##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 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 number: 000-50463
 Callidus Software Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    77-0438629(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification Number)
 Callidus Software Inc.
6200 Stoneridge Mall Road, Suite 500
Pleasanton, California 94588  (Address of principal executive offices, including zip code)  (925) 251-2200  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40EX-10.3.1EX-10.8.1EX-10.26EX-10.27EX-31.1EX-32.1
 ©
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PART I. FINANCIAL INFORMATION
 
 Item 1 Financial Statements
 CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
 June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,456
    
    
    $
    11,565Short-term investments
    
    
    16,181
    
    
    
    21,985Accounts receivable, net of allowances of $337 in 2010 and
$563 in 2009
    
    
    14,319
    
    
    
    12,715Deferred income taxes
    
    
    170
    
    
    
    170Prepaid and other current assets
    
    
    4,560
    
    
    
    3,872Total current assets
    
    
    47,686
    
    
    
    50,307Long-term investments
    
    
    1,102
    
    
    
    1,142Property and equipment, net
    
    
    5,623
    
    
    
    4,355Goodwill
    
    
    8,054
    
    
    
    5,528Intangible assets, net
    
    
    5,256
    
    
    
    2,993Deferred income taxes, noncurrent
    
    
    1,255
    
    
    
    1,255Deposits and other assets
    
    
    1,975
    
    
    
    679Total assets
    
    $
    70,951
    
    
    $
    66,259LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,430
    
    
    $
    3,407Accrued payroll and related expenses
    
    
    3,468
    
    
    
    3,929Accrued expenses
    
    
    7,578
    
    
    
    3,219Deferred income taxes
    
    
    1,229
    
    
    
    1,229Deferred revenue
    
    
    24,841
    
    
    
    21,440Capital lease obligations, short-term
    
    
    130
    
    
    
    Total current liabilities
    
    
    39,676
    
    
    
    33,224Long-term deferred revenue
    
    
    4,406
    
    
    
    668Other liabilities
    
    
    761
    
    
    
    1,136Capital lease obligations, long-term
    
    
    386
    
    
    
    Total liabilities
    
    
    45,229
    
    
    
    35,028Stockholders equity:Common stock, $0.001 par value; 100,000 shares authorized;
31,363 and 30,561 shares issued and outstanding at
June 30, 2010 and December 31, 2009, respectively
    
    
    31
    
    
    
    30Additional paid-in capital
    
    
    216,578
    
    
    
    212,435Deferred Compensation
    
    
    203
    
    
    
    Accumulated other comprehensive income
    
    
    87
    
    
    
    244Accumulated deficit
    
    
    (191,177
    )
    
    
    (181,478
    )Total stockholders equity
    
    
    25,722
    
    
    
    31,231Total liabilities and stockholders equity
    
    $
    70,951
    
    
    $
    66,259
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CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)Revenues:Recurring
    
    $
    13,265
    
    
    $
    11,802
    
    
    $
    25,551
    
    
    $
    23,499Services
    
    
    3,488
    
    
    
    9,407
    
    
    
    7,134
    
    
    
    20,609License
    
    
    387
    
    
    
    1,161
    
    
    
    616
    
    
    
    4,162Total revenues
    
    
    17,140
    
    
    
    22,370
    
    
    
    33,301
    
    
    
    48,270Cost of revenues:Recurring
    
    
    6,120
    
    
    
    5,416
    
    
    
    12,535
    
    
    
    11,201Services
    
    
    4,045
    
    
    
    7,671
    
    
    
    8,457
    
    
    
    16,980License
    
    
    87
    
    
    
    251
    
    
    
    197
    
    
    
    442Total cost of revenues
    
    
    10,252
    
    
    
    13,338
    
    
    
    21,189
    
    
    
    28,623Gross profit
    
    
    6,888
    
    
    
    9,032
    
    
    
    12,112
    
    
    
    19,647Operating expenses:Sales and marketing
    
    
    3,993
    
    
    
    5,444
    
    
    
    8,638
    
    
    
    11,306Research and development
    
    
    2,427
    
    
    
    3,673
    
    
    
    5,564
    
    
    
    7,474General and administrative
    
    
    3,627
    
    
    
    2,683
    
    
    
    6,859
    
    
    
    6,250Restructuring
    
    
    451
    
    
    
    639
    
    
    
    1,170
    
    
    
    805Total operating expenses
    
    
    10,498
    
    
    
    12,439
    
    
    
    22,231
    
    
    
    25,835Operating loss
    
    
    (3,610
    )
    
    
    (3,407
    )
    
    
    (10,119
    )
    
    
    (6,188
    )Interest and other income (expense), net
    
    
    (100
    )
    
    
    161
    
    
    
    (94
    )
    
    
    190Loss before provision (benefit) for income taxes
    
    
    (3,710
    )
    
    
    (3,246
    )
    
    
    (10,213
    )
    
    
    (5,998
    )Provision (benefit) for income taxes
    
    
    38
    
    
    
    88
    
    
    
    (514
    )
    
    
    146Net loss
    
    $
    (3,748
    )
    
    $
    (3,334
    )
    
    $
    (9,699
    )
    
    $
    (6,144
    )Net loss per share  basic and dilutedNet loss per share
    
    $
    (0.12
    )
    
    $
    (0.11
    )
    
    $
    (0.31
    )
    
    $
    (0.21
    )Shares used in basic and diluted per share computation
    
    
    31,284
    
    
    
    29,942
    
    
    
    31,125
    
    
    
    29,747
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CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Six Months Ended June 30,2010
    
    
    2009(unaudited)Cash flows from operating activities:Net loss
    
    $
    (9,699
    )
    
    $
    (6,144
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation expense
    
    
    1,095
    
    
    
    1,436Amortization of intangible assets
    
    
    1,271
    
    
    
    848Provision for doubtful accounts and service remediation reserves
    
    
    (167
    )
    
    
    (46
    )Stock-based compensation
    
    
    3,051
    
    
    
    2,212Stock-based compensation related to acquisition contingent
consideration
    
    
    203
    
    
    
    Revaluation of acquisition contingent consideration
    
    
    41
    
    
    
    Release of valuation allowance
    
    
    (614
    )
    
    
    Net amortization on investments
    
    
    104
    
    
    
    15Put option loss
    
    
    52
    
    
    
    306Gain on investments classified as trading securities
    
    
    (118
    )
    
    
    (373
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (421
    )
    
    
    7,704Prepaid and other current assets
    
    
    (748
    )
    
    
    935Other assets
    
    
    (702
    )
    
    
    189Accounts payable
    
    
    (945
    )
    
    
    234Accrued expenses
    
    
    1,348
    
    
    
    (2,270
    )Accrued payroll and related expenses
    
    
    (446
    )
    
    
    (1,814
    )Accrued restructuring
    
    
    (117
    )
    
    
    (488
    )Deferred revenue
    
    
    7,008
    
    
    
    (2,442
    )Deferred income taxes
    
    
    89
    
    
    
    72Net cash provided by operating activities
    
    
    285
    
    
    
    374Cash flows from investing activities:Purchases of investments
    
    
    (6,703
    )
    
    
    (13,260
    )Proceeds from maturities and sale of investments
    
    
    12,504
    
    
    
    3,450Purchases of property and equipment
    
    
    (760
    )
    
    
    (1,147
    )Purchases of intangible assets
    
    
    (1,554
    )
    
    
    (506
    )Acquisition, net of cash acquired
    
    
    (1,922
    )
    
    
    (14
    )Change in restricted cash
    
    
    (600
    )
    
    
    202Net cash provided by (used in) investing activities
    
    
    965
    
    
    
    (11,275
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    854
    
    
    
    990Repurchases of stock
    
    
    
    
    
    
    (742
    )Repurchase of common stock from employees for payment of taxes on
    
    
    (220
    )
    
    
    (319
    )vesting of restricted stock unitsRepayment of debt assumed through acquisition
    
    
    (899
    )
    
    
    Net cash used in financing activities
    
    
    (265
    )
    
    
    (71
    )Effect of exchange rates on cash and cash equivalents
    
    
    (94
    )
    
    
    83Net increase (decrease) in cash and cash equivalents
    
    
    891
    
    
    
    (10,889
    )Cash and cash equivalents at beginning of period
    
    
    11,565
    
    
    
    35,390Cash and cash equivalents at end of period
    
    $
    12,456
    
    
    $
    24,501
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CALLIDUS SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Basis of Presentation
   Principles of Consolidation
  Certain Risks and Uncertainties
   Use of Estimates
  6




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Foreign Currency Translation
  Fair Value of Financial Instruments and Concentrations of Credit Risk
   Restricted Cash
  Revenue Recognition
   Evidence of an Arrangement.
 Delivery.
 7




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Fixed or Determinable Fee.
  Collection is Deemed Probable.
 Recurring Revenue
  On-Demand Revenue. Revenue
Recognition,
  8




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Time-Based Term License
     9




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Maintenance Revenue.
 Services Revenue
 Professional Service Revenue.
  Perpetual License Revenue
    Cost of Revenues
  10




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Net Loss Per Share
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Restricted stock
    
    
    2,115
    
    
    
    1,066
    
    
    
    1,765
    
    
    
    1,096Stock options
    
    
    6,507
    
    
    
    6,646
    
    
    
    6,543
    
    
    
    6,660ESPP
    
    
    142
    
    
    
    302
    
    
    
    123
    
    
    
    265Totals
    
    
    8,764
    
    
    
    8,014
    
    
    
    8,431
    
    
    
    8,021
  Recent Accounting Pronouncements
  2. Acquisition
    11




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Closing Cash Payment
    
    $
    1,651Closing Stock Issuance  Common Stock and Additional Paid-in Capital
    
    
    453Fair value of liability-classified contingent consideration
    
    
    517Additional purchase price for net working capital adjustment
    
    
    270Fair value of total consideration transferred
    
    $
    2,891
     12




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Purchase Price Allocation
  (in thousands)Cash and cash equivalents
    
    $
    3Accounts receivable
    
    
    1,045Other current assets
    
    
    13Fixed assets
    
    
    341Intangible assets
    
    
    1,510Accounts payable
    
    
    (11
    )Accrued payroll and related expenses
    
    
    (117
    )Deferred revenue
    
    
    (147
    )Other accrued liabilities
    
    
    (759
    )Notes payable
    
    
    (899
    )Deferred tax liability
    
    
    (614
    )Total identifiable net assets
    
    
    365Goodwill
    
    
    2,526Total Purchase Price
    
    $
    2,891
  Valuation of Intangible Assets Acquired
  EstimatedPreliminary
    
    
    Useful(in thousands)
    
    Fair Value
    
    
    LifeCustomer relationships
    
    $
    644
    
    
    12 yearsDeveloped Technology
    
    
    524
    
    
    7 yearsTradename
    
    
    302
    
    
    IndefiniteFavorable Lease
    
    
    40
    
    
    4 yearsTotal Intangible Assets
    
    $
    1,510
    13




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Acquisition Related Expenses
  3. Restructuring
    December 31,
    
    
    Cash
    
    
    
    
    
    
    
    
    
    
    June 30,2009
    
    
    Payments
    
    
    Additions
    
    
    Adjustments
    
    
    2010Severance and termination-related costs
    
    $
    146
    
    
    $
    (1,309
    )
    
    $
    1,208
    
    
    $
    (17
    )
    
    $
    28Total accrued restructuring charges
    
    $
    146
    
    
    $
    (1,309
    )
    
    $
    1,208
    
    
    $
    (17
    )
    
    $
    28
 4. Goodwill and Intangible Assets
   WeightedAverageDecember 31,
    
    
    
    
    
    
    
    
    
    
    June 30,
    
    
    Amortization2009
    
    
    
    
    
    
    Amortization
    
    
    2010
    
    
    PeriodCost
    
    
    Net
    
    
    Additions
    
    
    Expense
    
    
    Net
    
    
    (Years)Purchased technology
    
    $
    5,422
    
    
    $
    1,972
    
    
    $
    2,548
    
    
    $
    (987
    )
    
    $
    3,533
    
    
    
    3.33Customer relationships
    
    
    2,000
    
    
    
    1,021
    
    
    
    644
    
    
    
    (277
    )
    
    
    1,388
    
    
    
    7.56Tradename
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    302
    
    
    
    N/AFavorable Lease
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    (7
    )
    
    
    33
    
    
    
    4.00Total intangible assets, net
    
    $
    7,422
    
    
    $
    2,993
    
    
    $
    3,534
    
    
    $
    (1,271
    )
    
    $
    5,256
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Purchased
    
    
    Customer
    
    
    FavorableTechnology
    
    
    Relationships
    
    
    LeaseQuarter Ending June 30:Remainder of 2010
    
    $
    839
    
    
    $
    275
    
    
    $
    72011
    
    
    1,613
    
    
    
    554
    
    
    
    132012
    
    
    781
    
    
    
    75
    
    
    
    132013
    
    
    75
    
    
    
    54
    
    
    
    2014
    
    
    75
    
    
    
    54
    
    
    
    2015 and beyond
    
    
    150
    
    
    
    376
    
    
    
    Total expected future amortization
    
    $
    3,533
    
    
    $
    1,388
    
    
    $
    33
 5. Financial Instruments
    Total OtherThan TemporaryImpairment
    
    
    Gain (Loss) onTotal Unrealized
    
    
    Recorded In
    
    
    InvestmentsLosses in Other
    
    
    Other
    
    
    Recorded in theAmortized
    
    
    Unrealized
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    Statement of
    
    
    EstimatedJune 30, 2010
    
    Cost
    
    
    Gains
    
    
    Income (Loss)
    
    
    Income (Loss)
    
    
    Operations
    
    
    Fair ValueShort-term investments:Certificate of deposits
    
    $
    480
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    480Corporate notes and obligations
    
    
    6,976
    
    
    
    12
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    6,982U.S. government and agency obligations
    
    
    7,519
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    7,519Long-term investments:Auction rate securities classified as
available for sale
    
    
    800
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    787Investments in debt and equity securities
    
    $
    15,775
    
    
    $
    14
    
    
    $
    (21
    )
    
    $
    
    
    
    $
    
    
    
    $
    15,768
 15




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Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2010
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    7,101
    
    
    $
    7,101
    
    
    $
    
    
    
    $
    U.S. treasury bills (2)
    
    
    4,518
    
    
    
    4,518
    
    
    
    
    
    
    
    Certificate of deposits (2)
    
    
    480
    
    
    
    
    
    
    
    480
    
    
    
    Corporate notes and obligations (2)
    
    
    6,982
    
    
    
    
    
    
    
    6,982
    
    
    
    U.S. government agency obligations (2)
    
    
    3,001
    
    
    
    
    
    
    
    3,001
    
    
    
    Auction-rate securities(2) (3)
    
    
    1,987
    
    
    
    1,200
    
    
    
    
    
    
    
    787Warrants (4)
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Publicly traded securities (4)
    
    
    312
    
    
    
    312
    
    
    
    
    
    
    
    Total
    
    $
    24,384
    
    
    $
    13,131
    
    
    $
    10,463
    
    
    $
    790
 
 (1)
    
    Included in cash and cash equivalents on the condensed
consolidated balance sheet.(2)
    
    Except as indicated in (3), included in short-term investments on the
condensed consolidated balance sheet.(3)
    
    $787 included in long-term investments on the condensed
consolidated balance sheet.(4)
    
    Included in long-term investments on the condensed
consolidated balance sheet. Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDecember 31, 2009
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    6,644
    
    
    $
    6,644
    
    
    $
    
    
    
    $
    U.S. treasury bills (2)
    
    
    5,043
    
    
    
    5,043
    
    
    
    
    
    
    
    Certificate of deposits (2)
    
    
    720
    
    
    
    
    
    
    
    720
    
    
    
    Corporate notes and obligations (2)
    
    
    5,962
    
    
    
    
    
    
    
    5,962
    
    
    
    U.S. government agency obligations (2)
    
    
    6,695
    
    
    
    
    
    
    
    6,695
    
    
    
    Auction-rate securities (2), (3)
    
    
    4,458
    
    
    
    
    
    
    
    
    
    
    
    4,458Asset associated with put option (4)
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    102Warrants (5)
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Publicly traded securities (5)
    
    
    225
    
    
    
    225
    
    
    
    
    
    
    
    Total
    
    $
    29,874
    
    
    $
    11,912
    
    
    $
    13,377
    
    
    $
    4,585
 
 (1)
    
    Included in cash and cash equivalents on the condensed
consolidated balance sheet.(2)
    
    Except as indicated in (3), included in short-term investments on the
condensed consolidated balance sheet.(3)
    
    $892 included in long-term investments on the condensed
consolidated balance sheet.(4)
    
    Included in prepaid and other current assets on the
condensed consolidated balance sheet.(5)
    
    Included in long-term investments on the condensed
consolidated balance sheet. 16




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Gain (Loss)Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recorded in
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    
    
    
    
    Transfers out of
    
    
    Statement of
    
    
    Unrealized
    
    
    June 30,2009
    
    
    Addition
    
    
    Disposition
    
    
    Level 3
    
    
    Operations
    
    
    Gain (Loss)
    
    
    2010Auction rate securities
classified as trading
    
    $
    3,566
    
    
    $
    
    
    
    $
    (2,500
    )
    
    $
    (1,200
    )
    
    $
    134
    
    
    $
    
    
    
    $
    Auction rate securities classified as available for sale
    
    
    892
    
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    787Asset associated with put
option
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102
    )
    
    
    
    
    
    
    Warrants
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    3Total
    
    $
    4,585
    
    
    $
    
    
    
    $
    (2,600
    )
    
    
    (1,200
    )
    
    $
    10
    
    
    $
    (5
    )
    
    $
    790
 Valuation of Investments and Put Option
 Level 1 and Level 2
    Level 3
   17




---



##### Table of Contents



6. Commitments and Contingencies
   Other Contingencies
  .
 7. Segment, Geographic and Customer Information
   18




---



##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Americas
    
    $
    15,561
    
    
    $
    19,744
    
    
    $
    30,100
    
    
    $
    40,865EMEA
    
    
    1,100
    
    
    
    2,452
    
    
    
    2,563
    
    
    
    6,767Asia Pacific
    
    
    479
    
    
    
    174
    
    
    
    638
    
    
    
    638$
    17,140
    
    
    $
    22,370
    
    
    $
    33,301
    
    
    $
    48,270
   8. Comprehensive Loss
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (3,748
    )
    
    $
    (3,334
    )
    
    $
    (9,699
    )
    
    $
    (6,144
    )Other comprehensive loss:Change in unrealized loss
on investments, net
    
    
    (52
    )
    
    
    68
    
    
    
    (57
    )
    
    
    139Change in cumulative translation
adjustments
    
    
    (15
    )
    
    
    135
    
    
    
    (100
    )
    
    
    133Comprehensive loss
    
    $
    (3,815
    )
    
    $
    (3,131
    )
    
    $
    (9,856
    )
    
    $
    (5,872
    )
 9. Stock-based Compensation
 Expense Summary
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based Compensation Expenses:Options
    
    $
    539
    
    
    $
    377
    
    
    $
    954
    
    
    $
    853Restricted Stock Units
    
    
    1,087
    
    
    
    589
    
    
    
    1,885
    
    
    
    1,014ESPP
    
    
    149
    
    
    
    269
    
    
    
    212
    
    
    
    345Actek Acquisition Compensation
    
    
    126
    
    
    
    
    
    
    
    203
    
    
    
    $
    1,901
    
    
    $
    1,235
    
    
    $
    3,254
    
    
    $
    2,212
  19




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation:Cost of recurring revenues
    
    $
    113
    
    
    $
    131
    
    
    $
    237
    
    
    $
    294Cost of services revenues
    
    
    201
    
    
    
    243
    
    
    
    442
    
    
    
    256Sales and marketing
    
    
    307
    
    
    
    342
    
    
    
    579
    
    
    
    574Research and development
    
    
    249
    
    
    
    267
    
    
    
    468
    
    
    
    409General and administrative
    
    
    1,031
    
    
    
    252
    
    
    
    1,528
    
    
    
    679Total stock-based compensation
    
    $
    1,901
    
    
    $
    1,235
    
    
    $
    3,254
    
    
    $
    2,212
 Determination of Fair Value
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock Option PlansExpected life (in years)
    
    
    2.50 to 3.50
    
    
    
    0.50 to 3.50
    
    
    
    2.50 to 3.50
    
    
    
    0.50 to 3.50Risk-free interest rate
    
    0.88% to 1.38%
    
    0.30% to 1.50%
    
    0.88% to 1.52%
    
    0.30% to 1.50%Volatility
    
    68% to 76%
    
    67% to 106%
    
    67% to 76%
    
    63% to 106%Dividend Yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employee Stock Purchase PlanExpected life (in years)
    
    
    0.50 to 1.00
    
    
    
    0.49 to 1.00
    
    
    
    0.50 to 1.00
    
    
    
    0.49 to 1.00Risk-free interest rate
    
    0.18% to 0.34%
    
    0.46% to 0.62%
    
    0.18% to 0.34%
    
    0.46% to 0.62%Volatility
    
    49% to 60%
    
    97% to 126%
    
    49% to 60%
    
    97% to 126%Dividend Yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 10. Related-Party Transactions
  20




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of financial condition and results of operations should be read in
conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and the notes thereto included in our Annual
Report on Form 10-K for 2009 and with the unaudited condensed consolidated financial statements and
the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q . This section
of the Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements relate to our future plans, objectives, expectations, prospects, intentions and
financial performance and the assumptions that underlie these statements. Generally, the words
believe, expect, intend, estimate, anticipate, project, will, and similar expressions
and the negatives thereof identify forward-looking statements, which generally are not historical
in nature. These forward-looking statements include, but are not limited to, statements concerning
the following: our ability to achieve profitability, changes in and expectations with respect to
our business strategy and products revenues and gross margins, future operating expense levels, the
impact of quarterly fluctuations of revenue and operating results, levels of recurring revenues,
staffing and expense levels, the impact of foreign exchange rate fluctuations and the adequacy of
our capital resources to fund operations and growth. As and when made, management believes that
these forward-looking statements are reasonable. However, caution should be taken not to place
undue reliance on any such forward-looking statements because such statements speak only as of the
date when made and may be based on assumptions that do not prove to be accurate. Our Company
undertakes no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. In addition, forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to differ materially
from our Companys historical experience and our present expectations or projections. Many of
these trends and uncertainties are described in Risk Factors set forth in our Annual Report on
Form 10-K for 2009 and elsewhere in this Quarterly Report on Form 10-Q . We undertake no obligation
to update forward-looking statements to reflect events or circumstances occurring after the date of
this Quarterly Report on Form 10-Q .
 Overview of the Results for the Three and Six Months Ended June 30, 2010
   21




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##### Table of Contents



Recurring Revenue Growth and Momentum
   Cost Control and Cash Flows
   Service Business
   22




---



##### Table of Contents



Challenges and Risks
      Application of Critical Accounting Policies and Use of Estimates
  23




---



##### Table of Contents



Recent Accounting Pronouncements
   24




---



##### Table of Contents



Results of Operations
 Comparison of the Three and Six Months Ended June 30, 2010 and 2009, and the Three Months Ended
March 31, 2010
 Revenues, cost of revenues and gross profit
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    13,265
    
    
    
    77
    %
    
    $
    11,802
    
    
    
    53
    %
    
    $
    1,463
    
    
    
    12
    %Services
    
    
    3,488
    
    
    
    20
    %
    
    
    9,407
    
    
    
    42
    %
    
    
    (5,919
    )
    
    
    (63
    )%License
    
    
    387
    
    
    
    2
    %
    
    
    1,161
    
    
    
    5
    %
    
    
    (774
    )
    
    
    (67
    )%Total revenues
    
    $
    17,140
    
    
    
    100
    %
    
    $
    22,370
    
    
    
    100
    %
    
    $
    (5,230
    )
    
    
    (23
    )%Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Related
    
    
    June 30,
    
    
    of Related
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearCost of revenues:Recurring
    
    $
    6,120
    
    
    
    46
    %
    
    $
    5,416
    
    
    
    46
    %
    
    $
    704
    
    
    
    13
    %Services
    
    
    4,045
    
    
    
    116
    %
    
    
    7,671
    
    
    
    82
    %
    
    
    (3,626
    )
    
    
    (47
    )%License
    
    
    87
    
    
    
    22
    %
    
    
    251
    
    
    
    22
    %
    
    
    (164
    )
    
    
    (65
    )%Total cost of revenues
    
    $
    10,252
    
    
    
    
    
    
    $
    13,338
    
    
    
    
    
    
    $
    (3,086
    )Gross profit:Recurring
    
    $
    7,145
    
    
    
    54
    %
    
    $
    6,386
    
    
    
    54
    %
    
    $
    759
    
    
    
    12
    %Services
    
    
    (557
    )
    
    
    (16
    )%
    
    
    1,736
    
    
    
    18
    %
    
    
    (2,293
    )
    
    
    (132
    )%License
    
    
    300
    
    
    
    78
    %
    
    
    910
    
    
    
    78
    %
    
    
    (610
    )
    
    
    (67
    )%Total gross profit
    
    $
    6,888
    
    
    
    40
    %
    
    $
    9,032
    
    
    
    40
    %
    
    $
    (2,144
    )
    
    
    (24
    )%
 25




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##### Table of Contents



Six
    
    
    
    
    
    
    SixMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    25,551
    
    
    
    77
    %
    
    $
    23,499
    
    
    
    49
    %
    
    $
    2,052
    
    
    
    9
    %Services
    
    
    7,134
    
    
    
    21
    %
    
    
    20,609
    
    
    
    43
    %
    
    
    (13,475
    )
    
    
    (65
    )%License
    
    
    616
    
    
    
    2
    %
    
    
    4,162
    
    
    
    9
    %
    
    
    (3,546
    )
    
    
    (85
    )%Total revenues
    
    $
    33,301
    
    
    
    100
    %
    
    $
    48,270
    
    
    
    100
    %
    
    $
    (14,969
    )
    
    
    (31
    )%Six
    
    
    
    
    
    
    SixMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Related
    
    
    June 30,
    
    
    of Related
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearCost of revenues:Recurring
    
    $
    12,535
    
    
    
    49
    %
    
    $
    11,201
    
    
    
    48
    %
    
    $
    1,334
    
    
    
    12
    %Services
    
    
    8,457
    
    
    
    119
    %
    
    
    16,980
    
    
    
    82
    %
    
    
    (8,523
    )
    
    
    (50
    )%License
    
    
    197
    
    
    
    32
    %
    
    
    442
    
    
    
    11
    %
    
    
    (245
    )
    
    
    (55
    )%Total cost of revenues
    
    $
    21,189
    
    
    
    
    
    
    $
    28,623
    
    
    
    
    
    
    $
    (7,434
    )Gross profit:Recurring
    
    $
    13,016
    
    
    
    51
    %
    
    $
    12,298
    
    
    
    52
    %
    
    $
    718
    
    
    
    6
    %Services
    
    
    (1,323
    )
    
    
    (19
    )%
    
    
    3,629
    
    
    
    18
    %
    
    
    (4,952
    )
    
    
    (136
    )%License
    
    
    419
    
    
    
    68
    %
    
    
    3,720
    
    
    
    89
    %
    
    
    (3,301
    )
    
    
    (89
    )%Total gross profit
    
    $
    12,112
    
    
    
    36
    %
    
    $
    19,647
    
    
    
    41
    %
    
    $
    (7,535
    )
    
    
    (38
    )%
 26




---



##### Table of Contents



Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    Quarter to
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Quarter
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    March 31,
    
    
    of Total
    
    
    Increase
    
    
    Quarter over2010
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    QuarterRevenues:Recurring
    
    $
    13,265
    
    
    
    77
    %
    
    $
    12,287
    
    
    
    76
    %
    
    $
    978
    
    
    
    8
    %Services
    
    
    3,488
    
    
    
    20
    %
    
    
    3,645
    
    
    
    23
    %
    
    
    (157
    )
    
    
    (4
    )%License
    
    
    387
    
    
    
    2
    %
    
    
    229
    
    
    
    1
    %
    
    
    158
    
    
    
    69
    %Total revenues
    
    $
    17,140
    
    
    
    100
    %
    
    $
    16,161
    
    
    
    100
    %
    
    $
    979
    
    
    
    6
    %
 Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    Quarter to
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Quarter
    
    
    ChangeJune 30,
    
    
    of Related
    
    
    March 31,
    
    
    of Related
    
    
    Increase
    
    
    Quarter over2010
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    QuarterCost of revenues:Recurring
    
    $
    6,120
    
    
    
    46
    %
    
    $
    6,414
    
    
    
    52
    %
    
    $
    (294
    )
    
    
    (5
    )%Services
    
    
    4,045
    
    
    
    116
    %
    
    
    4,412
    
    
    
    121
    %
    
    
    (367
    )
    
    
    (8
    )%License
    
    
    87
    
    
    
    22
    %
    
    
    110
    
    
    
    48
    %
    
    
    (23
    )
    
    
    (21
    )%Total cost of revenues
    
    $
    10,252
    
    
    
    
    
    
    $
    10,936
    
    
    
    
    
    
    $
    (684
    )Gross profit:Recurring
    
    $
    7,145
    
    
    
    54
    %
    
    $
    5,873
    
    
    
    48
    %
    
    $
    1,272
    
    
    
    22
    %Services
    
    
    (557
    )
    
    
    (16
    )%
    
    
    (767
    )
    
    
    (21
    )%
    
    
    210
    
    
    
    (27
    )%License
    
    
    300
    
    
    
    78
    %
    
    
    119
    
    
    
    52
    %
    
    
    181
    
    
    
    152
    %Total gross profit
    
    $
    6,888
    
    
    
    40
    %
    
    $
    5,225
    
    
    
    32
    %
    
    $
    1,663
    
    
    
    32
    %
 Revenues
 Total Revenues
 Recurring
Revenues.
 27




---



##### Table of Contents



Services Revenues.
 License Revenues.
 Cost of Revenues and Gross Margin
 Cost of Recurring Revenues.
  Cost of Services Revenues.
 Cost of License Revenues.
 28




---



##### Table of Contents



Gross Margin.
    29




---



##### Table of Contents



Operating Expenses
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    3,993
    
    
    
    23
    %
    
    $
    5,444
    
    
    
    24
    %
    
    $
    (1,451
    )
    
    
    (27
    )%Research and development
    
    
    2,427
    
    
    
    14
    %
    
    
    3,673
    
    
    
    16
    %
    
    
    (1,246
    )
    
    
    (34
    )%General and administrative
    
    
    3,627
    
    
    
    21
    %
    
    
    2,683
    
    
    
    12
    %
    
    
    944
    
    
    
    35
    %Restructuring
    
    
    451
    
    
    
    3
    %
    
    
    639
    
    
    
    3
    %
    
    
    (188
    )
    
    
    (29
    )%Total operating expenses
    
    $
    10,498
    
    
    
    61
    %
    
    $
    12,439
    
    
    
    56
    %
    
    $
    (1,941
    )
    
    
    (16
    )%
 Six
    
    
    
    
    
    
    SixMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    8,638
    
    
    
    26
    %
    
    $
    11,306
    
    
    
    23
    %
    
    $
    (2,668
    )
    
    
    (24
    )%Research and development
    
    
    5,564
    
    
    
    17
    %
    
    
    7,474
    
    
    
    15
    %
    
    
    (1,910
    )
    
    
    (26
    )%General and administrative
    
    
    6,859
    
    
    
    21
    %
    
    
    6,250
    
    
    
    13
    %
    
    
    609
    
    
    
    10
    %Restructuring
    
    
    1,170
    
    
    
    4
    %
    
    
    805
    
    
    
    2
    %
    
    
    365
    
    
    
    45
    %Total operating expenses
    
    $
    22,231
    
    
    
    67
    %
    
    $
    25,835
    
    
    
    54
    %
    
    $
    (3,604
    )
    
    
    (14
    )%
 Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    Quarter to
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Quarter
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    March 31,
    
    
    of Total
    
    
    Increase
    
    
    Quarter over2010
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    QuarterOperating expenses:Sales and marketing
    
    $
    3,993
    
    
    
    23
    %
    
    $
    4,645
    
    
    
    29
    %
    
    $
    (652
    )
    
    
    (14
    )%Research and development
    
    
    2,427
    
    
    
    14
    %
    
    
    3,138
    
    
    
    19
    %
    
    
    (711
    )
    
    
    (23
    )%General and administrative
    
    
    3,627
    
    
    
    21
    %
    
    
    3,232
    
    
    
    20
    %
    
    
    395
    
    
    
    12
    %Restructuring
    
    
    451
    
    
    
    3
    %
    
    
    719
    
    
    
    4
    %
    
    
    (268
    )
    
    
    (37
    )%Total operating expenses
    
    $
    10,498
    
    
    
    61
    %
    
    $
    11,734
    
    
    
    73
    %
    
    $
    (1,236
    )
    
    
    (11
    )%
 Sales and Marketing.
  30




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##### Table of Contents



Research and Development.
  General and Administrative.
   Restructuring.
 31




---



##### Table of Contents



Stock-Based Compensation
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    113
    
    
    $
    131
    
    
    $
    (18
    )
    
    
    (14
    )%Cost of services revenues
    
    
    201
    
    
    
    243
    
    
    
    (42
    )
    
    
    (17
    )%Sales and marketing
    
    
    307
    
    
    
    342
    
    
    
    (35
    )
    
    
    (10
    )%Research and development
    
    
    249
    
    
    
    267
    
    
    
    (18
    )
    
    
    (7
    )%General and administrative
    
    
    1,031
    
    
    
    252
    
    
    
    779
    
    
    
    309
    %Total stock-based compensation
    
    $
    1,901
    
    
    $
    1,235
    
    
    $
    666
    
    
    
    54
    %
 Six
    
    
    SixMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    237
    
    
    $
    294
    
    
    $
    (57
    )
    
    
    (19
    )%Cost of services revenues
    
    
    442
    
    
    
    256
    
    
    
    186
    
    
    
    73
    %Sales and marketing
    
    
    579
    
    
    
    574
    
    
    
    5
    
    
    
    1
    %Research and development
    
    
    468
    
    
    
    409
    
    
    
    59
    
    
    
    14
    %General and administrative
    
    
    1,528
    
    
    
    679
    
    
    
    849
    
    
    
    125
    %Total stock-based compensation
    
    $
    3,254
    
    
    $
    2,212
    
    
    $
    1,042
    
    
    
    47
    %
  32




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##### Table of Contents



Other Items
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Year to Year
    
    
    Year over2010
    
    
    2009
    
    
    Decrease
    
    
    YearInterest and other income (expense)
    
    $
    (100
    )
    
    $
    161
    
    
    $
    (261
    )
    
    
    (162
    )%Provision for income taxes
    
    $
    38
    
    
    $
    88
    
    
    $
    (50
    )
    
    
    (57
    )%
 Six
    
    
    SixMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Year to Year
    
    
    Year over2010
    
    
    2009
    
    
    Decrease
    
    
    YearInterest and other income (expense)
    
    $
    (94
    )
    
    $
    190
    
    
    $
    (284
    )
    
    
    (149
    )%Provision for (benefit from) income taxes
    
    $
    (514
    )
    
    $
    146
    
    
    $
    (660
    )
    
    
    (452
    )%
 Interest and Other Income
  Provision (benefit) for Income Taxes
   33




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##### Table of Contents



Liquidity and Capital Resources
   Six Months Ended June 30,2010
    
    2009Net cash provided by (used in):Operating activities
    
    $
    285
    
    
    $
    374Investing activities
    
    
    965
    
    
    
    (11,275
    )Financing activities
    
    
    (265
    )
    
    
    (71
    )
 Net Cash Provided by Operating Activities.
 Net Cash Provided by (Used in) Investing Activities.
 Net Cash Used in Financing Activities.
 Auction Rate Securities
  34




---



##### Table of Contents



Contractual Obligations and Commitments
  Payments due by PeriodRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2015Contractual Obligations
    
    Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    and beyondOperating lease
commitments
    
    $
    7,873
    
    
    $
    825
    
    
    $
    1,765
    
    
    $
    1,172
    
    
    $
    998
    
    
    $
    904
    
    
    $
    2,209Unconditional
purchase commitments
    
    $
    734
    
    
    $
    302
    
    
    $
    330
    
    
    $
    102
    
    
    $
    
    
    
    $
    
    
    
    $
    
    Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
   35




---



##### Table of Contents



Interest Rate Risk.
  Expected Maturity

    

    Total
    
    Total1 Year
    
    More Than
    
    Principal
    
    Fairor Less
    
    1 Year
    
    Amount
    
    ValueAvailable-for-sale securities
    
    $
    10,972
    
    
    $
    4,004
    
    
    $
    14,976
    
    
    $
    14,981Weighted average interest rate
    
    
    0.54
    %
    
    
    0.94
    %
  Foreign Currency Exchange Risk.
   36




---



##### Table of Contents



Item 4.
    
    Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  Factors That Could Affect Future Results
 We operate in a dynamic and rapidly changing environment that involves numerous risks and
uncertainties that could cause actual results to differ materially from the results contemplated by
the forward-looking statements contained in this Quarterly Report on Form 10-Q . Because of the
factors discussed below and in our Annual Report on Form 10-K for 2009 and those factors included
in our quarterly reports on Form 10-Q filed subsequently thereto, if any, as well as other
variables affecting our operating results, past financial performance should not be considered a
reliable indicator of future performance, and investors should not use historical trends to
anticipate results or trends in future periods.
 RISKS RELATED TO OUR BUSINESS
 We cannot accurately predict customer subscription or maintenance renewal rates or the impact
these renewal rates will have on our future revenues or operating results.
  37




---



##### Table of Contents



Item 6.
    
    Exhibits
 (a) Exhibits
 ExhibitNumber
    
    Description10.3.1
    
    
    Amended and Restated 2003 Stock Incentive Plan10.8.1
    
    
    Form of Director Change of Control Agreement  Full Single-Trigger10.26
    
    
    Offer Letter with Saied Karamooz dated April 27, 201010.27
    
    
    Offer Letter with Meredith Calvert dated June 16, 201031.1
    
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act32.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
 Availability of this Report
  38




---



##### Table of Contents



SIGNATURES
  CALLIDUS SOFTWARE INC.By:
    /s/ RONALD J. FIORRonald J. FiorChief Financial Officer,
Senior Vice President, Finance and Operations 39




---



##### Table of Contents



EXHIBIT INDEX
TO
CALLIDUS SOFTWARE INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010
 ExhibitNumber
    
    Description10.3.1
    
    
    Amended and Restated 2003 Stock Incentive Plan10.8.1
    
    
    Form of Director Change of Control Agreement  Full Single-Trigger10.26
    
    
    Offer Letter with Saied Karamooz dated April 27, 201010.27
    
    
    Offer Letter with Meredith Calvert dated June 16, 201031.1
    
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act32.1
    
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act