##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
 Form 10-K
 (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED
    DECEMBER 31,
    2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM          TO     COMMISSION FILE NUMBER
    000-31321
 RIGHTNOW TECHNOLOGIES,
    INC.
 (Exact name of registrant as
    specified in its charter)
  DELAWARE(State or other jurisdiction
    of incorporation or organization)

81-0503640(I.R.S. Employer
    Identification No.)   136 ENTERPRISE BLVD, BOZEMAN, MONTANA 59718
 (Address of principal executive
    offices) (Zip code)
  (406) 522-4200
 (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:COMMON STOCK, PAR VALUE $0.001

THE NASDAQ STOCK MARKET LLC  Securities registered pursuant to Section 12(g) of the
    Act: 
    NONE
  o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller
    reporting company)   o þ
      DOCUMENTS INCORPORATED BY REFERENCE:
  Form 10-K, Form 10-K, Form 10-K.




---



##### 





RightNow
    Technologies, Inc.
  Annual
    Report on
    Form 10-K
  For The
    Fiscal Year Ended December 31, 2009
  Table of
    Contents
  PART I


4Item 1.

Business


4Item 1A.

Risk Factors


14Item 1B.

Unresolved Staff Comments


27Item 2.

Properties


27Item 3.

Legal Proceedings


27Item 4.

Reserved


28PART II


28Item 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


28Item 6.

Selected Financial Data


30Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


31Item 7A.

Quantitative and Qualitative Disclosures about
    Market Risk


45Item 8.

Financial Statements and Supplementary Data


46Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


46Item 9A.

Controls and Procedures


46Item 9B.

Other Information


48PART III


48Item 10.

Directors, Executive Officers and Corporate
    Governance


48Item 11.

Executive Compensation


49Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


49Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


49Item 14.

Principal Accounting Fees and Services


49PART IV


49Item 15.

Exhibits, Financial Statement Schedules


49Signatures


52EX-10.3EX-10.23EX-10.24EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1   2




---



##### Table of Contents



CAUTIONARY
    STATEMENT
  In this report, the terms RightNow Technologies,
    RightNow, Company, we,
    us and our refer to RightNow
    Technologies, Inc. and its separate, wholly-owned independent
    subsidiaries.
  All statements included or incorporated by reference in this
    report, other than statements or characterizations of historical
    fact, are forward-looking statements within the meaning of the
    Private Securities Litigation Reform Act of 1995. These
    forward-looking statements are based on our current
    expectations, estimates and projections about our industry,
    managements beliefs, and certain assumptions made by us,
    all of which are subject to change. Forward-looking statements
    can often be identified by words such as
    anticipates, expects,
    intends, plans, predicts,
    believes, seeks, estimates,
    may, will, should,
    would, could, potential,
    continue, ongoing, similar expressions,
    and variations or negatives of these words, and include, but are
    not limited to, statements regarding projected results of
    operations, managements future strategic plans, market
    acceptance and performance of our products, our ability to
    retain and hire key executives, sales and technical personnel
    and other employees in the numbers, with the capabilities, and
    at the compensation levels needed to implement our business and
    product plans, the competitive nature of and anticipated growth
    in our markets, our accounting estimates, and assumptions and
    judgments. These forward-looking statements are not guarantees
    of future results and are subject to risks, uncertainties and
    assumptions that are difficult to predict and that could cause
    our actual results to differ materially and adversely from those
    expressed in any forward-looking statement. The risks and
    uncertainties referred to above include, but are not limited to
    general economic conditions; fluctuations in foreign currency
    exchange; our business model; our ability to develop or acquire
    and gain market acceptance for new products and enhancements to
    existing products in a cost-effective and timely manner;
    fluctuations in our earnings as a result of potential changes to
    our valuation allowance(s) on our deferred tax assets; the
    success of our efforts to integrate HiveLives personnel
    and processes, following our recent acquisition of that entity;
    the risk of asset impairment associated with the acquisition of
    HiveLive; the gain or loss of key customers; competitive
    pressures and other similar factors such as the availability and
    pricing of competing products and technologies and the resulting
    effects on sales and pricing of our products; our ability to
    expand or contract operations, manage expenses and grow
    profitability; the rate at which our present and future
    customers adopt our existing and future products and services;
    fluctuations in our operating results including our revenue mix
    and our rate of growth; fluctuations in backlog; the risk that
    our investments in partner relationships and additional
    employees will not achieve expected results; interruptions or
    delays in our hosting operations; breaches of our security
    measures; our ability to protect our intellectual property from
    infringement, and to avoid infringing on the intellectual
    property rights of third parties; the credit markets and
    potential impact on the recoverability of our portfolio of
    auction rate securities; our ability to sell auction rate
    securities under a put option with our broker; any unanticipated
    ambiguities in fair value accounting standards; fluctuations in
    our operating results from the impact of stock-based
    compensation expense; our ability to manage and expand our
    partner relationships; our ability to hire, retain and motivate
    our employees and manage our growth; the impact of potential
    future acquisitions, if any; and various other factors, some of
    which are described under the section below entitled Risk
    Factors, in Item 1A of this report. These
    forward-looking statements speak only as of the date of this
    report. We undertake no obligation to revise or update publicly
    any forward-looking statement for any reason, except as
    otherwise required by law.
 3




---



##### Table of Contents



Part I  Item 1.
    Business  OVERVIEW
  tune-ups,
  59718-9300, (406) 522-4200. http://www.rightnow.com Form 10-K, Form 10-Q, Form 8-K,
  PRODUCTS
    AND SERVICES
  RightNow
    CXtm,the Customer Experience Suite
     4




---



##### Table of Contents



RightNow
    Web Experience
    
    Web Self-Service  24-hours-a-day.
  
    Email Management   5




---



##### Table of Contents




    Chat and Co-Browse    RightNow
    Social Experience
    
    Support Community    
    Innovation Community    
    Cloud Monitor    
    Social Experience Designer    RightNow
    Contact Center Experience
    
    Intelligent Voice Automation (IVR)    
    RightNows Dynamic Agent Desktop  just-in-time
  
    Contact Center Experience Designer   6




---



##### Table of Contents



RightNow
    Engage
    
    Service-Sales-Marketing    
    Service: Business processes that support efficient and
    effective problem resolution and customer support across
    channels.
    Sales: Business processes that support
    revenue-generation, such as sales automation, opportunity
    management, and upsell and cross sell.
    Marketing: Business processes that drive personalized,
    proactive customer communication such as email marketing, lead
    generation and campaign management.  
    Customer Feedback:  voice-of-the-customer
  
    Analytics:    RightNow
    CX Cloud Platform
    
    Knowledge Foundation    
    Enterprise Integration & Extensibility    
    RightNow Government Cloud  800-37, 800-53,
  
    RightNow PCI Certified Cloud 7




---



##### Table of Contents



RightNow
    CX Commitment
    
    Focus on Results    
    Easy to Buy    
    Expertise    Professional
    Services
  tune-up
    Sales and
    Marketing
     8




---



##### Table of Contents



Convergys, Teleperformance, and TELUS.
            Clients
    and Backlog
      December 31,2009


2008Current committed backlog

$
117,600


$
98,100Non-current committed backlog


57,020



48,300Total firm committed backlog


174,620



146,400Current backlog subject to termination for convenience


3,400



3,900Non-current backlog subject to termination for convenience


1,980



700Total backlog

$
180,000


$
151,000  9




---



##### Table of Contents



year-to-year year-to-year
      Product
    Development and Technology
   10




---



##### Table of Contents



Intuitive Knowledge Foundation.
  Integration with Other Enterprise
    Applications. up-to-date
  Highly Customizable and Usable User
    Interface.
  Software Architecture.
  Intellectual
    Property
   11




---



##### Table of Contents



Implicit Rating of Retrieved Information in an Information
    Search System.
  Temporal Updates of Relevancy Rating of Retrieved Information
    in an Information Search System.
  Usage Based Strength between Related Information in an
    Information Retrieval System.
  System and Method for Generating a Dynamic Interface through
    a Communications Network.
  Usage Based Strength between Related Help Topics and Context
    Based Mapping Thereof in a Help Information retrieval
    System.
  Display Screen for a Computer.
  Method for Routing Electronic Correspondence Based on the
    Level and Type of Emotion Contained Therein.
  Method of Clustering Automation and Classification
    Techniques.
  ® ® ® ® ® ® ® ® ® ® ® ® ® ® tm , tm tm tm tm tm tm tm tm tm tm tm tm tm tm tm tm
 12




---



##### Table of Contents



Competition
                
    Low total cost of ownership and easily demonstrable
    cost-effective benefits for clients;
    Effectiveness in improving the quality of clients
    interactions with their customers across customer service, sales
    and marketing departments; 13




---



##### Table of Contents




    Broad product functionality to meet complex client process
    requirements;
    Ability to leverage information from customer interactions to
    more accurately target marketing efforts and enhance revenue
    opportunities;
    Speed and ease of implementation;
    Ease of use and associated high rates of utilization;
    System performance, security, scalability, flexibility and
    reliability;
    Ease of integration with existing applications and data;
    Availability and quality of implementation, consulting and
    education services;
    Quality of client care;
    Competitive sales and marketing capabilities; and
    Financial stability and reputation of the vendor.    Employees
    Item 1A.
    Risk
    Factors  Before deciding to purchase, hold or sell our common stock,
    you should carefully consider the risks described below, in
    addition to the other cautionary statements and risks described
    elsewhere and the other information contained in this report and
    in our other filings with the SEC, including our reports on
    Forms 10-Q
    and 8-K. The
    risks and uncertainties described below are not the only ones we
    face. Additional risks and uncertainties not presently known to
    us or that we currently deem immaterial may also affect our
    business. If any of these known or unknown risks or
    uncertainties actually occurs with material adverse effects on
    RightNow, our business, financial condition and results of
    operations could be seriously harmed. In that event, the market
    price for our common stock could decline and you may lose all or
    part of your investment.
  General
    economic conditions could adversely affect our clients
    ability or willingness to purchase our products, which could
    materially and adversely affect our results of
    operations.
     14




---



##### Table of Contents



We
    have significant international sales and are subject to risks
    associated with operating in international markets including the
    risk of foreign currency exchange rate
    fluctuations.
    
    fluctuations in foreign currency exchange rates;
    political, social and economic instability, including conflicts
    in the Middle East, Central Asia and elsewhere abroad, terrorist
    attacks and security concerns in general;
    adverse changes in tariffs and other protectionist laws and
    business practices that favor local competitors;
    longer collection periods and difficulties in collecting
    receivables from foreign entities;
    exposure to different legal standards and burdens of complying
    with a variety of foreign laws, including employment, tax,
    privacy and data protection laws and regulations;
    reduced protection for our intellectual property in some
    countries;
    expenses associated with localizing products for foreign
    countries, including translation into foreign languages; and
    import and export license requirements and restrictions of the
    United States and each other country in which we operate.    non-U.S. dollar non-U.S. dollar
  We may
    not be able to sustain or increase profitability in the
    future.
   15




---



##### Table of Contents



We
    face intense competition, and our failure to compete
    successfully could make it difficult for us to add and retain
    clients and could reduce or impede the growth of our
    business.
      
    Companies currently providing customer service solutions, some
    of whom offer hosted services, including ATG, BMC Software
    Corporation, Inc., eGain Communications Corporation, Inquira
    Software, Inc., Kana Software, Inc., Liveperson, Microsoft
    Corporation, Netsuite, nGenera, Oracle Corporation, Parature,
    SAP AG, and salesforce.com;
    CRM systems that are developed and maintained internally by
    businesses;
    CRM products or services that are developed, or bundled with
    other products or services, and installed on a clients
    premises by software vendors;
    Outsourced contact center providers that bundle solutions and
    agent labor in their service offerings;
    New companies entering the CRM software market, the on demand
    applications market and the on demand CRM market, or expanding
    from any one of these markets to the others;
    Voice system integrators and voice-enabled IVR technology
    providers, such as Microsoft, TuVox, and Voxify; and
    Social CRM providers, such as Lithium and other niche social CRM
    providers.      Our
    quarterly results of operations may fluctuate in the
    future.
   16




---



##### Table of Contents




    our ability to retain and increase sales to existing clients,
    attract new clients and satisfy our clients requirements;
    general economic, industry and market conditions;
    the mix of revenue between license arrangements, professional
    services and subscription arrangements as sales commissions are
    generally expensed ratably over the term of an agreement for
    subscription services, and expensed when invoiced for license
    arrangements and professional services;
    changes in the mix of revenue between professional services and
    software, hosting and support, because the gross margin on
    professional services is typically lower than the gross margin
    on software, hosting and support;
    changes in the mix of voice self service applications sold
    and/or usage
    volume, because the gross margin on voice self service
    applications is typically lower than the gross margin on our
    sales, marketing, feedback and service applications;
    the timing and success of new product introductions or upgrades
    by us or our competitors;
    the timing of professional service sales and our ability to
    appropriately staff and train professional service resources
    without negatively impacting professional service margins;
    changes in our pricing policies or those of our competitors;
    the amount and timing of expenditures related to expanding our
    operations;
    changes in our assumptions of stock price volatility, employee
    exercise behaviors, and option forfeiture rates, or changes in
    the number of stock options granted and vesting requirements in
    any particular period, which effects the amount of stock-based
    compensation expense;
    changes in the payment terms for our products and services,
    including changes in the mix of payment options chosen by our
    customers;
    the purchasing and budgeting cycles of our clients;
    changes in tax rate affected by changes in the mix of earnings
    and losses in jurisdictions with differing statutory tax rates,
    certain non-deductible expenses arising from the requirement to
    expense stock options and the valuation of deferred tax assets
    and liabilities, including our ability to use our net operating
    losses; and
    changes in credit market conditions associated with auction rate
    securities, which could permanently impair the recoverability of
    these investments.  and/or
  quarter-to-quarter
 17




---



##### Table of Contents



Failure
    to effectively develop and expand our sales and marketing
    capabilities could harm our ability to increase our client base
    and achieve broader market acceptance of our
    solutions.
    Most
    of our solutions are sold pursuant to time-based agreements, and
    if our existing clients elect not to renew or to renew on terms
    less favorable to us, our business, financial condition and
    results of operations will be adversely affected.
    We
    have experienced growth in recent periods. If we fail to manage
    our growth effectively, we may be unable to execute our business
    plan, maintain high levels of service or adequately address
    competitive challenges.
     18




---



##### Table of Contents



If
    there are interruptions or delays in our hosting services
    through 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 clients and
    subject us to liability.
  back-up and/or
    If the
    security of our clients confidential information contained
    in our systems or stored by use of our software is breached or
    otherwise subjected to unauthorized access, our hosting service
    or our software may be perceived as not being secure and clients
    may curtail or stop using our hosting service and our
    solutions.
   19




---



##### Table of Contents



If we
    fail to respond effectively to rapidly changing technology and
    evolving industry standards, particularly in the on demand CRM
    industry, our solutions may become less competitive or
    obsolete.
        Our
    failure to attract and retain qualified or key personnel may
    prevent us from effectively developing, marketing, selling,
    integrating and supporting our products.
    Our
    failure to attract, manage, support and retain qualified
    partners may prevent us from effectively deploying product and
    professional services.
   20




---



##### Table of Contents



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.
        If we
    are unable to protect our intellectual property rights, our
    competitive position could be harmed or we could be required to
    incur significant expenses to enforce our rights.
    Our
    product development efforts may be constrained by the
    intellectual property of others, and we may become subject to
    claims of intellectual property infringement, which could be
    costly and time-consuming.
   21




---



##### Table of Contents



The
    market for our on demand application services is not at the same
    stage of development as traditional on-premise enterprise
    software, and if it does not develop or develops more slowly
    than we expect, our business will be harmed.
    
    on demand security capabilities and reliability;
    concerns with entrusting a third party to store and manage
    critical customer data;
    the level of customization we offer;
    our ability to continue to achieve and maintain high levels of
    client satisfaction;
    concerns with purchasing critical CRM solutions from a company
    with a history of operating losses; and
    the price, performance and availability of competing products
    and services.   22




---



##### Table of Contents



If our
    efforts to enhance existing solutions, introduce new solutions
    or expand the applications for our products and solutions to
    broader CRM markets do not succeed, our ability to grow our
    business will be adversely affected.
    Recently completed
    and/or
    future acquisitions could disrupt our business and harm our
    financial condition and results of operations.
    
    an acquisition may negatively impact our results of operations
    because it may require incurring large one-time charges,
    substantial debt or liabilities; it may require the amortization
    or write down of amounts related to deferred compensation,
    goodwill and other intangible assets; or it may cause adverse
    tax consequences, substantial depreciation or deferred
    compensation charges;
    we may encounter difficulties in assimilating and integrating
    the business, technologies, products, personnel or operations of
    companies that we acquire, particularly if key personnel of the
    acquired company decide not to work for us;
    our existing and potential clients and the customers of the
    acquired company may delay purchases due to uncertainty related
    to an acquisition;
    an acquisition may disrupt our ongoing business, divert
    resources, increase our expenses and distract our management;
    the acquired businesses, products or technologies may not
    generate sufficient revenue to offset acquisition costs and
    could result in material asset impairment charges;
    we may have to issue equity securities to complete an
    acquisition, which would dilute our stockholders and could
    adversely affect the market price of our common stock; and
    acquisitions may involve the entry into a geographic or business
    market in which we have little or no prior experience.    Changes
    to financial accounting standards may affect our results of
    operations and financial condition.
   23




---



##### Table of Contents



With
    the recent volatility in the capital markets, there is a risk
    that we could suffer a loss of principal in our cash and cash
    equivalents and short term investments and suffer a reduction in
    our interest income or in our return on investments.
    Additionally funds associated with auction rate securities may
    be inaccessible in excess of 12 months, which may result in
    market value declines, which could have a material impact on our
    operating results in the period it is recognized.
  U.S. sub-prime FASB ASC Topic 320
  We may
    not be able to secure additional financing on favorable terms,
    or at all, to meet our future capital needs.
   24




---



##### Table of Contents



The
    success of our products and our hosted business depends on the
    continued use of the Internet as a business and communications
    tool, and the related expansion of the Internet
    infrastructure.
        Privacy
    concerns and laws or other domestic or foreign regulations may
    adversely affect our business or reduce sales of our
    solutions.
    and/or
    Non-solicitation
    concerns, laws or regulations may adversely affect our
    clients ability to perform outbound marketing and other
    email communications, which could reduce sales of our
    solutions.
   25




---



##### Table of Contents



The
    significant influence over stockholder voting matters and our
    office leases that may be exercised by our founder and Chief
    Executive Officer will limit your ability to influence corporate
    actions and may require us to find alternative office space to
    lease or buy in the future.
      Anti-takeover
    provisions in our charter documents and Delaware law could
    discourage, delay or prevent a change in control of our company
    and may affect the trading price of our common
    stock.
    
    establishing a classified board in which only a portion of the
    total board members will be elected at each annual meeting;
    authorizing the board to issue preferred stock; 26




---



##### Table of Contents




    providing the board with sole authority to set the number of
    authorized directors and to fill vacancies on the board;
    limiting the persons who may call special meetings of
    stockholders;
    prohibiting certain transactions under certain circumstances
    with interested stockholders;
    requiring supermajority approval to amend certain provisions of
    the certificate of incorporation; and
    prohibiting stockholder action by written consent.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Item 3.
    Legal
    Proceedings     27




---



##### Table of Contents



Item 4.
    Reserved Part II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder
    Matters, and Issuer Purchases of Securities    COMPARISON
    OF 5-YEAR
    CUMULATIVE TOTAL RETURN AMONG
    RIGHTNOW TECHNOLOGIES, INC., NASDAQ MARKET INDEX AND
    PREPACKAGED SOFTWARE
  
         Market
    Information for Common Stock
    28




---



##### Table of Contents



Quarter Ended

Mar 31

June 30

Sept 30

Dec 31Year ended December 31, 2008Common stock price per share:High

$
15.06


$
14.98


$
17.26


$
12.12Low


9.93



10.47



11.07



5.80Year ended December 31, 2009Common stock price per share:High

$
9.25


$
12.35


$
14.75


$
18.22Low


5.72



6.84



9.86



13.36   Holders
    Dividends
    Unregistered
    Sales of Equity Securities
    Use of
    Proceeds from Sales of Registered Securities
  Form S-1 No. 333-115331)
    Purchases
    of Equity Securities by the Issuer or Affiliated
    Purchasers
    Item 6.
    Selected
    Consolidated Financial Data   29




---



##### Table of Contents



Year Ended December 31,2005


2006


2007


2008


2009(In thousands, except per share data)Consolidated Statements of Operations Data:Revenue:Software, hosting and support

$
67,944


$
86,257


$
86,983


$
102,576


$
115,395Professional services


19,204



24,131



25,094



37,859



37,292Total revenue


87,148



110,388



112,077



140,435



152,687Cost of revenue:Software, hosting and support


9,111



13,260



18,411



20,397



20,948Professional services


11,956



19,110



22,012



30,440



26,610Total cost of revenue


21,067



32,370



40,423



50,837



47,558Gross profit


66,081



78,018



71,654



89,598



105,129Operating expenses:Sales and marketing


42,683



61,504



65,118



67,628



64,751Research and development


10,428



14,478



17,084



18,292



20,221General and administrative


6,445



9,578



11,500



13,615



15,801Total operating expenses


59,556



85,560



93,702



99,535



100,773Income (loss) from operations


6,525



(7,542
)


(22,048
)


(9,937
)


4,356Interest and other income, net


1,646



3,064



3,683



2,696



2,094Income (loss) before income taxes


8,171



(4,478
)


(18,365
)


(7,241
)


6,450Provision for income taxes


(478
)


(530
)


(276
)


(42
)


(579
)Net income (loss)


7,693



(5,008
)


(18,641
)


(7,283
)


5,871Net income (loss) per share(1):Basic

$
0.25


$
(0.16
)

$
(0.56
)

$
(0.22
)

$
0.18Diluted


0.23



(0.16
)


(0.56
)


(0.22
)


0.18Shares used in the computation(1):Basic


30,631



32,241



33,078



33,362



31,752Diluted


33,695



32,241



33,078



33,362



32,336     (1)
    
    See Note 1 of Notes to Consolidated Financial Statements
    for an explanation of the calculation of basic and diluted
    income (loss) per share and for an explanation of the
    determination of the number of weighted average shares used for
    such calculations.  30




---



##### Table of Contents



December 31,2005


2006


2007


2008


2009(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
40,874


$
39,208


$
43,681


$
51,405


$
41,546Short-term investments


23,314



39,127



52,644



34,412



54,977Long-term investments














4,963



Working capital


45,156



50,374



45,063



34,075



40,392Total assets


123,676



178,242



173,786



162,337



164,435Deferred revenue


67,923



114,578



114,660



113,198



101,327Long-term debt, less current portion


117



85



68



22



Total stockholders equity


44,655



47,474



38,181



27,183



40,242   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Cautionary
    Statement
  The following discussion and analysis of our financial
    condition and results of operations should be read in
    conjunction with the financial statements and related notes in
    this report. This discussion contains forward-looking statements
    that involve risks and uncertainties. These forward-looking
    statements are based on our current expectations, estimates and
    projections about our industry, managements beliefs, and
    certain assumptions made by us, all of which are subject to
    change. Forward-looking statements can often be identified by
    words such as anticipates, expects,
    intends, plans, predicts,
    believes, seeks, estimates,
    may, will, should,
    would, could, potential,
    continue, ongoing, similar expressions,
    and variations or negatives of these words and include, but are
    not limited to, statements regarding projected results of
    operations and managements future strategic plans. Our
    actual results could differ significantly from those projected
    in the forward-looking statements as a result of factors,
    including those discussed under Risk Factors and
    elsewhere in this report. We assume no obligation to update the
    forward-looking statements or such risk factors.
  Overview
  tune-ups,
  tm tm tm tm tm
 31




---



##### Table of Contents



Sources
    of Revenue
                Cost
    of Revenue and Operating Expenses
  Cost of Revenue.
 32




---



##### Table of Contents



Sales and Marketing Expenses.
  Research and Development Expenses.
  General and Administrative Expenses.
  Critical
    Accounting Policies and Estimates
  and/or
 33




---



##### Table of Contents



Revenue
    Recognition
  Industry
    Topic 985, Software Topic 605, Revenue Recognition. Topic
    605-25
  Industry Topic 985, Software.
        Allowance
    for doubtful accounts
    Income
    Taxes
   34




---



##### Table of Contents



Topic 740, Income
    Taxes, Topic 740
  Share-Based
    Compensation
  Topic 718, Compensation-Stock Compensation. Topic 718
  Software
    Capitalization
  Industry Topic 985, Software,
  Topic 350, Intangibles  Goodwill and Other,
  Recently
    Issued Accounting Standards
  Accounting Standards Update
    (ASU)
    2009-13,
    Revenue Arrangements with Multiple Deliverables 2009-13
 35




---



##### Table of Contents



Results
    of Operations
    Year Ended December 31,2007

2008

2009Revenue:Software, hosting and support


78
%


73
%


76
%Professional services


22



27



24Total revenue


100



100



100Cost of revenue:Software, hosting and support


16



14



14Professional services


20



22



17Total cost of revenue


36



36



31Gross profit


64



64



69Operating expenses:Sales and marketing


58



48



43Research and development


15



13



13General and administrative


10



10



10Total operating expenses


83



71



66Income (loss) from operations


(19
)


(7
)


3Interest and other income (expense), net


3



2



1Income (loss) before income taxes


(16
)


(5
)


4Provision for income taxes


(1
)


0



0Net income (loss)


(17
)%


(5
)%


4
%     Year Ended December 31,2007

2008

2009Customer interactions (in millions)


1,466



2,099



2,494Revenue by type:Recurring (subscriptions, term licenses, hosting and support)


78
%


73
%


76
%Professional services


22



27



24Revenue by geography in:North America


71
%


69
%


73
%Europe


21



23



19Asia Pacific


8



8



8   Overview
    of 2009
   36




---



##### Table of Contents



37




---



##### Table of Contents



Years
    Ended December 31, 2007, 2008 and 2009
  Revenue
  Year Ended December 31,Percent





Percent2007


2008


Change


2009


Change(Amounts in thousands)Software, hosting and support

$
86,983


$
102,576



18
%

$
115,395



12
%Professional services


25,094



37,859



51



37,292



(1.5
)Total revenue

$
112,077


$
140,435



25
%

$
152,687



9
%        38




---



##### Table of Contents



period-to-period
        Cost
    of Revenue
  Year Ended December 31,Percent





Percent2007


2008


Change


2009


Change(Amounts in thousands)Software, hosting and support

$
18,411


$
20,397



11
%

$
20,948



3
%Professional services


22,012



30,440



38



26,610



(13
)Total cost of revenue

$
40,423


$
50,837



26
%

$
47,558



(6
)%     sub-contractor
     39




---



##### Table of Contents



Operating
    Expenses
  Year Ended December 31,Percent





Percent2007


2008


Change


2009


Change(Amounts in thousands)Sales and marketing

$
65,118


$
67,628



4
%

$
64,751



(4
)%Research and development


17,084



18,292



7



20,221



11General and administrative


11,500



13,615



18



15,801



16Total operating expenses

$
93,702


$
99,535



6
%

$
100,773



1
%   Sales and
    Marketing Expenses
       40




---



##### Table of Contents



Research
    and Development Expenses
        General
    and Administrative Expenses
      Stock-Based
    Compensation Expense
  year-over-year period-to-period
 41




---



##### Table of Contents



Interest
    and Other Income (Expense), Net
  Year Ended December 31,Percent





Percent2007


2008


Change


2009


Change(Amounts in thousands)Interest income

$
3,898


$
2,906



(25
)%

$
1,023



(65
)%Interest expense


(7
)


(12
)


n/m



(7
)


n/mOther income (expense)


(208
)


(198
)


n/m



1,078



n/mTotal interest and other income (expense), net

$
3,683


$
2,696



(27
)%

$
2,094



(22
)%           Provision
    for Income Taxes
  Topic
    718
   42




---



##### Table of Contents



Liquidity
    and Capital Resources
  Year Ended December 31,Percent



Percent2007

2008

Change

2009

Change(Amounts in thousands)Cash, cash equivalents and short-term investments

$
96,325


$
85,817



(11
)%

$
96,523



12
%Long-term investments






4,963



100







(100
)Cash provided by operating activities


21,034



14,724



(30
)%


16,097



9
%     30-day 15-25%
          U.S. sub-prime
   43




---



##### Table of Contents



Topic 320 Topic 825
    Off-Balance
    Sheet Arrangements
  Regulation S-K
  Contractual
    Obligations and Commitments
    Payments Due by PeriodLess than








More thanContractual Obligations

Total


1 Year


1-3 Years


3-5 Years


5 Years(In thousands)Operating lease obligations

$
13,448


$
4,601


$
6,905


$
1,430


$
512Obligations under capital leases


1,980



1,579



401







Purchase obligations  hosting services


















Purchase obligations  other


485



205



280







Total

$
15,913


$
6,385


$
7,586


$
1,430


$
512    44




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Foreign
    Currency Exchange Risk
      Interest
    Rate Sensitivity
    Liquidation
    and Valuation Risk
  Topic 320
 45




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures  Rules 13a-15(e) 15d-15(e)
  (b)
    Changes
    to Internal Control over Financial Reporting  Rules 13a-15(f) 15d-15(f)
  Report of
    Management on Internal Control Over Financial
    Reporting
  15d-15(f).
  Internal Control  Integrated Framework
 46




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
    Internal Control 
    Integrated Framework
        Internal Control  Integrated
    Framework
    KPMG
    LLP
    47




---



##### Table of Contents



Item 9B.
    Other
    Information       Part III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  (a)
    Identification
    of Directors.    (b)
    Identification
    of Executive Officers and Certain Significant
    Employees.    (c)
    Compliance
    with Section 16(a) of the Exchange Act.    (d)
    Code of
    Ethics.  http://www.rightnow.com
 48




---



##### Table of Contents



(e)
    Corporate
    Governance.    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence  (a)
    Certain
    Relationships and Related Transactions.    (b)
    Director
    Independence.  The information under the captions
    Proposal One:
  Item 14.
    Principal
    Accounting Fees and Services   Part IV  Item 15.
    Exhibits,
    Financial Statement Schedules  (a)(1)
    Financial Statements
  PageReport of Independent Registered Public
    Accounting Firm


F-1Consolidated Financial Statements:Balance Sheets


F-2Statements of Operations


F-3Statements of Stockholders Equity and
    Comprehensive Income (Loss)


F-4Statements of Cash Flows


F-5Notes


F-6   (a)(2)
    Financial Statement Schedules
  Regulation S-X
 49




---



##### Table of Contents



(a)(3)
    Exhibits
    ExhibitNumber

Description of Document3
.1

Amended and restated certificate of incorporation of the
    registrant.(1)3
.2

Amended and restated bylaws of the registrant.(4)10
.1

Form of indemnification agreement between the registrant and its
    officers and directors.(2)10
.2

Amended and restated 1998 Long-Term Incentive and Stock Option
    Plan.(2)10
.3

2004 Equity Incentive Plan, as amended and restated.10
.4

2004 Employee Stock Purchase Plan.(2)10
.5

Lease agreement dated July 10, 2000, between Genesis
    Partners, LLC and the registrant (relating to property at 40
    Enterprise Blvd, Bozeman, MT).(2)10
.6

Lease agreement dated July 10, 2000, between Genesis
    Partners, LLC and the registrant (relating to property at 77
    Discovery Drive, Bozeman, MT).(2)10
.7

Severance policy for executive officers.(2)10
.8

Form of executive officer offer letter and schedule of omitted
    material details thereto.(2)10
.9

Form of executive officer incentive stock option agreement and
    schedule of omitted material details thereto.(2)10
.10

Form of executive officer non-incentive stock option agreement
    and schedule of omitted material details thereto.(2)10
.11

Form of director non-incentive stock option agreement and
    schedule of omitted material details thereto.(2)10
.12

Form of Notice of Grant of Stock Options and Stock Option
    Agreements.(5)10
.13

Form of Incentive Stock Option Agreement.(6)10
.14

Form of Non-Incentive Stock Option Agreement.(6)10
.15

Lease agreement dated March 28, 2005, between the
    registrant and Genesis Partners, LLC for office space located at
    110 Enterprise Boulevard, Bozeman, Montana.(3)10
.16

Renewed lease agreement, dated March 28, 2005, between the
    registrant and Genesis Partners, LLC for office space located at
    77 Discovery Drive, Bozeman, Montana.(3)10
.17

Form of amended employment offer letter for executive
    officers.(7)10
.18

Lease agreement, dated November 1, 2005 and commencing
    March 23, 2007, between the registrant and Genesis
    Partners, LLC for office space located at 136 Enterprise
    Boulevard, Bozeman, Montana.(8)10
.19

Form of offer letter for Jason Mittelstaedt, Joseph Brown, Steve
    Daines, and Michael Saracini, and schedule of omitted material
    details thereto.(9)10
.20

Form of executive officer offer letter and schedule of material
    differences thereto for Jeff Davison and Susan Carstensen.(10)10
.21

Offer letter with Marcus Bragg, VP and GM of the Americas.(11)10
.22

Terms of understanding with Michael Saracini, Former VP and GM
    of Americas.(12)10
.23

Renewed lease agreement, dated February 16, 2010, between
    the registrant and Genesis Partners, LLC for office space
    located at 77 Discovery Drive, Bozeman, Montana.10
.24

Renewed lease agreement, dated February 16, 2010, between
    the registrant and Genesis Partners, LLC for office space
    located at 110 Enterprise Boulevard, Bozeman, Montana.21
.1

Subsidiaries of the registrant.23
.1

Consent of KPMG LLP, Independent Registered Public Accounting
    Firm.31
.1

Certification of Chief Executive Officer pursuant to Exchange
    Act
    Rule 13a-14(a)
    or 15d-14(a) as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002. 50




---



##### Table of Contents



ExhibitNumber

Description of Document31
.2

Certification of Chief Financial Officer pursuant to Exchange
    Act
    Rule 13a-14(a)
    or 15d-14(a) as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certifications of 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
    (furnished herewith).     (1)
    
    Incorporated by reference to Exhibit 4.2 of the
    registrants registration statement on
    Form S-8
    (File
    No. 333-118515)
    filed with the Securities and Exchange Commission on
    August 24, 2004.(2)
    
    Incorporated by reference to the exhibit of the same number from
    the registrants registration statement of
    Form S-1
    (File
    No. 333-115331)
    initially filed with the Securities and Exchange Commission on
    May 10, 2004, as amended.(3)
    
    Incorporated by reference to the exhibit of the same number from
    the registrants current report on
    Form 8-K
    (File
    No. 000-31321)
    filed with the Securities and Exchange Commission on
    April 1, 2005.(4)
    
    Incorporated by reference to Exhibit 3.1 of the
    registrants current report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    January 25, 2006.(5)
    
    Incorporated by reference to Exhibits 10.13, 10.14 and
    10.15 of the registrants annual report on
    Form 10-K
    filed with the Securities and Exchange Commission on filed on
    March 31, 2005.(6)
    
    Incorporated by reference to Exhibits 10.20 and 10.21,
    respectively, of the registrants quarterly report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    May 10, 2006.(7)
    
    Incorporated by reference to the exhibit of the same number from
    the registrants annual report on
    Form 10-K
    filed with the Securities and Exchange Commission on
    March 14, 2007.(8)
    
    Incorporated by reference to the exhibit of the same number from
    the registrants quarterly report on
    Form 10-Q
    filed with the Securities and Exchange Commission on May 8,
    2007.(9)
    
    Incorporated by reference to Exhibit 10.30 of the
    registrants quarterly report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    August 9, 2007.(10)
    
    Incorporated by reference to Exhibit 10.31 of the
    registrants current report on
    Form 8-K
    filed with the Securities and Exchange Commission on
    January 30, 2008.(11)
    
    Incorporated by reference to Exhibit 10.1 of the
    registrants quarterly report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    November 7, 2008.(12)
    
    Incorporated by reference to Exhibit 10.2 of the
    registrants quarterly report on
    Form 10-Q
    filed with the Securities and Exchange Commission on
    November 7, 2008.
    
    Denotes management contract or compensatory plan or arrangement.  (b)
    Exhibits
  The
    exhibits filed as part of this report are listed in
    Item 15(a)(3) of this report.
  (c)
    Financial Statement Schedules
  Regulation S-X
 51




---



##### Table of Contents



Signatures       By:
    /s/  JEFFREY
    C. DAVISON          Signature

Title/s/  GREG
    R. GIANFORTEGreg
    R. Gianforte

Chairman, Chief Executive Officer and President 
    (Principal Executive Officer)/s/  JEFFREY
    C. DAVISONJeffrey
    C. Davison

Chief Financial Officer, Vice President and Treasurer 
    (Principal Financial and Accounting Officer)/s/  GREGORY
    M. AVISGregory
    M. Avis

Director/s/  THOMAS
    W. KENDRAThomas
    W. Kendra

Director/s/  WILLIAM
    J. LANSINGWilliam
    J. Lansing

Director/s/  ALLEN
    E. SNYDERAllen
    E. Snyder

Director/s/  RICHARD
    E. ALLENRichard
    E. Allen

Director/s/  STEVEN
    S. SINGHSteven
    S. Singh

Director  52




---



##### Table of Contents



Independent
    Auditors Report          Internal Control- Integrated
    Framework
  KPMG
    LLP
   F-1




---



##### Table of Contents



RIGHTNOW
    TECHNOLOGIES, INC.



Consolidated
    Balance Sheets

(In
    thousands) December 31,2008


2009(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
51,405


$
41,546Short-term investments


34,412



54,977Accounts receivable


36,770



31,850Term receivables, current


5,752



2,417Total current receivables


42,522



34,267Less allowance for doubtful accounts


(2,277
)


(1,914
)Total current receivables, net


40,245



32,353Deferred commissions


5,381



6,394Prepaid and other current assets


2,150



2,434Total current assets


133,593



137,704Long-term investments


4,963



Property and equipment, net


10,141



10,122Term receivables, non-current


3,547



1,105Intangible assets, net


6,399



11,141Deferred commissions, non-current


2,840



3,461Other assets


854



902Total Assets

$
162,337


$
164,435LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
5,058


$
5,427Commissions and bonuses payable


5,665



6,271Other accrued liabilities


11,165



11,146Current portion of long-term debt


46



22Current portion of deferred revenue


77,584



74,446Total current liabilities


99,518



97,312Long-term debt, less current portion


22



Deferred revenue, net of current portion


35,614



26,881Total liabilities


135,154



124,193Commitments and contingencies (Note 11)Stockholders equity:Preferred stock, $0.001 par value. Authorized and
    undesignated 15,000 shares at December 31, 2008, and
    2009, respectively






Common stock, $0.001 par value. Authorized
    150,000 shares; issued and outstanding 33,712 and
    31,830 shares at December 31, 2008; issued and
    outstanding 33,992 and 31,879 respectively at December 31,
    2009


34



34Additional paid-in capital


102,662



112,439Treasury Stock, at cost. 1,882 shares and 2,113 shares
    at December 31, 2008 and 2009, respectively


(13,209
)


(15,007
)Accumulated other comprehensive income


1,916



1,125Accumulated deficit


(64,220
)


(58,349
)Total stockholders equity


27,183



40,242Total Liabilities and Stockholders Equity

$
162,337


$
164,435    F-2




---



##### Table of Contents



RIGHTNOW
    TECHNOLOGIES, INC.



Consolidated
    Statements of Operations  Year Ended December 31,2007


2008


2009(In thousands, except per share data)Revenue:Software, hosting and support

$
86,983


$
102,576


$
115,395Professional services


25,094



37,859



37,292Total revenue


112,077



140,435



152,687Costs of revenue:Software, hosting and support


18,411



20,397



20,948Professional services


22,012



30,440



26,610Total cost of revenue


40,423



50,837



47,558Gross profit


71,654



89,598



105,129Operating expenses:Sales and marketing


65,118



67,628



64,751Research and development


17,084



18,292



20,221General and administrative


11,500



13,615



15,801Total operating expenses


93,702



99,535



100,773Income (loss) from operations


(22,048
)


(9,937
)


4,356Interest and other income (expense):Interest income


3,898



2,906



1,023Interest expense


(7
)


(12
)


(7
)Other


(208
)


(198
)


1,078Total interest and other income, net


3,683



2,696



2,094Income (loss) before provision for income taxes


(18,365
)


(7,241
)


6,450Provision for income taxes


(276
)


(42
)


(579
)Net income (loss)

$
(18,641
)

$
(7,283
)

$
5,871Net income (loss) per share:Basic

$
(0.56
)

$
(0.22
)

$
0.18Diluted

$
(0.56
)

$
(0.22
)

$
0.18Shares used in the computation:Basic


33,078



33,362



31,752Diluted


33,078



33,362



32,336    F-3




---



##### Table of Contents



RIGHTNOW
    TECHNOLOGIES, INC.



Consolidated
    Statements of Stockholders Equity and Comprehensive Income
    (Loss)  Additional


Accumulated Other





TotalCommon Stock


Treasury Stock


Paid-in


Comprehensive


Accumulated


StockholdersShares


Amount


Shares


Amount


Capital


Income (Loss)


Deficit


Equity(Amount in thousands)Balance at December 31, 2006


32,788



33











86,069



(332
)


(38,296
)


47,474Issuance of common stock:Exercise of stock options


651















3,436











3,436Employee stock purchase plan


14















218











218Stock-based compensation expense


















5,471











5,471Tax benefit of stock option exercises


















183











183Fair value of options granted to non-employees






























Comprehensive loss:Net loss


























(18,641
)


(18,641
)Unrealized loss on available for sale investments net of tax of
    $0






















78







78Foreign currency translation adjustment






















(38
)






(38
)Total comprehensive loss






























(18,601
)33,453



33











95,377



(292
)


(56,937
)


38,181Balance at December 31, 2007Issuance of common stock:Exercise of stock options


236



1











1,176











1,177Employee stock purchase plan


23















219











219Stock-based compensation expense


















6,025











6,025Tax benefit of stock option exercises


















(135
)










(135
)Fair value of options granted to non-employees






























Treasury Stock, at cost










1,882



(13,209
)














(13,209
)Comprehensive loss:Net loss


























(7,283
)


(7,283
)Unrealized gain on available for sale investments net of tax of
    $0






















242







242Foreign currency translation adjustment






















1,966







1,966Total comprehensive loss






























(5,075
)33,712



34



1,882



(13,209
)


102,662



1,916



(64,220
)


27,183Balance at December 31, 2008Issuance of common stock:Exercise of stock options


261















1,497











1,497Employee stock purchase plan


19















251











251Stock-based compensation expense


















7,786











7,786Tax benefit of stock option exercises


















243











243Fair value of options granted to non-employees






























Treasury Stock, at cost










231



(1,798
)














(1,798
)Comprehensive income:Net income


























5,871



5,871Unrealized gain on available for sale investments net of tax of
    $0






















11







11Foreign currency translation adjustment






















(802
)






(802
)Total comprehensive income






























5,08033,992


$
34



2,113



(15,007
)

$
112,439


$
1,125


$
(58,349
)

$
40,242    F-4




---



##### Table of Contents



RIGHTNOW
    TECHNOLOGIES, INC.



Consolidated
    Statements of Cash Flows  2007


2008


2009(Amounts in thousands)Operating activities:Net income (loss)

$
(18,641
)

$
(7,283
)

$
5,871Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


7,266



7,771



7,491Stock-based compensation


5,471



6,025



7,786Provision for losses on accounts receivable


384



212



157Changes in operating assets and liabilities (net of assets
    acquired):Receivables


27,552



4,774



11,255Prepaid and other current assets


(226
)


(101
)


(209
)Deferred commissions


(4,803
)


(3,623
)


(1,282
)Accounts payable


(45
)


895



238Commissions and bonuses payable


957



930



451Other accrued liabilities


3,733



462



(424
)Deferred revenue


(606
)


4,169



(14,916
)Other


(8
)


493



(321
)Net cash provided by operating activities


21,034



14,724



16,097Investing activities:Purchases of short-term investments


(57,512
)


(47,908
)


(69,952
)Sales or maturities of investments


43,995



61,339



54,119Purchase of property and equipment


(6,687
)


(5,738
)


(5,591
)Business acquisitions, net of cash acquired










(5,906
)Proceeds from sale of property and equipment


55



(21
)


14Intangible asset additions


(610
)


(33
)


(654
)Net cash provided by (used in) investing activities


(20,759
)


7,639



(27,970
)Financing activities:Purchase of treasury stock






(13,209
)


(1,798
)Proceeds from issuance of common stock:Exercise of stock options and warrants


3,436



1,177



1,497Employee stock purchase plan


218



219



251Excess (shortfall) tax benefit of stock options exercised


183



(135
)


243Payments on long-term debt


(36
)


(43
)


(46
)Net cash provided by (used in) financing activities


3,801



(11,991
)


147Effect of foreign exchange rates on cash and cash equivalents


397



(2,648
)


1,867Net change in cash and cash equivalents


4,473



7,724



(9,859
)Cash and cash equivalents at beginning of period


39,208



43,681



51,405Cash and cash equivalents at end of period

$
43,681


$
51,405


$
41,546    F-5




---



##### Table of Contents



RIGHTNOW
    TECHNOLOGIES, INC.



Notes to
    Consolidated Financial Statements

Years
    ended December 31, 2007, 2008 and 2009  (1)
    Business
    Description and Summary of Significant Accounting
    Policies  (a)
    Business
    Description    (b)
    Basis
    of Consolidation    (c)
    Certain
    Risks and Concentrations       F-6




---



##### Table of Contents



Year Ended December 31,2007


2008


2009North America

$
79,540


$
97,640


$
110,814Europe


23,561



31,946



28,544Asia Pacific


8,976



10,849



13,329$
112,077


$
140,435


$
152,687   (d)
    Use of
    Estimates  and/or
  (e)
    Cash
    Equivalents    (f)
    Short-Term
    Investments  available-for-sale other-than-temporary
   F-7




---



##### Table of Contents



available-for-sale other-than-temporary
  (g)
    Accounts
    Receivable and Term Receivables      and/or
  Year Ended December 31,2007


2008


2009Balance, beginning of year

$
2,621


$
1,918


$
2,277Provision charged to expense


384



212



157Provision charged against deferred revenue


1,785



1,515



1,158Write-downs charged against the allowance


(2,990
)


(1,399
)


(2,160
)Recoveries of amounts previously charged-off


118



31



482Balance, end of year

$
1,918


$
2,277


$
1,914   (h)
    Property
    and Equipment    (i)
    Intangible
    Assets   F-8




---



##### Table of Contents



(j)
    Revenue
    Recognition      Topic
    605-25,
    Multiple-Element Arrangements. Topic
    605-25
  Topic
    605-25 Industry Topic 985, Software Industry Topic 985
  Industry Topic
    985
         F-9




---



##### Table of Contents



Year Ended December 31,2007


2008


2009Revenue by type:Software, hosting and support


78
%


73
%


76
%Professional services


22



27



24100
%


100
%


100
%     (k)
    Sales
    Commissions    (l)
    Research
    and Development  Industry Topic 985, Software,
  (m)
    Internal
    Use Software  Topic 350, Intangibles  Goodwill and Other,
 F-10




---



##### Table of Contents



(n)
    Income
    Taxes  Topic 740, Income Taxes.
  Topic 740, Income Taxes
  (o)
    Impairment
    of Long-Lived Assets   F-11




---



##### Table of Contents



(p)
    Net
    Income (Loss) Per Share    Year Ended December 31,2007


2008


2009Weighted average common shares outstanding for basic net income
    (loss) per share


33,078



33,362



31,752Employee stock options










584Weighted average shares outstanding for dilutive net income
    (loss) per share


33,078



33,362



32,336       Year Ended December 31,2007

2008

2009Employee stock options


3,874



4,428



5,363   (q)
    Stock-Based
    Compensation  Topic
    718, Compensation-Stock Compensation. Topic
    718 Topic 718
  Topic 718 Topic 718
  (r)
    Foreign
    Currency Translation  non-U.S. operations,
  (s)
    Comprehensive
    Income (Loss)   F-12




---



##### Table of Contents



(t)
    Advertising
    Costs  The Company expenses advertising costs as
    incurred.
  (u)
    Reclassifications    (2)
    Acquisition      Cash consideration

$
5,906Total purchase price

$
5,906Purchase price allocation:Net assets assumed

$
189Intangible assets


5,717Total purchase price

$
5,906       Goodwill

$
3,617Developed technology


1,800Customer relationships


200Trade name and trademarks


100Intangible assets

$
5,717    F-13




---



##### Table of Contents



Three Months Ended

Year EndedDecember 31,

December 31,2008

2009

2008

2009(Unaudited)

Unaudited)Total Revenues

$
36,176


$
41,579


$
140,800


$
153,437Net income (loss)


(535
)


2,607



(11,143
)


2,704     (3)
    Supplemental
    Cash Flow Information    Year Ended December 31,2007

2008

2009Supplemental disclosure of cash flow information:Cash paid during the period for:Interest

$
7


$
12


$
7Income taxes


140



28



262Non-cash financing activities:Assets acquired under capital lease


30







   (4)
    Cash
    Equivalents, Short and Long-Term Investments, and Fair
    Value    FairUnrealized


Market


Cash


Short and Long-December 31, 2008

Cost


Gains


Losses


Value


Equivalents


Term InvestmentsCash equivalents:Money market funds

$
28,527


$



$



$
28,527


$
28,527


$
Fixed maturity securities:Corporate notes and bonds


3,034







(16
)


3,018







3,018U.S. Government agency securities


27,754



251



(1
)


28,004







28,004State and municipal securities


3,383



7







3,390







3,390Auction rate state and municipal securities


5,000







(775
)


4,225







4,225Auction rate settlement agreement:Repurchase put option






738







738







738Totals at December 31, 2008

$
67,698



996



(792
)

$
67,902


$
28,527


$
39,375   F-14




---



##### Table of Contents



FairUnrealized


Market


Cash


Short-December 31, 2009

Cost


Gains


Losses


Value


Equivalents


Term InvestmentsCash equivalents:Money market funds

$
15,655


$



$



$
15,655


$
15,655


$
Commercial paper


1,400











1,400



1,400



Fixed maturity securities:Certificates of deposit


738











738







738Commercial paper


5,597











5,597







5,597Corporate notes and bonds


3,274



5







3,279







3,279U.S. Government agency securities


41,309



39



(29
)


41,319







41,319State and municipal securities


248







(1
)


247







247Auction rate state and municipal securities


3,800







(275
)


3,525







3,525Auction rate settlement agreement:Repurchase put option






272







272







272Totals at December 31, 2009

$
72,021



316



(305
)

$
72,032


$
17,055


$
54,977   available-for-sale
  Topic
    820, Fair Value Measurements and Disclosures. Topic 820 Topic 820 Topic 820
    
    Level 1  Quoted prices in active markets for
    identical assets or liabilities.
    Level 2  Inputs other than Level 1 that are
    observable, either directly or indirectly, such as quoted prices
    for similar assets or liabilities; quoted prices in markets that
    are not active; or other inputs that are observable or can be
    corroborated by observable market data for substantially the
    full term of the assets or liabilities.
    Level 3  Unobservable inputs that are supported
    by little or no market activity and that are significant to the
    fair value of the assets or liabilities. As a result of recent
    market conditions, the Company holds financial instruments for
    which limited or no observable market data is available. These
    fair value measurements are based primarily upon our own
    estimates and are often calculated based on current pricing
    policy, the current economic and competitive environment, the
    characteristics of the instrument, credit, interest, and other
    such factors. Therefore, the results cannot be determined with
    precision, cannot be substantiated by comparison to quoted
    prices in active markets, and may not be realized in a F-15




---



##### Table of Contents



current sale or immediate settlement of the asset. Additionally,
    there are inherent uncertainties in any fair value measurement
    technique, and changes in the underlying assumptions used,
    including discount rates, liquidity risks, and estimates of
    future cash flows, could significantly affect the fair value
    measurement amounts.      Level 1


Level 2


Level 3


TotalCash

$
24,491


$



$



$
24,491Money market funds


15,655











15,655Certificates of deposit


738











738Commercial paper






6,997







6,997Corporate notes and bonds






3,279







3,279U.S. Government agency securities






41,319







41,319State and municipal securities






247







247Auction rate state and municipal securities










3,525



3,525Auction rate security put option










272



272$
40,884


$
51,842


$
3,797


$
96,523     Fair value at December 31, 2008

$
4,963Unrealized gain adjustment-ARS


500Unrealized loss adjustment-put option


(466
)Redemptions


(1,200
)Fair value at December 31, 2009

$
3,797        F-16




---



##### Table of Contents



Topic 815, Derivatives and Hedging, Topic 320,
    Investments-Debt and Equity Securities Topic 825, Financial
    Instruments,
  Topic 320, Investments-Debt and Equity
    Securities, available-for-sale
     F-17




---



##### Table of Contents



(5)
    Property
    and Equipment, Net    December 31,2008


2009Computer equipment

$
18,922


$
21,421Purchased software


7,942



7,808Equipment


819



738Furniture and fixtures


1,487



1,697Leasehold improvements


1,057



1,209Total cost


30,227



32,873Less accumulated depreciation


(20,086
)


(22,751
)Total property and equipment, net

$
10,141


$
10,122   (6)
    Intangible
    assets    Customer


Purchased


Internally DevelopedGoodwill


Relationships


Technologies


Software


TotalAs of December 31, 2008:Gross carrying value

$
4,358


$
3,250


$
4,547


$



$
12,155Accumulated amortization






(2,121
)


(3,635
)






(5,756
)Net carrying value

$
4,358


$
1,129


$
912


$



$
6,399As of December 31, 2009:Gross carrying value

$
7,975


$
3,450


$
4,204


$
556


$
16,185Accumulated amortization






(2,948
)


(2,091
)


(5
)


(5,044
)Net carrying value

$
7,975


$
502


$
2,113


$
551


$
11,141Weighted-average amortization period:(in years)


n/a



4.0



4.1



3.0



3.7Aggregate amortization expense:2007

$



$
765


$
708


$



$
1,4732008






766



831







1,5972009






827



797


$
5



1,629Estimated amortization expense:2010

$



$
367


$
822


$
202


$
1,3912011






50



520



202



7722012






50



453



147



6502013






35



318







353  F-18




---



##### Table of Contents



(7)
    Long-Term
    Debt and Credit Facility    December 31,2008


2009Obligations under capital leases for tenant improvements to
    leased property and furniture, payable monthly in installments
    of $3 and $1 through May 2010 and June 2010, respectively at
    approximately 6% interest

$
68


$
22Less current portion


46



22Long-term debt, excluding current portion

$
22


$
       (8)
    Redeemable
    Convertible Preferred Stock    (9)
    Treasury
    Stock  and/or Rule 10b-18
  (10)
    Stock-Based
    Compensation   F-19




---



##### Table of Contents



Topic 718
    2007


2008


2009Stock-based compensation expense:Cost of software, hosting and support

$
288


$
323


$
460Cost of professional services


647



638



612Sales and marketing


2,264



2,454



3,029Research and development


887



969



1,178General and administrative


1,385



1,641



2,507Stock-based compensation expense before income taxes


5,471



6,025



7,786Income tax provision










Stock-based compensation expense, net of income taxes

$
5,471


$
6,025


$
7,786       Topic
    718
  2007

2008

2009Employee stock optionsWeighted average risk free rate


4.5
%


2.6
%


1.7
%Weighted average expected term


4.2
yrs


4.5
yrs


4.4
yrsWeighted average volatility


52
%


55
%


67
%Dividend yield


0
%


0
%


0
%     Risk Free Rate:
  Expected Term:
 F-20




---



##### Table of Contents



Volatility:
  Dividend Yield:
    WeightedShares


Average





WeightedShares


Underlying


Exercise


Aggregate


AverageAvailable


Outstanding


Price Per


Intrinsic


Remainingfor Grant


Options


Share


Value


Contractual Life(In thousands)


(In years)Balance at December 31, 2008


3,610



4,428


$
11.81







6.8Annual reserve addition(1)


1,000







Granted(2)


(2,113
)


2,089



8.91Exercised






(261
)


5.74Forfeited, expired or exchanged(3)


277



(309
)


13.59Balance at December 31, 2009


2,774



5,947


$
10.96


$
38,690



7.2Vested or expected to vest at December 31, 2009






5,738


$
11.01


$
37,099



7.2Exercisable at December 31, 2009






3,203


$
11.30


$
19,939



6.0     (1)
    
    The 2004 Equity Incentive Plan provides for an automatic, annual
    increase on the first of each year in an amount equal to the
    lesser of; a) 1,000,000 shares, b) 4% of the
    number of outstanding common shares on the last day of the
    previous fiscal year, or c) such lesser amount as
    determined by the board of directors. The automatic annual
    increase has been approved by shareholders through
    December 31, 2014.(2)
    
    On September 16, 2009, the Company granted 24,180
    restricted stock units to certain employees at a fair value of
    $12.20 per share. The shares were granted from the 2004 Equity
    Incentive Plan.(3)
    
    Shares forfeited, expired, exchanged or canceled under the 1998
    Long-Term Equity Incentive and Stock Option Plan are not
    available for re-grant under the 2004 Equity Incentive Plan.    (11)
    Commitments
    and Contingencies  (a)
    Operating
    Leases    2010

$
4,6012011


3,1972012


1,9162013


1,7922014


880Thereafter


1,062    F-21




---



##### Table of Contents



(b)
    Hosting
    Services      (c)
    Warranties
    and Indemnification          (d)
    Litigation  Topic 450,Contingencies
   F-22




---



##### Table of Contents



(12)
    Income
    Taxes    Year Ended December 31,2007


2008


2009United States

$
(5,437
)

$
(5,856
)

$
7,299Foreign


(12,928
)


(1,385
)


(849
)Income (loss) before provision for income taxes

$
(18,365
)

$
(7,241
)

$
6,450     Year Ended December 31,2007


2008


2009Current:Federal

$
120


$



$
Foreign


(109
)


(134
)


(155
)State


(287
)


92



(424
)Total current


(276
)


(42
)

$
(579
)Deferred:Federal










Foreign










State










Total deferred










Provision for income taxes

$
(276
)

$
(42
)

$
(579
)     Year Ended December 31,2007

2008

2009Statutory federal tax rate


(34
)%


(34
)%


34
%Net operating loss tax benefits not realized (realized)


34



29



(23
)Tax credits


(4
)






(11
)Stock-based compensation


2



5



1State income taxes, net of federal benefit


1



(2
)


4Foreign taxes






2



2Foreign tax rate differential


2



(1
)


Nondeductible meals & entertainment expense


1



2



2Income tax rate


2
%


1
%


9
%  F-23




---



##### Table of Contents



At December 31,2008


2009Deferred tax assets:Net operating loss carry forwards

$
10,836


$
13,634Deferred revenue


8,401



3,757Stock compensation


3,288



6,813Tax credits


957



1,256Fixed assets and intangibles


296



65Other


3,091



1,647Total deferred tax assets


26,869



27,172Valuation allowance


(23,873
)


(24,239
)Net deferred tax assets


2,996



2,933Deferred tax liabilities:Deferred commissions


(2,509
)


(2,686
)Other


(487
)


(247
)Total deferred tax liabilities


(2,996
)


(2,933
)Net deferred tax assets

$



$
         Topic
    718
 F-24




---



##### Table of Contents



(13)
    Fair
    Value of Financial Instruments    Account receivable and term receivables 
    current:
  Accounts payable  current:
  Term receivables  noncurrent:
  Debt:
  (14)
    Employee
    Benefit Plans        Purchase DateDec 31,

June 30,

Dec 31,

June 30,

Dec 31,2007

2008

2008

2009

2009Purchase price per share

$
15.06


$
12.99


$
7.34


$
11.21


$
16.50Shares purchased


6,357



8,930



14,129



11,903



7,038  F-25




---



##### Table of Contents



(15)
    Subsequent
    Events  Topic 855,
    Subsequent Events
        (16)
    Quarterly
    Results (Unaudited)    Year Ended December 31, 2008First

Second

Third

FourthQuarter

Quarter

Quarter

Quarter(Unaudited)Operating statement data:Total revenue

$
32,898


$
35,221


$
36,237


$
36,079Gross profit


20,578



22,368



22,799



23,853Net income (loss)


(3,396
)


(3,132
)


(1,447
)


692Net income (loss) per share:Basic and Diluted

$
(0.10
)

$
(0.09
)

$
(0.04
)

$
0.02   Year Ended December 31, 2009First

Second

Third

FourthQuarter

Quarter

Quarter

Quarter(Unaudited)Operating statement data:Total revenue

$
36,037


$
36,340


$
38,731


$
41,579Gross profit


24,080



25,040



27,134



28,875Net income


1,263



36



1,965



2,607Net income per share:Basic and Diluted

$
0.04


$
0.00


$
0.06


$
0.08  F-26