##### 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, 2008
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 001-33755
 SUCCESSFACTORS, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    94-3398453
(I.R.S. Employer
Identification No.)1500 Fashion Island Blvd., Suite 300
San Mateo, California
(Address of principal executive offices)
    
    94404
(Zip Code)
 (650) 645-2000
 þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




---



##### 



SUCCESSFACTORS, INC.
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements:Condensed Consolidated Balance Sheets-June 30, 2008 (unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations-Three and six months ended June 30, 2008 and 2007
(unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows-Six months ended June 30, 2008 and 2007 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35Signatures
    
    
    37EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




---



##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SUCCESSFACTORS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    78,324
    
    
    $
    82,274Marketable securities
    
    
    27,357
    
    
    
    8,513Accounts receivable, net of allowance for doubtful accounts of $614 and $481
    
    
    33,479
    
    
    
    42,072Deferred commissions
    
    
    4,884
    
    
    
    4,199Prepaid expenses and other current assets
    
    
    5,088
    
    
    
    2,347Total current assets
    
    
    149,132
    
    
    
    139,405Restricted cash
    
    
    903
    
    
    
    964Property and equipment, net
    
    
    7,752
    
    
    
    6,532Deferred commissions, net of current portion
    
    
    6,519
    
    
    
    7,343Other assets
    
    
    264
    
    
    
    300Total assets
    
    $
    164,570
    
    
    $
    154,544LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    537
    
    
    $
    3,595Accrued expenses and other current liabilities
    
    
    8,559
    
    
    
    7,016Accrued employee compensation
    
    
    14,035
    
    
    
    18,265Deferred revenue
    
    
    102,223
    
    
    
    84,624Current portion of capital lease obligations
    
    
    35
    
    
    
    34Total current liabilities
    
    
    125,389
    
    
    
    113,534Capital lease obligations, net of current portion
    
    
    38
    
    
    
    56Deferred revenue, net of current portion
    
    
    21,411
    
    
    
    16,386Other long-term liabilities
    
    
    3,418
    
    
    
    4,625Total liabilities
    
    
    150,256
    
    
    
    134,601Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued
and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 200,000 shares authorized as of June 30,
2008 (unaudited) and December 31, 2007; 55,264 and 51,350 shares issued and
outstanding (excluding 519 and 679 legally issued and outstanding) as of
June 30, 2008 (unaudited) and December 31, 2007, respectively
    
    
    55
    
    
    
    51Additional paid-in capital
    
    
    194,076
    
    
    
    161,150Accumulated other comprehensive income
    
    
    81
    
    
    
    55Accumulated deficit
    
    
    (179,898
    )
    
    
    (141,313
    )Total stockholders equity
    
    
    14,314
    
    
    
    19,943Total liabilities and stockholders equity
    
    $
    164,570
    
    
    $
    154,544
  3




---



##### Table of Contents



SUCCESSFACTORS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three Months Ended
    

    Six Months EndedJune 30,
    

    June 30,2008
    
    2007
    

    2008
    

    2007Revenue
    
    $
    25,714
    
    
    $
    15,004
    
    
    $
    49,175
    
    
    $
    27,395Cost of revenue (1)
    
    
    9,244
    
    
    
    5,686
    
    
    
    18,580
    
    
    
    10,737Gross profit
    
    
    16,470
    
    
    
    9,318
    
    
    
    30,595
    
    
    
    16,658Operating expenses: (1)Sales and marketing
    
    
    23,261
    
    
    
    15,686
    
    
    
    44,870
    
    
    
    29,308Research and development
    
    
    6,250
    
    
    
    3,664
    
    
    
    11,459
    
    
    
    7,221General and administrative
    
    
    6,828
    
    
    
    4,653
    
    
    
    13,920
    
    
    
    7,304Total operating expenses
    
    
    36,339
    
    
    
    24,003
    
    
    
    70,249
    
    
    
    43,833Loss from operations
    
    
    (19,869
    )
    
    
    (14,685
    )
    
    
    (39,654
    )
    
    
    (27,175
    )Interest income (expense) and other, net
    
    
    729
    
    
    
    (1,647
    )
    
    
    (1,369
    )
    
    
    (1,748
    )Loss before provision for income taxes
    
    
    (19,140
    )
    
    
    (16,332
    )
    
    
    (38,285
    )
    
    
    (28,923
    )Provision for income taxes
    
    
    (147
    )
    
    
    (31
    )
    
    
    (300
    )
    
    
    (59
    )Net loss
    
    $
    (19,287
    )
    
    $
    (16,363
    )
    
    $
    (38,585
    )
    
    $
    (28,982
    )Net loss per common share, basic and diluted
    
    $
    (0.37
    )
    
    $
    (5.00
    )
    
    $
    (0.74
    )
    
    $
    (9.44
    )Shares used in computing net loss per common share, basic and diluted
    
    
    52,298
    
    
    
    3,270
    
    
    
    51,973
    
    
    
    3,071
 
 (1)
    
    Amounts include stock-based compensation expenses as
follows: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Cost of revenue
    
    $
    227
    
    
    $
    68
    
    
    $
    409
    
    
    $
    121Sales and marketing
    
    
    900
    
    
    
    266
    
    
    
    1,685
    
    
    
    480Research and development
    
    
    265
    
    
    
    84
    
    
    
    480
    
    
    
    130General and administrative
    
    
    604
    
    
    
    160
    
    
    
    1,175
    
    
    
    297
  4




---



##### Table of Contents



SUCCESSFACTORS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Six Months EndedJune 30,2008
    
    2007Cash flows from operating activities:Net loss
    
    $
    (38,585
    )
    
    $
    (28,982
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,496
    
    
    
    833Amortization of deferred commissions
    
    
    3,167
    
    
    
    1,594Stock-based compensation expense
    
    
    3,749
    
    
    
    1,028Amortization of debt issuance costs
    
    
    
    
    
    
    197Adjustment to fair value of convertible preferred stock warrants
    
    
    
    
    
    
    1,264Changes in assets and liabilities:Accounts receivable
    
    
    8,593
    
    
    
    (886
    )Deferred commissions
    
    
    (3,028
    )
    
    
    (2,530
    )Prepaid expenses and other current assets
    
    
    (2,741
    )
    
    
    (602
    )Other assets
    
    
    36
    
    
    
    (96
    )Accounts payable
    
    
    (2,974
    )
    
    
    2,434Other accrued expenses
    
    
    1,642
    
    
    
    2,227Accrued other compensation
    
    
    (4,230
    )
    
    
    (2,468
    )Other liabilities
    
    
    (123
    )
    
    
    628Deferred revenue
    
    
    22,624
    
    
    
    11,238Net cash used in operating activities
    
    
    (10,374
    )
    
    
    (14,121
    )Cash flows from investing activities:Restricted cash
    
    
    61
    
    
    
    (152
    )Capital expenditures
    
    
    (2,605
    )
    
    
    (2,535
    )Purchase of available-for-sale securities
    
    
    (33,364
    )
    
    
    (2,705
    )Maturity of available-for-sale securities
    
    
    14,503
    
    
    
    1,880Net cash used in investing activities
    
    
    (21,405
    )
    
    
    (3,512
    )Cash flows from financing activities:Proceeds from exercise of stock options, net
    
    
    659
    
    
    
    187Proceeds from initial public offering, net of offering costs
    
    
    (545
    )
    
    
    Proceeds from follow-on public offering, net of offering costs
    
    
    27,688
    
    
    
    Principal payments on capital lease obligations
    
    
    (17
    )
    
    
    (20
    )Net cash provided by financing activities
    
    
    27,785
    
    
    
    167Effect of exchange rate changes on cash and cash equivalents
    
    
    43
    
    
    
    6Net decrease in cash and cash equivalents
    
    
    (3,950
    )
    
    
    (17,460
    )Cash and cash equivalents at beginning of period
    
    
    82,274
    
    
    
    26,172Cash and cash equivalents at end of period
    
    $
    78,324
    
    
    $
    8,712Supplemental cash flow disclosure:Cash paid during the period for:Interest
    
    $
    200
    
    
    $
    7Income taxes
    
    $
    95
    
    
    $
    Non cash transactions:Property and equipment accrued in accounts payable
    
    $
    112
    
    
    $
    
  5




---



##### Table of Contents



SUCCESSFACTORS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Organization and Significant Accounting Policies
 Organization
  Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  6




---



##### Table of Contents



Revenue Recognition
 Revenue Recognition, Application of AICPA Statement of Position 97-2 (SOP 97-2) to Arrangements
That Include the Right to Use Software Stored on Another Entitys Hardware, Revenue Arrangements with Multiple Deliverables
 
    
    there is persuasive evidence of an arrangement;
    
    the subscription or services have been delivered to the customer;
    
    the collection of related fees is reasonably assured; and
    
    the amount of related fees is fixed or determinable.
   Deferred Revenue
  7




---



##### Table of Contents



Cost of Revenue
  Deferred Commissions
   Comprehensive Loss
  Income Taxes
  2. Recent Accounting Pronouncements
 Business
Combinations Noncontrolling Interests in Consolidated Financial
Statements, an amendment of Accounting Research Bulletin No. 51.
 Effective Date of FASB Statement No. 157 Fair Value
Measurements
 8




---



##### Table of Contents



3. Cash, Cash Equivalents and Marketable Securities
  As of June 30, 2008Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueCash
    
    $
    25,036
    
    
    $
    
    
    
    $
    
    
    
    $
    25,036Cash equivalents:Money market funds
    
    
    28,905
    
    
    
    
    
    
    
    
    
    
    
    28,905Commercial paper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. government notes and bonds
    
    
    24,383
    
    
    
    
    
    
    
    
    
    
    
    24,383Total cash equivalents
    
    
    53,288
    
    
    
    
    
    
    
    
    
    
    
    53,288Total cash and cash equivalents
    
    
    78,324
    
    
    
    
    
    
    
    
    
    
    
    78,324Marketable securities:U.S. government notes and bonds
    
    
    26,839
    
    
    
    
    
    
    
    (23
    )
    
    
    26,816Corporate notes
    
    
    544
    
    
    
    
    
    
    
    (3
    )
    
    
    541Total marketable securities
    
    
    27,383
    
    
    
    
    
    
    
    (26
    )
    
    
    27,357Total cash, cash equivalents and marketable securities
    
    $
    105,707
    
    
    $
    
    
    
    $
    (26
    )
    
    $
    105,681
   As of December 31, 2007Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueCash
    
    $
    2,904
    
    
    $
    
    
    
    $
    
    
    
    $
    2,904Cash equivalents:Money market funds
    
    
    39,220
    
    
    
    
    
    
    
    
    
    
    
    39,220Commercial paper
    
    
    10,276
    
    
    
    
    
    
    
    
    
    
    
    10,276U.S. government notes and bonds
    
    
    29,865
    
    
    
    9
    
    
    
    
    
    
    
    29,874Total cash equivalents
    
    
    79,361
    
    
    
    9
    
    
    
    
    
    
    
    79,370Total cash and cash equivalents
    
    
    82,265
    
    
    
    9
    
    
    
    
    
    
    
    82,274Marketable securities:U.S. government notes and bonds
    
    
    8,513
    
    
    
    
    
    
    
    
    
    
    
    8,513Total marketable securities
    
    
    8,513
    
    
    
    
    
    
    
    
    
    
    
    8,513Total cash, cash equivalents and marketable securities
    
    $
    90,778
    
    
    $
    9
    
    
    $
    
    
    
    $
    90,787
  4. Accrued Expenses and Other Current Liabilities
  As of
    
    
    As ofJune 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Accrued royalties
    
    $
    420
    
    
    $
    238Accrued partner referral fees
    
    
    190
    
    
    
    189Accrued other liabilities
    
    
    4,799
    
    
    
    2,930Accrued taxes payable
    
    
    1,018
    
    
    
    613Deferred rent
    
    
    267
    
    
    
    246Sales and use taxes
    
    
    1,865
    
    
    
    2,800$
    8,559
    
    
    $
    7,016
 9




---



##### Table of Contents



As of
    
    
    As ofJune 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Accrued bonuses payable
    
    $
    3,710
    
    
    $
    7,231Accrued commissions payable
    
    
    4,320
    
    
    
    7,249Accrued vacation
    
    
    4,626
    
    
    
    3,229All other accrued employee compensation payable
    
    
    1,379
    
    
    
    556$
    14,035
    
    
    $
    18,265
 5. Fair Value Measurements
        Fair Value Measurements as ofJune 30, 2008Total
    
    
    Level 1
    
    
    Level 2Cash equivalents (1)
    
    $
    53,288
    
    
    $
    28,905
    
    
    $
    24,383Marketable securities (2)
    
    
    27,357
    
    
    
    
    
    
    
    27,357Total
    
    $
    80,645
    
    
    $
    28,905
    
    
    $
    51,740
 
 (1)
    
    Cash equivalents consist primarily of money market funds with original maturity dates
of three months or less, for which the Company determines fair value through quoted market
prices.(2)
    
    Marketable securities consist of corporate notes and U.S. Government notes and bonds
and are priced using available market information through processes such as benchmark
curves, market valuations of like securities, sector groupings and matrix pricing. 10




---



##### Table of Contents



The Fair Value Option for
Financial Assets and Financial Liabilities  including an Amendment of FASB Statement No. 115
 6. Commitments and Contingencies
  11




---



##### Table of Contents



7. Stock-Based Compensation
 Common Stock Warrants
  Common Stock Options
 Share-Based Payment
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Cost of revenue
    
    $
    227
    
    
    $
    68
    
    
    $
    409
    
    
    $
    121Operating expenses
    
    
    1,769
    
    
    
    510
    
    
    
    3,340
    
    
    
    907Total stock-based compensation expense
    
    $
    1,996
    
    
    $
    578
    
    
    $
    3,749
    
    
    $
    1,028
 Weighted-Shares
    
    AverageSubject to
    
    ExerciseShares Available
    
    Options
    
    Pricefor Grant
    
    Outstanding
    
    per Share(Shares in thousands)Balance at December 31, 2007
    
    
    6,158
    
    
    
    13,084
    
    
    $
    5.00Granted (unaudited)
    
    
    (922
    )
    
    
    922
    
    
    
    10.82Exercised (unaudited)
    
    
    
    
    
    
    (1,131
    )
    
    
    1.57Canceled/forfeited (unaudited)
    
    
    825
    
    
    
    (825
    )
    
    
    6.52Balance at June 30, 2008 (unaudited)
    
    
    6,061
    
    
    
    12,050
    
    
    $
    5.67
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007(Unaudited)
    
    (Unaudited)Expected life from grant date (in years)
    
    
    3.76
    
    
    
    4.29
    
    
    
    3.78
    
    
    
    4.29Risk-free interest rate
    
    
    2.84
    %
    
    
    4.37
    %
    
    
    2.78
    %
    
    
    4.65
    %Expected volatility
    
    
    51
    %
    
    
    51
    %
    
    
    51
    %
    
    
    51
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Weighted-average estimated fair value
of options granted during the period
    
    $
    4.57
    
    
    $
    4.95
    
    
    $
    4.43
    
    
    $
    2.32
 12




---



##### Table of Contents



Stock Plans
  8. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (19,287
    )
    
    $
    (16,363
    )
    
    $
    (38,585
    )
    
    $
    (28,982
    )Change in foreign currency translation gain (loss), net
    
    
    (5
    )
    
    
    4
    
    
    
    43
    
    
    
    6Change in unrealized gain (loss) on marketable
securities, net
    
    
    (39
    )
    
    
    
    
    
    
    (17
    )
    
    
    Comprehensive loss
    
    $
    (19,243
    )
    
    $
    (16,359
    )
    
    $
    (38,611
    )
    
    $
    (28,976
    )
 13




---



##### Table of Contents



9. Net Loss Per Common Share
   Three Months Ended
       
    Six Months EndedJune 30,
    
    June 30,(unaudited)
    
    (unaudited)2008
    
    2007
    
    2008
    
    2007Net loss
    
    $
    (19,287
    )
    
    $
    (16,363
    )
    
    $
    (38,585
    )
    
    $
    (28,982
    )Shares used in computing net loss per
common share, basic and diluted
    
    
    52,298
    
    
    
    3,270
    
    
    
    51,973
    
    
    
    3,071Net loss per common share, basic and diluted
    
    $
    (0.37
    )
    
    $
    (5.00
    )
    
    $
    (0.74
    )
    
    $
    (9.44
    )
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,(unaudited)
    
    
    (unaudited)2008
    
    2007
    
    2008
    
    2007Convertible preferred stock (as converted basis)
    
    
    
    
    
    
    32,546
    
    
    
    
    
    
    
    32,546Options to purchase common stock and shares subject to repurchase
    
    
    5,702
    
    
    
    10,853
    
    
    
    5,411
    
    
    
    10,807Warrants (as converted basis)
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    5045,702
    
    
    
    43,903
    
    
    
    5,411
    
    
    
    43,857
 10. Income Tax
  14




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
    Performance Management Goal Management
   15




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Managements Discussion and Analysis of Financial Condition
and Results of Operations
 
    
    Revenue Recognition
    
    Accounting for Commission Payments
    
    Accounting for Stock-Based Awards
    
    Sales and Use Taxes
    
    Allowance for Doubtful Accounts
  Results of Operations
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2008
    
    2007
    
    2008
    
    2007Revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    36
    
    
    
    38
    
    
    
    38
    
    
    
    39Gross margin
    
    
    64
    
    
    
    62
    
    
    
    62
    
    
    
    61Operating expenses:Sales and marketing
    
    
    90
    
    
    
    105
    
    
    
    91
    
    
    
    107Research and development
    
    
    24
    
    
    
    24
    
    
    
    23
    
    
    
    26General and administrative
    
    
    27
    
    
    
    31
    
    
    
    28
    
    
    
    27Total operating expenses
    
    
    141
    
    
    
    160
    
    
    
    142
    
    
    
    160Loss from operations
    
    
    (77
    )
    
    
    (98
    )
    
    
    (80
    )
    
    
    (99
    )Interest income (expense) and other, net
    
    
    3
    
    
    
    (11
    )
    
    
    3
    
    
    
    (7
    )Loss before provision for income taxes
    
    
    (74
    )
    
    
    (109
    )
    
    
    (77
    )
    
    
    (106
    )Provision for income taxes
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    Net loss
    
    
    (75
    )%
    
    
    (109
    )%
    
    
    (78
    )%
    
    
    (106
    )%
 
 Due to rounding to the nearest percent, totals may not equal the sum of the line items in the table
above. 16




---



##### Table of Contents



Revenue
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Revenue
    
    $
    25,714
    
    
    $
    15,004
    
    
    
    71
    %
    
    $
    49,175
    
    
    $
    27,395
    
    
    
    80
    %
     Cost of Revenue and Gross Margin
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(Dollars in thousands)Revenue
    
    $
    25,714
    
    
    $
    15,004
    
    
    
    71
    %
    
    $
    49,175
    
    
    $
    27,395
    
    
    
    80
    %Cost of revenue
    
    
    9,244
    
    
    
    5,686
    
    
    
    63
    %
    
    
    18,580
    
    
    
    10,737
    
    
    
    73
    %Gross profit
    
    $
    16,470
    
    
    $
    9,318
    
    
    
    77
    %
    
    $
    30,595
    
    
    $
    16,658
    
    
    
    84
    %Gross margin
    
    
    64
    %
    
    
    62
    %
    
    
    
    
    
    
    62
    %
    
    
    61
    %
  17




---



##### Table of Contents



Operating Expenses
 Sales and Marketing
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Sales and marketing
    
    $
    23,261
    
    
    $
    15,686
    
    
    
    48
    %
    
    $
    44,870
    
    
    $
    29,308
    
    
    
    53
    %Percent of revenue
    
    
    91
    %
    
    
    105
    %
    
    
    
    
    
    
    91
    %
    
    
    107
    %
   Research and Development
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Research and development
    
    $
    6,250
    
    
    $
    3,664
    
    
    
    71
    %
    
    $
    11,459
    
    
    $
    7,221
    
    
    
    59
    %Percent of revenue
    
    
    24
    %
    
    
    24
    %
    
    
    
    
    
    
    23
    %
    
    
    26
    %
   General and Administrative
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)General and administrative
    
    $
    6,828
    
    
    $
    4,653
    
    
    
    47
    %
    
    $
    13,920
    
    
    $
    7,304
    
    
    
    91
    %Percent of revenue
    
    
    26
    %
    
    
    31
    %
    
    
    
    
    
    
    28
    %
    
    
    27
    %
 18




---



##### Table of Contents



Interest Income (Expense) and Other, Net
  Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Interest income (expense) and other, net
    
    $
    729
    
    
    $
    (1,797
    )
    
    
    (594
    )%
    
    $
    (1,369
    )
    
    $
    (1,748
    )
    
    
    22
    %Percent of revenue
    
    
    3
    %
    
    
    (11
    )%
    
    
    
    
    
    
    2
    %
    
    
    (7
    )%
   Provision for Income Taxes
    19




---



##### Table of Contents



Liquidity and Capital Resources
   Six Months Ended June 30,2008
    
    2007(Unaudited)Net cash used in operating activities
    
    $
    (10,374
    )
    
    $
    (14,121
    )Net cash used in investing activities
    
    
    (21,405
    )
    
    
    (3,512
    )Net cash provided by financing activities
    
    
    27,785
    
    
    
    167
 Net Cash Used in Operating Activities
   Net Cash Used in Investing Activities
   Net Cash Provided by Financing Activities
 20




---



##### Table of Contents



Capital Resources
  Off-Balance Sheet Arrangements
  21




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk
  Interest Rate Sensitivity
  Fair Value of Financial Instruments
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures
  (b) Changes in Internal Control Over Financial Reporting
  
 PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
  22




---



##### Table of Contents



23




---



##### Table of Contents



Item 1A. Risk Factors
 A restated description of the risk factors associated with our business is
set forth below. This description includes any material changes to and supersedes the description
of the risk factors included in our Annual Report on Form 10-K, as amended on June 3, 2008, by Form
10-K/A for the year ended December 31, 2007. The risks and uncertainties described below are not
the only ones facing us. Other events that we do not currently anticipate or that we currently deem
immaterial also may affect our results of operations and financial condition.
 We have a history of losses, we expect to continue to incur losses and we may not achieve or
sustain profitability in the future.
  Our independent registered public accounting firm identified numerous material audit
adjustments in prior years, all of which we subsequently recorded, and noted certain material
weaknesses in our internal control over financial reporting. Failure to achieve and maintain
effective internal control over financial reporting could result in our failure to accurately
report our financial results.
     24




---



##### Table of Contents



Because we recognize revenue from our customers over the term of their agreements, downturns
or upturns in sales may not be immediately reflected in our operating results.
  Because we recognize revenue from our customers over the term of their agreements but incur
most costs associated with generating customer agreements upfront, rapid growth in our customer
base will result in increased losses.
  Our business depends substantially on customers renewing their agreements and purchasing
additional modules or users from us. Any decline in our customer renewals would harm our future
operating results.
  We have limited experience with respect to our pricing model. If the prices we charge for our
application suite are unacceptable to our customers, our revenue and operating results may be
harmed.
  We have experienced rapid 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.
  25




---



##### Table of Contents



Failure to adequately expand and ramp our direct sales force and develop and expand our
indirect sales channel will impede our growth.
  If our security measures are breached or unauthorized access to customer data is otherwise
obtained, our application suite may be perceived as not being secure, customers may curtail or stop
using our application suite, and we may incur significant liabilities.
  Because our application suite collects, stores and reports personal information of job
applicants and employees, privacy concerns could result in liability to us or inhibit sales of our
application suite.
   The market for our application suite depends on widespread adoption of strategic HR software.
  We have derived a substantial majority of our subscription revenue from sales of our
performance management and goal management modules. If these modules are not widely accepted by new
customers, our operating results will be harmed.
 Performance
Management Goal Management
 26




---



##### Table of Contents



The market for on-demand applications is at an early stage of development, and if it does not
develop or develops more slowly than we expect, our business will be harmed.
  
    
    perceived security capabilities and reliability;
    
    perceived concerns about ability to scale operations for large enterprise customers;
    
    concerns with entrusting a third party to store and manage critical employee data; and
    
    the level of configurability of on-demand applications.
  The market in which we participate is intensely competitive, and if we do not compete
effectively, our operating results could be harmed.
    Our quarterly results can fluctuate and, if we fail to meet the expectations of analysts or
investors, our stock price and the value of your investment could decline substantially.
  27




---



##### Table of Contents




    
    our ability to attract new customers;
    
    customer renewal rates;
    
    the extent to which customers increase or decrease the number of modules or users upon
any renewal of their agreements;
    
    the level of new customers as compared to renewal customers in a particular period;
    
    the addition or loss of large customers, including through acquisitions or
consolidations;
    
    the mix of customers between small, mid-sized and enterprise customers;
    
    changes in our pricing policies or those of our competitors;
    
    seasonal variations in the demand for our application suite, which has historically been
highest in the fourth quarter of a year;
    
    the amount and timing of operating expenses, particularly sales and marketing, related to
the maintenance and expansion of our business, operations and infrastructure;
    
    the timing and success of new product and service introductions by us or our competitors
or any other change in the competitive dynamics of our industry, including consolidation
among competitors, customers or strategic partners;
    
    network outages or security breaches;
    
    the timing of expenses related to the development or acquisition of technologies or
businesses and potential future charges for impairment of goodwill from acquired companies;
and
    
    general economic, industry and market conditions.
  The market for our application suite among large customers may be limited if they require
customized features or functions that we do not intend to provide.
  We depend on our management team, particularly our Chief Executive Officer and our development
personnel, and the loss of one or more key employees or groups could harm our business and prevent
us from implementing our business plan in a timely manner.
   28




---



##### Table of Contents



If we cannot maintain our corporate culture as we grow, we could lose the innovation,
teamwork, passion and focus on execution that we believe contribute to our success, and our
business may be harmed.
  Our growth depends in part on the success of our strategic relationships with third parties.
   We rely on a small number of third-party service providers to host and deliver our application
suite, and any interruptions or delays in services from these third parties could impair the
delivery of our application suite and harm our business.
    If
our application suite becomes unavailable or otherwise fails to perform properly, our reputation will be harmed, our market share
would decline and we could be subject to liability claims.
  
    
    lost or delayed market acceptance and sales;
    
    breach of warranty claims;
    
    sales credits or refunds to our customers;
 29




---



##### Table of Contents




    
    loss of customers;
    
    diversion of development and customer service resources; and
    
    injury to our reputation.
    We rely on third-party computer hardware and software that may be difficult to replace or
which could cause errors or failures of our service.
  If we are not able to develop enhancements and new features that achieve market acceptance or
that keep pace with technological developments, our business will be harmed.
   If we fail to develop widespread brand awareness cost-effectively, our business may suffer.
  30




---



##### Table of Contents



Because our long-term success depends, in part, on our ability to expand the sales of our
application suite to customers located outside of the United States, our business will be
susceptible to risks associated with international operations.
  
    
    our ability to comply with differing technical and certification requirements outside the
United States;
    
    difficulties and costs associated with staffing and managing foreign operations;
    
    greater difficulty collecting accounts receivable and longer payment cycles;
    
    unexpected changes in regulatory requirements;
    
    the need to adapt our application suite for specific countries;
    
    difficulties in understanding and complying with local laws, regulations and customs in
foreign jurisdictions;
    
    tariffs, export controls and other non-tariff barriers such as quotas and local content
rules;
    
    more limited protection for intellectual property rights in some countries;
    
    adverse tax consequences;
    
    fluctuations in currency exchange rates;
    
    restrictions on the transfer of funds; and
    
    new and different sources of competition.
  Because competition for our target employees is intense, we may not be able to attract and
retain the quality employees we need to support our planned growth.
  Any failure to protect our intellectual property rights could impair our ability to protect our
proprietary technology and our brand.
   31




---



##### Table of Contents



We may be sued by third parties for alleged infringement of their proprietary rights.
  Our use of open source and third-party technology could impose limitations on our ability to
commercialize our application suite.
  Changes in laws and/or regulations related to the Internet or changes in the Internet
infrastructure itself may cause our business to suffer.
   We may acquire other companies or technologies, which could divert our managements attention,
result in additional dilution to our stockholders and otherwise disrupt our operations and harm our
operating results.
  32




---



##### Table of Contents




    
    unanticipated costs or liabilities associated with the acquisition;
    
    incurrence of acquisition-related costs;
    
    diversion of managements attention from other business concerns;
    
    harm to our existing business relationships with business partners and customers as a
result of the acquisition;
    
    the potential loss of key employees;
    
    use of resources that are needed in other parts of our business; and
    
    use of substantial portions of our available cash to consummate the acquisition.
   We might require additional capital to support business growth, and this capital might not be
available on acceptable terms, or at all.
  Our business is subject to changing regulations regarding corporate governance and public
disclosure that will increase both our costs and the risk of noncompliance.
   33




---



##### Table of Contents



Changes in financial accounting standards or practices may cause adverse, unexpected financial
reporting fluctuations and affect our reported results of operations.
  If there are substantial sales of shares of our common stock, the price of our common stock
could decline.
  If securities or industry analysts do not publish research or publish inaccurate or
unfavorable research about our business, our stock price and trading volume could decline.
  Our directors, executive officers and principal stockholders have substantial control over us
and could delay or prevent a change in corporate control.
  
    
    delaying, deferring or preventing a change in our control;
    
    impeding a merger, consolidation, takeover or other business combination involving us; or
    
    discouraging a potential acquirer from making a tender offer or otherwise attempting to
obtain control of us.
 Delaware law and provisions in our restated certificate of incorporation and restated bylaws
could make a merger, tender offer or proxy contest difficult, which could depress the trading price
of our common stock.
  
    
    our Board of Directors is classified into three classes of directors with staggered
three-year terms;
 34




---



##### Table of Contents




    
    only our Chairperson of the Board of Directors, our Chief Executive Officer, our
President or a majority of our Board of Directors are authorized to call a special meeting
of stockholders;
    
    our stockholders can only take action at a meeting of stockholders and not by written
consent;
    
    vacancies on our Board of Directors can be filled only by our Board of Directors and not
by our stockholders;
    
    our restated certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued without stockholder
approval; and
    
    advance notice procedures apply for stockholders to nominate candidates for election as
directors or to bring matters before an annual meeting of stockholders.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
 None
 
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    To elect two Class 1 directors, William E. McGlashan, Jr. and David G. Whorton, to serve
for a term of three years and until their successors are elected and qualified:
 For
    
    WitheldWilliam E. McGlashan, Jr.
    
    
    38,232,018
    
    
    
    170,985David G. Whorton
    
    
    38,219,567
    
    
    
    183,436
 2.
    
    To ratify the appointment of Ernst & Young LLP as our independent registered public accounting
firm for the fiscal year ending December 31, 2008:
 For
    
    Against
    
    
    Witheld38,392,787
    
    8,327
    
    
    1,889
  
 Item 5. Other Information
 None
 
 Item 6. Exhibits
 35




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Document31.1
    
    
    Certification of Chief Executive Officer pursuant to Exchange
Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer pursuant to Exchange
Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 36




---



##### Table of Contents



SIGNATURES
  SuccessFactors, Inc.By:
    /s/ Bruce FeltBruce FeltChief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 2008 37