Company finalized its fair value estimates during the fourth quarter 2011.

Acquisition of Exervio

On April 1, 2011, the Company acquired substantially all of the assets of Exervio pursuant to the terms of an Asset Purchase Agreement. Exervio is based in Charlotte, North Carolina and is a business and management consulting firm focused on program and project management, process improvement, and data/business analytics. The acquisition of Exervio will enhance the Company’s management consulting skills and qualifications, as well as extend the Company’s presence in North Carolina and Georgia.

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

The Company has initially estimated the total allocable purchase price consideration to be $11.2 million. The initial purchase price estimate is comprised of $6.5 million in cash paid and $2.8 million of Company common stock issued at closing, increased by $1.9 million representing the initial fair value estimate of additional earnings-based contingent consideration, which may be partially realized by the Exervio selling shareholders 12 months after the closing date of the acquisition, and the remainder potentially realized 18 months after the closing date of the acquisition. If the contingency is achieved, 25% of the earnings-based contingent consideration will be paid in cash and 75% will be issued in stock to the Exervio selling shareholders. The contingent consideration is recorded in “Other current liabilities” on the Consolidated Balance Sheet as of December 31, 2011. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred.

The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):

Acquired tangible assets	$	2.6
Acquired intangible assets		4.5
Liabilities assumed		(1.1	)
Goodwill		5.2
Total purchase price	$	11.2

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

The amounts above represent the fair value estimates as of December 31, 2011 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 JCB

On July 1, 2011, the Company acquired substantially all of the assets of JCB pursuant to the terms of an Asset Purchase Agreement. JCB is based in Denver, Colorado and is a business and technology consulting firm focused on enterprise performance management, analytics, and business intelligence solutions, primarily leveraging the IBM Cognos suite of software products. The acquisition of JCB will further enhance the Company’s position in business intelligence and enterprise performance management and increase access to CFO suites, as well as extend the Company’s presence in Denver, Chicago, and Northern and Southern California.

The Company has initially estimated the total allocable purchase price consideration to be $16.6 million. The initial purchase price estimate is comprised of $12.5 million in cash paid and $4.1 million of Company common stock issued at closing. The Company incurred approximately $0.6 million in transaction costs, which were expensed when incurred.

The Company has estimated the allocation of the total purchase price consideration between tangible assets, identified intangible assets, liabilities, and goodwill as follows (in millions):

Acquired tangible assets	$	2.8
Acquired intangible assets		3.0
Liabilities assumed		(1.3	)
Goodwill		12.1
Total purchase price	$	16.6

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

The results of the Exervio and JCB operations have been included in the Company’s consolidated financial statements since the acquisition date.

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

The amounts of revenue and net income of Exervio and JCB included in the Company’s Consolidated Statements of Operations from the acquisition date to December 31, 2011 are as follows (in thousands):

	Acquisition Date to December 31, 2011
	Acquisition Date to December 31, 2011
Revenues	$	20,367
Net income	$	823

Pro-forma Results of Operations (Unaudited)

The following presents the unaudited pro-forma combined results of operations of the Company with Kerdock, speakTECH, Exervio, and JCB for the years ended December 31, 2011 and 2010, after giving effect to certain pro-forma adjustments related to the amortization of acquired intangible assets and assuming Kerdock, speakTECH, Exervio, and JCB were acquired as of the beginning of 2010. These unaudited pro-forma results are presented in compliance with the adoption of Accounting Standards Update (“ASU”) 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations, and are not necessarily indicative of the actual consolidated results of operations had the acquisitions actually occurred on January 1, 2010 or of future results of operations of the consolidated entities (in thousands):

	December 31,
	2011		2010
Revenues	$	274,596	$	257,906
Net income	$	12,905	$	5,770

PointBridge Solutions, LLC (“PointBridge”)

In February 2012, the Company acquired substantially all of the assets of PointBridge. Refer to Note 16, Subsequent Events, for further discussion.

8. Goodwill and Intangible Assets

The Company performed its annual impairment test of goodwill as of October 1, ~~2008.~~2011. As required by ~~SFAS 142,~~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 ~~to 30~~ 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.

The discounted cash flow model yielded a fair value lower than the asset group’s carrying amount and consequently, the Company recorded a $1.6 million impairment of the customer relationships we acquired from etech solutions, Inc. (“E Tech”). The value of these relationships was affected primarily by the loss of a key customer acquired by E Tech, which caused cash flows from the asset group to be lower than originally projected. After recording the impairment of the E Tech customer relationships intangible asset, the Company performed the first step of the goodwill impairment test and based on the weighted average of market capitalization, including a control premium, and discounted cash flow analysis, goodwill was not impaired as of December 31, 2008.Goodwill

~~Goodwill~~

Activity related to goodwill consisted of the following (in thousands):

	2011			2010
Balance, beginning of year	$	115,227		$	104,168
Preliminary purchase price allocations for acquisitions (Note 7)		17,169			11,059
Purchase accounting adjustments		(358	)		--
Balance, end of year	$	132,038		$	115,227

2008 2007
Balance, beginning of year $ 103,686 $ 69,170
Purchase price allocated to goodwill upon acquisition (Note 13) -- 35,301
Adjustments to preliminary purchase price allocations for acquisitions 1,088 1,172
Adjustment to E Tech purchase price allocation for escrow claim (378 ) --
Utilization of net operating loss carryforwards associated with acquisitions (218 ) (1,957 )
Balance, end of year $ 104,178 $ 103,686

4237

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, ~~2008~~2011

Intangible Assets with Definite Lives

Following is a summary of the ~~Company's~~Company’s intangible assets that are subject to amortization (in thousands):

Year ended December 31,
2008 2007

Gross Carrying
Amount

Accumulated
Amortization

Net
Carrying Amount

Gross Carrying
Amount

Accumulated
Amortization

Net
Carrying Amount

Customer relationships $ 18,013 $ (7,693 ) $ 10,320 $ 21,130 $ (5,285 ) $ 15,845
Non-compete agreements 2,633 (2,098 ) 535 2,633 (1,550 ) 1,083
Internally developed software 1,358 (757 ) 601 1,173 (448 ) 725
Total $ 22,004 $ (10,548 ) $ 11,456 $ 24,936 $ (7,283 ) $ 17,653

	Year ended December 31,
	2011										2010
	Gross Carrying Amount			Accumulated Amortization				Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization				Net Carrying Amount
Customer relationships		$	20,713		$	(11,976	)		$	8,737		$	19,543		$	(12,169	)		$	7,374
Non-compete agreements			1,073			(309	)			764			1,031			(413	)			618
Customer backlog			--			--				--			51			--				51
Trade name			152			(84	)			68			169			(25	)			144
Internally developed software			1,036			(477	)			559			1,039			(397	)			642
Total		$	22,974		$	(12,846	)		$	10,128		$	21,833		$	(13,004	)		$	8,829

The estimated useful lives of ~~acquired~~ identifiable intangible assets are as follows:

Customer relationships	32 - 8 years
Non-compete agreements	3 - 5 years
Internally developed software	3 - 5 years
Trade name	1 - 3 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, ~~2008, 2007,~~2011, 2010, and ~~2006~~2009 was approximately ~~$4.8~~$6.3 million, ~~$4.7~~$4.0 million, and ~~$3.5~~$4.3 million, respectively. ~~In addition, the Company recorded an impairment charge of $1.6 million related to the loss of a customer relationship in 2008.~~

Estimated annual amortization expense for the next five years ended December 31 is as follows (in thousands):

2012	$	4,162
2013	$	2,677
2014	$	1,504
2015	$	664
2016	$	510
Thereafter	$	611

2009 $ 4,107
2010 $ 3,336
2011 $ 2,710
2012 $ 971
2013 $ 83
Thereafter $ 249

7.9. Stock-Based Compensation

Stock Option Plans

~~In May 1999, the Company's Board of Directors~~

The Company made various stock option and ~~stockholders approved~~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 ~~1999~~Incentive Plan ~~contains programs~~allows for ~~(i)~~ the ~~discretionary~~ granting of various types of stock ~~options~~awards, not to ~~employees, non-employee board members and consultants for the purchase~~exceed a total of 1.5 million shares, ~~of the Company's common stock, (ii) the discretionary issuance of common stock directly~~ to eligible ~~individuals, and (iii) the automatic issuance of stock options to non-employee board members.~~individuals. The Compensation Committee of the Board of Directors ~~administers~~will administer the ~~1999~~Incentive Plan and ~~determines~~determine the ~~exercise price and vesting period for each grant. Options granted~~terms of all stock awards made under the 1999 Plan have a maximum term of 10 years. In the event that the Company is acquired, whether 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.Incentive Plan.

4338

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, ~~2008~~2011

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.

A summary of changes in ~~common~~ stock options during ~~2008, 2007~~2011, 2010, and ~~2006~~2009 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, 2006 5,268 $ 0.02 - 16.94 $ 3.53
Options granted -- -- --
Options exercised (1,672 ) $ 0.02 - 12.13 $ 2.4 $ 18,637
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
Options exercised (1,160 ) $ 0.02 - 16.94 $ 3.18 $ 21,055
Options canceled (22 ) $ 2.28 -7.48 $ 3.36
Options outstanding at December 31, 2007 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 $ 2,560

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
Options vested, December 31, 2008 1,773 $ 0.03 - 16.94 $ 4.59 $ 2,560

	Shares			Range of Exercise Prices		Weighted-Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2009		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
Options granted		--			--		--
Options exercised		(802	)		0.03 – 9.19		4.49	$	5,598
Options canceled		(39	)		1.41 – 7.48		5.58
Options outstanding at December 31, 2011		358		$	0.03 – 9.19	$	4.61	$	1,932

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
Options vested, December 31, 2011		358		$	0.03 – 9.19	$	4.61	$	1,932

The following is additional information related to stock options outstanding at December 31, 2011:

		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		106,018	$	1.68		1.54		106,018	$	1.68
$	3.10 – 4.72		60,394	$	3.38		2.47		60,394	$	3.38
$	6.31 – 9.19		191,276	$	6.62		3.03		191,276	$	6.62
$	0.03 – 9.19		357,688	$	4.61		2.50		357,688	$	4.61

At December 31, 2011, 2010, and 2009, the weighted-average remaining contractual life of outstanding options was 2.50, 1.54, and 3.40 years, respectively. Generally stock options have a maximum contractual term of ten years.

Restricted stock activity for the year ended December 31, ~~2008~~2011 was as follows (in thousands, except fair value information):

	Shares			Weighted-Average Grant Date Fair Value
Restricted stock awards outstanding at January 1, 2011		2,606		$	8.97
Awards granted (1)		720		$	10.31
Awards vested		(822	)	$	10.07
Awards canceled or forfeited		(461	)	$	8.76
Restricted stock awards outstanding at December 31, 2011		2,043		$	9.16

(1)	Includes the issuance of 97,800 shares of restricted stock to former JCB employees. The grants vest in 20% increments annually over a 5-year period. If the recipient is not employed by the Company for any reason during the 5-year period, then any unvested shares will be forfeited.

Shares
Weighted-Average
Grant Date Fair
Value

Restricted stock awards outstanding at January 1, 2008 2,053 $ 14.33
Awards granted 2,024 $ 6.12
Awards vested (452 ) $ 14.07
Awards canceled or forfeited (115 ) $ 13.82
Restricted stock awards outstanding at December 31, 2008 3,510 $ 9.65
PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

The weighted average grant date fair value of shares granted during 2010 and 2009 was $10.42 and $6.92, respectively. The total fair value of restricted shares vesting during the years ended December 31, ~~2008, 2007,~~2011, 2010 and ~~2006~~2009 was ~~$2.3~~$7.8 million, ~~$5.2~~$9.3 million and ~~$1.4~~$6.7 million, respectively.

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

~~The following is additional information related to stock options outstanding at December 31, 2008:~~

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 – 2.28 632,782 $ 1.71 3.86 632,782 $ 1.71
$ 2.77 – 3.75 481,335 $ 3.52 3.02 481,335 $ 3.52
$ 4.40 – 6.24 76,689 $ 5.02 4.19 76,689 $ 5.02
$ 6.31 – 6.31 555,000 $ 6.31 5.96 297,857 $ 6.31
$ 7.48 – 16.94 284,039 $ 10.91 3.62 284,039 $ 10.91
$ 0.03 – 16.94 2,029,845 $ 4.81 4.21 1,772,702 $ 4.59

~~At December 31, 2008, 2007 and 2006, the weighted-average remaining contractual life of outstanding options was 4.21, 5.20, and 6.27 years, respectively.~~

The Company recognized ~~$9.0~~$9.2 million, $10.8 million and $9.8 million of share-based compensation expense during ~~2008,~~2011, 2010 and 2009, respectively, which included ~~$1.0~~$1.1 million, $0.9 million and $0.9 million of expense for retirement savings plan ~~contributions. For 2007 and 2006, total share-based compensation was $6.1 million and $3.1 million,~~contributions, respectively. The associated current and future income tax benefit recognized during ~~2008, 2007,~~2011, 2010 and ~~2006~~2009 was ~~$2.9~~$3.1 million, ~~$2.1~~$3.8 million and ~~$0.8~~$3.4 million, respectively. As of December 31, ~~2008,~~2011, there was ~~$33.4~~$15.1 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 4three years. The Company’s average estimated forfeiture rate for share based awards for the year ended December 31, ~~2008 of approximately 5% for share based awards~~2011 was 7%, which was calculated using ~~our~~ historical forfeiture ~~experience~~experience. Generally restricted stock awards vest over a three to ~~anticipate actual forfeitures in the future.~~five year requisite service period.

At December 31, ~~2008, 2.0~~2011, 0.4 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.~~options. At December 31, ~~2008,~~2011, there were ~~3.5~~2.0 million shares of restricted stock outstanding under the 1999 Plan and ~~classified as equity.~~the Incentive Plan.

Employee Stock Purchase Plan

~~In 2005, the Compensation Committee approved the~~

The Employee Stock Purchase Plan (the “ESPP”) ~~to be available to employees starting~~was initiated January 1, ~~2006. The ESPP~~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 an ability under the ESPP that would permit the purchase of ~~Common Stock~~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, ~~2008,~~2011, approximately ~~29,000~~11,400 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 purchase price of shares offered under the ESPP is an amount equal to 95% of the fair market value of the ~~Common Stock~~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.

8.10. Line of Credit ~~and Long Term Debt~~

On May ~~30, 2008,~~23, 2011, the Company ~~entered into a~~renewed and extended the term of its Credit Agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”) ~~and KeyBank~~, U.S. Bank National Association, ~~(“KeyBank”). The Agreement replaces the Company’s Amended~~ and ~~Restated Loan and Security Agreement dated as~~Bank of ~~June 3, 2005 and further amended on June 29, 2006.~~America, N.A. The Credit Agreement provides for revolving credit borrowings up to a maximum principal amount of ~~$50~~$50.0 million, subject to a commitment increase of ~~$25~~$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.

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

All outstanding amounts owed under the Credit Agreement become due and payable no later than the final maturity date of May ~~30, 2012.~~23, 2015. Borrowings under the credit facility bear interest at the Company’s option of SVB’s prime rate (4.00% on December 31, ~~2008)~~2011) plus a margin ranging from 0.00% to 0.50% or one-month LIBOR ~~(0.44%~~(0.295% on December 31, ~~2008)~~2011) plus a margin ranging from 2.50% to 3.00%. The additional margin amount is dependent on the ~~amount~~level of outstanding borrowings. As of December 31, ~~2008,~~2011, the Company had ~~$49.9~~$50.0 million of ~~available~~maximum borrowing capacity. ~~The Company will incur an~~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 ~~at least~~not more than 2.75 to 1.00. As of December 31, 2008, the Company was in compliance with all covenants under the credit facility and the Company expects to be in compliance during the next 12 months. Substantially all of the Company’s assets are pledged to secure the credit facility.

11. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and various ~~states~~state and foreign jurisdictions. The Internal Revenue Service (“IRS”) has completed examinations of the Company’s U.S. income tax returns ~~for 2002, 2003~~or the statute has passed on years through 2007. The IRS completed its examination of the Company’s 2009 income tax return during 2011 and ~~2004. As of December 31, 2008,~~ the ~~IRS has~~ proposed ~~no significant~~ adjustments to ~~any of~~ the ~~Company's~~Company’s tax ~~positions.~~positions were not material.

~~The Company adopted~~

PERFICIENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

DECEMBER 31, 2011

Under the provisions of ~~FIN 48 on January 1, 2007. As a result of~~ the ~~implementation of FIN 48,~~ASC Subtopic 740-10-25, the ~~Company recognized no increases or decreases in the total amount of previously unrecognized tax benefits. The~~ Company had no unrecognized tax benefits as of December 31, ~~2008~~2011 or ~~2007.~~2010.

As of December 31, ~~2008,~~2011, the Company had U.S. Federal tax net operating loss carry forwards of approximately ~~$6.0~~$5.9 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 Revenue Code of 1986.~~Code. The annual limitation may result in the expiration of net operating losses before utilization.

Significant components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2011		2010		2009
Current:
Federal	$	6,358	$	4,009	$	1,173
State		996		1,043		385
Foreign		13		11		7
Total current		7,367		5,063		1,565

Deferred:
Federal		487		192		(16	)
State		44		13		(2	)
Total deferred		531		205		(18	)
Total provision for income taxes	$	7,898	$	5,268	$	1,547

Year Ended December 31,
2008 2007 2006
Current:
Federal $ 7,639 $ 4,110 $ 1,138
State 1,536 752 260
Foreign (9 ) 26 102
Total current 9,166 4,888 1,500

Tax benefit on acquired net operating loss carryforward 488 385 246
Tax benefit (expense) from stock option exercises and restricted stock vesting (922 ) 6,889 6,554

Deferred:
Federal (1,304 ) (668 ) (902 )
State (137 ) (70 ) (116 )
Total deferred (1,441 ) (738 ) (1,018 )
Total provision for income taxes $ 7,291 $ 11,424 $ 7,282

The components of pretax income for the years ended December 31, ~~2008, 2007~~2011, 2010 and ~~2006~~2009 are as follows (in thousands):

	Year Ended December 31,									Year Ended December 31,
	2008			2007			2006			2011			2010			2009
Domestic		$	16,879		$	27,640		$	16,565		$	17,614		$	9,770		$	2,995
Foreign			412			14			284			1,031			1,978			15
Total		$	17,291		$	27,654		$	16,849		$	18,645		$	11,748		$	3,010

~~PERFICIENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~DECEMBER 31, 2008~~

~~In 2006, foreign operations only included Canada.~~ For the year ended December 31, ~~2008~~2011, 2010 and ~~2007,~~2009, foreign operations included Canada, China and India.

	High		Low
Year Ending December 31, 2008:
First Quarter	$	17.08	$	6.43
Second Quarter		11.91		7.82
Third Quarter		10.94		6.04
Fourth Quarter		6.80		2.31

Year Ending December 31, 2007:
First Quarter	$	21.55	$	16.02
Second Quarter		23.29		18.51
Third Quarter		25.19		18.91
Fourth Quarter		24.75		14.65

	Financial Results										Explanation for Increases/(Decreases) Over Prior Year Period
	(in thousands)										(in thousands)
	For the Year Ended December 31, 2008			For the Year Ended December 31, 2007			Total Increase/ (Decrease) Over Prior Year Period				Increase Attributable to Acquired Companies*			Increase/ (Decrease) Attributable to Base Business**
Services Revenues		$	207,480		$	191,395		$	16,085			$	29,611		$	(13,526	)
Software and Hardware Revenues			10,713			14,243			(3,530	)			1,871			(5,401	)
Reimbursable Expenses			13,295			12,510			785				1,372			(587	)
Total Revenues		$	231,488		$	218,148		$	13,340			$	32,854		$	(19,514	)

	Increase / (Decrease)
Selling, General, and Administrative Expense	(in millions)
Stock compensation expense	$	1.7
Office and technology-related costs		1.5
Salary expense		1.4
Sales related costs		1.0
Bad debt expense		0.8
Customer dispute settlement		0.8
Other		0.6
Bonus expense		(2.6	)
Net increase	$	5.2

	Operating Leases
2012	$	2,458
2013		2,429
2014		1,958
2015		1,482
2016		1,369
Thereafter		558
Total minimum lease payments	$	10,254

Property and Equipment:
Computer hardware (useful life of 3 years)	$	5,710		$	5,064
Leasehold improvements (useful life of 5 years)		1,801			1,159
Software (useful life of 1 year)		1,494			1,287
Furniture and fixtures (useful life of 5 years)		1,474			1,160
Less: Accumulated depreciation		(6,989	)		(6,315	)
Total	$	3,490		$	2,355

Other current liabilities:
Accrued variable compensation	$	6,998	$	8,456
Payroll related costs		2,504		1,986
Accrued subcontractor fees		2,392		2,631
Estimated fair value of contingent consideration liability (Note 7)		2,377		3,339
Deferred revenues		1,041		1,121
Accrued medical claims expense		902		810
Acquired liabilities		239		2,244
Other current liabilities		2,030		2,067
Total	$	18,483	$	22,654

Other non-current liabilities:
Deferred compensation liability	$	1,141	$	1,162
Deferred income taxes		309		417
Other non-current liabilities		11		209
Total	$	1,461	$	1,788

Property and Equipment:
Computer hardware (useful life of 2 years)	$	6,206		$	5,805
Furniture and fixtures (useful life of 5 years)		1,406			1,248
Leasehold improvements (useful life of 5 years)		969			884
Software (useful life of 1 year)		1,216			920
Less: Accumulated depreciation		(7,452	)		(5,631	)
Total	$	2,345		$	3,226

	Three Months Ended,
	March 31, 2011		June 30, 2011		September 30, 2011		December 31, 2011
	(Unaudited)
Total revenues	$	56,245	$	65,587	$	70,174	$	70,433
Gross margin	$	16,289	$	21,222	$	22,317	$	21,306
Income from operations	$	3,054	$	4,881	$	5,717	$	4,940
Income before income taxes	$	3,036	$	4,888	$	5,729	$	4,992
Net income	$	1,793	$	2,767	$	3,466	$	2,721
Basic net income per share	$	0.07	$	0.10	$	0.12	$	0.10
Diluted net income per share	$	0.06	$	0.10	$	0.12	$	0.09

	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	$	3,270	$	3,531	$	3,174
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, 2008		June 30, 2008		September 30, 2008		December 31, 2008
	(Unaudited)
Revenues:
Services	$	52,100	$	53,632	$	52,510	$	49,238
Software and hardware		1,684		2,098		2,290		4,641
Reimbursable expenses		3,539		3,370		3,506		2,880
Total revenues	$	57,323	$	59,100	$	58,306	$	56,759
Gross margin	$	17,562	$	20,139	$	19,176		16,625
Income from operations	$	5,047	$	6,802	$	4,402	$	1,427
Income before income taxes	$	5,203	$	6,793	$	3,677	$	1,618
Net income	$	3,076	$	3,989	$	2,176	$	759
Basic net income per share	$	0.10	$	0.13	$	0.07	$	0.03
Diluted net income per share	$	0.10	$	0.13	$	0.07	$	0.03

	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

·	entitlement to participate in such insurance, disability, health, and medical benefits and retirement plans or programs as are from time to time generally made available to executive employees of the Company, pursuant to the policies of the Company and subject to the conditions and terms applicable to such benefits, plans or programs; and
·	~~death, disability, severance, and change of control benefits upon Mr. McDonald’s termination of employment or change of control of the Company.~~

Name	Age		Position
~~John T. McDonald~~Jeffrey S. Davis		4547		~~Chairman of the Board~~President and Chief Executive Officer
~~Jeffrey S. Davis~~Kathryn J. Henely		4447		~~President and~~ Chief Operating Officer
Paul E. Martin		4851		Chief Financial Officer, Treasurer and Secretary
~~Timothy J. Thompson~~		48		~~Vice President of Client Development~~
~~Richard T. Kalbfleish~~		53		~~Controller and Vice President of Finance and Administration~~
~~Ralph C. Derrickson~~		50		~~Director~~
~~Max D. Hopper~~		74		~~Director~~
~~Kenneth R. Johnsen~~		55		~~Director~~
~~David S. Lundeen~~		47		~~Director~~

Index	Page(s)
Consolidated Balance Sheets		3326
Consolidated Statements of ~~Income~~Operations		3427
Consolidated Statements of Changes in ~~Stockholders'~~Stockholders’ Equity		3528
Consolidated Statements of Cash Flows		3629
Notes to Consolidated Financial Statements		3730
~~Reports~~Report of Independent Registered Public Accounting ~~Firms~~Firm		~~52-53~~45-46


	PERFICIENT, INC.

	~~By:~~	~~/s/ John T. McDonald~~
~~Date: March 5, 2009~~		~~John T. McDonald~~
		~~Chief Executive Officer~~ ~~(Principal Executive Officer)~~


	By:	/s/ Paul E. Martin
Date: March ~~5, 2009~~1, 2012		Paul E. Martin
		Chief Financial Officer ~~(Principal~~(Principal Financial ~~Officer)~~

	~~By:~~	~~/s/ Richard T. Kalbfleish~~
~~Date: March 5, 2009~~		~~Richard T. Kalbfleish~~
		~~Vice President of Finance~~Officer and ~~Administration~~ ~~(Principal~~Principal Accounting Officer)

Signature	Title	Date

/s/ ~~John T. McDonald~~Jeffrey S. Davis	Director, President and Chief Executive Officer	March 1, 2012
Jeffrey S. Davis	(Principal Executive Officer)

/s/ Paul E. Martin	Chief ~~Executive~~Financial Officer ~~and~~	March ~~5, 2009~~1, 2012
~~John T. McDonald~~Paul E. Martin	~~Chairman of the Board~~ (Principal ~~Executive~~Financial Officer and Principal Accounting Officer)

/s/ Ralph C. Derrickson	Director	March ~~5, 2009~~1, 2012
Ralph C. Derrickson

/s/ ~~Max D. Hopper~~Edward L. Glotzbach	Director	March ~~5, 2009~~1, 2012
~~Max D. Hopper~~Edward L. Glotzbach

/s/ John S. Hamlin	Director	March 1, 2012
John S. Hamlin

/s/ ~~Kenneth~~James R. ~~Johnsen~~Kackley	Director	March ~~5, 2009~~1, 2012
~~Kenneth~~James R. ~~Johnsen~~Kackley

/s/ David S. Lundeen	Director	March ~~5, 2009~~1, 2012
David S. Lundeen

/s/ David D. May	Director	March 1, 2012
David D. May

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
3.1
~~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

~~2.6~~	Agreement 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

~~2.7~~	Asset 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 Statement~~Quarterly Report on Form ~~SB-2~~10-Q (File No. ~~333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission~~001-15169) 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

~~Exhibit Number~~	~~Description~~
~~4.3~~	4.2	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~~

	10.1†	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 report~~Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein

	10.2†	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

~~10.3†~~	10.4†	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

~~10.4†~~	10.5†	Form of Restricted Stock Agreement, previously filed with the Securities and Exchange Commission as an Exhibit to our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated by reference herein

~~10.5†~~	10.6†	Form of ~~Indemnity~~Restricted 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 Statement~~Quarterly Report on Form ~~SB-2 (File No. 333-78337) declared effective on July 28, 1999 by~~10-Q for the ~~Securities and Exchange Commission~~quarter ended March 31, 2010 and incorporated ~~herein~~ by reference herein


~~10.6†~~ 10.7†	~~Offer Letter, dated July 20, 2006, by and~~	Employment Agreement between Perficient, Inc. and ~~Mr.~~ Paul E. Martin dated and effective January 1, 2012, 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 26, 2006~~December 23, 2011 and incorporated herein by reference

~~10.7†~~	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†*	~~Employment Agreement between Perficient, Inc. and John T. McDonald dated March 3, 2009, and effective as of January 1, 2009~~
10.8†
10.9†*	Employment Agreement between Perficient, Inc. and Jeffrey S. Davis dated ~~March 3, 2009,~~December 22, 2011, and effective as of January 1, ~~2009~~

~~10.10~~	Amended and Restated Loan and Security Agreement by and among Silicon Valley Bank, KeyBank National Association, Perficient, Inc., Perficient Canada Corp., Perficient Genisys, Inc., Perficient Meritage, Inc. and Perficient Zettaworks, Inc. dated effective as of June 3, 2005,2012, 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~~

~~10.11~~	Amendment 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, 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, 2006~~December 23, 2011 and incorporated herein by reference

Exhibit Number		~~Description~~
~~10.12~~	Lease 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 Description

~~10.13~~10.9	~~First~~	Amended and Restated ~~Investor Rights Agreements~~Credit Agreement by and among Silicon Valley Bank, Bank of America, N.A., and U.S. Bank, N.A., and Perficient, Inc. dated effective as of ~~June 26, 2002 by and between Perficient, Inc. and the Investors listed on Exhibits A and B thereto,~~May 23, 2011, 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~~May 26, 2011 and incorporated herein by reference ~~herein~~


~~10.14~~	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
21.1*
21.1*	Subsidiaries

23.1*	~~Consent of BDO Seidman, LLP~~

23.2*	23.1*	Consent of KPMG LLP

~~24.1~~	24.1*	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