Exhibit 99.1
 Metastorm Inc. and Subsidiaries




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##### 



C O N T E N T S
 PageConsolidated Financial StatementsReport of Independent Certified Public Accountants
    
    
    2Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    3Consolidated Statements of Operations for the years ended
December 31, 2010, 2009 and 2008
    
    
    5Consolidated Statements of Stockholders Equity (Deficit) for the years ended
December 31, 2010, 2009 and 2008
    
    
    6Consolidated Statements of Cash Flows for the years ended
December 31, 2010, 2009 and 2008
    
    
    7Notes to Consolidated Financial Statements
    
    
    9




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Report of Independent Certified Public Accountants
      
  2




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##### 



Metastorm Inc. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
 December 31,ASSETS
    
    2010
    
    
    2009(Unaudited)CURRENT ASSETSCash and cash equivalents
    
    $
    11,234,486
    
    
    $
    10,281,161Accounts receivable, less allowance for
doubtful accounts of $93,691 and
$152,262, respectively
    
    
    17,480,533
    
    
    
    16,946,724Deferred tax asset
    
    
    135,779
    
    
    
    Prepaid expenses and other current assets
    
    
    2,116,099
    
    
    
    2,546,704Total current assets
    
    
    30,966,897
    
    
    
    29,774,589PROPERTY AND EQUIPMENT, net
    
    
    2,209,191
    
    
    
    2,469,770OTHER ASSETS
    
    
    699,932
    
    
    
    726,420INTANGIBLE ASSETS, net
    
    
    5,214,716
    
    
    
    10,233,136GOODWILL
    
    
    35,235,191
    
    
    
    35,235,191DEFERRED INCOME TAXES
    
    
    1,000,297
    
    
    
    2,621,894$
    75,326,224
    
    
    $
    81,061,000
 The accompanying notes are an integral part of these financial statements.
  3




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##### 



Metastorm Inc. and Subsidiaries
 CONSOLIDATED BALANCE SHEETS (Continued)
 December 31,LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    2010
    
    
    2009(Unaudited)CURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    10,728,578
    
    
    $
    8,518,484Deferred revenue
    
    
    20,727,915
    
    
    
    21,909,690Capital leases
    
    
    336,110
    
    
    
    287,271Notes payable
    
    
    58,336
    
    
    
    62,020Deferred tax liability
    
    
    
    
    
    
    179,577Income taxes payable
    
    
    197,218
    
    
    
    53,557Total current liabilities
    
    
    32,048,157
    
    
    
    31,010,599LONG-TERM LIABILITIESDeferred rent
    
    
    612,025
    
    
    
    738,816Deferred revenue
    
    
    1,416,055
    
    
    
    921,733Capital
leases, less current portion
    
    
    495,882
    
    
    
    419,648Notes payable, less current portion
    
    
    48,421
    
    
    
    111,227Other
    
    
    4,192
    
    
    
    4,1922,576,575
    
    
    
    2,195,616COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    SERIES AA REEDEEMABLE CONVERTIBLE PREFERRED
STOCK, $.01 par value, 58,288,994 shares
authorized, 56,786,080 shares issued and
outstanding at December 31, 2010 and 2009,
respectively, aggregate liquidation
preference of $108,537,278 at December 31,
2010
    
    
    107,726,517
    
    
    
    100,919,279SERIES CC REEDEEMABLE CONVERTIBLE PREFERRED
STOCK, $.01 par value, 18,844,221 shares
authorized, 18,834,583 shares issued and
outstanding at December 31, 2010 and 2009,
aggregate liquidation preference of
$38,172,623 at December 31, 2010
    
    
    38,116,354
    
    
    
    35,681,989STOCKHOLDERS DEFICITCommon stock, $.01 par value,
139,523,997 shares authorized, 977,686
shares issued and outstanding at
December 31, 2010 and 960,467 shares
issued and outstanding at December 31,
2009
    
    
    9,777
    
    
    
    9,605Accumulated other comprehensive loss
    
    
    (347,773
    )
    
    
    (684,656
    )Accumulated deficit
    
    
    (104,803,383
    )
    
    
    (88,071,432
    )(105,141,379
    )
    
    
    (88,746,483
    )$
    75,326,224
    
    
    $
    81,061,000
 The accompanying notes are an integral part of these financial statements.
  4




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##### 



Metastorm Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008(Unaudited)RevenuesSoftware licenses
    
    $
    28,127,942
    
    
    $
    22,452,927
    
    
    $
    28,074,927Maintenance and support
    
    
    28,895,662
    
    
    
    26,786,576
    
    
    
    23,509,829Professional services
    
    
    18,883,954
    
    
    
    18,483,463
    
    
    
    23,309,035Total revenues
    
    
    75,907,558
    
    
    
    67,722,966
    
    
    
    74,893,791Cost of revenuesSoftware licenses (includes amortization expense of
intangible assets of $2,730,000, $3,169,668, and $3,856,000,
respectively)
    
    
    3,691,449
    
    
    
    5,189,557
    
    
    
    4,658,609Maintenance and support (includes amortization
expense of $10,514, $22,691, and $229,352,
respectively)
    
    
    2,172,424
    
    
    
    1,897,544
    
    
    
    2,229,245Professional services
    
    
    17,220,330
    
    
    
    15,804,301
    
    
    
    19,096,025Total cost of revenues
    
    
    23,084,203
    
    
    
    22,891,402
    
    
    
    25,983,879Gross profit
    
    
    52,823,355
    
    
    
    44,831,564
    
    
    
    48,909,912Operating expensesResearch and development
    
    
    11,077,178
    
    
    
    9,753,289
    
    
    
    10,381,904Sales and marketing
    
    
    33,107,744
    
    
    
    28,677,038
    
    
    
    33,443,418General and administrative
    
    
    10,716,566
    
    
    
    8,428,012
    
    
    
    9,987,440Write-off of costs related to initial public offering
    
    
    
    
    
    
    
    
    
    
    1,892,072Litigation-related expenses
    
    
    
    
    
    
    1,980,879
    
    
    
    1,939,565Depreciation
    
    
    1,293,902
    
    
    
    1,129,465
    
    
    
    1,191,951Amortization of intangible assets
    
    
    2,276,000
    
    
    
    2,942,000
    
    
    
    2,727,000Total operating expenses
    
    
    58,471,390
    
    
    
    52,910,683
    
    
    
    61,563,350Loss from operations
    
    
    (5,648,035
    )
    
    
    (8,079,119
    )
    
    
    (12,653,438
    )Other income (expense)Change in valuation of derivative
    
    
    
    
    
    
    
    
    
    
    220,240Interest expense
    
    
    (67,000
    )
    
    
    (94,847
    )
    
    
    (283,781
    )Interest income
    
    
    8,271
    
    
    
    14,527
    
    
    
    163,587Other
    
    
    (879,032
    )
    
    
    (72,440
    )
    
    
    219,723(937,761
    )
    
    
    (152,760
    )
    
    
    319,769Loss before income taxes
    
    
    (6,585,796
    )
    
    
    (8,231,879
    )
    
    
    (12,333,669
    )Income tax expense (benefit)
    
    
    1,353,093
    
    
    
    (2,307,010
    )
    
    
    (150,529
    )Net loss
    
    
    (7,938,889
    )
    
    
    (5,924,869
    )
    
    
    (12,183,140
    )Accretion of preferred stock and preferred stock dividends
    
    
    (9,241,631
    )
    
    
    (9,460,265
    )
    
    
    (9,226,766
    )Net loss attributable to common stockholders
    
    $
    (17,180,520
    )
    
    $
    (15,385,134
    )
    
    $
    (21,409,906
    )
 The accompanying notes are an integral part of these financial statements.
  5




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##### 



Metastorm Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 Years ended December 31, 2010, 2009 and 2008
 Accumulated
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    StockholdersNumber
    
    
    
    
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Equityof Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    (Deficit)Balance at January 1, 2008
    
    
    28,125
    
    
    $
    281
    
    
    $
    19,312,102
    
    
    $
    423,564
    
    
    $
    (69,441,264
    )
    
    $
    (49,705,317
    )Stock options exercised
    
    
    1,132,475
    
    
    
    11,325
    
    
    
    308,448
    
    
    
    
    
    
    
    
    
    
    
    319,773Shares retired for cashless exercise of options
    
    
    (218,883
    )
    
    
    (2,189
    )
    
    
    (232,016
    )
    
    
    
    
    
    
    
    
    
    
    (234,205
    )Accretion of accrued and undeclared dividend on Series AA Redeemable
Convertible Preferred Stock and Series CC Redeemable Convertible Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    (8,606,835
    )
    
    
    
    
    
    
    
    
    
    
    (8,606,835
    )Accretion of accrued Series AA Redeemable Convertible Preferred Stock to
redemption value
    
    
    
    
    
    
    
    
    
    
    (584,241
    )
    
    
    
    
    
    
    
    
    
    
    (584,241
    )Accretion of issuance costs for Series CC Redeemable Convertible Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (35,690
    )
    
    
    
    
    
    
    
    
    
    
    (35,690
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    394,727
    
    
    
    
    
    
    
    
    
    
    
    394,727Comprehensive lossNet loss in 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,183,140
    )
    
    
    (12,183,140
    )Other comprehensive loss:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (852,234
    )
    
    
    
    
    
    
    (852,234
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,035,374
    )Balance at December 31, 2008
    
    
    941,717
    
    
    
    9,417
    
    
    
    10,556,495
    
    
    
    (428,670
    )
    
    
    (81,624,404
    )
    
    
    (71,487,162
    )Stock options exercised
    
    
    18,750
    
    
    
    188
    
    
    
    8,438
    
    
    
    
    
    
    
    
    
    
    
    8,626Issuance of Series AA Redeemable Convertible Preferred Stock to restricted
stock unit holders, net of shares withheld to satisfy tax obligation of unit
holders
    
    
    
    
    
    
    
    
    
    
    (2,092,204
    )
    
    
    
    
    
    
    
    
    
    
    (2,092,204
    )Accretion of accrued and undeclared dividend on Series AA Redeemable
Convertible Preferred Stock and Series CC Redeemable Convertible Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    (8,527,434
    )
    
    
    
    
    
    
    (385,171
    )
    
    
    (8,912,605
    )Accretion of accrued Series AA Redeemable Convertible Preferred Stock to
redemption value
    
    
    
    
    
    
    
    
    
    
    (384,051
    )
    
    
    
    
    
    
    (128,017
    )
    
    
    (512,068
    )Accretion of issuance costs for Series CC Redeemable Convertible Preferred Stock
    
    
    
    
    
    
    
    
    
    
    (26,621
    )
    
    
    
    
    
    
    (8,971
    )
    
    
    (35,592
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    465,377
    
    
    
    
    
    
    
    
    
    
    
    465,377Comprehensive lossNet loss in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,924,869
    )
    
    
    (5,924,869
    )Other comprehensive loss:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (255,986
    )
    
    
    
    
    
    
    (255,986
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,180,855
    )Balance at December 31, 2009
    
    
    960,467
    
    
    
    9,605
    
    
    
    
    
    
    
    (684,656
    )
    
    
    (88,071,432
    )
    
    
    (88,746,483
    )Stock options exercised (Unaudited)
    
    
    17,219
    
    
    
    172
    
    
    
    7,767
    
    
    
    
    
    
    
    
    
    
    
    7,939Accretion of accrued and undeclared dividend on Series AA Redeemable
Convertible Preferred Stock and Series CC Redeemable Convertible Preferred
Stock (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,693,971
    )
    
    
    (8,693,971
    )Accretion of accrued Series AA Redeemable Convertible Preferred Stock to
redemption value (Unaudited)
    
    
    
    
    
    
    
    
    
    
    (448,570
    )
    
    
    
    
    
    
    (63,498
    )
    
    
    (512,068
    )Accretion of issuance costs for Series CC Redeemable Convertible Preferred
Stock (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,593
    )
    
    
    (35,593
    )Stock-based compensation expense (Unaudited)
    
    
    
    
    
    
    
    
    
    
    440,803
    
    
    
    
    
    
    
    
    
    
    
    440,803Comprehensive loss (Unaudited)Net loss in 2010 (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,938,889
    )
    
    
    (7,938,889
    )Other comprehensive loss (Unaudited):Foreign currency translation adjustment (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336,883
    
    
    
    
    
    
    
    336,883Total comprehensive loss (Unaudited)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,602,006
    )Balance at December 31, 2010 (Unaudited)
    
    
    977,686
    
    
    $
    9,777
    
    
    $
    
    
    
    $
    (347,773
    )
    
    $
    (104,803,383
    )
    
    $
    (105,141,379
    )
 The accompanying notes are an integral part of these financial statements.
  6




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##### 



Metastorm Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended December 31,2010
    
    
    2009
    
    
    2008(Unaudited)Cash flows from operating activitiesNet loss
    
    $
    (7,938,889
    )
    
    $
    (5,924,869
    )
    
    $
    (12,183,140
    )Adjustments
to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation
    
    
    1,293,902
    
    
    
    1,129,465
    
    
    
    1,191,951Amortization of software development costs
    
    
    
    
    
    
    20,627
    
    
    
    134,525Amortization of intangible assets
    
    
    5,016,514
    
    
    
    6,134,359
    
    
    
    6,812,352Noncash compensation
    
    
    
    
    
    
    
    
    
    
    78,688Deferred rent
    
    
    (126,791
    )
    
    
    (110,777
    )
    
    
    (4,184
    )Bad debt expense
    
    
    155,314
    
    
    
    191,915
    
    
    
    349,207Loss on disposal of property and equipment
    
    
    65,656
    
    
    
    16,474
    
    
    
    5,483Stock-based compensation expense
    
    
    440,803
    
    
    
    465,377
    
    
    
    394,727Change in fair value of
derivative
    
    
    
    
    
    
    
    
    
    
    (220,240
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (914,230
    )
    
    
    (325,008
    )
    
    
    3,295,166Prepaid expenses and other current assets
    
    
    (66,555
    )
    
    
    113,273
    
    
    
    (1,149,165
    )Deferred income taxes
    
    
    1,158,986
    
    
    
    (2,322,501
    )
    
    
    (168,518
    )Accounts payable and accrued expenses
    
    
    2,326,859
    
    
    
    (3,064,372
    )
    
    
    702,112Income taxes payable
    
    
    145,092
    
    
    
    35,171
    
    
    
    (42,043
    )Deferred revenue
    
    
    93,678
    
    
    
    5,498,592
    
    
    
    4,445,275Net cash provided by operating activities
    
    
    1,650,339
    
    
    
    1,857,726
    
    
    
    3,642,196Cash flows from investing activitiesPurchase of property and equipment
    
    
    (676,340
    )
    
    
    (1,210,712
    )
    
    
    (543,960
    )Proceeds from sale of property and equipment
    
    
    3,415
    
    
    
    1,650
    
    
    
    1,300Receipt of restricted cash to collateralize letter of credit
    
    
    
    
    
    
    
    
    
    
    341,068Cash paid for acquisition, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (488,786
    )Proceeds from maturity of short-term investments
    
    
    
    
    
    
    1,248,000
    
    
    
    Short-term investments purchased
    
    
    
    
    
    
    
    
    
    
    (1,248,000
    )Net cash (used in) provided by investing
activities
    
    
    (672,925
    )
    
    
    38,938
    
    
    
    (1,938,378
    )
 The accompanying notes are an integral part of these financial statements.
  7




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##### 



Metastorm Inc. and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 Year ended December 31,2010
    
    
    2009
    
    
    2008(Unaudited)Cash flows from financing activitiesRepayments of borrowings under notes payable
    
    
    (66,489
    )
    
    
    (56,831
    )
    
    
    (11,476
    )Repayments of capital leases
    
    
    (338,570
    )
    
    
    (372,373
    )
    
    
    (277,319
    )Proceeds from stock options exercised
    
    
    7,939
    
    
    
    8,625
    
    
    
    6,900Payment of tax obligation for issuance of
Series AA Redeemable Convertible Preferred
Stock to restricted stock unit holders
    
    
    
    
    
    
    (960,736
    )
    
    
    Net cash used in financing activities
    
    
    (397,120
    )
    
    
    (1,381,315
    )
    
    
    (281,895
    )Effects of exchange rate changes on cash and cash
equivalents
    
    
    373,031
    
    
    
    (388,057
    )
    
    
    (289,057
    )Net increase in cash and
cash equivalents
    
    
    953,325
    
    
    
    127,292
    
    
    
    1,132,866Cash and cash equivalents at beginning of year
    
    
    10,281,161
    
    
    
    10,153,869
    
    
    
    9,021,003Cash and cash equivalents at end of year
    
    $
    11,234,486
    
    
    $
    10,281,161
    
    
    $
    10,153,869Supplemental disclosures of cash flow information:Cash paid
(received) during the year for:Interest
    
    $
    67,000
    
    
    $
    94,847
    
    
    $
    285,129Income taxes
    
    
    (13,393
    )
    
    
    79,707
    
    
    
    48,801Supplemental schedule of non-cash investing and
financing activities:Fixed assets purchased under capital leases
    
    $
    435,257
    
    
    $
    225,775
    
    
    $
    531,202Fixed assets purchased under notes payable
    
    
    
    
    
    
    
    
    
    
    136,690
 The accompanying notes are an integral part of these financial statements.
  8




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##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization
  2. Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Cash and Cash Equivalents
   9




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##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Property and Equipment
  Deferred Equity Offering Costs
  Financial Instruments
   10




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##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Financial Instruments (Continued)
 Software Development Costs
 ASC 985 Software
  11




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##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Software Development Costs (Continued)
  Business Combinations
 ASC 805 Business Combinations
   12




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Goodwill and Intangible Assets
  ASC 350 Intangibles  Goodwill and Other
 Deferred Rent
   13




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Revenue Recognition
 ASC 985-605 Software  Revenue Recognition
   14




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Revenue Recognition (Continued)
    
    
    If a significant portion of the fee is due after the Companys established payment
terms, revenue recognition is deferred until payment has been received from the customer.
  15




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Revenue Recognition (Continued)
 
    
    If a transaction is subject to customer acceptance provisions where delivery is
uncertain, revenue recognition is deferred until evidence of the customers acceptance of
the product is received.
    
    If the price is subject to refund or forfeiture, concession or other adjustment,
revenue recognition is deferred until these rights expire.
    16




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Revenue Recognition (Continued)
   Concentrations of Credit Risk




17



---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Concentrations of Credit Risk (Continued)
  2010
    
    
    2009(Unaudited)Balance beginning of year
    
    $
    152,262
    
    
    $
    133,684Additions charged to expenses
    
    
    155,314
    
    
    
    191,915Deductions (1)
    
    
    (213,885
    )
    
    
    (173,337
    )Balance end of the year
    
    $
    93,691
    
    
    $
    152,262
 (1)
    
    Uncollectable amounts written off, net of recoveries.  2010
    
    
    2009
    
    
    2008(Unaudited)Revenues:Americas
    
    $
    51,858,555
    
    
    $
    48,468,400
    
    
    $
    50,902,895United Kingdom
    
    
    7,591,861
    
    
    
    7,336,047
    
    
    
    11,540,612Rest of World
    
    
    16,457,142
    
    
    
    11,918,519
    
    
    
    12,450,284$
    75,907,558
    
    
    $
    67,722,966
    
    
    $
    74,893,791
   18




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Concentrations of Credit Risk (Continued)
  Impairment of Long-Lived Assets
  Foreign Currency Translation
   Advertising Costs
   19




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Research and Development Expenses
  Income Taxes
 ASC 740 Income Taxes Accounting for Uncertainty in Income Taxes,
    20




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Stock-Based Compensation
 ASC 718 Compensation  Stock Compensation
   2010
    
    
    2009
    
    
    2008(Unaudited)Risk-free interest rate
    
    
    2.28
    %
    
    
    1.99
    %
    
    
    3.46
    %Expected dividend rate
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected term (in years)
    
    
    5.1
    
    
    
    4.6
    
    
    
    5.4Expected volatility
    
    
    43.4
    %
    
    
    41.8
    %
    
    
    43.2
    %Fair value of stock option awards during the year
    
    $
    0.24
    
    
    $
    0.26
    
    
    $
    0.45
 Risk-free interest rate
 Expected dividend rate
 Expected term
  21




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Stock-Based Compensation (Continued)
 Expected volatility
   December 31,2010
    
    
    2009
    
    
    2008(Unaudited)Cost of revenuesMaintenance and support
    
    $
    4,807
    
    
    $
    7,053
    
    
    $
    5,900Professional services
    
    
    9,032
    
    
    
    16,397
    
    
    
    15,118Total stock-based compensation
expense included in cost of revenues
    
    
    13,839
    
    
    
    23,450
    
    
    
    21,018Operating expensesResearch and development
    
    
    61,952
    
    
    
    67,760
    
    
    
    54,367Sales and marketing
    
    
    197,176
    
    
    
    214,157
    
    
    
    179,119General and administrative
    
    
    167,836
    
    
    
    160,010
    
    
    
    140,223Total stock-based compensation expense
    
    $
    440,803
    
    
    $
    465,377
    
    
    $
    394,727
  22




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
 Comprehensive (Loss) Income
 ASC 220 Comprehensive Income .
 Litigation Reserves
  Recent Accounting Pronouncements
     23




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 2. Significant Accounting Policies (Continued)
    24




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 3. Property and Equipment
  Years ended December 31,2010
    
    
    2009(Unaudited)Computer equipment
    
    $
    2,417,673
    
    
    $
    2,572,657Office furniture and equipment
    
    
    427,772
    
    
    
    520,399Equipment under capital lease
    
    
    1,773,132
    
    
    
    1,337,874Leasehold improvements
    
    
    1,229,186
    
    
    
    1,214,2755,847,763
    
    
    
    5,645,205Accumulated depreciation
    
    
    (3,638,572
    )
    
    
    (3,175,435
    )$
    2,209,191
    
    
    $
    2,469,770
  4. Acquired Intangible Assets
  Weighted-Average
    
    
    Gross
    
    
    
    
    
    
    NetUseful Life
    
    
    Carrying
    
    
    Accumulated
    
    
    Carryingin Years
    
    
    Amount
    
    
    Amortization
    
    
    AmountDecember 31, 2010 (Unaudited):Customer relationships
    
    
    4.4
    
    
    $
    10,184,000
    
    
    $
    (9,052,000
    )
    
    $
    1,132,000Acquired technology
    
    
    5.3
    
    
    
    18,207,000
    
    
    
    (14,131,000
    )
    
    
    4,076,000Backlog
    
    
    3.4
    
    
    
    692,000
    
    
    
    (685,284
    )
    
    
    6,716December 31, 2009:Customer relationships
    
    
    4.4
    
    
    $
    10,184,000
    
    
    $
    (6,776,000
    )
    
    $
    3,408,000Acquired technology
    
    
    5.3
    
    
    
    18,207,000
    
    
    
    (11,401,000
    )
    
    
    6,806,000Backlog
    
    
    3.4
    
    
    
    692,000
    
    
    
    (672,864
    )
    
    
    19,136
  25




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 4. Acquired Intangible Assets (Continued)
  AmortizationYears ending December 31,
    
    Expense(Unaudited)2011
    
    $
    2,594,4042012
    
    
    1,261,3122013
    
    
    929,0002014
    
    
    430,000
  26




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 5. Notes Payable
 December 31,2010
    
    
    2009(Unaudited)Note payable issued to the landlord in February
2006 to fund leasehold improvements. The note
is being repaid monthly in installments of
principal and interest through March 1, 2016.
The note accrues interest at 9%.
    
    $
    57,589
    
    
    $
    65,971Note payable issued to a vendor in December
2008 to fund the implementation of accounting
software. The note is being repaid monthly in
installments of principal through December
2011. The note accrues interest at 0%.
    
    
    49,168
    
    
    
    107,276106,757
    
    
    
    173,247Less current portion
    
    
    (58,336
    )
    
    
    (62,020
    )$
    48,421
    
    
    $
    111,227
  Years
    
    Amount(Unaudited)2012
    
    
    10,0282013
    
    
    10,9692014
    
    
    11,9972015
    
    
    13,123Thereafter
    
    
    2,304
 6. Accounts Payable and Accrued Expenses
  December 31,2010
    
    
    2009(Unaudited)Accounts payable
    
    $
    3,134,172
    
    
    $
    3,862,137Accrued expenses
    
    
    2,270,362
    
    
    
    2,051,977Accrued commissions
    
    
    3,084,891
    
    
    
    2,016,467Other accrued compensation and related
expenses
    
    
    2,239,153
    
    
    
    587,903$
    10,728,578
    
    
    $
    8,518,484
  27




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7. Preferred Stock
 Series AA Redeemable Convertible Preferred Stock
      28




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7. Preferred Stock (Continued)
 Series AA Redeemable Convertible Preferred Stock (Continued)
     Series CC Redeemable Convertible Preferred Stock
     29




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 7. Preferred Stock (Continued)
 Series CC Redeemable Convertible Preferred Stock (Continued)
      8. Stock Purchase Warrants
  Number
    
    
    
    
    Exerciseof Shares
    
    
    Class
    
    Price
    
    
    Expiration Date39,155
    
    
    Common
    
    
    1.28
    
    
    March 2012
  30




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 9. Shares Reserved for Future Issuance
  Conversion of Series AA (Unaudited)
    
    
    58,288,994Conversion of Series CC (Unaudited)
    
    
    18,844,221Exercise of common stock purchase warrants (Unaudited)
    
    
    39,155Exercise of stock options (Unaudited)
    
    
    11,750,620Stock options reserved by the Board of Directors
    
    
    88,922,990
 10. Stock Option Plan
 Equity Incentive Plans
     31




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 10. Stock Option Plan (Continued)
 Equity Incentive Plans (Continued)
  WeightedWeighted
    
    
    AverageRange of
    
    Average
    
    
    RemainingNumber
    
    
    Exercise
    
    Exercise
    
    
    Contractualof Shares
    
    
    Prices
    
    Prices
    
    
    LifeOutstanding at January 1, 2008
    
    
    8,212,500
    
    
    0.28  0.46
    
    
    0.35Granted
    
    
    1,451,667
    
    
    1.09
    
    
    1.09Exercised
    
    
    (1,132,380
    )
    
    0.28  0.46
    
    
    0.29Forfeited
    
    
    (127,500
    )
    
    0.28  0.46
    
    
    0.45Outstanding at December 31, 2008
    
    
    8,404,287
    
    
    0.28  1.09
    
    
    0.48Granted
    
    
    248,000
    
    
    0.63
    
    
    0.63Exercised
    
    
    (18,750
    )
    
    0.46
    
    
    0.46Forfeited
    
    
    (512,500
    )
    
    0.28  1.09
    
    
    0.44Outstanding at December 31, 2009
    
    
    8,121,037
    
    
    0.28  1.09
    
    
    0.49Granted (Unaudited)
    
    
    3,964,000
    
    
    0.59  0.60
    
    
    0.60Exercised (Unaudited)
    
    
    (17,219
    )
    
    0.46
    
    
    0.46Forfeited (Unaudited)
    
    
    (317,198
    )
    
    0.28  1.09
    
    
    0.52Outstanding at December 31, 2010 (Unaudited)
    
    
    11,750,620
    
    
    0.28  1.09
    
    
    0.52
    
    
    
    7.03Exercisable at December 31, 2010 (Unaudited)
    
    
    7,113,730
    
    
    0.28  1.09
    
    
    0.45
    
    
    
    5.84Vested and expected to vest at December 31,
2010 (Unaudited)
    
    
    11,147,824
    
    
    0.28  1.09
    
    
    0.51
    
    
    
    6.17
    32




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 10. Stock Option Plan (Continued)
 Restricted Stock Units
   11. Income Taxes
  2010
    
    
    2009
    
    
    2008Federal
    
    $
    244,805
    
    
    $
    343,577
    
    
    $
    343,577State and local
    
    
    838
    
    
    
    71,267
    
    
    
    64,275Foreign
    
    
    1,107,450
    
    
    
    (2,721,854
    )
    
    
    (558,381
    )Total income tax expense
(benefit)
    
    $
    1,353,093
    
    
    $
    (2,307,010
    )
    
    $
    (150,529
    )Current
    
    $
    204,261
    
    
    $
    114,046
    
    
    $
    17,989Deferred
    
    
    1,148,832
    
    
    
    (2,421,056
    )
    
    
    (168,518
    )Total income tax expense
(benefit)
    
    $
    1,353,093
    
    
    $
    (2,307,010
    )
    
    $
    (150,529
    )
  33




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 11. Income Taxes (Continued)
  2010
    
    
    2009Net operating loss carry-forward
    
    $
    16,553,145
    
    
    $
    15,761,803Deferred stock compensation
    
    
    516,398
    
    
    
    379,499Accrued expenses and deferred revenue
    
    
    1,093,899
    
    
    
    2,076,720Amortization of intangible assets and goodwill
    
    
    7,994,224
    
    
    
    6,288,168Provision for bad debts
    
    
    12,349
    
    
    
    21,459Depreciation
    
    
    278,510
    
    
    
    250,951AMT credit
    
    
    
    
    
    
    98,772Capital loss carryover
    
    
    
    
    
    
    34,153R&D credit carryover
    
    
    85,246
    
    
    
    85,246Other
    
    
    (117,974
    )
    
    
    (129,637
    )Total deferred tax assets
    
    
    26,415,797
    
    
    
    24,867,134Valuation allowance for deferred assets
    
    
    (15,342,067
    )
    
    
    (12,853,481
    )Net deferred tax assets
    
    
    11,073,730
    
    
    
    12,013,653Deferred tax liabilitiesPrepaid expenses
    
    
    338,491
    
    
    
    349,616Goodwill
    
    
    1,983,122
    
    
    
    1,605,679Basis difference for intangibles on
acquisitions
    
    
    7,616,041
    
    
    
    7,616,041Total deferred tax liabilities
    
    
    9,937,654
    
    
    
    9,571,336Net deferred tax asset
    
    $
    1,136,076
    
    
    $
    2,442,317
  34




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 11. Income Taxes (Continued)
  December 31,2010
    
    
    2009Balance at beginning of year
    
    $
    (12,853,481
    )
    
    $
    (12,304,866
    )Decrease due to release of valuation
allowance in Metastorm Ltd.
    
    
    
    
    
    
    2,734,392Increase due to operations
    
    
    (2,488,586
    )
    
    
    (3,283,007
    )Balance at end of year
    
    $
    (15,342,067
    )
    
    $
    (12,853,481
    )
     35




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 11. Income Taxes (Continued)
   December 31,2010
    
    
    2009
    
    
    2008(Unaudited)Tax benefit at U.S. statutory rate
    
    $
    (2,220,831
    )
    
    $
    (2,813,886
    )
    
    $
    (4,196,424
    )Effect of permanent differences
    
    
    979,011
    
    
    
    (67,451
    )
    
    
    586,793State income benefits, net of federal effect
    
    
    (262,960
    )
    
    
    (272,478
    )
    
    
    (645,123
    )Foreign income tax rates different from
U.S. statutory rate
    
    
    9,230
    
    
    
    45,407
    
    
    
    (105,666
    )Other reconciling items
    
    
    209,002
    
    
    
    (67,574
    )
    
    
    (131
    )Change in valuation allowance
    
    
    2,639,641
    
    
    
    868,972
    
    
    
    4,210,022$
    1,353,093
    
    
    $
    (2,307,010
    )
    
    $
    (150,529
    )
   36




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 12. Leases
  Years
    
    Amount(Unaudited)2011
    
    $
    2,010,6262012
    
    
    1,664,3622013
    
    
    1,239,6932014
    
    
    643,9552015
    
    
    655,672Thereafter
    
    
    532,636
   Years
    
    Amount(Unaudited)2011
    
    $
    401,9892012
    
    
    319,4702013
    
    
    209,2072014
    
    
    36,866Future minimum payments
    
    
    967,532Less:Amounts representing interest
    
    
    80,907Amounts representing taxes
    
    
    54,633Current portion of capital leases
    
    
    336,110Long-term portion of capital leases
    
    $
    495,882
  37




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 13. Employee Defined Contribution Retirement Plans
   14. Related Party Transaction
   38




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 15. Commitments and Contingencies
      39




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 16. Geographic and Segment Information
 ASC 280 Segment Reporting
     40




---



##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 16. Geographic and Segment Information (Continued)
  Americas
    
    
    International
    
    
    Total2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008RevenuesSoftware licenses
    
    $
    19,513
    
    
    $
    15,765
    
    
    $
    18,937
    
    
    $
    8,615
    
    
    $
    6,688
    
    
    $
    9,138
    
    
    $
    28,128
    
    
    $
    22,453
    
    
    $
    28,075Professional services
    
    
    15,085
    
    
    
    15,773
    
    
    
    18,705
    
    
    
    3,799
    
    
    
    2,710
    
    
    
    4,604
    
    
    
    18,884
    
    
    
    18,483
    
    
    
    23,309Maintenance and
support
    
    
    19,476
    
    
    
    18,739
    
    
    
    15,884
    
    
    
    9,419
    
    
    
    8,048
    
    
    
    7,626
    
    
    
    28,895
    
    
    
    26,787
    
    
    
    23,510Revenues
    
    
    54,074
    
    
    
    50,277
    
    
    
    53,526
    
    
    
    21,833
    
    
    
    17,446
    
    
    
    21,368
    
    
    
    75,907
    
    
    
    67,723
    
    
    
    74,894Cost of revenuesSoftware licenses
    
    
    412
    
    
    
    1,781
    
    
    
    608
    
    
    
    549
    
    
    
    218
    
    
    
    195
    
    
    
    961
    
    
    
    1,999
    
    
    
    803Professional services
    
    
    13,045
    
    
    
    13,158
    
    
    
    15,238
    
    
    
    4,167
    
    
    
    2,513
    
    
    
    3,842
    
    
    
    17,212
    
    
    
    15,671
    
    
    
    19,080Maintenance and
support
    
    
    1,510
    
    
    
    1,362
    
    
    
    1,889
    
    
    
    647
    
    
    
    500
    
    
    
    105
    
    
    
    2,157
    
    
    
    1,862
    
    
    
    1,994Cost of revenues
    
    
    14,967
    
    
    
    16,301
    
    
    
    17,735
    
    
    
    5,363
    
    
    
    3,231
    
    
    
    4,142
    
    
    
    20,330
    
    
    
    19,532
    
    
    
    21,877Segment gross profitSoftware licenses
    
    
    19,101
    
    
    
    13,984
    
    
    
    18,329
    
    
    
    8,066
    
    
    
    6,470
    
    
    
    8,943
    
    
    
    27,167
    
    
    
    20,454
    
    
    
    27,272Professional services
    
    
    2,040
    
    
    
    2,615
    
    
    
    3,467
    
    
    
    (368
    )
    
    
    197
    
    
    
    762
    
    
    
    1,672
    
    
    
    2,812
    
    
    
    4,229Maintenance and
support
    
    
    17,966
    
    
    
    17,377
    
    
    
    13,995
    
    
    
    8,772
    
    
    
    7,548
    
    
    
    7,521
    
    
    
    26,738
    
    
    
    24,925
    
    
    
    21,516Segment gross profit
    
    
    39,107
    
    
    
    33,976
    
    
    
    35,791
    
    
    
    16,470
    
    
    
    14,215
    
    
    
    17,226
    
    
    
    55,577
    
    
    
    48,191
    
    
    
    53,017Operating expensesResearch and
development
    
    
    6,918
    
    
    
    6,104
    
    
    
    7,015
    
    
    
    4,097
    
    
    
    3,545
    
    
    
    3,310
    
    
    
    11,015
    
    
    
    9,649
    
    
    
    10,325Sales and marketing
    
    
    18,182
    
    
    
    16,702
    
    
    
    18,642
    
    
    
    10,805
    
    
    
    8,810
    
    
    
    10,959
    
    
    
    28,987
    
    
    
    25,512
    
    
    
    29,601Operating expenses
    
    
    25,100
    
    
    
    22,806
    
    
    
    25,657
    
    
    
    14,902
    
    
    
    12,355
    
    
    
    14,269
    
    
    
    40,002
    
    
    
    35,161
    
    
    
    39,926Segment operating profit
    
    $
    14,007
    
    
    $
    11,170
    
    
    $
    10,134
    
    
    $
    1,568
    
    
    $
    1,860
    
    
    $
    2,957
    
    
    $
    15,575
    
    
    $
    13,030
    
    
    $
    13,091
  41




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##### 



Metastorm Inc. and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 16. Geographic and Segment Information (Continued)
  2010
    
    
    2009
    
    
    2008Total margin from operating segments
    
    $
    15,575
    
    
    $
    13,030
    
    
    $
    13,091Corporate and general and administrative expenses
    
    
    (15,765
    )
    
    
    (13,000
    )
    
    
    (18,538
    )Amortization of intangible assets
    
    
    (5,017
    )
    
    
    (6,134
    )
    
    
    (6,812
    )Stock-based compensation
    
    
    (441
    )
    
    
    (465
    )
    
    
    (395
    )Interest expense
    
    
    (59
    )
    
    
    (84
    )
    
    
    (284
    )Non-operating income (expense), net
    
    
    (879
    )
    
    
    (1,579
    )
    
    
    604Loss before provision for income taxes
    
    $
    (6,586
    )
    
    $
    (8,232
    )
    
    $
    (12,334
    )
 17. Subsequent Events
  ® ®
  42