Vocus 10Q 2010 Q1 Quarterly report

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

Form 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 31, 2010
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number000-51644

Vocus, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		58-1806705
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4296 Forbes Boulevard
Lanham, Maryland 20706
(301) 459-2590
(Address including zip code, and telephone number,
including area code, of principal executive offices)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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


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

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

Yes o No þ

As of May 4, 2010, 19,378,834 shares of common stock, par value $0.01 per share, of the registrant were outstanding.

TABLE OF CONTENTS


		Page

PART I — FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements		3
	Consolidated Balance Sheets as of December 31, 2009 and March 31, 2010		3
	Consolidated Statements of Operations for the three months ended March 31, 2009 and 2010		4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2010		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		20
Item 4.	Controls and Procedures		20
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		21
Item 1A.	Risk Factors		21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 6.	Exhibits		34
SIGNATURES			35

PART I


Item 1.	*Consolidated Financial Statements*

Vocus, Inc. and Subsidiaries

Consolidated Balance Sheets


	December 31,			March 31,
	2009			2010
				(Unaudited)
	(Dollars in thousands, except per share data)

Current assets:
Cash and cash equivalents	$	85,817		$	91,073
Short-term investments		17,851			12,447
Accounts receivable, net of allowance for doubtful accounts of $212 and $241 at December 31, 2009 and March 31, 2010, respectively		18,245			10,834
Current portion of deferred income taxes		685			685
Prepaid expenses and other current assets		1,753			2,309

Total current assets		124,351			117,348
Long-term investments		1,001			—
Property, equipment and software, net		4,666			5,256
Intangible assets, net		3,980			3,511
Goodwill		17,090			17,090
Deferred income taxes, net of current portion		7,459			7,460
Other assets		693			722

Total assets	$	159,240		$	151,387

Current liabilities:
Accounts payable	$	1,148		$	374
Accrued compensation		2,384			2,446
Accrued expenses		3,239			4,102
Current portion of notes payable and capital lease obligations		197			74
Current portion of deferred revenue		46,789			44,985

Total current liabilities		53,757			51,981
Notes payable and capital lease obligations, net of current portion		48			33
Other liabilities		93			114
Deferred revenue, net of current portion		961			640

Total liabilities		54,859			52,768
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2009 and March 31, 2010		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized; 19,854,585 and 20,019,528 shares issued at December 31, 2009 and March 31, 2010, respectively; 18,173,444 and 17,935,278 shares outstanding at December 31, 2009 and March 31, 2010, respectively		199			200
Additional paid-in capital		149,279			152,319
Treasury stock, 1,681,141 and 2,084,249 shares at December 31, 2009 and March 31, 2010, respectively at cost		(14,914	)		(23,223	)
Accumulated other comprehensive income		305			390
Accumulated deficit		(30,488	)		(31,067	)

Total stockholders’ equity		104,381			98,619

Total liabilities and stockholders’ equity	$	159,240		$	151,387

See accompanying notes.

Vocus, Inc. and Subsidiaries

Consolidated Statements of Operations


	Three Months Ended March 31,
	2009			2010
	(Unaudited)
	(Dollars in thousands, except per share data)

Revenues	$	20,411		$	22,271
Cost of revenues		3,907			4,435

Gross profit		16,504			17,836
Operating expenses:
Sales and marketing		9,516			11,403
Research and development		1,157			1,314
General and administrative		5,045			5,199
Amortization of intangible assets		490			469

Total operating expenses		16,208			18,385
Income (loss) from operations		296			(549	)
Other income (expense):
Interest and other income		225			68
Interest expense		(6	)		(7	)

Total other income		219			61
Income (loss) before provision for income taxes		515			(488	)
Provision for income taxes		993			91

Net loss	$	(478	)	$	(579	)

Net loss per share:
Basic	$	(0.03	)	$	(0.03	)
Diluted	$	(0.03	)	$	(0.03	)
Weighted average shares outstanding used in computing per share amounts:
Basic		18,026,397			18,062,306
Diluted		18,026,397			18,062,306

See accompanying notes.

Vocus, Inc. and Subsidiaries

Consolidated Statements of Cash Flows


	Three Months Ended March 31,
	2009			2010
	(Unaudited)
	(Dollars in thousands)

Cash flows from operating activities:
Net loss	$	(478	)	$	(579	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property, equipment and software		420			354
Amortization of intangible assets		490			469
Loss on disposal of assets		—			1
Stock-based compensation		2,886			2,902
Provision for doubtful accounts		131			64
Deferred income taxes		979			1
Excess tax benefits from equity awards		(703	)		(91	)
Changes in operating assets and liabilities:
Accounts receivable		4,877			7,292
Prepaid expenses and other current assets		708			(425	)
Other assets		(24	)		(199	)
Accounts payable		484			(770	)
Accrued compensation		(596	)		74
Accrued expenses		1,281			982
Deferred revenue		(1,758	)		(1,926	)
Other liabilities		(14	)		21

Net cash provided by operating activities		8,683			8,170
Cash flows from investing activities:
Purchases ofavailable-for-sale securities		(11,134	)		(2,598	)
Maturities ofavailable-for-sale securities		13,800			8,996
Purchases of property, equipment and software		(339	)		(770	)
Software development costs		(43	)		(155	)

Net cash provided by investing activities		2,284			5,473
Cash flows from financing activities:
Repurchases of common stock		(4,117	)		(8,309	)
Proceeds from the exercise of stock options		964			19
Excess tax benefits from equity awards		703			91
Payments on notes payable and capital lease obligations		(138	)		(138	)

Net cash used in financing activities		(2,588	)		(8,337	)
Effect of exchange rate changes on cash and cash equivalents		(31	)		(50	)

Net increase in cash and cash equivalents		8,348			5,256
Cash and cash equivalents, beginning of period		65,429			85,817

Cash and cash equivalents, end of period	$	73,777		$	91,073

See accompanying notes.

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements


1.	Business Description

Organization and Description of Business

Vocus, Inc. (Vocus or the Company) is a provider of on-demand software for public relations management. The Company’s on-demand software addresses the critical functions of public relations including media relations, news distribution and news monitoring. The Company is headquartered in Lanham, Maryland with sales and other offices in Virginia, Maryland, California, Washington, England, France, China and Morocco.


2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions toForm 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report onForm 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 9, 2010.

Principles of Consolidation

The consolidated financial statements include the accounts of Vocus, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investments

Management determines the appropriate classification of investments at the time of purchase and evaluates such determination as of each balance sheet date. The Company’s investments were classified asavailable-for-sale securities and were stated at fair value at December 31, 2009 and March 31, 2010. Realized gains and losses are included in other income (expense) based on the specific identification method. Realized gains and losses for the three months ended March 31, 2009 and March 31, 2010 were not material. Net unrealized gains and losses onavailable-for-sale securities are reported as a component of other comprehensive income (loss), net of tax. As of March 31, 2010, the net unrealized gains onavailable-for-sale securities were not material. The Company regularly monitors and evaluates the fair value of its investments to identifyother-than-temporary declines in value. Management believes no such declines in value existed at March 31, 2010.

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Fair Value Measurements

The Company measures certain financial assets at fair value, including cash equivalents andavailable-for-sale securities pursuant to a fair value hierarchy based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:


Level 1 —	Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 —	Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

Level 3 —	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

Revenue Recognition

The Company derives its revenues from subscription arrangements and related services permitting customers to access and utilize the Company’s on-demand software and from the online distribution of press releases. The Company recognizes revenue when there is persuasive evidence of an arrangement, the service has been provided to the customer, the collection of the fee is probable and the amount of the fees to be paid by the customer is fixed or determinable.

Subscription agreements generally contain multiple service elements and deliverables. These elements include access to the Company’s on-demand software and often specify initial services including implementation and training. Subscription agreements do not provide customers the right to take possession of the software at any time. The Company considers all elements in its multiple element subscription arrangements as a single unit of accounting and recognizes all associated fees over the subscription period. The Company determined that it does not have objective and reliable evidence of the fair value of the subscription fees after delivery of specified initial services; and therefore, accounts for its subscription arrangements and its related service fees as a single unit of accounting. As a result, all revenue from multiple element subscription arrangements is recognized ratably over the term of the subscription. The subscription term commences on the start date specified in the subscription arrangement or the date access to the software is provided to the customer. The Company also has entered into a royalty agreement with a reseller of its application service. The Company recognizes this revenue over the term of the end-user subscription upon obtaining persuasive evidence, which includes monthly notification from the reseller, that the service has been sold and delivered. The Company recognizes revenue from professional services sold separately from subscription arrangements as the services are performed.

The Company distributes press releases over the Internet which are indexed by major search engines and distributed directly to various news sites, journalists and other key constituents. The Company recognizes revenue on a per-transaction basis when the press releases are made available to the public.

Sales Commissions

Sales commissions are expensed when a subscription agreement is executed by the customer.

Stock-Based Compensation

The Company recognizes compensation expense for its equity awards on a straight-line basis over the requisite service period of the award based on the estimated portion of the award that is expected to vest and applies estimated

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

forfeiture rates based on analyses of historical data, including termination patterns and other factors. The Company uses the quoted closing market price of its common stock on the grant date to measure the fair value of restricted stock awards and the Black-Scholes option pricing model to measure the fair value of stock option awards. The Company became a public entity in December 2005, and therefore has a limited history of volatility. Accordingly, the expected volatility is based primarily on the historical volatilities of similar entities’ common stock over the most recent period commensurate with the estimated expected term of the awards. The expected term of an award is equal to the midpoint between the vesting date and the end of the contractual term of the award. The risk-free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, use an expected dividend yield of zero.

Income Taxes

Income taxes are determined utilizing the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax-credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the three months ended March 31, 2010, the Company’s income tax expense reflects its actual income tax expense for the period rather than its estimated effective tax rate for 2010 as the Company could not reliably estimate such rate.

The Company had no material uncertain tax positions at December 31, 2009 and March 31, 2010. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of income tax expense. No interest and penalties related to uncertain income tax positions were accrued at December 31, 2009 and March 31, 2010. The Company files income tax returns in the U.S. federal jurisdictions and various state and foreign jurisdictions. The Company is subject to U.S. federal tax, state and foreign tax examinations for years ranging from 2002 to 2009.

Comprehensive Loss

Comprehensive loss includes the Company’s net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. Other comprehensive income (loss) includes foreign currency translation adjustments and net unrealized gains and losses on investments classified asavailable-for-sale securities. For the three months ended March 31, 2009 and 2010, the comprehensive loss was determined as follows (in thousands):


	Three Months Ended
	March 31,
	2009			2010

Net loss	$	(478	)	$	(579	)
Other comprehensive income (loss):
Foreign currency translation adjustment		6			89
Unrealized net loss onavailable-for-sale investments, net of tax		(25	)		(4	)

Comprehensive loss	$	(497	)	$	(494	)

Segment Data

The Company’s chief operating decision maker manages the Company’s operations on a consolidated basis for purposes of assessing performance and making operating decisions. Accordingly, the Company reports on one segment of its business.

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Earnings Per Share

Basic net income or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Nonvested shares of restricted stock are not included in the computation of basic net income or loss per share until vested. Diluted net income or loss per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net income or loss per share includes the dilutive effect of nonvested shares of restricted stock. For the three months ended March 31, 2009 and 2010, the Company incurred net losses and, therefore, the effect of the Company’s outstanding stock options and nonvested shares of restricted stock was not included in the calculation of diluted loss per share as the effect would be anti-dilutive. Accordingly, basic and diluted net loss per share were identical. For the three months ended March 31, 2009 and 2010, diluted earnings per share excluded 2,319,925 and 2,704,223 outstanding stock options, respectively, and 1,210,570 and 1,414,788 nonvested shares of restricted stock, respectively, as the result would be anti-dilutive.

Recent Accounting Pronouncements

In October 2009, the FASB issued authoritative guidance on multiple deliverable revenue arrangements. Pursuant to the new guidance, when vendor specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact the adoption of the new guidance will have on its consolidated financial statements.


3.	Cash Equivalents and Investments

The components of cash equivalents and investments at December 31, 2009 are as follows (dollars in thousands):


			Unrealized				Fair
	Cost		Gains		Losses		Value

Cash equivalents:
Money market funds	$	7,045	$	—	$	—	$	7,045
Commercial paper		37,144		—		—		37,144
Certificates of deposit		2,900		—		—		2,900
Short-term investments:
Commercial paper		6,497		2		—		6,499
Government-sponsored agency debt securities		8,746		5		—		8,751
Certificates of deposit		700		—		—		700
Corporate notes and bonds		1,900		1		—		1,901
Long-term investments:
Government-sponsored agency debt securities		1,000		1		—		1,001

Total	$	65,932	$	9	$	—	$	65,941

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The components of cash equivalents and investments at March 31, 2010 are as follows (dollars in thousands):


			Unrealized				Fair
	Cost		Gains		Losses		Value

Cash equivalents:
Money market funds and overnight deposits	$	31,020	$	—	$	—	$	31,020
Commercial paper		21,512		—		—		21,512
Certificates of deposit		1,000		—		—		1,000
Short-term investments:
Government-sponsored agency debt securities		8,246		1		—		8,247
Commercial paper and other		2,599		1		—		2,600
Certificates of deposit		700		—		—		700
Corporate notes and bonds		900		—		—		900

Total	$	65,977	$	2	$	—	$	65,979

Cash equivalents have original maturity dates of three months or less. Short-term investments have original maturity dates greater than three months but less than one year. Long-term investments have original maturity dates between one and two years.


4.	Fair Value Measurements

The fair value measurements of the Company’s financial assets measured on a recurring basis at March 31, 2010 are as follows (dollars in thousands):


	Total		Level 1		Level 2		Level 3

Cash equivalents	$	53,532	$	32,020	$	21,512	$	—
Short-term investments		12,447		9,847		2,600		—

Total	$	65,979	$	41,867	$	24,112	$	—

Cash equivalents and investments are classified within Level 1 or Level 2 of the fair value hierarchy since they are valued using quoted market prices or broker or dealer quotations.


5.	Stockholders’ Equity

Common Stock Repurchases

In November 2008, the Company’s Board of Directors authorized a stock repurchase program for up to $30,000,000 of the Company’s shares of common stock. The shares may be purchased from time to time in the open market. During the three months ended March 31, 2009 and 2010, the Company purchased an aggregate of 224,192 and 477,286 shares of its common stock for $3,500,000 and $7,012,000, respectively. During the three months ended March 31, 2009 and 2010, the Company also repurchased 40,391 and 86,708 shares of restricted stock from employees to satisfy the minimum statutory tax withholding obligations of $617,000 and $1,296,000, respectively, related to the taxable income recognized by these employees upon the vesting of their restricted stock awards during the three months ended March 31, 2009 and 2010.


6.	Stock-Based Compensation

The Company’s share-based arrangements include stock option awards and restricted stock awards. The Company recognizes compensation expense for stock-based compensation awards on a straight-line basis over the requisite service period of the award based on the estimated portion of the awards that are expected to vest and

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

applies estimated forfeiture rates based on analyses of historical data, including termination patterns and other factors.

The following table sets forth the stock-based compensation expense for equity awards recorded in the consolidated statements of operations for the three months ended March 31, 2009 and 2010 (in thousands):


	Three Months Ended
	March 31,
	2009		2010

Cost of revenues	$	345	$	579
Sales and marketing		857		437
Research and development		215		373
General and administration		1,469		1,513

Total	$	2,886	$	2,902

Stock Option Awards

The following weighted-average assumptions were used in calculating stock-based compensation for stock options awards granted during the three months ended March 31, 2009 and 2010:


	Three Months Ended
	March 31,
	2009			2010

Stock price volatility		61	%		60	%
Expected term (years)		6.1			6.3
Risk-free interest rate		2.4	%		2.7	%
Dividend yield		0	%		0	%

The summary of stock option activity for the three months ended March 31, 2010 is as follows:


				Weighted-				Aggregate
				Average		Weighted-		Intrinsic
				Exercise		Average		Value as of
	Number of			Price per		Contractual		March 31,
	Options			Share		Term		2010
								(In thousands)

Balance outstanding at December 31, 2009		2,134,979		$	14.35
Granted		573,401			14.70
Exercised		(3,532	)		5.34
Forfeited or cancelled		(625	)		21.41

Balance outstanding at March 31, 2010		2,704,223		$	14.43		7.1	$	9,643

Options vested and expected to vest at March 31, 2010		2,632,765		$	14.38		7.1	$	9,541

Exercisable at March 31, 2010		1,705,540		$	13.35		6.2	$	8,005

The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2009 and 2010 was $9.60 and $8.52, respectively. The fair value of stock options that vested during the three months ended March 31, 2009 and 2010 was $3,545,000 and $2,861,000, respectively. As of March 31, 2010, $8.1 million of total unrecognized stock-based compensation cost is related to nonvested stock option awards and is expected to be recognized over a weighted-average period of 2.8 years.

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The aggregate intrinsic value represents the difference between the exercise price of the underlying equity awards and the quoted closing price of the Company’s common stock at March 31, 2010 multiplied by the number of shares that would have been received by the stock option holders had all option holders exercised their stock options on March 31, 2010. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2009 and 2010 was $1,100,000 and $36,000, respectively.

Restricted Stock Awards

The fair value of the restricted stock awards is determined based on the quoted closing market price of the Company’s common stock on the grant date.

The summary of restricted stock award activity for the three months ended March 31, 2010 is as follows:


	Number of Shares
	Underlying
	Stock Awards

Balance nonvested at December 31, 2009		1,229,358
Awarded		518,102
Vested		(322,547	)
Forfeited		(10,125	)

Balance nonvested at March 31, 2010		1,414,788

The weighted-average grant date fair value of restricted stock awards granted during the three months ended March 31, 2009 and 2010 was $16.64 and $14.52, respectively.

As of March 31, 2010, $24.7 million of total unrecognized stock-based compensation cost is related to nonvested shares of restricted stock and is expected to be recognized over a weighted-average period of 2.9 years.


7.	Commitments and Contingencies

On March 30, 2010, the Company signed a twelve year lease for approximately 93,000 square feet of office space in Beltsville, Maryland. The Company will be relocating its corporate headquarters to the leased premises. The lease term commences on the date on which the landlord delivers the premises to the Company, which is anticipated to be February 15, 2011. The base annual rent will initially be $15.35 per square foot and will increase on each anniversary by 2.7%. Rental payments will begin on April 1, 2011.

The Company from time to time is subject to lawsuits, investigations and claims arising out of the ordinary course of business, including those related to commercial transactions, contracts, government regulation and employment matters. In the opinion of management based on all known facts, all such matters, if any, are either without merit or are of such kind, or involve such amounts that would not have a material effect on the financial position or results of operations of the Company if disposed of unfavorably.


8.	Subsequent Events

On April 16, 2010, Vocus Holdings B.V., a wholly-owned subsidiary of the Company, acquired all of the outstanding shares of capital stock of Data Presse SAS (“Datapresse”), a provider of media content and on-demand public relations software in France. The purchase consideration is €7.9 million, which represents approximately $10.8 million based on the exchange rate on the date of closing. The total consideration is comprised of €7.2 million, or $9.8 million, payable at closing subject to adjustment based on Datapresse’s working capital as of the closing, plus contingent consideration of up to €700,000, which is approximately $1.0 million based on the exchange rate on the date of closing, payable based on the satisfaction of certain specified criteria following the consummation of the acquisition. The acquisition will be accounted for under the purchase method of accounting, and the operating results of Datapresse will be included in the consolidated financial statements from the date of acquisition.

Vocus, Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

On April 16, 2010, Vocus Holdings B.V. acquired all of the outstanding shares of capital stock of BDL Media Ltd, Hong Kong, (“BDL Media”), a provider of on-demand public relations software and services in China. The maximum total consideration is approximately $2.6 million consisting of $557,000 payable at closing plus contingent consideration of up to $2.0 million payable over two years subject to certain adjustments. The acquisition will be accounted for under the purchase method of accounting and the operating results of BDL Media will be included in the consolidated financial statements from the date of acquisition.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report and in our annual report onForm 10-K for the year ended December 31, 2009.

This report includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” “will,” “should,” “seeks” or other similar expressions. Forward-looking statements reflect our plans, expectations and beliefs, and involve inherent risks and uncertainties, many of which are beyond our control. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors” in Item 1A of Part II.

Overview

We are a leading provider of on-demand software for public relations management. Our web-based software suite helps organizations of all sizes fundamentally change the way they communicate with both the media and the public, optimizing their public relations and increasing their ability to measure its impact. Our on-demand software addresses the critical functions of public relations including media relations, news distribution and news monitoring. We deliver our solutions over the Internet using a secure, scalable application and system architecture, which allows our customers to eliminate expensive up-front hardware and software costs and to quickly deploy and adopt our on-demand software.

We sell access to our on-demand software primarily through our direct sales channel. As of March 31, 2010, we had 4,834 active subscription customers from a variety of industries, including financial and insurance, technology, healthcare and pharmaceutical and retail and consumer products, as well as government agencies,not-for-profit organizations and educational institutions. We define active subscription customers as unique customer accounts that have an active subscription and have not been suspended for non-payment.

We are also a provider of online distribution of press releases. We enable our customers to achieve visibility on the Internet by distributing search engine optimized press releases directly to various news sites and the public. We offer on-demand solutions which allow our customers to widely distribute press releases containing important elements of content-rich media such as images, podcasts and video messages designed to drive Internet traffic to websites and increase brand awareness.

We plan to continue the expansion of our customer base by expanding our direct distribution channels, expanding our international market penetration and selectively pursuing strategic acquisitions. As a result, we plan to hire additional personnel, particularly in sales and marketing, and expand our domestic and international selling and marketing activities, increase the number of locations around the world where we conduct business and develop our operational and financial systems to manage a growing business. We also intend to seek to identify and acquire companies which would either expand our solution’s functionality, provide access to new customers or markets, or both.

On March 30, 2010, we signed a twelve year lease for approximately 93,000 square feet of office space in Beltsville, Maryland. We will be relocating our corporate headquarters to the leased premises. The lease term commences on the date on which the landlord delivers the premises to us, which is anticipated to be February 15, 2011. The base annual rent will initially be $15.35 per square foot and will increase on each anniversary by 2.7%. Rental payments will begin on April 1, 2011.

On April 16, 2010, we acquired all of the outstanding shares of capital stock of Datapresse, a provider of media content and on-demand public relations software in France. The purchase consideration is €7.9 million, which is approximately $10.8 million based on the exchange rate on the date of closing. The total consideration is comprised of €7.2 million, or approximately $9.8 million, payable at closing subject to adjustment based on Datapresse’s working capital as of the closing, plus contingent consideration of up to €700,000, which is approximately $1.0 million based on the exchange rate on the date of closing, payable based on the satisfaction of certain specified

criteria following the consummation of the acquisition. The acquisition will be accounted for under the purchase method of accounting and the operating results of Datapresse will be included in our consolidated financial statements from the date of acquisition.

On April 16, 2010, we acquired all of the outstanding shares of capital stock of BDL Media, a provider of on-demand public relations software and services in China. The maximum total consideration is $2.6 million consisting of $557,000 payable at closing plus contingent consideration of up to $2.0 million payable over two years subject to certain adjustments. The acquisition will be accounted for under the purchase method of accounting and the operating results of BDL Media will be included in our consolidated financial statements from the date of acquisition.

Sources of Revenues

We derive our revenues from subscription agreements and related services and from the online distribution of press releases. Our subscription agreements contain multiple service elements and deliverables, which include use of our on-demand software, hosting services, content and content updates, implementation and training services and customer support. The typical term of our subscription agreements is one year; however, our customers may purchase subscriptions with multi-year terms. We invoice our customers in advance of their annual subscription, with payment terms that generally require our customers to pay us within 30 days of invoice. Our subscription agreements typically are non-cancelable, though customers have the right to terminate their agreements for cause if we materially breach our obligations under the agreement. Our subscription agreements may include amounts that are not yet contractually billable to customers, and any such unbilled amounts are not recorded in deferred revenue until invoiced.

Additionally, we derive revenue on a per-transaction basis from the online distribution of press releases. We generally receive payment in advance of the distribution of the press release.

Professional services revenue consists primarily of data migration, training and configuration services sold separately after the initial subscription agreement. Our professional service engagements are billed on a fixed fee basis with payment terms requiring our customers to pay us within 30 days of invoice. Revenues from professional services sold separately from subscription agreements have not been material to our business.

Cost of Revenues and Operating Expenses

Cost of Revenues. Cost of revenues consists primarily of compensation for training, editorial and support personnel, hosting infrastructure, press release distribution, acquisition, maintenance and amortization of content, amortization of purchased technology, amortization of capitalized software development costs, depreciation associated with computer equipment and software and allocated overhead. We allocate overhead expenses such as employee benefits, computer and office supplies, management information systems and depreciation for computer equipment based on headcount. As a result, indirect overhead expenses are included in cost of revenues and each operating expense category.

We believe content is an integral part of our solution and provides our customers with access to broad, current and relevant information critical to their public relations efforts. We expect to continue to make investments in both our own content and content acquired from third parties and to continue to enhance our proprietary information database and news on-demand service. We expect that in 2010, cost of revenues will increase in absolute dollars but will remain constant as a percentage of revenues.

Sales and Marketing. Sales and marketing expenses are our largest operating expense, accounting for 51% of our revenues for the three months ended March 31, 2010. Sales and marketing expenses consist primarily of compensation for our sales and marketing personnel, sales commissions and incentives, marketing programs, including lead generation, promotional events, webinars and other brand building expenses and allocated overhead. We expense our sales commissions at the time a subscription agreement is executed by the customer, and we recognize substantially all of our revenues ratably over the term of the corresponding subscription agreement. As a result, we incur sales expense before the recognition of the related revenues.

As our revenues increase, we plan to invest in sales and marketing by increasing the number of sales and marketing personnel to add new customers, increase sales to our existing customers and increase sales of our online press release distribution services. We also plan to expand our marketing activities in order to build brand awareness and generate additional leads for our growing sales personnel. We expect that in 2010, sales and marketing expenses will increase in absolute dollars and as a percentage of revenues.

Research and Development. Research and development expenses consist primarily of compensation for our software application development personnel and allocated overhead. We have historically focused our research and development efforts on increasing the functionality and enhancing the ease of use of our on-demand software. Because of our hosted, on-demand model, we are able to provide all of our customers with a single, shared version of our most recent application. As a result, we do not have to maintain legacy versions of our software, which enables us to have relatively low research and development expenses as compared to traditional enterprise software business models. We expect that in 2010, research and development expenses will increase in absolute dollars but will remain constant as a percentage of revenues.

General and Administrative. General and administrative expenses consist of compensation and related expenses for executive, finance, legal, human resources and administrative personnel, as well as fees for legal, accounting and other consulting services, facilities rent, other corporate expenses and allocated overhead. We expect that in 2010, general and administrative expenses will increase in absolute dollars and as a percentage of revenues.

Amortization of Intangible Assets. Amortized intangible assets consist of customer relationships, a trade name and agreementsnot-to-complete acquired in business combinations. We expect that in 2010, amortization of intangible assets will increase in absolute dollars and as a percentage of revenues due to the acquisitions of Datapresse and BDL Media in April 2010.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 2 to the accompanying consolidated financial statements and in our annual report on Form10-K for the year ended December 31, 2009, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition. We recognize revenues when there is persuasive evidence of an arrangement, the service has been provided to the customer, the collection of the fee is probable and the amount of the fees to be paid by the customer is fixed or determinable. Our subscription agreements generally contain multiple service elements and deliverables. These elements include access to our software and often specify initial services including implementation and training. Our subscription agreements do not provide customers the right to take possession of the software at any time. All elements in our multiple element subscription agreements are considered a single unit of accounting, and accordingly, we recognize all associated fees over the subscription period, which is typically one year. We recognize our revenue over the subscription period because the access to our software is the last element delivered to the customer and the predominant element of our agreements. We determined that we do not have objective and reliable evidence of the fair value of the subscription to our on-demand software after delivery of specified initial services. When we sell this subscription separately from professional services the price charged varies and, therefore, we cannot objectively and reliably determine the subscription’s fair value. As a result, subscription revenues are recognized ratably over the subscription period. Professional services sold separately from a subscription arrangement are recognized as the services are performed.

We distribute press releases over the Internet which are indexed by major search engines and distributed directly to various news sites, journalists and other key constituents. We recognize revenue on a per-transaction basis when the press releases are made available to the public.

Sales Commissions. Sales commissions are expensed when a subscription agreement is executed by the customer. As a result, we incur incremental sales expense before the recognition of the related revenues.

Stock-Based Compensation. We recognize compensation expense for equity awards based on the fair value of the award and on a straight-line basis over the requisite service period of the award based on the estimated portion of the award that is expected to vest. We apply estimated forfeiture rates based on analyses of historical data, including termination patterns and other factors. We use the quoted closing market price of our common stock on the grant date to measure the fair value of our restricted stock awards. We use the Black-Scholes option pricing model to measure the fair value of our option awards. We became a public entity in December 2005, and therefore have a limited history of volatility. Accordingly, the expected volatility is based primarily on the historical volatilities of similar entities’ common stock over the most recent period commensurate with the estimated expected term of the awards. The expected term of an award is equal to the midpoint between the vesting date and the end of the contractual term of the award. The risk-free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. We have not paid dividends and do not anticipate paying a cash dividend in the foreseeable future and, accordingly, use an expected dividend yield of zero.

Business Combinations. We have completed acquisitions of businesses that have resulted in the recording of goodwill and identifiable definite-lived intangible assets based on the estimated fair value of those assets. Definite-lived intangible assets consist of acquired customer relationships, a trade name, agreementsnot-to-compete and purchased technology. Definite-lived intangible assets are amortized either on a straight-line or accelerated basis over their estimated useful lives ranging from two to seven years. Accounting for these acquisitions requires us to make determinations about the fair value of assets acquired, useful lives for definite-lived intangible assets, and liabilities assumed that involve estimates and judgments.

Goodwill and Long-Lived Assets. Goodwill is not amortized, but rather is assessed for impairment at least annually. Goodwill impairment is evaluated using a two step process. The first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The fair value of the reporting unit is allocated to all the assets and liabilities, including any previously unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

We assess the impairment of definite-lived intangible and other long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may no longer be fully recoverable. We determine the impairment, if any, by comparing the carrying value of the assets to future undiscounted net cash flows expected to be generated by the related assets. An impairment charge is recognized to the extent the carrying value exceeds the estimated fair value of the assets. There were no events or changes in circumstances through March 31, 2010 indicating that an interim assessment was necessary for goodwill or long-lived assets.

Income Taxes. We use the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax-credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by the valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Our judgments relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We file income tax returns in the U.S. federal jurisdictions and various state and foreign jurisdictions and are subject to U.S. federal, state, and foreign tax examinations for years ranging from 2002 to 2009. Our judgments relative to the value of deferred tax assets and liabilities take into account estimates of the amount of future taxable income. Actual operating results and the underlying amount of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations.

As of March 31, 2010, we maintained a full valuation against our foreign deferred tax assets because we do not believe that it is more likely than not that we would realize the tax benefits of these deferred tax assets.

Results of Operations

The following tables set forth selected unaudited consolidated statements of operations data for each of the periods indicated as a percentage of total revenues for the periods indicated.


	Three Months Ended
	March 31,
	2009			2010

Revenues		100	%		100	%
Cost of revenues		19			20

Gross profit		81			80
Operating expenses:
Sales and marketing		46			51
Research and development		6			6
General and administrative		25			24
Amortization of intangible assets		2			2

Total operating expenses		79			83
Income (loss) from operations		2			(3	)
Other income, net		1			—

Income (loss) before provision for income taxes		3			(3	)
Provision for income taxes		5			—

Net loss		(2	)%		(3	)%

Three Months Ended March 31, 2010 and 2009

Revenues. Revenues for the three months ended March 31, 2010 were $22.3 million, an increase of $1.9 million, or 9%, over revenues of $20.4 million for the comparable period in 2009. The increase in revenues was primarily due to the increase in the number of total active subscription customers to 4,834 as of March 31, 2010 from 3,558 as of March 31, 2009. The increase in active subscription customers was the result of additional sales personnel focused on acquiring new customers and renewing existing customers. Revenue growth from the increase in active subscription customers was $1.0 million. Revenue growth from transaction revenue was $816,000. Total deferred revenue as of March 31, 2010 was $45.6 million, representing an increase of $4.6 million, or 11%, over total deferred revenue of $41.0 million as of March 31, 2009.

Cost of Revenues. Cost of revenues for the three months ended March 31, 2010 was $4.4 million, an increase of $528,000, or 14%, over cost of revenues of $3.9 million for the comparable period in 2009. The increase in cost of revenues was primarily due to an increase of $102,000 in third-party license and royalty fees and $234,000 in stock-based compensation. We had 147 full-time employee equivalents in our professional and other support services group at March 31, 2010 compared to 149 full-time employee equivalents at March 31, 2009.

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended March 31, 2010 were $11.4 million, an increase of $1.9 million, or 20%, over sales and marketing expenses of $9.5 million for the comparable period in 2009. The increase in sales and marketing was primarily due to an increase of $1.0 million in employee-related costs from additional personnel, $645,000 in sales commissions and incentive compensation, $635,000 in marketing program costs primarily to increase awareness and attract customers to our online press release services offset by a decrease of $420,000 in stock-based compensation. Our sales and marketing headcount increased by 22% as we hired additional sales personnel to focus on acquiring new customers and increasing revenues from existing customers and marketing personnel to expand our activities to build brand awareness. We had 266 full-time employee equivalents in sales and marketing at March 31, 2010 compared to 218 full-time employee equivalents at March 31, 2009.

Research and Development Expenses. Research and development expenses for the three months ended March 31, 2010 were $1.3 million, an increase of $157,000, or 14%, over research and development expenses of $1.2 million for the comparable period in 2009. The increase in research and development was primarily due to an increase of $158,000 in stock-based compensation. For the three months ended March 31, 2010, we capitalized $185,000 of employee-related costs for internally developed software. For the three months ended March 31, 2009, we capitalized $43,000 of employee-related costs for internally developed software. We had 31 full-time employee equivalents in research and development at March 31, 2010 and 2009.

General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2010 were $5.2 million, an increase of $154,000, or 3%, over general and administrative expenses of $5.0 million for the comparable period in 2009. The increase in general and administrative expenses was primarily due to an increase of $163,000 in employee-related costs. We had 46 full-time employee equivalents in our general and administrative group at March 31, 2010 and 2009.

Amortization of Intangible Assets. Amortization of intangible assets for the three months ended March 31, 2010 was $469,000, a decrease of $21,000, or 4%, compared to $490,000 for the comparable period in 2009.

Other Income (Expense). Other income for the three months ended March 31, 2010 was $61,000, a decrease of $158,000, or 72%, compared to $219,000 for the comparable period in 2009. The decline in interest yields for fixed income securities resulted in decreased interest income.

Provision for Income Taxes. The provision for income taxes for the three months ended March 31, 2010 was $91,000, which reflects our actual income tax expense for the period rather than our estimated effective tax rate for 2010, as we could not reliably estimate such rate. Our effective tax rate differs from the U.S. Federal statutory rate primarily due to non-deductible stock-based compensation, operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain other non-deductible expenses.

The provision for income taxes for the three months ended March 31, 2009 was $993,000, which reflected our estimated annual effective tax rate for the year. Our effective tax rate differed from the U.S. Federal statutory rate primarily due to operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain non-deductible expenses.

Liquidity and Capital Resources

At March 31, 2010, our principal sources of liquidity were cash and cash equivalents totaling $91.1 million, investments totaling $12.4 million and net accounts receivable of $10.8 million.

Net cash provided by operating activities for the three months ended March 31, 2010 was $8.2 million reflecting a net loss of $579,000, non-cash charges for depreciation and amortization charges of $823,000, stock-based compensation expense of $2.9 million and $5.4 million from net decreases in accounts receivable and deferred revenue primarily due to collections from the seasonally high amounts invoiced under our subscription agreements in the fourth quarter of 2009. Net cash provided by operating activities is also impacted by changes in other working capital accounts in the ordinary course of business.

Net cash provided by investing activities for the three months ended March 31, 2010 was $5.5 million, which primarily resulted from proceeds received from net maturities of investments of $6.4 million and investments in property, equipment and software of $770,000.

Net cash used in financing activities for the three months ended March 31, 2010 was $8.3 million. During the three months ended March 31, 2010, we purchased 563,994 shares of our common stock at an aggregate cost of $8.3 million.

We intend to fund our operating expenses and capital expenditures primarily through cash flows from operations. We believe that our current cash, cash equivalents and investments together with our expected cash flows from operations will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for at least the next 12 months.

Contractual Obligations, Commercial Commitments and Off-Balance Sheet Arrangements

As of March 31, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space and equipment, we do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our annual report onForm 10-K for the year ended December 31, 2009. Our exposures to market risk have not changed materially since December 31, 2009.


Item 4.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II


Item 1.	*Legal Proceedings*

We are not currently subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising from our normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actions currently pending against us, we do not expect that any such liability will have a material adverse effect on our financial position, operating results or cash flows.


Item 1A.	*Risk Factors*

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of the risks which may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.

Risks Related to Our Business and Industry

Current economic and market conditions may adversely affect our business, financial condition and results of operations.

The current economic downturn, which has resulted in declines in corporate spending, decreases in consumer confidence and tightening in the credit markets may adversely affect our financial condition and the financial condition and liquidity of our customers and suppliers. Among other things, these economic and market conditions may result in:


	•	reductions in the corporate budgets, including technology spending of our customers and potential customers;

	•	declines in demand for our solutions;

	•	decreases in collections of our customer receivables;

	•	insolvency of our key vendors and suppliers; and

	•	volatility in interest rates and decreases in investment income.

Any of these events, which are outside of our scope of control, would likely have an adverse effect on our business, financial condition, results of operations and cash flows.

Our quarterly results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of investors or securities analysts, which could cause our stock price to decline.

Our quarterly revenue and results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Fluctuations in our results of operations may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section:


	•	our ability to retain and increase sales to existing customers and attract new customers;

	•	changes in the volume and mix of subscriptions sold and press releases distributed in a particular quarter;

	•	seasonality of our business cycle, given that our subscription volumes are normally lowest in the first quarter and highest in the fourth quarter;


	•	our policy of expensing sales commissions at the time our customers are invoiced for a subscription agreement, while the majority of our revenue is recognized ratably over future periods;

	•	the timing and success of new product introductions or upgrades by us or our competitors;

	•	changes in our pricing policies or those of our competitors;

	•	the amount and timing of expenditures related to expanding our operations;

	•	changes in accounting policies or the timing of non-recurring charges;

	•	changes in the payment terms for our products and services;

	•	changes in foreign currency exchange rates;

	•	unforeseen fluctuations in our effective tax rate including changes in the mix of earnings in the various countries in which we operate, the valuation of deferred tax assets and liabilities and the deductibility of certain expenses; and

	•	the purchasing and budgeting cycles of our customers.

Most of our expenses, such as salaries and third-party hosting co-location costs, are relatively fixed in the short-term, and our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may not be able to proportionally reduce operating expenses for that quarter, causing a disproportionate effect on our expected results of operations for that quarter.

Due to the foregoing factors, and the other risks discussed in this report, you should not rely onquarter-to-quarter comparisons of our results of operations as an indication of our future performance.

The markets for our on-demand software and solutions are emerging, which makes it difficult to evaluate our business and future prospects and may increase the risk of your investment.

The market for software specifically designed for public relations is relatively new and emerging, making our business and future prospects difficult to evaluate. Many companies have invested substantial personnel and financial resources in their PR departments, and may be reluctant or unwilling to migrate to on-demand software and services specifically designed to address the public relations market. Widespread market acceptance of our solutions is critical to the success of our business. You must consider our business and future prospects in light of the challenges, risks and difficulties we encounter in the new and rapidly evolving market of on-demand public relations management solutions. These challenges, risks and difficulties include the following:


	•	generating sufficient revenue to maintain profitability;

	•	managing growth in our operations;

	•	managing the risks associated with developing new services and modules;

	•	attracting and retaining customers; and

	•	attracting and retaining key personnel.

We may not be able to successfully address any of these challenges, risks and difficulties, including the other risks related to our business and industry described below. Failure to adequately do so could adversely affect our business, results of operations or financial condition.

If our on-demand solutions are not widely accepted, our business will be harmed.

We derive, and expect to continue to derive for the foreseeable future, principally all of our revenue from providing on-demand solutions. Our success will depend to a substantial extent on the willingness of companies to increase their use of on-demand solutions in general and for on-demand public relations software and services in particular. If businesses do not perceive the benefits of our on-demand solutions, then the market may not develop further, or it may develop more slowly than we expect, either of which would adversely affect our business, financial condition and results of operations.

A majority of our on-demand solutions are sold pursuant to subscription agreements, and if our existing subscription customers elect either not to renew these agreements or renew these agreements for fewer modules or users, our business, financial condition and results of operations will be adversely affected.

A majority of our on-demand solutions are sold pursuant to annual subscription agreements and our customers have no obligation to renew these agreements. As a result, we may not be able to consistently and accurately predict future renewal rates. Our subscription customers’ renewal rates may decline or fluctuate or our subscription customers may renew for fewer modules or users as a result of a number of factors, including their level of satisfaction with our solutions, budgetary or other concerns, and the availability and pricing of competing products. Additionally, we may lose our subscription customers due to the high turnover rate in the PR departments of small and mid-sized organizations. If large numbers of existing subscription customers do not renew these agreements, or renew these agreements on terms less favorable to us, and if we cannot replace or supplement those non-renewals with new subscription agreements generating the same or greater level of revenue, our business, financial condition and results of operations will be adversely affected.

Because we recognize subscription revenue over the term of the applicable subscription agreement, the lack of subscription renewals or new subscription agreements may not be immediately reflected in our operating results.

We recognize revenue from our subscription customers over the terms of their subscription agreements. The majority of our quarterly revenue usually represents deferred revenue from subscription agreements entered into during previous quarters. As a result, a decline in new or renewed subscription agreements in any one quarter will not necessarily be fully reflected in the revenue for the corresponding quarter but will negatively affect our revenue in future quarters. Additionally, the effect of significant downturns in sales and market acceptance of our solutions may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

We might not generate increased business from our current customers, which could limit our revenue in the future.

The success of our strategy is dependent, in part, on the success of our efforts to sell additional modules and services to our existing customers and to increase the number of users per subscription customer. These customers might choose not to expand their use of or make additional purchases of our solutions. If we fail to generate additional business from our current customers, our revenue could grow at a slower rate or decrease.

Our business model continues to evolve, which may cause our results of operations to fluctuate or decline.

Our business model continues to evolve, and is therefore subject to additional risk and uncertainty. For example, through our acquisition of PRWeb International, Inc. in August 2006, we began providing online press release distribution. We anticipate that our future financial performance and revenue growth will depend, in part, upon the growth of these services. Unlike our historical, subscription-based model, we recognize revenue from our online news distribution services on a per transaction basis when our customers’ press releases are made available to the public. Since our transaction revenue is not derived from subscription agreements, the amount of transaction revenue we recognize in any period could fluctuate significantly from prior periods, which could adversely affect our financial condition and results of operations.

We depend on search engines to attract new customers, and if those search engines change their listings or our relationship with them deteriorates or terminates, we may be unable to attract new customers and our business may be harmed.

We rely on search engines to attract new customers, and many of our customers locate our websites by clicking through on search results displayed by search engines such as Google and Yahoo!. Search engines typically provide two types of search results, algorithmic and purchased listings. Algorithmic search results are determined and

organized solely by automated criteria set by the search engine and a ranking level cannot be purchased. Advertisers can also pay search engines to place listings more prominently in search results in order to attract users to advertisers’ websites. We rely on both algorithmic and purchased listings to attract customers to our websites. Search engines revise their algorithms from time to time in an attempt to optimize their search result listings. If search engines on which we rely for algorithmic listings modify their algorithms, then our websites may not appear at all or may appear less prominently in search results which could result in fewer customers clicking through to our websites, requiring us to resort to other potentially costly resources to advertise and market our services. If one or more search engines on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, or our revenue could decline and our business may suffer. Additionally, the cost of purchased search listing advertising is rapidly increasing as demand for these channels grows, and further increases could greatly increase our expenses.

Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our solutions.

Increasing our customer base and achieving broader market acceptance of our solutions will depend to a significant extent on our ability to expand our sales and marketing operations. We plan to continue to expand our direct sales force and engage additional third-party channel partners, both domestically and internationally. This expansion will require us to invest significant financial and other resources. Our business will be seriously harmed if our efforts do not generate a corresponding significant increase in revenue. We may not achieve anticipated revenue growth from expanding our direct sales force if we are unable to hire and develop talented direct sales personnel, if our new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if we are unable to retain our existing direct sales personnel. We also may not achieve anticipated revenue growth from our third-party channel partners if we are unable to attract and retain additional motivated third-party channel partners, if any existing or future third-party channel partners fail to successfully market, resell, implement or support our solutions for their customers, or if they represent multiple providers and devote greater resources to market, resell, implement and support competing products and services.

If we fail to develop our brands, our business may suffer.

We believe that developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. Successful promotion of our brands will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful solutions. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brands. If we fail to successfully promote and maintain our brands, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.

If our information databases do not maintain market acceptance, our business, financial condition and results of operations could be adversely affected.

We have developed our own content that is included in the information databases that we make available to our customers through our on-demand software. If our internally-developed content does not maintain market acceptance, current subscription customers may not continue to renew their subscription agreements with us, and it may be more difficult for us to acquire new subscription customers.

We rely on third-parties to provide certain content for our solutions, and if those third-parties discontinue providing their content, our business, financial condition and results of operations could be adversely affected.

We rely on third-parties to provide certain data for our information databases and our news on-demand solutions. These third-parties may not renew agreements to provide content to us or may increase the price they charge for their content. Additionally, the quality of the content provided to us may not be acceptable to us and we may need to enter into agreements with additional third-parties. In the event we are unable to use such third-party

content or are unable to enter into agreements with third-parties, current subscription customers may not renew their subscription agreements with us, and it may be difficult to acquire new subscription customers.

We depend on search engines for the placement of our customers’ online news distribution, and if those search engines change their listings or our relationship with them deteriorates or terminates, our reputation will be harmed and we may lose customers or be unable to attract new customers.

Our online news distribution business depends upon the placement of our customers’ news releases. If search engines on which we rely modify their algorithms or purposefully block our content, then information distributed via our online service may not be displayed or may be displayed less prominently in search results, and as a result we could lose customers or fail to attract new customers and our results of operations could be adversely affected.

We have incurred operating losses in the past and may incur operating losses in the future.

We have incurred operating losses in the past and we may incur operating losses in the future. Our recent operating losses were $821,000 for 2007 and $300,000 for 2008. Although we had operating income in 2009, we expect our operating expenses to increase as we expand our operations, and if our increased operating expenses exceed our revenue growth, we may not be able to maintain operating income. You should not consider recent quarterly revenue growth as indicative of our future performance. In fact, in future quarters, we may not have any revenue growth or our revenue could decline.

We face competition, and our failure to compete successfully could make it difficult for us to add and retain customers and could reduce or impede the growth of our business.

The public relations market is fragmented, competitive and rapidly evolving, and there are limited barriers to entry to some segments of this market. We expect the intensity of competition to increase in the future as existing competitors develop their capabilities and as new companies enter our market. Increased competition could result in pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance. If we are unable to compete effectively, it will be difficult for us to maintain our pricing rates and add and retain customers, and our business, financial condition and results of operations will be seriously harmed. We face competition from:


	•	PR solution providers offering products specifically designed for PR;

	•	generic desktop software and other commercially available software not specifically designed for PR;

	•	outsourced PR service providers;

	•	custom-developed solutions; and

	•	press release distribution providers.

Many of our current and potential competitors have longer operating histories, a larger presence in the general PR market, access to larger customer bases and substantially greater financial, technical, sales and marketing, management, service, support and other resources than we have. As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements or devote greater resources to the promotion and sale of their products and services than we can. To the extent our competitors have an existing relationship with a potential customer, that customer may be unwilling to switch vendors due to existing time and financial commitments with our competitors.

We also expect that new competitors, such as enterprise software vendors and online service providers that have traditionally focused on enterprise resource planning or back office applications, will enter the on-demand public relations management market with competing products as the on-demand public relations management market develops and matures. Many of these potential competitors have established or may establish business, financial or strategic relationships among themselves or with existing or potential customers, alliance partners or other third parties or may combine and consolidate to become more formidable competitors with better resources. It is possible that these new competitors could rapidly acquire significant market share.

We expect that the traditional press release distribution providers will offer press release distribution services through the internet. We had or continue to have partnerships with these providers to co-market and sell our press release distribution services. It is possible that these new competitors could rapidly acquire significant market share.

If we fail to respond to evolving industry standards, our on-demand solutions may become obsolete or less competitive.

The market for our on-demand solutions is characterized by changes in customer requirements, changes in protocols and evolving industry standards. If we are unable to enhance or develop new features for our existing solutions or develop acceptable new solutions that keep pace with these changes, our on-demand software and services may become obsolete, less marketable and less competitive and our business will be harmed. The success of any enhancements, new modules and on-demand software and services depends on several factors, including timely completion, introduction and market acceptance of our solutions. Failure to produce acceptable new offerings and enhancements may significantly impair our revenue growth and reputation.

If there are interruptions or delays in providing our on-demand solutions due to third-party error, our own error or the occurrence of unforeseeable events, delivery of our solutions could become impaired, which could harm our relationships with customers and subject us to liability.

All of our solutions reside on hardware that we own or lease and operate. Our hardware is currently located in third-party facilities maintained and operated in several domestic and international locations. Our third-party facility providers do not guarantee that our customers’ access to our solutions will be uninterrupted, error-free or secure. Our operations depend, in part, on our third-party facility providers’ ability to protect systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. In the event that our third-party facility arrangements are terminated, or there is a lapse of service or damage to such third-party facilities, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities and services.

Our disaster recovery computer hardware and systems are located at a third-party facility in Baltimore, Maryland. Our disaster recovery systems have not been tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage occurring at our third-party facilities. Moreover, our disaster recovery computer hardware and systems are located within the same geographic region as one of our third-party facilities and may be equally or more affected by any disaster affecting such third-party facilities. Any or all of these events could cause our customers to lose access to our on-demand software. In addition, the failure by our third-party facilities to meet our capacity requirements could result in interruptions in such service or impede our ability to scale our operations.

We architect the system infrastructure and procure and own or lease the computer hardware used for our services. Design and mechanical errors, spikes in usage volume and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions in our service. Any interruptions or delays in our service, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and our reputation. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could reduce our revenue, subject us to liability, and cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could adversely affect our business, financial condition and results of operations.

The market for our solutions among large customers may be limited if they require customized features or functions that we do not currently intend to provide in our solutions or that would be difficult for individual customers to customize within our solutions.

Prospective customers, especially large enterprise customers, may require heavily customized features and functions unique to their business processes. If prospective customers require customized features or functions that we do not offer, and that would be difficult for them to implement themselves, then the market for our solutions will be more limited and our business could suffer.

Acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and consume resources that are necessary to sustain our business.

One of our business strategies is to selectively acquire companies which would either expand our solutions’ functionality, provide access to new customers or markets, or both. An acquisition may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the technologies, products, personnel or operations of the acquired organizations, particularly if the key personnel of the acquired company choose not to work for us, and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. We also may experience lower rates of renewal from subscription customers obtained through acquisitions than our typical renewal rates. Moreover, we cannot provide assurance that the anticipated benefits of any acquisition, investment or business relationship would be realized or that we would not be exposed to unknown liabilities. In connection with one or more of these transactions, we may:


	•	issue additional equity securities that would dilute the ownership of our stockholders;

	•	use cash that we may need in the future to operate our business;

	•	incur or assume debt on terms unfavorable to us or that we are unable to repay;

	•	incur large charges or substantial liabilities;

	•	encounter difficulties retaining key employees of an acquired company or integrating diverse business cultures; and

	•	become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

To date, we have completed several acquisitions. In April 2010, we acquired all of the outstanding shares of capital stock of Datapresse and BDL Media.

We may be liable to our customers and may lose customers if we provide poor service, if our solutions do not comply with our agreements or if there is a loss of data.

The information in our databases may not be complete or may contain inaccuracies that our customers regard as significant. Our ability to collect and report data may be interrupted by a number of factors, including our inability to access the Internet, the failure of our network or software systems or failure by our third-party facilities to meet our capacity requirements. In addition, computer viruses and intentional or unintentional acts of our employees may harm our systems causing us to lose data we maintain and supply to our customers or data that our customers input and maintain on our systems, and the transmission of computer viruses could expose us to litigation. Our subscription agreements generally give our customers the right to terminate their agreements for cause if we materially breach our obligations. Any failures in the services that we supply or the loss of any of our customers’ data that we cannot rectify in a certain time period may give our customers the right to terminate their agreements with us and could subject us to liability. As a result, we may also be required to spend substantial amounts to defend lawsuits and pay any resulting damage awards. In addition to potential liability, if we supply inaccurate data or experience interruptions in our ability to supply data, our reputation could be harmed and we could lose customers.

Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may be inadequate, or may not be available in the future on acceptable terms, or at all. In addition, we cannot provide assurance that this policy will cover any claim against us for loss of data or other indirect or consequential damages and defending a suit, regardless of its merit, could be costly and divert management’s attention.

If our solutions fail to perform properly or if they contain technical defects, our reputation will be harmed, our market share would decline and we could be subject to product liability claims.

Our on-demand software may contain undetected errors or defects that may result in product failures or otherwise cause our solutions to fail to perform in accordance with customer expectations. Because our customers

use our solutions for important aspects of their business, any errors or defects in, or other performance problems with, our solutions could hurt our reputation and may damage our customers’ businesses. If that occurs, we could lose future sales or our existing subscription customers could elect to not renew. Product performance problems could result in loss of market share, failure to achieve market acceptance and the diversion of development resources. If one or more of our solutions fail to perform or contain a technical defect, a customer may assert a claim against us for substantial damages, whether or not we are responsible for our solutions’ failure or defect. We do not currently maintain any warranty reserves.

Product liability claims could require us to spend significant time and money in litigation or arbitration/dispute resolution or to pay significant settlements or damages. Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may not be sufficient to cover liabilities resulting from such product liability claims. Also, our insurer may disclaim coverage. Our liability insurance also may not continue to be available to us on reasonable terms, in sufficient amounts, or at all. Any product liability claim successfully brought against us could cause our business to suffer.

Our online press release and news distribution is a trusted information source. To the extent we were to distribute an inaccurate or fraudulent press release, our reputation could be harmed, even though we are not responsible for the content distributed via our online new distribution service.

Changes in laws and/or regulations related to the Internet or changes in the Internet infrastructure itself may cause our business to suffer.

The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting data privacy, the use of the Internet as a commercial medium and the use of email for marketing or other consumer communications. In addition, certain government agencies or private organizations have begun to impose taxes, fees or other charges for accessing the Internet or for sending commercial email. These laws or charges could limit the growth of Internet-related commerce or communications generally, result in a decline in the use of the Internet and the viability of Internet-based services such as ours and reduce the demand for our products.

The Internet has experienced, and is expected to continue to experience, significant user and traffic growth, which has, at times, caused user frustration with slow access and download times. If Internet activity grows faster than Internet infrastructure or if the Internet infrastructure is otherwise unable to support the demands placed on it, or if hosting capacity becomes scarce, our business growth may be adversely affected.

If we are unable to protect our proprietary technology and other intellectual property rights, it will reduce our ability to compete for business.

If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products similar to our products, which could decrease demand for our solutions. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as licensing agreements, third-party nondisclosure agreements and other contractual provisions and technical measures, to protect our intellectual property rights. These protections may not be adequate to prevent our competitors from copying our solutions or otherwise infringing on our intellectual property rights. Existing laws afford only limited protection for our intellectual property rights and may not protect such rights in the event competitors independently develop solutions similar or superior to ours. In addition, the laws of some countries in which our solutions are or may be licensed do not protect our solutions and intellectual property rights to the same extent as do the laws of the United States.

To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information.

If a third-party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, and our business may be harmed.

The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Third-parties may assert patent and other intellectual property infringement claims against us in the form of lawsuits, letters, or other forms of communication. As currently pending patent applications are not publicly available, we cannot anticipate all such claims or know with certainty whether our technology infringes the intellectual property rights of third-parties. We expect that the number of infringement claims in our market will increase as the number of solutions and competitors in our industry grows. These claims, whether or not successful, could:


	•	divert management’s attention;

	•	result in costly and time-consuming litigation;

	•	require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or

	•	require us to redesign our solutions to avoid infringement.

As a result, any third-party intellectual property claims against us could increase our expenses and adversely affect our business. In addition, many of our customer agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling in any such claim. Even if we have not infringed any third-parties’ intellectual property rights, we cannot be sure our legal defenses will be successful, and even if we are successful in defending against such claims, our legal defense could require significant financial resources and management’s time, which could adversely affect our business.

Our growth could strain our personnel and infrastructure resources and, if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.

Rapid growth in our headcount and operations may place a significant strain on our management, administrative, operational and financial infrastructure. We anticipate that additional growth will be required to address increases in our customer base, as well as expansion into new geographic areas.

Our success will depend in part upon the ability of our senior management to manage growth effectively. To do so, we must continue to hire, train and manage new employees as needed. To date, we have not experienced any significant problems as a result of the rapid growth in our headcount, other than occasional office space constraints. However, our anticipated future growth may place greater strains on our resources. For instance, if our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees as needed, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. The additional headcount and capital investments we expect to add will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan.

We are dependent on our executive officers and other key personnel, and the loss of any of them may prevent us from implementing our business plan in a timely manner if at all.

Our success depends largely upon the continued services of our executive officers. We are also substantially dependent on the continued service of our existing development personnel because of the complexity of our service and technologies. We do not have employment agreements with any of our development personnel that require them to remain our employees nor do the employment agreements we have with our executive officers require them to remain our employees and, therefore, they could terminate their employment with us at any time without penalty.

We do not currently maintain key man life insurance on any of our executives, and such insurance, if obtained in the future, may not be sufficient to cover the costs of recruiting and hiring a replacement or the loss of an executive’s services. The loss of one or more of our key employees could seriously harm our business.

We may not be able to attract and retain the highly skilled employees we need to support our planned growth.

To execute our business strategy, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for senior sales executives and engineers with high levels of experience in designing and developing software. We may not be successful in attracting and retaining qualified personnel. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the Internet and high-technology industries, job candidates often consider the value of the equity awards they are to receive in connection with their employment. Significant volatility in the price of our stock may, therefore, adversely affect our ability to attract or retain key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.

Because we conduct operations in foreign jurisdictions, which accounted for approximately 9% of our 2009 revenues, and because our business strategy includes expanding our international operations, which includes the April 16, 2010 acquisitions of Datapresse and BDL Media, our business is susceptible to risks associated with international operations.

We have small but growing international operations and our business strategy includes expanding these operations. Conducting international operations subjects us to new risks that we have not generally faced in the United States. These include:


	•	fluctuations in currency exchange rates;

	•	unexpected changes in foreign regulatory requirements;

	•	difficulties in managing and staffing international operations;

	•	potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; and

	•	the burdens of complying with a wide variety of foreign laws and different legal standards.

The occurrence of any one of these risks could negatively affect our international operations and, consequently, our results of operations generally. In addition, the Internet may not be used as widely in international markets in which we expand our international operations and, as a result, we may not be successful in offering our solutions internationally.

We might require additional capital to support business growth, and this capital might not be available.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new solutions or enhance our existing solutions, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in further 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 significant 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, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Compliance with new regulations governing public company corporate governance and reporting is uncertain and expensive.

Many new laws, regulations and standards have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices and have created uncertainty for public companies. These new laws, regulations and standards are subject to interpretations due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by varying regulatory bodies. This may cause continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our implementation of these reforms and enhanced new disclosures may result in increased general and administrative expenses and a significant diversion of management’s time and attention from revenue-generating activities. Any unanticipated difficulties in implementing these reforms could result in material delays in complying with these new laws, regulations and standards or significantly increase our operating costs.

Risks Related to our Common Stock and the Securities Markets

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. There are many large, well-established publicly traded companies active in our industry and market, which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline.

Volatility of our stock price could adversely affect stockholders.

The market price of our common stock could fluctuate significantly as a result of:


	•	quarterly variations in our operating results;

	•	seasonality of our business cycle;

	•	interest rate changes;

	•	changes in the market’s expectations about our operating results;

	•	our operating results failing to meet the expectation of securities analysts or investors in a particular period;

	•	changes in financial estimates and recommendations by securities analysts concerning our company or the on-demand software industry in general;

	•	operating and stock price performance of other companies that investors deem comparable to us;

	•	news reports relating to trends in our markets;

	•	changes in laws and regulations affecting our business;


	•	material announcements by us or our competitors;

	•	sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur;

	•	economic conditions including a slowdown in economic growth and uncertainty in equity and credit markets; and

	•	general political conditions such as acts of war or terrorism.

Provisions in our amended and restated certificate of incorporation and bylaws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our stock.

Our amended and restated certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:


	•	establish a classified board of directors so that not all members of our board of directors are elected at one time;

	•	provide that directors may only be removed “for cause” and only with the approval of 662/3 percent of our stockholders;

	•	require super-majority voting to amend our bylaws or specified provisions in our amended and restated certificate of incorporation;

	•	authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;

	•	limit the ability of our stockholders to call special meetings of stockholders;

	•	prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

	•	provide that the board of directors is expressly authorized to adopt, amend, or repeal our bylaws; and

	•	establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company.

Future sales, or the availability for sale, of our common stock may cause our stock price to decline.

Our directors and officers hold shares of our common stock that they generally are currently able to sell in the public market. We have also registered shares of our common stock that are subject to outstanding stock options, or reserved for issuance under our stock option plan, which shares can generally be freely sold in the public market upon issuance. Moreover, from time to time, our executive officers and directors have established trading plans underRule 10b5-1 of the Securities Exchange Act of 1934, as amended, for the purpose of effecting sales of our common stock. Sales of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock.


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

Sale of Unregistered Securities

None.

Use of Proceeds

In connection with our initial public offering of our common stock, the SEC declared our Registration Statement onForm S-1(No. 333-125834), filed under the Securities Act of 1933, effective on December 6, 2005. On December 12, 2005, we closed the sale of 5,000,000 shares of our common stock registered under the Registration Statement. On January 6, 2006, certain selling stockholders sold 750,000 shares of our common stock pursuant to the exercise in full of the underwriters’ over-allotment option. Thomas Weisel Partners LLC, RBC Capital Markets, Wachovia Securities and William Blair & Company served as the managing underwriters.

The initial public offering price was $9.00 per share. The aggregate sale price for all of the shares sold by us was $45.0 million, resulting in net proceeds to us of approximately $40.0 million after payment of underwriting discounts and commissions and legal, accounting and other fees incurred in connection with the offering of approximately $5.0 million. The aggregate sales price for all of the shares sold by the selling stockholders was approximately $6.8 million. We did not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.

In December 2005, we used approximately $6.8 million from the net proceeds received from our initial public offering to repay certain indebtedness.

In August 2006, we used approximately $20.9 million of the offering proceeds for the acquisition of PRWeb International, Inc. In April 2010, we used approximately $10.4 million of the offering proceeds for the acquisition of Datapresse and BDL Media . We have invested the remainder of the proceeds from the initial public offering in short-term, interest-bearing, investment-grade securities and money market funds. We anticipate that we will use the remaining proceeds to fund working capital and for general corporate purposes, which may include the expansion of our content and service offerings and potential acquisitions of complementary businesses, products and technologies. We cannot specify with certainty all of the particular uses for the proceeds. The amounts we actually spend for these purposes may vary significantly and will depend on a number of factors. Accordingly, our management will retain broad discretion in the allocation of the proceeds.

Issuer Purchases of Equity Securities

The following table sets forth a summary of our purchases of our common stock during the three months ended March 31, 2010, of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:


							Maximum
					Total Number of		Dollar Value of
					Shares		Shares
	Total Number		Average Price		Purchased as		That May Yet be
	of Shares		Paid per		Part of Publicly		Purchased
	Purchased		Share		Announced Plan		Under the Plan

January 1 — January 31
Share repurchase program(1)		—		—		—	$	19,000,148
Employee transactions(2)		32,969		—		—		N/A
February 1 — February 28
Share repurchase program(1)		477,286	$	14.69		477,286	$	11,987,976
Employee transactions(2)		53,633		—		—		N/A
March 1 — March 31
Share repurchase program(1)		—		—		—	$	11,987,976
Employee transactions(2)		106		—		—		N/A


(1)		All shares were purchased though our publicly announced share repurchase program. On November 25, 2008, our Board of Directors authorized us to purchase up to $30,000,000 shares of our common stock. There is no expiration date specified for the program.

(2)		All shares were delivered to us by employees to satisfy the minimum statutory tax withholding obligations with respect to the taxable income recognized by these employees upon the vesting of their stock awards.


Item 6.	*Exhibits*


Exhibit
Number			Exhibit

	3	.1	Fifth Amended and Restated Certificate of Incorporation.(1)
	3	.2	Amended and Restated Bylaws.(1)
	10	.1*	Sale and Purchase Agreement between Registrant and Data Presse SAS, dated as of April 16, 2010.
	10	.2	Deed of Lease by and between Registrant and Indian Creek Investors, LLC, dated as of March 30, 2010.(2)
	31	.1*	Certification of Chairman and Chief Executive Officer pursuant toRule 13a-14(a) andRule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
	31	.2*	Certification of Chief Financial Officer pursuant toRule 13a-14(a) andRule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
	32	.1*	Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith

(1)		Incorporated by reference to an exhibit to the Registration Statement onForm S-8 of Vocus, Inc. (RegistrationNo. 333-132206) filed with the Securities and Exchange Commission on March 3, 2006.

(2)		Incorporated by reference to an exhibit to the Current Report onForm 8-K of the Registrant, filed with the Securities and Exchange Commission on April 5, 2010.

SIGNATURES

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

VOCUS, INC.


	By:	/s/ Richard Rudman

Richard Rudman

Chief Executive Officer,

President and Chairman


	By:	/s/ Stephen Vintz

Stephen Vintz

Chief Financial Officer,

Treasurer and Secretary

Date: May 10, 2010

INDEX TO EXHIBITS


Exhibit
Number			Exhibit

	3	.1	Fifth Amended and Restated Certificate of Incorporation.(1)
	3	.2	Amended and Restated Bylaws.(1)
	10	.1*	Sale and Purchase Agreement between Registrant and Data Presse SAS, dated as of April 16, 2010.
	10	.2	Deed of Lease by and between Registrant and Indian Creek Investors, LLC, dated as of March 30, 2010.(2)
	31	.1*	Certification of Chairman and Chief Executive Officer pursuant toRule 13a-14(a) andRule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
	31	.2*	Certification of Chief Financial Officer pursuant toRule 13a-14(a) andRule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
	32	.1*	Certification of Chairman and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith

(1)		Incorporated by reference to an exhibit to the Registration Statement onForm S-8 of Vocus, Inc. (RegistrationNo. 333-132206) filed with the Securities and Exchange Commission on March 3, 2006.

(2)		Incorporated by reference to an exhibit to the Current Report onForm 8-K of the Registrant, filed with the Securities and Exchange Commission on April 5, 2010.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Good

Vocus Inactive 10-Q2010 Q1 Quarterly report

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