UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





(Mark
one)


þ
            Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the fiscal year ended December 31,
2008





o
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934


Commission
file number 001-15169





PERFICIENT,
INC.


(Exact
Name of Registrant as Specified in Its Charter)




Delaware
              (State
      or other jurisdiction of
              incorporation
      or organization)
            No.
      74-2853258
              (I.R.S.
      Employer Identification No.)





1120
South Capital of Texas Highway, Building 3, Suite 220


Austin,
Texas 78746


(Address
of principal executive offices)




(512)
531-6000


(Registrant's
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:


Title
      of each class:
              Common
      Stock, $0.001 par value
            Name
      of each exchange on which registered:
              The
      Nasdaq Global Select Market





Securities
registered pursuant to Section 12(g) of the Act:None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yeso  Noþ




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yeso   Noþ





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈





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





Large
      accelerated filero
            Accelerated
      filerþNon-accelerated
      filero
            Smaller
      reporting companyo





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yeso Noþ




The
aggregate market value of the voting stock held by non-affiliates of the Company
was approximately $288.8 million based on the last reported sale price of
the Company's common stock on The Nasdaq Global Select Market on June 30,
2008.





As of
February 27, 2009, there were 32,039,383 shares of Common Stock
outstanding.





Portions
of the definitive proxy statement in connection with the 2008 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 2008, are incorporated by reference in Part III of this
Form 10-K.



























TABLE
OF CONTENTS






PART
      IItem
      1.
              Business.
              
              
              1Item
      1A.
              Risk
      Factors.
              
              
              10Item
      1B.
              Unresolved
      Staff Comments.
              
              
              17Item
      2.
              Properties.
              
              
              18Item
      3.
              Legal
      Proceedings.
              
              
              18Item
      4.
              Submission
      of Matters to a Vote of Security Holders.
              
              
              18PART
      IIItem
      5.
              Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
              
              
              19Item
      6.
              Selected
      Financial Data.
              
              
              20Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              
              
              21Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              
              
              32Item
      8.
              Financial
      Statements and Supplementary Data.
              
              
              33Item
      9.
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.
              
              
              54Item
      9A.
              Controls
      and Procedures.
              
              
              54Item
      9B.
              Other
      Information.
              
              
              54PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance.
              
              
              56Item
      11.
              Executive
      Compensation.
              
              
              58Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
              
              
              58Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
              
              
              58Item
      14.
              Principal
      Accounting Fees and Services.
              
              
              58PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules.
              
              
              59





















i







PART
I




Item 1.
            Business.




Overview




We are an
information technology consulting firm serving Forbes Global 2000 (“Global
2000”) and other large enterprise companies with a primary focus on the United
States. We help our clients gain competitive advantage by using Internet-based
technologies to make their businesses more responsive to market opportunities
and threats, strengthen relationships with their customers, suppliers and
partners, improve productivity and reduce information technology costs. We
design, build and deliver business-driven technology solutions using third party
software products. Our solutions include custom applications, portals and
collaboration, eCommerce, online customer management, enterprise content
management, business intelligence, business integration, mobile technology,
technology platform implementations and service oriented architectures. Our
solutions enable our clients to operate a real-time enterprise that dynamically
adapts business processes and the systems that support them to meet the changing
demands of an increasingly global, Internet-driven and competitive
marketplace.




Through our
experience in developing and delivering business-driven technology solutions for
a large number of Global 2000 clients, we have acquired domain expertise that we
believe differentiates our firm. We use expert project teams that we believe
deliver high-value, measurable results by working collaboratively with clients
and their partners through a user-centered, technology-based and business-driven
solutions methodology. We believe this approach enhances return-on-investment
for our clients by significantly reducing the time and risk associated with
designing and implementing business-driven technology solutions.




Our goal is
to continue to build one of the leading independent information technology
consulting firms in North America by expanding our relationships with existing
and new clients, leveraging our operations to expand and continuing to make
disciplined acquisitions.  We believe that information technology
consulting is a fragmented industry and that there are a substantial number of
privately held information technology consulting firms in our target markets
that, if acquired, can be strategically beneficial and accretive to earnings
over time. We have a track record of identifying, executing and integrating
acquisitions that add strategic value to our business. From April 2004 through
November 2007, we acquired and integrated 12 information technology consulting
firms. Given the current economic conditions, the Company has temporarily
suspended making additional acquisitions pending improved visibility into the
health of the economy and the information technology sector.




We believe we
have built one of the leading independent information technology consulting
firms in the United States. We serve our customers from locations in 19 markets
throughout North America. In addition, as of December 31, 2008, we had
546 colleagues (defined as billable employees and subcontractors) who are
part of “national” business units, who travel extensively to serve clients
throughout North America and Europe. Our future growth plan includes expanding
our business with a primary focus on the United States, both through increasing
the number of professionals and through opening new offices, both organically
and through acquisitions. We also intend to continue to leverage our existing
offshore capabilities to support our growth and provide our clients flexible
options for project delivery.  In 2008, 97% of our revenues were
derived from clients in the United States while 3% of our revenues were derived
from clients in Canada and Europe.  In 2007 and 2006, 99% of our
revenues were derived from clients in the United States while 1% of our revenues
were derived from clients in Canada and Europe. Over 98% of our total assets
were located in the United States in 2008 and 2007 with the remainder located in
Canada, China, and India.




We place
strong emphasis on building lasting relationships with clients. Over the past
three years ending December 31, 2008, an average of 82% of revenues was derived
from clients who continued to utilize our services from the prior year,
excluding from the calculation for any single period revenues from acquisitions
completed in that year. We have also built meaningful relationships with
software providers whose products we use to design and implement solutions for
our clients. These relationships enable us to reduce our cost of sales and sales
cycle times and increase success rates through leveraging our partners'
marketing efforts and endorsements.




Industry
Background




A number of
factors are shaping the information technology industry and, in particular, the
market for our information technology consulting services:
















1







United States
Economy. Beginning in 2008, the United States
economy began to experience a slowdown in growth.  It is clear that
the slowdown has had an effect on the information technology consulting industry
in general and on demand for our services in particular, but the amount of the
impact is uncertain as the slowdown is continuing as we enter 2009. According to
the most recent forecast from independent market research firm Forrester
Research, the decline in the economy will causethe growth inpurchases of IT goods and services to
decline to1.6% in 2009,
from 4.1% growth in 2008.  We have provided services revenue guidance
for 2009 of $180 million to $200 million which would represent a decline from
2008 services revenue, including reimbursable expenses, of 19% to
10%.




Need to Rationalize
Complex, Heterogeneous Enterprise Technology Environments. Over the past
two decades, the information systems of many Global 2000 and large enterprise
companies have evolved from traditional mainframe-based systems to include
distributed computing environments. This evolution has been driven by the
benefits offered by distributed computing, including lower incremental
technology costs, faster application development and deployment, increased
flexibility and improved access to business information. Organizations have also
widely installed enterprise resource planning (ERP), supply chain management
(SCM), and customer relationship management (CRM) applications in order to
streamline internal processes and enable communication and
collaboration.




As a result
of investment in these different technologies, organizations now have complex
enterprise technology environments with, in some cases, incompatible
technologies and high costs of integration. These increases in complexity, cost
and risk, combined with the business and technology transformation caused by the
commercialization of the Internet, have created demand for information
technology consultants with experience in enabling the integration of disparate
platforms and leveraging Internet-based technologies to support business and
technology goals.




Increased Competitive
Pressures. The marketplace continues to become increasingly global,
Internet-driven and competitive. To gain and maintain a competitive advantage in
this environment, Global 2000 and large enterprise companies seek real-time
access to critical business applications and information that enables quality
business decisions based on the latest possible information, flexible business
processes and systems that respond quickly to market opportunities, improved
quality and lower cost customer care through online customer self-service and
provisioning, reduced supply chain costs and improved logistics through
processes and systems integrated online to suppliers, partners and distributors
and increased employee productivity through better information flow and
collaboration.




Enabling
these business goals requires integrating, automating and extending business
processes, technology infrastructure and software applications end-to-end within
an organization and with key partners, suppliers and customers. This requires
the ability not only to integrate the disparate information resource types,
databases, legacy mainframe applications, packaged application software, custom
applications, trading partners, people and Web services, but also to manage the
business processes that govern the interactions between these resources so that
organizations can engage in “real-time business.” Real-time business refers to
the use of current information in business to execute critical business
processes.




These factors
continue to drive spending on software and related consulting services in the
areas of application integration, middleware and portals (AIMP), as these
segments play critical roles in the integration between new and existing systems
and the extension of those systems to customers, suppliers and partners via the
Internet. Companies are expected to continue to spend on integration broker
suites, enterprise portal services, application platform suites and
message-oriented middleware. As companies continue to spend on software and
related consulting services, their spending on services will also continue,
often by a multiplier of each dollar spent on software.




Quarterly
Fluctuations. Our quarterly operating results are subject to seasonal
fluctuations. The first and fourth quarters are impacted by professional staff
vacation and holidays, as well as the timing of buying decisions by clients. Our
results will also fluctuate, in part, based on whether we succeed in
counterbalancing periodic declines in services revenues when a project or
engagement is completed or cancelled by entering into arrangements to provide
additional services to the same or other clients. Software sales are seasonal as
well, with generally higher software demand during the third and fourth quarter.
These and other seasonal factors may contribute to fluctuations in our operating
results from quarter-to-quarter.
















2








Competitive
Strengths




We believe
our competitive strengths include:





·
            Domain Expertise. We
      have acquired significant domain expertise in a core set of
      business-driven technology solutions and software platforms. These
      solutions include, among others, custom applications, portals and
      collaboration, eCommerce, customer relationship management, enterprise
      content management, business intelligence, business integration, mobile
      technology solutions, technology platform implementations and service
      oriented architectures and enterprise service bus. The platforms in which
      we have significant domain expertise and on which these solutions are
      built include IBM WebSphere, Lotus, Information Management and Rational,
      TIBCO BusinessWorks, Microsoft.NET, Oracle-Seibel, BEA (acquired by
      Oracle), Cognos (acquired by IBM) and Documentum, among
      others.





·
            Delivery Model and
      Methodology. We believe our significant domain expertise enables us
      to provide high-value solutions through expert project teams that deliver
      measurable results by working collaboratively with clients through a
      user-centered, technology-based and business-driven solutions methodology.
      Our eNable Methodology, a proven execution process map we developed,
      allows for repeatable, high quality services delivery. The eNable
      Methodology leverages the thought leadership of our senior strategists and
      practitioners to support the client project team and focuses on
      transforming our clients' business processes to provide enhanced customer
      value and operating efficiency, enabled by Web technology. As a result, we
      believe we are able to offer our clients the dedicated attention that
      small firms usually provide and the delivery and project management that
      larger firms usually offer.





·
            Client Relationships.
      We have built a track record of quality solutions and client satisfaction
      through the timely, efficient and successful completion of numerous
      projects for our clients. As a result, we have established long-term
      relationships with many of our clients who continue to engage us for
      additional projects and serve as references for us. Over the past three
      years ending December 31, 2008, an average of 82% of revenues was derived
      from clients who continued to utilize our services from the prior year,
      excluding from the calculation for any revenues from acquisitions
      completed in that year.





·
            Vendor Relationship and
      Endorsements. We have built meaningful relationships with software
      providers, whose products we use to design and implement solutions for our
      clients. These relationships enable us to reduce our cost of sales and
      sales cycle times and increase win rates by leveraging our partners'
      marketing efforts and endorsements. We also serve as a sales channel for
      our partners, helping them market and sell their software products. We are
      a Premier IBM business partner, a TeamTIBCO partner, a Microsoft Gold
      Certified Partner, a Certified Oracle Partner, and an EMC Documentum
      Select Services Team Partner.  Our vendors have recognized our
      relationships with several awards.  Most recently, the Company
      was honored with IBM’s Information Management 2007 Most Distinguished
      Partner (North America) Award and IBM’s Lotus 2008 Most Distinguished
      Partner (North America) Award.





·
            Geographic Focus. We
      believe we have built one of the leading independent information
      technology consulting firms in the United States. We serve our clients
      from locations in 19 markets throughout North America. In addition, as of
      December 31, 2008, we had 546 colleagues who are part of “national”
      business units, who travel extensively to serve clients primarily in North
      America and Europe. Our future growth plan includes expanding our business
      with a primary focus on the United States, both through increasing the
      number of professionals and through opening new offices, both organically
      and through acquisitions. We also intend to continue to leverage our
      existing offshore capabilities to support our growth and provide our
      clients flexible options for project
delivery.





·
            Offshore Capability. We
      own and operate a CMMI Level 5 certified global development center in
      Hangzhou, China that was acquired in 2007. This facility is staffed with
      Perficient colleagues who provide offshore custom application development,
      quality assurance and testing services. Additionally, we have a
      relationship with an offshore development facility in Bitola, Macedonia.
      Through this facility we contract with a team of professionals with
      expertise in IBM, TIBCO and Microsoft technologies and with
      specializations that include application development, adapter and
      interface development, quality assurance and testing, monitoring and
      support, product development, platform migration, and portal development.
      In addition to our offshore capabilities, we employ a substantial number
      of foreign nationals in the United States on H1-B visas.  In
      2007, we acquired a recruiting facility in Chennai, India, to continue to
      grow our base of H1-B foreign national colleagues.  As of
      December 31, 2008, we had 133 colleagues at the Hangzhou, China facility
      and 215 colleagues with H1-B visas.
















3








Our
Solutions




We help
clients gain competitive advantage by using Internet-based technologies to make
their businesses more responsive to market opportunities and threats, strengthen
relationships with customers, suppliers and partners, improve productivity and
reduce information technology costs. Our business-driven technology solutions
enable these benefits by developing, integrating, automating and extending
business processes, technology infrastructure and software applications
end-to-end within an organization and with key partners, suppliers and
customers. This provides real-time access to critical business applications and
information and a scalable, reliable, secure and cost-effective technology
infrastructure that enables clients to:





·
            give
      managers and executives the information they need to make quality business
      decisions and dynamically adapt their business processes and systems to
      respond to client demands, market opportunities or business
      problems;


·
            improve
      the quality and lower the cost of customer acquisition and care through
      Web-based customer self-service and
  provisioning;


·
            reduce
      supply chain costs and improve logistics by flexibly and quickly
      integrating processes and systems and making relevant real-time
      information and applications available online to suppliers, partners and
      distributors;


·
            increase
      the effectiveness and value of legacy enterprise technology infrastructure
      investments by enabling faster application development and deployment,
      increased flexibility and lower management costs;
  and


·
            increase
      employee productivity through better information flow and collaboration
      capabilities and by automating routine processes to enable focus on unique
      problems and opportunities.





Our
business-driven technology solutions include the following:





·
            Enterprise portals and
      collaboration. We design, develop, implement and integrate secure
      and scalable enterprise portals for our clients and their customers,
      suppliers and partners that include searchable data systems, collaborative
      systems for process improvement, transaction processing, unified and
      extended reporting and content management and
    personalization.





·
            Business integration.
      We design, develop and implement business integration solutions that allow
      our clients to integrate all of their business processes end-to-end and
      across the enterprise. Truly innovative companies are extending those
      processes, and eliminating functional friction, between the enterprise and
      core customers and partners. Our business integration solutions can extend
      and extract core applications, reduce infrastructure strains and cost,
      Web-enable legacy applications, provide real-time insight into business
      metrics and introduce efficiencies for customers, suppliers and
      partners.





·
            Enterprise content management
      (ECM). We design, develop and implement ECM solutions that enable
      the management of all unstructured information regardless of file type or
      format. Our ECM solutions can facilitate the creation of new content
      and/or provide easy access and retrieval of existing digital assets from
      other enterprise tools such as enterprise resource planning (ERP),
      customer relationship management or legacy applications. Perficient's ECM
      solutions include Enterprise Imaging and Document Management, Web Content
      Management, Digital Asset Management, Enterprise Records Management,
      Compliance and Control, Business Process Management and Collaboration and
      Enterprise Search.





·
            Customer relationship
      management (CRM). We design, develop and implement advanced CRM
      solutions that facilitate customer acquisition, service and support,
      sales, and marketing by understanding our customers' needs through
      interviews, facilitated requirements gathering sessions and call center
      analysis, developing an iterative, prototype driven solution and
      integrating the solution to legacy processes and
    applications.





·
            Service oriented architectures
      (SOA) and enterprise service bus. We design, develop and implement
      SOA and enterprise service bus solutions that allow our clients to quickly
      adapt their business processes to respond to new market opportunities or
      competitive threats by taking advantage of business strategies supported
      by flexible business applications and IT
  infrastructures.





·
            Business intelligence.
      We design, develop and implement business intelligence solutions that
      allow companies to interpret and act upon accurate, timely and integrated
      information. By classifying, aggregating and correlating data into
      meaningful business information, business intelligence solutions help our
      clients make more informed business decisions. Our business intelligence
      solutions allow our clients to transform data into knowledge for quick and
      effective decision making and can include information strategy, data
      warehousing and business analytics and
  reporting.





·
            eCommerce. We design,
      develop and implement secure and reliable eCommerce infrastructures that
      dynamically integrate with back-end systems and complementary applications
      that provide for transaction volume scalability and sophisticated content
      management.
















4








·
            Mobile technology
      solutions. We design, develop and implement mobile technology
      solutions that deliver wireless capabilities to carriers, Mobile Virtual
      Network Operators (MVNO), Mobile Virtual Network Enablers (MVNE), and the
      enterprise. Perficient's expertise with wireless technologies such as SIP,
      MMS, WAP, and GPRS are coupled with our deep expertise in mobile content
      delivery. Our secure and scalable solutions can include mobile content
      delivery systems; wireless value-added services including SIP, IMS, SMS,
      MMS and Push-to-Talk; custom developed applications to pervasive devices
      including Symbian, WML, J2ME, MIDP, Linux; and customer care solutions
      including provisioning, mediation, rating and
  billing.





·
            Technology platform
      implementations. We design, develop and implement technology
      platform implementations that allow our clients to establish a robust,
      reliable Internet-based infrastructure for integrated business
      applications which extend enterprise technology assets to employees,
      customers, suppliers and partners. Our Platform Services include
      application server selection, architecture planning, installation and
      configuration, clustering for availability, performance assessment and
      issue remediation, security services and technology
      migrations.





·
            Custom applications. We
      design, develop, implement and integrate custom application solutions that
      deliver enterprise-specific functionality to meet the unique requirements
      and needs of our clients. Perficient's substantial experience with
      platforms including J2EE, .Net and open-source - plus our flexible
      delivery structure - enables enterprises of all types to leverage
      cutting-edge technologies to meet business-driven
  needs.




We conceive,
build and implement these solutions through a comprehensive set of services
including business strategy, user-centered design, systems architecture, custom
application development, technology integration, package implementation and
managed services.




In addition
to our business-driven technology solution services, we offer education and
mentoring services to our clients. We operate an IBM-certified advanced training
facility in the Chicago, Illinois area, where we provide our clients both
customized and established curriculum of courses and other education services in
areas including object-oriented analysis and design immersion, J2EE, user
experience, and an IBM Course Suite with over 20 distinct courses covering the
IBM WebSphere product suite. We also leverage our education practice and
training facility to provide continuing education and professional development
opportunities for our colleagues.




Our
Solutions Methodology




Our approach
to solutions design and delivery is user-centered, technology-based and
business-driven and is:




·
            iterative
      and results oriented;


·
            centered
      around a flexible and repeatable
framework;


·
            collaborative
      and customer-centered in that we work with not only our clients but with
      our clients' customers in developing our
  solutions;


·
            focused
      on delivering high value, measurable results;
  and


·
            grounded
      by industry leading project
management.




The eNable
Methodology allows for repeatable, high quality services delivery through a
unique and proven execution process map. Our methodology is grounded in a
thorough understanding of our clients' overall business strategy and competitive
environment. The eNable Methodology leverages the thought leadership of our
senior strategists and practitioners and focuses on transforming our clients'
business processes, applications and technology infrastructure. The eNable
Methodology focuses on business value or return-on-investment, with specific
objectives and benchmarks established at the outset.




Our
Strategy




Our goal is
to be the premier technology management consulting firm primarily focused on the
United States. To achieve our goal, our strategy is:





·
            Grow Relationships with
      Existing and New Clients. We intend to continue to solidify and
      expand enduring relationships with our existing clients and to develop
      long-term relationships with new clients by providing them with solutions
      that generate a demonstrable, positive return-on-investment. Our incentive
      plan rewards our project managers to work in conjunction with our sales
      people to expand the nature and scope of our engagements with existing
      clients.













5








·
            Continue Making Purchases of
      Equity Securities.  In an ongoing effort to provide the
      most value to our stockholders, the Board of Directors authorized the
      repurchase of up to $20.0 million of our common stock as part of a program
      that expires at the end of June 2010.  We believe our stock is
      undervalued and the repurchase program is the best use of a portion of our
      excess cash at this time.  We will continually re-evaluate the
      position of our stock price and will seek additional authorization to
      repurchase our common stock if we believe
  appropriate.





·
            Continue Making Disciplined
      AcquisitionsOnce
      the Economic Environment and Relative Valuations Improve. The
      information technology consulting market is a fragmented industry and we
      believe there are a substantial number of smaller privately held
      information technology consulting firms that can be acquired and be
      accretive to our financial results. We have a track record of successfully
      identifying, executing and integrating acquisitions that add strategic
      value to our business. Our established culture and infrastructure
      positions us to successfully integrate each acquired company, while
      continuing to offer effective solutions to our clients. From April 2004
      through November 2007, we have acquired and integrated 12 information
      technology consulting firms. Given the current economic conditions, the
      Company has temporarily suspended making additional acquisitions pending
      improved visibility into the health of the economy and the information
      technology sector and improvement of the relative valuation between the
      Company’s common stock price and the private market valuations of
      potential acquisitions.





·
            Expand Geographic Base.
      We believe we have built one of the leading independent information
      technology consulting firms in the United States. We serve our customers
      from our network of 19 offices throughout North America. In addition, as
      of December 31, 2008, we had 546 colleagues who are part of “national”
      business units, who travel extensively to serve clients primarily in North
      America and Europe. Our future growth plan includes expanding our business
      with a primary focus on the United States, both through increasing the
      number of professionals and through opening new offices, both organically
      and through acquisitions. We also intend to continue to leverage our
      existing ‘offshore’ capabilities to support our growth and provide our
      clients flexible options for project
delivery.





·
            Enhance Brand
      Visibility. Our focus on a core set of business-driven technology
      solutions, applications and software platforms and a targeted customer and
      geographic market has given us market visibility. In addition, we believe
      we have achieved critical mass in size, which has enhanced our visibility
      among prospective clients, employees and software vendors. As we continue
      to grow our business, we intend to highlight to customers and prospective
      customers our leadership in business-driven technology solutions and
      infrastructure software technology
platforms.





·
            Invest in Our People and
      Culture. We have developed a culture built on teamwork, a passion
      for technology and client service, and a focus on cost control and the
      bottom line. As a people-based business, we continue to invest in the
      development of our professionals and to provide them with entrepreneurial
      opportunities and career development and advancement. Our technology,
      business consulting and project management ensure that client team best
      practices are being developed across the company and our recognition
      program rewards teams for implementing those practices. We believe this
      results in a team of motivated professionals with the ability to deliver
      high-quality and high-value services for our
  clients.





·
            Leverage Existing and Pursue
      New Strategic Alliances. We intend to continue to develop alliances
      that complement our core competencies. Our alliance strategy is targeted
      at leading business advisory companies and technology providers and allows
      us to take advantage of compelling technologies in a mutually beneficial
      and cost-competitive manner. Many of these relationships, and in
      particular IBM, result in our partners, or their clients, utilizing us as
      the services firm of choice.





·
            Expand and Enhance Our
      Industry Vertical Focus.  In 2008 we launched two
      industry focused practices, healthcare and communications.  The
      goals of these industry verticals is to recruit and retain consultants
      with specific industry expertise and to ‘mine’ and leverage the
      intellectual property the Company has and accumulates as we serve clients
      within these industries.  Expanding these verticals will help
      the Company in terms of revenue generation as well as market expansion
      beyond our geographic and solution focused business units.  Some
      other industries we have meaningful expertise in include energy, consumer
      product goods, manufacturing and distribution, and financial
      services.





·
            Leverage Offshore
      Capabilities. Our solutions and services are primarily delivered at
      the customer site and require a significant degree of customer
      participation, interaction and specialized technology
      expertise.  We can compliment this with lower cost offshore
      technology professionals to perform less specialized roles on our solution
      engagements, enabling us to fully leverage our United States colleagues
      while offering our clients a highly competitive blended average rate. We
      own and operate a CMMI Level 5 certified global development center in
      Hangzhou, China that is staffed with Perficient colleagues who provide
      offshore custom application development, quality assurance and testing
      services and we maintain an exclusive arrangement with an offshore
      development and delivery firm in Macedonia. In addition to our offshore
      capabilities, we employ a substantial number of H1-B foreign nationals in
      the United States.  In 2007, we acquired a recruiting facility
      in Chennai, India, to continue to grow our base of H1-B foreign national
      colleagues.  As of December 31, 2008 we had 133 colleagues at
      the Hangzhou, China facility and 215 colleagues with H1-B
      visas.













6








Sales
and Marketing




As of
December 31, 2008, we had a 48 person direct solutions-oriented sales force. Our
sales team is experienced and connected through a common services portfolio,
sales process and performance management system. Our sales process utilizes
project pursuit teams that include those of our information technology
professionals best suited to address a particular prospective client's needs. We
reward our sales force for developing and maintaining relationships with our
clients and seeking out follow-up engagements as well as leveraging those
relationships to forge new ones in different areas of the business and with our
clients' business partners.  Approximately 85% of our sales are
executed by our direct sales force.  In addition to our direct sales
team we also have 24 dedicated sales support employees, four regional
vice-presidents and 13 business unit general managers who are engaged in the
sales and marketing efforts.




Our primary
target client base includes companies in North America with annual revenues in
excess of $500 million. We believe this market segment can generate the repeat
business that is a fundamental part of our growth plan. We primarily pursue
solutions opportunities where our domain expertise and delivery track record
give us a competitive advantage. We also typically target engagements of up to
$5 million in fees, which we believe to be below the target project range of
most large systems integrators and beyond the delivery capabilities of most
local boutiques.




We have sales
and marketing partnerships with software vendors including IBM Corporation,
TIBCO Software, Inc., Microsoft Corporation, Documentum, Oracle-Siebel, BEA
(acquired by Oracle), and webMethods, Inc. These companies are key vendors of
open standards based software commonly referred to as middleware application
servers, enterprise application integration platforms, business process
management, business activity monitoring and business intelligence applications
and enterprise portal server software. Our direct sales force works in tandem
with the sales and marketing groups of our partners to identify potential new
clients and projects. Our partnerships with these companies enable us to reduce
our cost of sales and sales cycle times and increase win rates by leveraging our
partners' marketing efforts and endorsements. In particular, the IBM and Oracle
software sales channels provide us with significant sales lead flow and joint
selling opportunities.




As we
continue to grow our business, we intend to highlight our leadership in
solutions and infrastructure software technology platforms. Our efforts will
include technology white papers, by-lined articles by our colleagues in
technology and trade publications, media and industry analyst events,
sponsorship of and participation in targeted industry conferences and trade
shows.




Clients




During the
year ended December 31, 2008, we provided services to 530 customers. No one
customer provided more than 10% of our total revenues in 2008, 2007 or
2006.





Competition




The market
for the information technology consulting services we provide is competitive and
has low barriers to entry. We believe that our competitors fall into several
categories, including:





·
            small
      local consulting firms that operate in no more than one or two geographic
      regions;


·
            regional
      consulting firms such as Brulant, Prolifics and MSI Systems
      Integrators;


·
            national
      consulting firms, such as Accenture, BearingPoint, Deloitte Consulting,
      Ciber, and Sapient;


·
            in-house
      professional services organizations of software companies;
    and


·
            to
      a limited extent, offshore providers such as Infosys Technologies Limited
      and Wipro Limited.




We believe
that the principal competitive factors affecting our market include domain
expertise, track record and customer references, quality of proposed solutions,
service quality and performance, efficiency, reliability, scalability and
features of the software platforms upon which the solutions are based, and the
ability to implement solutions quickly and respond on a timely basis to customer
needs. In addition, because of the relatively low barriers to entry into this
market, we expect to face additional competition from new entrants. We expect
competition from offshore outsourcing and development companies to
continue.




Some of our
competitors have longer operating histories, larger client bases and greater
name recognition and possess significantly greater financial, technical and
marketing resources than we do. As a result, these competitors may be able to
attract customers to which we market our services and adapt more quickly to new
technologies or evolving customer or industry requirements.
















7








Employees




As of
December 31, 2008, we had 1,186 employees, 1,019 of which were billable
professionals and 167 were involved in sales, general administration and
marketing. None of our employees are represented by a collective bargaining
agreement and we have never experienced a strike or similar work stoppage. We
consider our relations with our employees to be good.




Recruiting. We
are dedicated to hiring, developing and retaining experienced, motivated
technology professionals who combine a depth of understanding of current
Internet and legacy technologies with the ability to implement complex and
cutting-edge solutions.




Our
recruiting efforts are an important element of our continuing operations and
future growth. We generally target technology professionals with extensive
experience and demonstrated expertise. To attract technology professionals, we
use a broad range of sources including on-staff recruiters, outside recruiting
firms, internal referrals, other technology companies and technical
associations, the Internet and advertising in technical periodicals. After
initially identifying qualified candidates, we conduct an extensive screening
and interview process.




Retention. We
believe that our rapid growth, focus on a core set of business-driven technology
solutions, applications and software platforms and our commitment to career
development through continued training and advancement opportunities make us an
attractive career choice for experienced professionals. Because our strategic
partners are established and emerging market leaders, our technology
professionals have an opportunity to work with cutting-edge information
technology. We foster professional development by training our technology
professionals in the skills critical to successful consulting engagements such
as implementation methodology and project management. We believe in promoting
from within whenever possible. In addition to an annual review process that
identifies near-term and longer-term career goals, we make a professional
development plan available to assist our professionals with assessing their
skills and developing a detailed action plan for guiding their career
development. For the year ended December 31, 2008, our voluntary attrition rate
was approximately 22%.  The annualized voluntary attrition rate for
the second half of 2008 was 19%.




Training. To
ensure continued development of our technical staff, we place a high priority on
training. We offer extensive training for our professionals around
industry-leading technologies. We utilize our education practice to provide
continuing education and professional development opportunities for our
colleagues. Additionally, most newly-hired Perficient colleagues attend
Perficient 101, an orientation training course held at our operational
headquarters location in St. Louis where they learn general company procedures
and protocols and benefit from a role-based curriculum.




Compensation.
Our employees have a compensation model that includes a base salary and an
incentive compensation component. Our tiered incentive compensation plans help
us reach our overall goals by rewarding individuals for their influence on key
performance factors. Key performance metrics include client satisfaction,
revenues generated, utilization, profit and personal skills
growth.  Senior level employees (approximately 16% of our employees)
are eligible to receive restricted stock awards.  These awards
generally vest over a five year period.





Leadership
Councils. Our technology leadership council performs a critical role in
maintaining our technology leadership. Consisting of key employees from each of
our practice areas, the council frames our new strategic partner strategies and
conducts regular Internet webcasts with our technology professionals on specific
partner and general technology issues and trends. The council also coordinates
thought leadership activities, including white paper authorship and publication
and speaking engagements by our professionals. Finally, the council identifies
services opportunities between and among our strategic partners' products,
oversees our quality assurance programs and assists in acquisition-related
technology due diligence.




Culture




The Perficient
Promise. We have developed the “Perficient Promise,” which consists of
the following six simple commitments our colleagues make to each
other:





·
            we
      believe in long-term client and vendor relationships built on investment
      in innovative solutions, delivering more value than the competition and a
      commitment to excellence;


·
            we
      believe in growth and profitability and building meaningful
      scale;


·
            we
      believe each of us is ultimately responsible for our own career
      development and has a commitment to mentor
  others;


·
            we
      believe that Perficient has an obligation to invest in our consultants'
      training and education;


·
            we
      believe the best career development comes on the job;
  and


·
            we
      love challenging new work
opportunities.




We take these
commitments seriously because we believe that we can succeed only if the
Perficient Promise is kept.
















8








Knowledge
Management




MyPerficient.com-The Corporate Portal. To
ensure easy access to a wide range of information and tools, we have created a
corporate portal, MyPerficient.com. It is a secure, centralized communications
tool. It allows each of our colleagues unlimited access to information,
productivity tools, time and expense entry, benefits administration, corporate
policies and forms and quality management information directories and
documentation.




Professional Services
Automation Technology. We maintain a Professional Services application as
the enabling technology for many of our business processes, including knowledge
management. We possess and continue to aggregate significant knowledge including
marketing collateral, solution proposals, work product, and client deliverables.
Primavera's technology allows us to store this knowledge in a logical manner and
provides full-text search capability allowing our colleagues to deliver
solutions more efficiently and competitively.





Wiki. We maintain an internal
wiki where multiple sites are set up to foster collaboration and
knowledge-sharing around various solution areas, technologies and functional
disciplines. The wiki is a collaborative webpage designed to efficiently educate
colleagues and enable and enhance productivity.




General
Information




Our stock is
traded on the Nasdaq Global Select Market under the symbol “PRFT.” Our
website can be visited at www.perficient.com. We make available free of charge
through our website our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (“Exchange Act”) as soon as reasonably practicable after we electronically
file such material, or furnish it to, the Securities and Exchange Commission.
The information contained or incorporated in our website is not part of this
document.
















9







Item 1A.
            Risk
      Factors.




You should
carefully consider the following risk factors together with the other
information contained in or incorporated by reference into this annual report
before you decide to buy our common stock. If any of these risks actually occur,
our business, financial condition, operating results or cash flows could be
materially and adversely affected. This could cause the trading price of our
common stock to decline and you may lose part or all of your
investment.




Risks
Related to Our Business




Prolonged
economic weakness, particularly in the middleware, software and services market,
could adversely affect our business, financial condition and results of
operations.




Our results
of operations are affected by the levels of business activities of our clients,
which can be affected by economic conditions in the United States and
globally.  During periods of economic downturns, our clients may
decrease their demand for information technology services. In 2008, general
worldwide economic conditions have experienced a downturn due to slower economic
activity, concerns about inflation and deflation, decreased consumer confidence,
reduced corporate profits, capital spending, and adverse business
conditions.  These conditions may cause our customers to delay or
cancel information technology projects, reduce their overall information
technology budgets and/or reduce or cancel orders for our services. This, in
turn, may lead to longer sales cycles, delays in purchase decisions, payment and
collection issues, and may also result in price pressures, causing us to realize
lower revenues and operating margins. Additionally, if our clients cancel or
delay their business and technology initiatives or choose to move these
initiatives in-house, our business, financial condition and results of
operations could be materially and adversely affected.





The
market for the information technology consulting services we provide is
competitive, has low barriers to entry and is becoming increasingly
consolidated, which may adversely affect our market position.




The market
for the information technology consulting services we provide is competitive,
rapidly evolving and subject to rapid technological change. In addition, there
are relatively low barriers to entry into this market and therefore new entrants
may compete with us in the future. For example, due to the rapid changes and
volatility in our market, many well-capitalized companies, including some of our
partners, that have focused on sectors of the software and services industry
that are not competitive with our business may refocus their activities and
deploy their resources to be competitive with us.




An increasing
amount of information technology services are being provided by lower-cost
non-domestic resources. The increased utilization of these resources for
U.S.-based projects could result in lower revenues and margins for U.S.-based
information technology companies. Our ability to compete utilizing higher-cost
domestic resources and/or our ability to procure comparably priced off-shore
resources could adversely impact our results of operations and financial
condition.




Our future
financial performance will depend, in large part, on our ability to establish
and maintain an advantageous market position. We currently compete with regional
and national information technology consulting firms, and, to a limited extent,
offshore service providers and in-house information technology departments. Many
of the larger regional and national information technology consulting firms have
substantially longer operating histories, more established reputations and
potential vendor relationships, greater financial resources, sales and marketing
organizations, market penetration and research and development capabilities, as
well as broader product offerings and greater market presence and name
recognition. We may face increasing competitive pressures from these
competitors. This may place us at a disadvantage to our competitors, which may
harm our ability to grow, maintain revenues or generate net income.




In recent
years, there has been substantial consolidation in our industry, and we expect
that there will be additional consolidation in the future. As a result of this
increasing consolidation, we expect that we will increasingly compete with
larger firms that have broader product offerings and greater financial resources
than we have. We believe that this competition could have a negative effect on
our marketing, distribution and reselling relationships, pricing of services and
products and our product development budget and capabilities. One or more of our
competitors may develop and implement methodologies that result in superior
productivity and price reductions without adversely affecting their profit
margins. In addition, competitors may win client engagements by significantly
discounting their services in exchange for a client’s promise to purchase other
goods and services from the competitor, either concurrently or in the future.
These activities may potentially force us to lower our prices and suffer reduced
operating margins. Any of these negative effects could significantly impair our
results of operations and financial condition. We may not be able to compete
successfully against new or existing competitors.













10








Our
business will suffer if we do not keep up with rapid technological change,
evolving industry standards or changing customer requirements.




Rapidly
changing technology, evolving industry standards and changing customer needs are
common in the software and services market. We expect technological developments
to continue at a rapid pace in our industry. Technological developments,
evolving industry standards and changing customer needs could cause our business
to be rendered obsolete or non-competitive, especially if the market for the
core set of business-driven technology solutions and software platforms in which
we have expertise does not grow or if such growth is delayed due to market
acceptance, economic uncertainty or other conditions. Accordingly, our success
will depend, in part, on our ability to:





·
            continue
      to develop our technology
expertise;


·
            enhance
      our current services;


·
            develop
      new services that meet changing customer
needs;


·
            advertise
      and market our services; and


·
            influence
      and respond to emerging industry standards and other technological
      changes.




We must
accomplish all of these tasks in a timely and cost-effective manner. We might
not succeed in effectively doing any of these tasks, and our failure to succeed
could have a material and adverse effect on our business, financial condition or
results of operations, including materially reducing our revenues and operating
results.




We may also
incur substantial costs to keep up with changes surrounding the Internet.
Unresolved critical issues concerning the commercial use and government
regulation of the Internet include the following:





·
            security;


·
            intellectual
      property ownership;


·
            privacy;


·
            taxation;
      and


·
            liability
      issues.




Any costs we
incur because of these factors could materially and adversely affect our
business, financial condition and results of operations, including reduced net
income.





International
operations subject us to additional political and economic risks that could have
an adverse impact on our business.




In 2007, we
acquired a global development center in Hangzhou, China.  Also in
2007, we acquired a subsidiary which operates a technology consulting recruiting
office in Chennai, India. Because of our limited experience with facilities
outside of the United States, we are subject to certain risks related to
expanding our presence into non-U.S. regions, including risks related to
complying with a wide variety of national and local laws, restrictions on the
import and export of certain technologies and multiple and possibly overlapping
tax structures. In addition, we may face competition from companies that may
have more experience with operations in such countries or with international
operations generally. We may also face difficulties integrating new facilities
in different countries into our existing operations, as well as integrating
employees that we hire in different countries into our existing corporate
culture.




Furthermore,
there are risks inherent in operating in and expanding into
non-U.S. regions, including, but not limited to:




·
            political
      and economic instability;


·
            global
      health conditions and potential natural
  disasters;


·
            unexpected
      changes in regulatory requirements;


·
            international
      currency controls and exchange rate
  fluctuations;


·
            reduced
      protection for intellectual property rights in some countries;
      and


·
            additional
      vulnerability from terrorist groups targeting American interests
      abroad.




Any one or
more of the factors set forth above could have a material adverse effect on our
international operations, and, consequently, on our business, financial
condition and operating results.



















11








Immigration
restrictions related to H1-B visas could hinder our growth and adversely affect
our business, financial condition and results of operations.




Approximately
19% of our billable workforce is comprised of skilled foreigners holding H1-B
visas.  We also own a recruiting facility in Chennai, India, to
continue to grow our base of H1-B foreign national colleagues.  The
H1-B visa classification enables us to hire qualified foreign workers in
positions that require the equivalent of at least a bachelor’s degree in the
U.S. in a specialty occupation such as technology systems engineering and
analysis.  The H1-B visa generally permits an individual to work and
live in the U.S. for a period of three to six years, with some extensions
available.  The number of new H1-B petitions approved in any federal
fiscal year is limited, making the H1-B visas necessary to bring foreign
employees to the U.S. unobtainable in years in which the limit is
reached.  If we are unable to obtain all of the H1-B visas for which
we apply, our growth may be hindered.




There are
strict labor regulations associated with the H1-B visa classification and users
of the H1-B visa program are subject to investigations by the Wage and Hour
Division of the United States Department of Labor.  If we are
investigated, a finding by the U.S. Department of Labor of willful or
substantial failure by us to comply with existing regulations on the H1-B
classification could result in back-pay liability, substantial fines, or a ban
on future use of the H1-B program and other immigration benefits, any of which
could materially and adversely affect our business, financial condition and
results of operations.





We
may not be able to attract and retain information technology consulting
professionals, which could affect our ability to compete
effectively.




Our business
is labor intensive. Accordingly, our success depends in large part upon our
ability to attract, train, retain, motivate, manage and effectively utilize
highly skilled information technology consulting professionals. There is often
considerable competition for qualified personnel in the information technology
services industry. Additionally, our technology professionals are primarily
at-will employees. We also use independent subcontractors where appropriate to
supplement our employee capacity. Failure to retain highly skilled technology
professionals or hire qualified independent subcontractors would impair our
ability to adequately manage staff and implement our existing projects and to
bid for or obtain new projects, which in turn would adversely affect our
operating results.




Our
success depends on attracting and retaining senior management and key
personnel.




The
information technology services industry is highly specialized and the
competition for qualified management and key personnel is intense. We believe
that our success depends on retaining our senior management team and key
technical and business consulting personnel. Retention is particularly important
in our business as personal relationships are a critical element of obtaining
and maintaining strong relationships with our clients. In addition, as we
continue to grow our business, our need for senior experienced management and
implementation personnel increases. If a significant number of these individuals
depart the Company, or if we are unable to attract top talent, our level of
management, technical, marketing and sales expertise could diminish or otherwise
be insufficient for our growth. We may be unable to achieve our revenues and
operating performance objectives unless we can attract and retain technically
qualified and highly skilled sales, technical, business consulting, marketing
and management personnel. These individuals would be difficult to replace, and
losing them could seriously harm our business.




A
significant portion of our revenue is dependent upon building long-term
relationships with our clients and our operating results could suffer if we fail
to maintain these relationships.




Our
professional services agreements with clients are in most cases terminable on 10
to 30 days notice. A client may choose at any time to use another consulting
firm or choose to perform services we provide through their own internal
resources. A sustained decrease in a client’s business activity could cause the
cancellation of projects. Accordingly, we rely on our clients' interests in
maintaining the continuity of our services rather than on contractual
requirements. Termination of a relationship with a significant client or with a
group of clients that account for a significant portion of our revenues could
adversely affect our revenues and results of operations.





If
we fail to meet our clients' performance expectations, our reputation may be
harmed.




As a services
provider, our ability to attract and retain clients depends to a large extent on
our relationships with our clients and our reputation for high quality services
and integrity. We also believe that the importance of reputation and name
recognition is increasing and will continue to increase due to the number of
providers of information technology services. As a result, if a client is not
satisfied with our services or does not perceive our solutions to be effective
or of high quality, our reputation may be damaged and we may be unable to
attract new, or retain existing, clients and colleagues.
















12








We
may face potential liability to customers if our customers' systems
fail.




Our
business-driven technology solutions are often critical to the operation of our
customers' businesses and provide benefits that may be difficult to quantify. If
one of our customers' systems fails, the customer could make a claim for
substantial damages against us, regardless of our responsibility for that
failure. The limitations of liability set forth in our contracts may not be
enforceable in all instances and may not otherwise protect us from liability for
damages. Our insurance coverage may not continue to be available on reasonable
terms or in sufficient amounts to cover one or more large claims. In addition, a
given insurer might disclaim coverage as to any future claims. In addition, due
to the nature of our business, it is possible that we will be sued in the
future. If we experience one or more large claims against us that exceed
available insurance coverage or result in changes in our insurance policies,
including premium increases or the imposition of large deductible or
co-insurance requirements, our business and financial results could
suffer.





We
could be subject to liabilities if our subcontractors or the third parties with
whom we partner cannot deliver their project contributions on time or at
all.




Large and
complex arrangements often require that we utilize subcontractors or that our
services and solutions incorporate or coordinate with the software, systems or
infrastructure requirements of other vendors and service providers. Our ability
to serve our clients and deliver and implement our solutions in a timely manner
depends on the ability of these subcontractors, vendors and service providers to
meet their project obligations in a timely manner, as well as on our effective
oversight of their performance. The quality of our services and solutions could
suffer if our subcontractors or the third parties with whom we partner do not
deliver their products and services in accordance with project requirements. If
our subcontractors or these third parties fail to deliver their contributions on
time or at all or if their contributions do not meet project requirements or
require us to incur unanticipated costs to meet these requirements, then our
ability to perform could be adversely affected and we might be subject to
additional liabilities, which could have a material adverse effect on our
business, revenues, profitability or cash flow.





Our
profitability could suffer if we are not able to control our costs.




Our ability
to control our costs and improve our efficiency affects our profitability. As
the continuation of pricing pressures could result in permanent changes in
pricing policies and delivery capabilities, we must continuously improve our
management of costs. Our short-term cost reduction initiatives, which focus
primarily on reducing variable costs, might not be sufficient to deal with all
pressures on our pricing. Our long-term cost-reduction initiatives, which focus
on reductions in costs for service delivery and infrastructure, rely upon our
successful introduction and coordination of multiple geographic and competency
workforces and a growing focus on our offshore capabilities. As we increase the
number of our professionals and execute our strategies for growth, we might not
be able to manage significantly larger and more diverse workforces, control our
costs or improve our efficiency, and our profitability could be negatively
affected.





If
our negotiated fees do not accurately anticipate the cost and complexity of
performing our work, then our contracts could be unprofitable.




We negotiate
fees with our clients utilizing a range of pricing structures and conditions.
Depending on the particular contract, these include time-and-materials,
fixed-fee, and contracts with features of both of these pricing models. Our fees
are highly dependent on our internal forecasts and predictions about our
projects and the marketplace, which might be based on limited data and could
turn out to be inaccurate. If we do not accurately estimate the costs and timing
for completing projects, our contracts could prove unprofitable for us or yield
lower profit margins than anticipated. We could face greater risk when
negotiating fees for our contracts that entail the coordination of operations
and workforces in multiple locations, utilizing workforces with different
skillsets and competencies. There is a risk that we will under price our
contracts, fail to accurately estimate the costs of performing the work or fail
to accurately assess the risks associated with potential contracts. In
particular, any increased or unexpected costs, delays or failures to achieve
anticipated cost savings, or unexpected risks we encounter in connection with
the performance of this work, including those caused by factors outside our
control, could make these contracts less profitable or unprofitable, which could
have an adverse effect on our profit margin.





We
are subject to credit risk related to our accounts receivable.




We provide
credit to our customers in the normal course of business and we do not generally
obtain collateral or up-front payments.  Accordingly, we are not
protected against accounts receivable default or bankruptcy by our
customers.  Although we perform ongoing credit evaluations of our
customers and maintain allowances for potential credit losses, such actions and
procedures may not be effective in reducing our credit risks and our business,
financial condition and results of operations could be materially and adversely
affected. During periods of economic decline, our exposure to credit risks
related to our accounts receivable increases.
















13








The
loss of one or more of our significant software business vendors would have a
material and adverse effect on our business and results of
operations.




Our business
relationships with software vendors enable us to reduce our cost of sales and
increase win rates through leveraging our vendors’ marketing efforts and strong
vendor endorsements. The loss of one or more of these relationships and
endorsements could increase our sales and marketing costs, lead to longer sales
cycles, harm our reputation and brand recognition, reduce our revenues and
adversely affect our results of operations.





If
we do not effectively manage our growth, our results of operations and cash
flows could be adversely affected.




Our ability
to operate profitably with positive cash flows depends partially on how
effectively we manage our growth. In order to create the additional capacity
necessary to accommodate the demand for our services, we may need to implement
new or upgraded operational and financial systems, procedures and controls, open
new offices and hire additional colleagues. Implementation of these new or
upgraded systems, procedures and controls may require substantial management
efforts and our efforts to do so may not be successful. The opening of new
offices (including international locations) or the hiring of additional
colleagues may result in idle or underutilized capacity. We continually assess
the expected capacity and utilization of our offices and professionals. We may
not be able to achieve or maintain optimal utilization of our offices and
professionals. If demand for our services does not meet our expectations, our
revenues and cash flows may not be sufficient to offset these expenses and our
results of operations and cash flows could be adversely affected.





Our
quarterly operating results may be volatile and may cause our stock price to
fluctuate.




Our quarterly
revenues, expenses and operating results have varied in the past and could vary
in the future, which could lead to volatility in our stock price. In addition,
many factors affecting our operating results are outside of our control, such
as:





·
            demand
      for software and services;


·
            customer
      budget cycles;


·
            changes
      in our customers' desire for our partners' products and our
      services;


·
            pricing
      changes in our industry; and


·
            government
      regulation and legal developments regarding the use of the
      Internet.




As a result,
if we experience unanticipated changes in the number or nature of our projects
or in our employee utilization rates, we could experience large variations in
quarterly operating results in any particular quarter.




Our
services revenues may fluctuate quarterly due to seasonality or timing of
completion of projects.




We may
experience seasonal fluctuations in our services revenues. We expect that
services revenues in the fourth quarter of a given year may typically be lower
than in other quarters in that year as there are fewer billable days in this
quarter as a result of vacations and holidays. In addition, we generally perform
services on a project basis. While we seek wherever possible to counterbalance
periodic declines in revenues on completion of large projects with new
arrangements to provide services to the same client or others, we may not be
able to avoid declines in revenues when large projects are completed. Our
inability to obtain sufficient new projects to counterbalance any decreases in
work upon completion of large projects could adversely affect our revenues and
results of operations.





Our
software revenues may fluctuate quarterly, leading to volatility in our results
of operations.




Our software
revenues may fluctuate quarterly and be higher in the fourth quarter of a given
year as procurement policies of our clients may result in higher technology
spending towards the end of budget cycles. This seasonal trend may materially
affect our quarter-to-quarter revenues, margins and operating
results.





Our
overall gross margin fluctuates quarterly based on our services and software
revenues mix, impacting our results of operations.





The gross
margin on our services revenues is, in most instances, greater than the gross
margin on our software revenues. As a result, our gross margin will be higher in
quarters where our services revenues, as a percentage of total revenues, has
increased, and will be lower in quarters where our software revenues, as a
percentage of total revenues, has increased. In addition, gross margin on
software revenues may fluctuate as a result of variances in gross margin on
individual software products. Our stock price may be negatively affected in
quarters in which our gross margin decreases.






















14








Our
services gross margins are subject to fluctuations as a result of variances in
utilization rates and billing rates.




Our services
gross margins are affected by trends in the utilization rate of our
professionals, defined as the percentage of our professionals' time billed to
customers divided by the total available hours in a period, and in the billing
rates we charge our clients. Our operating expenses, including employee
salaries, rent and administrative expenses, are relatively fixed and cannot be
reduced on short notice to compensate for unanticipated variations in the number
or size of projects in process. If a project ends earlier than scheduled, we may
need to redeploy our project personnel. Any resulting non-billable time may
adversely affect our gross margins.




The average
billing rates for our services may decline due to rate pressures from
significant customers and other market factors, including innovations and
average billing rates charged by our competitors. If there is a sustained
downturn in the U.S. economy or in the information technology services industry,
rate pressure may increase. Also, our average billing rates will decline if we
acquire companies with lower average billing rates than ours. To sell our
products and services at higher prices, we must continue to develop and
introduce new services and products that incorporate new technologies or
high-performance features. If we experience pricing pressures or fail to develop
new services, our revenues and gross margins could decline, which could harm our
business, financial condition and results of operations.




If
we fail to complete fixed-fee contracts within budget and on time, our results
of operations could be adversely affected.




In 2008,
approximately 13% of our projects were performed on a fixed-fee basis, rather
than on a time-and-materials basis. Under these contractual arrangements, we
bear the risk of cost overruns, completion delays, wage inflation and other cost
increases. If we fail to estimate accurately the resources and time required to
complete a project or fail to complete our contractual obligations within the
scheduled timeframe, our results of operations could be adversely affected. We
cannot guarantee that in the future we will not price these contracts
inappropriately, which may result in losses.




We
may not be able to maintain our level of profitability.




Although we
have been profitable for the past five years, we may not be able to sustain or
increase profitability on a quarterly or annual basis in the future and in fact
could experience decreased profitability. If we fail to meet public market
analysts' and investors' expectations, the price of our common stock will likely
fall.





Our
services may infringe upon the intellectual property rights of
others.




We cannot be
sure that our services do not infringe on the intellectual property rights of
third parties, and we may have infringement claims asserted against
us.  These claims may harm our reputation, cause our management to
expend significant time in connection with any defense and cost us
money.  We may be required to indemnify clients for any expense or
liabilities they incur resulting from claimed infringement and these expenses
could exceed the amounts paid to us by the client for services we have
performed.  Any claims in this area, even if won by us, can be costly,
time-consuming and harmful to our reputation.





We
have only a limited ability to protect our intellectual property rights, which
are important to our success.




Our success
depends, in part, upon our ability to protect our proprietary methodologies and
other intellectual property. Existing laws of some countries in which we provide
services or solutions might offer only limited protection of our intellectual
property rights. We rely upon a combination of trade secrets, confidentiality
policies, nondisclosure and other contractual arrangements to protect our
intellectual property rights. The steps we take in this regard might not be
adequate to prevent or deter infringement or other misappropriation of our
intellectual property, and we might not be able to detect unauthorized use of,
or take appropriate and timely steps to enforce, our intellectual property
rights.




Depending on
the circumstances, we might need to grant a specific client greater rights in
intellectual property developed in connection with a contract than we otherwise
generally do. In certain situations, we might forego all rights to the use of
intellectual property we help create, which would limit our ability to reuse
that intellectual property for other clients. Any limitation on our ability to
provide a service or solution could cause us to lose revenue-generating
opportunities and require us to incur additional expenses to develop new or
modified solutions for future projects.





Pursuing
and completing potential acquisitions could divert management's attention and
financial resources and may not produce the desired business
results.




If we pursue
any acquisition, our management could spend a significant amount of time and
financial resources to pursue and integrate the acquired business with our
existing business. To pay for an acquisition, we might use capital stock, cash
or a combination of both. Alternatively, we may borrow money from a bank or
other lender. If we use capital stock, our stockholders will experience
dilution. If we use cash or debt financing, our financial liquidity may be
reduced and the interest on any debt financing could adversely affect our
results of operations. From an accounting perspective, an acquisition that does
not perform as well as originally anticipated may involve amortization or the
impairment of significant amounts of intangible assets that could adversely
affect our results of operations.










15





Despite the
investment of these management and financial resources, and completion of due
diligence with respect to these efforts, an acquisition may not produce the
anticipated revenues, earnings or business synergies for a variety of reasons,
including:





·
            difficulties
      in the integration of services and personnel of the acquired
      business;


·
            the
      failure of management and acquired services personnel to perform as
      expected;


·
            the
      acquisition of fixed fee customer agreements that require more effort than
      anticipated to complete;


·
            the
      risks of entering markets in which we have no, or limited, prior
      experience, including offshore operations in countries in which we have no
      prior experience;


·
            the
      failure to identify or adequately assess any undisclosed or potential
      liabilities or problems of the acquired business including legal
      liabilities;


·
            the
      failure of the acquired business to achieve the forecasts we used to
      determine the purchase price; or


·
            the
      potential loss of key personnel of the acquired
  business.





These
difficulties could disrupt our ongoing business, distract our management and
colleagues, increase our expenses and materially and adversely affect our
results of operations.





We
may have difficulty in identifying and competing for strategic acquisition and
vendor opportunities.




Our business
strategy includes the pursuit of strategic acquisitions. We may acquire or make
strategic investments in complementary businesses, technologies, services or
products, or enter into strategic vendor or alliances with third parties in the
future in order to expand our business. We may be unable to identify suitable
acquisition, strategic investment or strategic vendor candidates, or if we do
identify suitable candidates, we may not complete those transactions on terms
commercially favorable to us, or at all. We have historically paid a portion of
the purchase price for acquisitions with shares of our common
stock.  Volatility in our stock prices, or a sustained price decline,
could adversely affect our ability to attract acquisition candidates. If we fail
to identify and successfully complete these transactions, our competitive
position and our growth prospects could be adversely affected. In addition, we
may face competition from other companies with significantly greater resources
for acquisition candidates, making it more difficult for us to acquire suitable
companies on favorable terms.





Risks
Related to Ownership of Our Common Stock




Our
stock price has been volatile and may continue to fluctuate widely.




Our common
stock is traded on the Nasdaq Global Select Market under the symbol “PRFT.” Our
common stock price has been volatile. Our stock price may continue to fluctuate
widely as a result of announcements of new services and products by us or our
competitors, quarterly variations in operating results, the gain or loss of
significant customers, changes in public market analysts' estimates and market
conditions for information technology consulting firms and other technology
stocks in general.




We
periodically review and consider possible acquisitions of companies that we
believe will contribute to our long-term objectives. In addition, depending on
market conditions, liquidity requirements and other factors, from time to time
we consider accessing the capital markets. These events may also affect the
market price of our common stock.





Declines in our stock price and/or
operating performance could result in a future impairment of our goodwill or
long-lived assets.


We assess
potential impairments to goodwill annually and when there is evidence that
events or changes in circumstances indicate that an impairment condition may
exist. We assess potential impairments to our long-lived assets, including
property and equipment and certain intangible assets, when there is evidence
that events or changes in circumstances indicate that the carrying value may not
be recoverable. General economic conditions in the U.S. have recently
adversely impacted the trading prices of securities of many companies, including
ours, due to concerns regarding recessionary economic conditions, the lending
and financial crisis, a substantial slowdown in economic activity, decreased
consumer confidence and other factors. In addition, the trading prices of the
securities in our industry have been highly volatile. Subsequent to December 31,
2008 our stock price has declined.  If the trading price of our common
stock were to continue to be adversely affected due to worsening general
economic conditions, significant changes in our financial performance or other
factors, these events could result in a non-cash impairment charge related to
our goodwill or long-lived assets. A significant impairment loss could have a
material adverse effect on our operating results and on the carrying value of
our goodwill and/or our long-lived assets on our balance
sheet.
















16








Our
officers, directors, and 5% and greater stockholders own a large percentage of
our voting securities and their interests may differ from other
stockholders.




Our executive
officers, directors and 5% and greater stockholders beneficially own or control
approximately 18% of the voting power of our common stock. This concentration of
voting power of our common stock may make it difficult for our other
stockholders to successfully approve or defeat matters that may be submitted for
action by our stockholders. It may also have the effect of delaying, deterring
or preventing a change in control of our company.




We
may need additional capital in the future, which may not be available to us. The
raising of any additional capital may dilute your ownership percentage in our
stock.




We intend to
continue to make investments to support our business growth and may require
additional funds to pursue business opportunities and respond to business
challenges. Accordingly, we may need to engage in equity or debt financings to
secure additional funds. If we raise additional funds through further issuances
of equity or convertible debt securities, our existing stockholders could suffer
dilution, and any new equity securities we issue could have rights, preferences
and privileges superior to those of holders of our common stock. Any debt
financing secured by us in the future could involve restrictive covenants
relating to our capital raising activities and other financial and operational
matters, which may make it more difficult for us to obtain additional capital
and to pursue business opportunities, including potential acquisitions. In
addition, we may not be able to obtain additional financing on terms favorable
to us, if at all. If we are unable to obtain adequate financing or financing on
terms satisfactory to us, if we require it, our ability to continue to support
our business growth and to respond to business challenges could be significantly
limited.





It
may be difficult for another company to acquire us, and this could depress our
stock price.




In addition
to the large percentage of our voting securities held by our officers, directors
and 5% and greater stockholders, provisions contained in our certificate of
incorporation, bylaws and Delaware law could make it difficult for a third party
to acquire us, even if doing so would be beneficial to our stockholders. Our
certificate of incorporation and bylaws may discourage, delay or prevent a
merger or acquisition that a stockholder may consider favorable by authorizing
the issuance of “blank check” preferred stock. In addition, provisions of the
Delaware General Corporation Law also restrict some business combinations with
interested stockholders. These provisions are intended to encourage potential
acquirers to negotiate with us and allow the board of directors the opportunity
to consider alternative proposals in the interest of maximizing stockholder
value. However, these provisions may also discourage acquisition proposals or
delay or prevent a change in control, which could harm our stock
price.




Item
      1B.
            Unresolved
      Staff Comments.





None.


SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





Some of the
statements contained in this annual report that are not purely historical
statements discuss future expectations, contain projections of results of
operations or financial condition or state other forward-looking information.
Those statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The “forward-looking” information is based on
various factors and was derived using numerous assumptions. In some cases, you
can identify these so-called forward-looking statements by words like “may,”
“will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential” or “continue” or the negative of those words and other
comparable words. You should be aware that those statements only reflect our
predictions. Actual events or results may differ substantially. Important
factors that could cause our actual results to be materially different from the
forward-looking statements are disclosed under the heading “Risk Factors” in
this annual report.




Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this annual report to conform such statements to
actual results.




All
forward-looking statements, express or implied, included in this report and the
documents we incorporate by reference and attributable to Perficient are
expressly qualified in their entirety by this cautionary
statement.  This cautionary statement should also be considered in
connection with any subsequent written or oral forward-looking statements that
Perficient or any persons acting on our behalf may issue.

















17








Item 2.
            Properties.




Our principal
executive, administrative, finance and marketing operations are located in St.
Louis, Missouri and Austin, Texas, where we have leased approximately 10,079
square feet and 2,700 square feet, respectively, for these functions. We lease
19 offices in major cities across North America and China. We do not own any
real property. We believe our facilities are adequate to meet our needs in the
near future.





Item 3.
            Legal
      Proceedings.




Although we
may become a party to litigation and claims arising in the course of our
business, management currently does not believe the results of these actions
will have a material adverse effect on our business or financial
condition.




Item 4.
            Submission
      of Matters to a Vote of Security
Holders.




No matters
were submitted to a shareholder vote during the quarter ended December 31,
2008.

















18







PART
II




Item 5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.




Our common
stock is quoted on the Nasdaq Global Select Market under the symbol “PRFT.” The
following table sets forth, for the periods indicated, the high and low sale
prices per share of our common stock as reported on the Nasdaq Global Select
Market since January 1, 2007.




High
                
                
                LowYear
      Ending December 31, 2008:First
      Quarter
                
                $
                17.08
                
                
                $
                6.43Second
      Quarter
                
                
                11.91
                
                
                
                7.82Third
      Quarter
                
                
                10.94
                
                
                
                6.04Fourth
      Quarter
                
                
                6.80
                
                
                
                2.31Year
      Ending December 31, 2007:First
      Quarter
                
                $
                21.55
                
                
                $
                16.02Second
      Quarter
                
                
                23.29
                
                
                
                18.51Third
      Quarter
                
                
                25.19
                
                
                
                18.91Fourth
      Quarter
                
                
                24.75
                
                
                
                14.65




On February
27, 2009, the last reported sale price of our common stock on the Nasdaq Global
Select Market, a tier of The NASDAQ Stock Market LLC, was $3.52 per share. There
were approximately 377 stockholders of record of our common stock as of February
27, 2009, including 237 restricted account holders.




We have never
declared or paid any cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. Our credit facility currently
prohibits the payment of cash dividends without the prior written consent of the
lenders.




Information
on our Equity Compensation Plan has been included at Part III, Item 12, of this
Form 10-K.





Issuer
Purchases of Equity Securities




In December
2008, the Company’s Board of Directors approved an increase under the share
repurchase program by up to $10.0 million.  This is in addition
to the remaining share repurchase authority under the March 2008 program of up
to $10.0 million for a combined total of up to $20.0 million.  The
repurchase program expires June 30, 2010.  While it is not the
Company’s intention, the program could be suspended or discontinued at any time,
based on market, economic or business conditions.  The timing and
amount of repurchase transactions will be determined by the Company’s management
based on its evaluation of market conditions, share price and other
factors.




The Company
had repurchased approximately $9.2 million of its outstanding common stock under
the program as of December 31, 2008.













19








Period
                
                Total
      Number of Shares Purchased
                
                
                Average
      Price Paid Per
                  Share
      (1)
                
                
                Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
                
                
                Approximate
      Dollar Value of Shares that May Yet Be Purchased Under the Plans or
      Programs (2)Beginning
      Balance as of October 1, 2008
                
                637,031
                
                
                
                
                
                637,031
                
                
                $
                5,213,570October
      1-31, 2008
                
                
                91,018
                
                
                
                5.22
                
                
                
                91,018
                
                
                $
                4,745,283November
      1-30, 2008
                
                
                671,887
                
                
                
                3.59
                
                
                
                671,887
                
                
                $
                2,672,362December
      1-31, 2008
                
                
                448,364
                
                
                
                4.25
                
                
                
                448,364
                
                
                $
                10,821,786Ending
      Balance as of December 31, 2008
                
                
                1,848,300
                
                
                
                
                
                
                
                1,848,300





(1)
            Average
      price paid per share includes
commission.


(2)
            The
      additional program to repurchase up to $10.0 million of the Company’s
      outstanding common stock was approved by the Company’s Board of Directors
      on December 17, 2008.  This is in addition to the repurchase
      authority for up to $10.0 million of the Company’s common stock approved
      by the Company’s Board of Directors on March 26, 2008. The repurchase
      program expires June 30, 2010.




Item 6.
            Selected
      Financial Data.




The selected
financial data presented for, and as of the end of, each of the years in the
five-year period ended December 31, 2008, has been prepared in accordance with
U.S. generally accepted accounting principles. The financial data presented is
not directly comparable between periods as a result of the adoption of Statement
of Financial Accounting Standards No. 123R (As Amended),Share Based Payment (“SFAS
123R”) in 2006, and four acquisitions in 2007, three acquisitions in 2006, two
acquisitions in 2005, and three acquisitions in 2004.




The following
data should be read in conjunction with the Consolidated Financial Statements
and the Notes to Consolidated Financial Statements appearing in Part II, Item 8,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing in Part II, Item 7.





Year
      Ended December 31,2008
                              
                              
                              2007
                              
                              
                              2006
                              
                              
                              2005
                              
                              
                              2004Income Statement
      Data:
                              
                              
                              
                              
                              
                              
                              
                              (In
      thousands)Revenues
                              
                              $
                              231,488
                              
                              
                              $
                              218,148
                              
                              
                              $
                              160,926
                              
                              
                              $
                              96,997
                              
                              
                              $
                              58,848Gross
      margin
                              
                              $
                              73,502
                              
                              
                              $
                              75,690
                              
                              
                              $
                              53,756
                              
                              
                              $
                              32,418
                              
                              
                              $
                              18,820Selling,
      general and administrative
                              
                              $
                              47,242
                              
                              
                              $
                              41,963
                              
                              
                              $
                              32,268
                              
                              
                              $
                              17,917
                              
                              
                              $
                              11,068Depreciation and
      amortization
                              
                              $
                              6,949
                              
                              
                              $
                              6,265
                              
                              
                              $
                              4,406
                              
                              
                              $
                              2,226
                              
                              
                              $
                              1,209Impairment
      of intangible assets
                              
                              $
                              1,633
                              
                              
                              $
                              --
                              
                              
                              $
                              --
                              
                              
                              $
                              --
                              
                              
                              $
                              --Income
      from operations
                              
                              $
                              17,678
                              
                              
                              $
                              27,462
                              
                              
                              $
                              17,082
                              
                              
                              $
                              12,275
                              
                              
                              $
                              6,543Net
      interest income (expense)
                              
                              $
                              528
                              
                              
                              $
                              172
                              
                              
                              $
                              (407
                              )
                              
                              $
                              (643
                              )
                              
                              $
                              (134
                              )Net
      other income (expense)
                              
                              $
                              (915
                              )
                              
                              $
                              20
                              
                              
                              $
                              174
                              
                              
                              $
                              43
                              
                              
                              $
                              32Income
      before income taxes
                              
                              $
                              17,291
                              
                              
                              $
                              27,654
                              
                              
                              $
                              16,849
                              
                              
                              $
                              11,675
                              
                              
                              $
                              6,441Net
      income
                              
                              $
                              10,000
                              
                              
                              $
                              16,230
                              
                              
                              $
                              9,567
                              
                              
                              $
                              7,177
                              
                              
                              $
                              3,913




As
      of December 31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004Balance
      Sheet Data:
                    
                    (In
      thousands)Cash
      and cash equivalents
                    
                    $
                    22,909
                    
                    
                    $
                    8,070
                    
                    
                    $
                    4,549
                    
                    
                    $
                    5,096
                    
                    
                    $
                    3,905Working
      capital
                    
                    $
                    56,176
                    
                    
                    $
                    41,368
                    
                    
                    $
                    24,859
                    
                    
                    $
                    17,078
                    
                    
                    $
                    9,234Property
      and equipment, net
                    
                    $
                    2,345
                    
                    
                    $
                    3,226
                    
                    
                    $
                    1,806
                    
                    
                    $
                    960
                    
                    
                    $
                    806Goodwill
      and intangible assets, net
                    
                    $
                    115,634
                    
                    
                    $
                    121,339
                    
                    
                    $
                    81,056
                    
                    
                    $
                    52,031
                    
                    
                    $
                    37,340Total
      assets
                    
                    $
                    194,247
                    
                    
                    $
                    189,992
                    
                    
                    $
                    131,000
                    
                    
                    $
                    84,935
                    
                    
                    $
                    62,582Current
      portion of long term debt and line of credit
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    1,201
                    
                    
                    $
                    1,581
                    
                    
                    $
                    1,379Long-term
      debt and line of credit, less current portion
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    137
                    
                    
                    $
                    5,338
                    
                    
                    $
                    2,902Total
      stockholders' equity
                    
                    $
                    174,818
                    
                    
                    $
                    165,562
                    
                    
                    $
                    107,352
                    
                    
                    $
                    65,911
                    
                    
                    $
                    44,622














20








Item 7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.




You should
read the following summary together with the more detailed business information
and consolidated financial statements and related notes that appear elsewhere in
this annual report and in the documents that we incorporate by reference into
this annual report. This annual report may contain certain “forward-looking”
information within the meaning of the Private Securities Litigation Reform Act
of 1995. This information involves risks and uncertainties. Our actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in “Risk Factors.”




Overview




We are an
information technology consulting firm serving Forbes Global 2000 (“Global
2000”) and other large enterprise companies with a primary focus on the United
States. We help our clients gain competitive advantage by using Internet-based
technologies to make their businesses more responsive to market opportunities
and threats, strengthen relationships with their customers, suppliers and
partners, improve productivity and reduce information technology costs. We
design, build and deliver business-driven technology solutions using third party
software products developed by our partners. Our solutions include custom
applications, portals and collaboration, eCommerce, customer relationship
management, enterprise content management, business intelligence, business
integration, mobile technology, technology platform implementations and service
oriented architectures. Our solutions enable clients to meet the changing
demands of an increasingly global, Internet-driven and competitive
marketplace.





Services
Revenues




Services
revenues are derived from professional services performed developing,
implementing, integrating, automating and extending business processes,
technology infrastructure, and software applications. Most of our projects are
performed on a time and materials basis, and a smaller amount of revenues is
derived from projects performed on a fixed fee basis. Fixed fee engagements
represented approximately 13% of our services revenues for the twelve months
ended December 31, 2008. For time and material projects, revenues are recognized
and billed by multiplying the number of hours our professionals expend in the
performance of the project by the established billing rates. For fixed fee
projects, revenues are generally recognized using the proportionate performance
method. Revenues on uncompleted projects are recognized on a
contract-by-contract basis in the period in which the portion of the fixed fee
is complete. Amounts invoiced to clients in excess of revenues recognized are
classified as deferred revenues. On most projects, we are also reimbursed for
out-of-pocket expenses such as airfare, lodging and meals. These reimbursements
are included as a component of revenues. The aggregate amount of reimbursed
expenses will fluctuate depending on the location of our customers, the total
number of our projects that require travel, and whether our arrangements with
our clients provide for the reimbursement of travel and other project related
expenses.




Software
and Hardware Revenues




Software and
hardware revenues are derived from sales of third-party software and hardware.
Revenues from sales of third-party software and hardware are generally recorded
on a gross basis provided we act as a principal in the transaction. In the event
we do not meet the requirements to be considered a principal in the transaction
and act as an agent, the revenues are recorded on a net basis. Software and
hardware revenues are expected to fluctuate from quarter-to-quarter depending on
our customers’ demand for these products.




If we enter
into contracts for the sale of services and software or hardware, Company
management evaluates whether the services are essential to the functionality of
the software or hardware and whether the Company has objective fair value
evidence for each deliverable in the transaction.  If
management concludes the services to be provided are not essential to the
functionality of the software or hardware and can determine objective fair value
evidence for each deliverable of the transaction, then we account for each
deliverable in the transaction separately, based on the relevant revenue
recognition policies. Generally, all deliverables of our multiple element
arrangements meet these separation criteria.




Cost
of revenues




Cost of
revenues consists primarily of cash and non-cash compensation and benefits,
including bonuses and non-cash compensation related to equity awards, associated
with our technology professionals.  Cost of revenues also includes the
costs associated with subcontractors.  Third-party software and hardware
costs, reimbursable expenses and other unreimbursed project related expenses are
also included in cost of revenues. Project related expenses will fluctuate
generally depending on outside factors including the cost and frequency of
travel and the location of our customers. Cost of revenues does not include
depreciation of assets used in the production of revenues which are primarily
personal computers, servers and other information technology related
equipment.
















21







Gross
Margins




Our gross
margins for services are affected by the utilization rates of our professionals,
defined as the percentage of our professionals’ time billed to customers divided
by the total available hours in the respective period, the salaries we pay our
consulting professionals and the average billing rate we receive from our
customers. If a project ends earlier than scheduled or we retain professionals
in advance of receiving project assignments, or if demand for our services
declines, our utilization rate will decline and adversely affect our gross
margins. Gross margin percentages of third party software and hardware sales are
typically lower than gross margin percentages for services, and the mix of
services and software and hardware for a particular period can significantly
impact our total combined gross margin percentage for such period. In addition,
gross margin for software and hardware sales can fluctuate due to pricing and
other competitive pressures.





Selling,
General and Administrative Expenses




Selling,
general and administrative expenses (“SG&A”) consist of salaries, benefits,
bonuses, non-cash compensation, office costs, recruiting, professional fees,
sales and marketing activities, training, and other miscellaneous expenses.
Non-cash compensation includes stock compensation expenses related to restricted
stock, option grants to employees and non-employee directors, and retirement
savings plan contributions. We work to minimize selling costs by focusing on
repeat business with existing customers and by accessing sales leads generated
by our software vendors, most notably IBM, whose products we use to design and
implement solutions for our clients. These relationships enable us to reduce our
selling costs and sales cycle times and increase win rates through leveraging
our partners' marketing efforts and endorsements.




Plans
for Growth and Acquisitions




Our goal is
to continue to build one of the leading independent information technology
consulting firms in North America by expanding our relationships with existing
and new clients, leveraging our operations to expand and continuing to make
disciplined acquisitions. As demand for our services grows, we anticipate
increasing the number of professionals in our 19 North American offices and
adding new offices throughout the United States, both organically and through
acquisitions. We also intend to continue to leverage our existing offshore
capabilities to support our growth and provide our clients flexible options for
project delivery. In addition, we believe our track record for identifying
acquisitions and our ability to integrate acquired businesses help us complete
acquisitions efficiently and productively, while continuing to offer quality
services to our clients, including new clients resulting from the
acquisitions.




Consistent
with our strategy of growth through disciplined acquisitions, we consummated
nine acquisitions since January 1, 2005, including four in
2007.  Given the current economic conditions, the Company has
temporarily suspended making additional acquisitions pending improved visibility
into the health of the economy.




Results
of Operations




The following
table summarizes our results of operations as a percentage of total
revenues:


Revenues:
                
                2008
                
                
                2007
                
                
                2006Services
      revenues
                
                
                89.6
                %
                
                
                87.8
                %
                
                
                85.6
                %Software
      and hardware revenues
                
                
                4.6
                
                
                
                6.5
                
                
                
                9.0Reimbursable
      expenses
                
                
                5.8
                
                
                
                5.7
                
                
                
                5.4Total
      revenues
                
                
                100.0
                
                
                
                100.0
                
                
                
                100.0Cost
      of revenues (exclusive of depreciation and amortization, shown separately
      below):Project
      personnel costs
                
                
                56.6
                
                
                
                52.6
                
                
                
                52.3Software
      and hardware costs
                
                
                3.7
                
                
                
                5.5
                
                
                
                7.5Reimbursable
      expenses
                
                
                5.7
                
                
                
                5.7
                
                
                
                5.4Other
      project related expenses
                
                
                2.2
                
                
                
                1.5
                
                
                
                1.3Total
      cost of revenues
                
                
                68.2
                
                
                
                65.3
                
                
                
                66.5Services
      gross margin
                
                
                34.4
                
                
                
                38.4
                
                
                
                37.4Software
      and hardware gross margin
                
                
                19.4
                
                
                
                15.9
                
                
                
                16.1Total
      gross margin
                
                
                31.8
                
                
                
                34.7
                
                
                
                33.5Selling,
      general and administrative
                
                
                20.4
                
                
                
                19.2
                
                
                
                20.1Depreciation
      and intangibles amortization
                
                
                3.0
                
                
                
                2.9
                
                
                
                2.7Impairment
      of intangibles
                
                
                0.7
                
                
                
                0.0
                
                
                
                0.0Income
      from operations
                
                
                7.7
                
                
                
                12.6
                
                
                
                10.6Interest
      income (expense), net
                
                
                0.2
                
                
                
                0.1
                
                
                
                (0.3
                )Other
      income (expense), net
                
                
                (0.4
                )
                
                
                0.0
                
                
                
                0.1Income
      before income taxes
                
                
                7.5
                
                
                
                12.7
                
                
                
                10.5Provision
      for income taxes
                
                
                3.2
                
                
                
                5.2
                
                
                
                4.5Net
      income
                
                
                4.3
                %
                
                
                7.5
                %
                
                
                6.0
                %













22








Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007




Revenues.
Total revenues increased 6% to $231.5 million for the year ended December 31,
2008 from $218.1 million for the year ended December 31, 2007.





Financial
      Results
                
                Explanation
      for Increases/(Decreases) Over Prior Year Period(in
      thousands)
                
                (in
      thousands)For
      the Year Ended
                  December
      31, 2008
                
                For
      the Year Ended
                  December
      31, 2007
                
                Total
      Increase/ (Decrease) Over Prior Year Period
                
                Increase
      Attributable to Acquired Companies*
                
                Increase/
      (Decrease) Attributable to Base Business**Services
      Revenues
                
                $
                207,480
                
                
                $
                191,395
                
                
                $
                16,085
                
                
                $
                29,611
                
                
                $
                (13,526
                )Software
      and Hardware Revenues
                
                
                10,713
                
                
                
                14,243
                
                
                
                (3,530
                )
                
                
                1,871
                
                
                
                (5,401
                )Reimbursable
      Expenses
                
                
                13,295
                
                
                
                12,510
                
                
                
                785
                
                
                
                1,372
                
                
                
                (587
                )Total
      Revenues
                
                $
                231,488
                
                
                $
                218,148
                
                
                $
                13,340
                
                
                $
                32,854
                
                
                $
                (19,514
                )





*Defined
as companies acquired during 2007; no companies were acquired in
2008.


**Defined
as businesses owned as of January 1, 2007.




Services
revenues increased 8% to $207.5 million for the year ended December 31, 2008
from $191.4 million for the year ended December 31, 2007.  Services
revenues attributable to our base business decreased $13.5 million while
services revenues attributable to the companies acquired in 2007 increased $29.6
million, resulting in a net increase of $16.1 million.  We experienced
a slowdown in demand during the year related to the deterioration of the U.S.
economy.




Software and
hardware revenues decreased 25% to $10.7 million in 2008 from $14.2 million in
2007. Software and hardware revenues attributable to our base business
decreased $5.4 million while software and hardware revenues attributable to
acquired companies increased $1.9 million, resulting in a net decrease of $3.5
million. Reimbursable expenses increased 6% to $13.3 million in 2008 from $12.5
million in 2007 due to acquisitions and an increased number of projects
requiring consultant travel. We do not realize any profit on reimbursable
expenses.




Cost of
revenues. Cost of revenues increased 11% to $158.0 million for the year
ended December 31, 2008 from $142.5 million for the year ended December 31,
2007. Cost of revenues attributable to our base business decreased $7.9 million
while cost of revenues attributable to the companies acquired in 2007 increased
$23.4 million, resulting in a net increase of $15.5 million.  The
average number of professionals performing services, including subcontractors,
increased to 1,165 for the year ended December 31, 2008 from 984 for the year
ended December 31, 2007 primarily related to acquisitions and partially offset
with head count reductions related to lower demand for services.




Costs
associated with software and hardware sales decreased 28% to
$8.6 million for year ended December 31, 2008 from $12.0 million for
the year ended December 31, 2007 which directly relates to the decline
in software and hardware revenues discussed above. Costs associated with
software and hardware sales attributable to our base business decreased $4.9
million, while costs associated with software and hardware sales attributable to
acquired companies increased $1.5 million, resulting in a net decrease of $3.4
million.




Gross Margin.
Gross margin decreased 3% to $73.5 million for the year ended December 31, 2008
from $75.7 million for the year ended December 31, 2007. Gross margin as a
percentage of revenues decreased to 31.8% for the year ended December 31, 2008
from 34.7% for the year ended December 31, 2007 due primarily to a decrease in
services gross margin offset by an increase in margin from software and
hardware. Services gross margin, excluding reimbursable expenses, decreased to
34.4% in 2008 from 38.4% in 2007 primarily as a result of higher labor costs
associated with a soft revenue cycle and delays in the start dates of projects.
The average utilization rate of our professionals, excluding subcontractors,
decreased to 79% for the year ended December 31, 2008 from 81% for the
year ended December 31, 2007. Average hourly billing rates decreased to $109 for
2008 from $118 for 2007, primarily due to lower rates associated with the
acquisition of the China offshore business and the ePairs business in the second
half of 2007.  The average hourly bill rate for 2008 excluding China,
ePairs, and subcontractors was $116 compared to $119 for 2007. Software and
hardware gross margin increased to 19.4% in 2008 from 15.9% in 2007 primarily as
a result of increased sales of our higher margin internally developed
software.
















23




Selling, General and
Administrative. Selling, general and administrative expenses increased
13% to $47.2 million for the year ended December 31, 2008 from $42.0 million for
the year ended December 31, 2007 due primarily to fluctuations in expenses
as detailed in the following table:


Increase
      / (Decrease)Selling, General, and Administrative
      Expense
                
                (in
      millions)Stock
      compensation expense
                
                $
                1.7Office
      and technology-related costs
                
                
                1.5Salary
      expense
                
                
                1.4Sales
      related costs
                
                
                1.0Bad
      debt expense
                
                
                0.8Customer
      dispute settlement
                
                
                0.8Other
                
                
                0.6Bonus
      expense
                
                
                (2.6
                )Net
      increase
                
                $
                5.2




Selling,
general and administrative expenses as a percentage of revenues increased
slightly to 20% for the year ended December 31, 2008 from 19% for the year ended
December 31, 2007, primarily driven by an increase in stock compensation
expense, office and technology-related costs, and salary
expense.  Stock compensation expense increased primarily due to
additional restricted stock awards granted in 2007 and
2008.  Investments in our technology infrastructure and offshore
resources, as well as increases in our facility costs, caused our office and
technology-related costs to rise in 2008.  The increase in salary
expense was associated with development of our healthcare and communications
industry verticals.  These increases were offset by a decrease in
bonus costs. Bonus costs decreased as a result of the Company not achieving
the projected performance goals.




Depreciation.
Depreciation expense increased 38% to $2.1 million during 2008 from $1.6 million
during 2007. The increase in depreciation expense is due to both organic and
acquisition-related additions of software programs, servers, and other computer
equipment to enhance our technology infrastructure. Depreciation expense as a
percentage of services revenue, excluding reimbursable expenses, was 1.0% and
0.8% for the years ended December 31, 2008 and 2007, respectively.




Amortization.
Amortization increased 2% to $4.8 million for the year ended December 31, 2008
from $4.7 million for the year ended December 31, 2007. The increase in
amortization expense reflects the acquisition of intangibles in 2007, as well as
the amortization of capitalized costs associated with internal use
software.  The valuations and estimated useful lives of acquired
identifiable intangible assets are outlined in Note 6,Goodwill and Intangible
Assets, of our consolidated financial statements.




Impairment of
Intangible Assets. During the fourth quarter of 2008, we determined that
the continuous trading of our common stock below book value and a loss of a key
customer were possible indicators of impairment to goodwill or long-lived assets
as defined under Statement of Financial Accounting Standards (“SFAS”) No.
142,Goodwill and Other
Intangible Assets (“SFAS 142”), and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS 144”), triggering the necessity of
impairment tests as of December 31, 2008.  As a result of the tests
performed, we recorded a $1.6 million impairment primarily related to customer
relationships we acquired from e tech solutions, Inc. (“E Tech”).  The
value of these relationships was affected primarily by the loss of a key
customer acquired by E Tech, which caused cash flows from the asset group to be
lower than originally projected.




Net Interest Income
or Expense. We had interest income, net of interest expense, of $0.5
million for the year ended December 31, 2008 compared to interest
income, net of interest expense, of $0.2 million during the year ended
December 31, 2007.  The increase in interest income in 2008 resulted
from higher cash balances throughout 2008 compared to prior year and the receipt
of interest payments in connection with a promissory note entered into with a
customer in June 2008.




Other Expense.
We expensed $0.9 million of previously capitalized deferred offering costs
during the third quarter of 2008.  We no longer intend to use the
current shelf registration statement associated with these costs for an equity
offering.  As required, we wrote off the deferred offering
costs.




Provision for Income
Taxes. We provide for federal, state and foreign income taxes at the
applicable statutory rates adjusted for non-deductible expenses. Our effective
tax rate increased to 42.2% for the year ended December 31, 2008 from 41.3% for
the year ended December 31, 2007. The effective income tax rate increased
primarily as a result of the decreased tax benefit of certain dispositions of
incentive stock options by holders.
















24








Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006




Revenues.
Total revenues increased 36% to $218.1 million for the year ended December 31,
2007 from $160.9 million for the year ended December 31, 2006.





Financial
      Results
                
                Explanation
      for Increases/(Decreases) Over Prior Year Period(in
      thousands)
                
                (in
      thousands)For
      the Year Ended
                  December
      31, 2007
                
                For
      the Year Ended
                  December
      31, 2006
                
                Total
      Increase/ (Decrease) Over Prior Year Period
                
                Increase
      Attributable to Acquired Companies*
                
                Increase/
      (Decrease) Attributable to Base Business**Services
      Revenues
                
                $
                191,395
                
                
                $
                137,722
                
                
                $
                53,673
                
                
                $
                43,437
                
                
                $
                10,236Software
      and Hardware Revenues
                
                
                14,243
                
                
                
                14,435
                
                
                
                (192
                )
                
                
                1,570
                
                
                
                (1,762
                )Reimbursable
      Expenses
                
                
                12,510
                
                
                
                8,769
                
                
                
                3,741
                
                
                
                2,578
                
                
                
                1,163Total
      Revenues
                
                $
                218,148
                
                
                $
                160,926
                
                
                $
                57,222
                
                
                $
                47,585
                
                
                $
                9,637





*Defined
as companies acquired during 2006 and 2007.


**Defined
as businesses owned as of January 1, 2006.




Services
revenues increased 39% to $191.4 million for the year ended December 31, 2007
from $137.7 million for the year ended December 31, 2006. Base business
accounted for 19% of the increase in services revenues for the year ended
December 31, 2007 compared to the year ended December 31, 2006. The remaining
81% of the increase is attributable to revenues generated from the
companies acquired during 2006 and 2007.




Software
revenues decreased 1% to $14.2 million in 2007 from $14.4 million in
2006. Software revenues attributable to our base business decreased $1.8
million while software revenues attributable to acquired companies increased
$1.6 million, resulting in a net decrease of $192,000. Reimbursable expenses
increased 43% to $12.5 million in 2007 from $8.8 million in 2006 due to
acquisitions and an increased number of projects requiring consultant travel. We
do not realize any profit on reimbursable expenses.




Cost of
revenues. Cost of revenues increased 33% to $142.5 million for the year
ended December 31, 2007 from $107.2 million for the year ended December 31,
2006. Base business accounted for 14% of the $35.3 million increase in cost of
revenues for the year ended December 31, 2007 compared to the year ended
December 31, 2006.  The remaining increase in cost of revenues is
attributable to the acquired companies. The average number of professionals
performing services, including subcontractors, increased to 1,026 for the year
ended December 31, 2007 from 686 for the year ended December 31,
2006.




Costs
associated with software sales decreased 1% to $12.0 million for year
ended December 31, 2007 from $12.1 million for the year ended December 31,
2006 due to an increase in sales of our higher margin internally developed
software. Costs associated with software sales attributable to our base business
decreased $1.4 million, while costs associated with software sales attributable
to acquired companies increased $1.3 million, resulting in a net decrease of
$0.1 million.




Gross Margin.
Gross margin increased 41% to $75.7 million for the year ended December 31, 2007
from $53.8 million for the year ended December 31, 2006. Gross margin as a
percentage of revenues increased to 34.7% for the year ended December 31, 2007
from 33.4% for the year ended December 31, 2006 due primarily to an increase in
services gross margin offset by a slight decrease in margin from software.
Services gross margin, excluding reimbursable expenses, increased to 38.4% in
2007 from 37.4% in 2006 primarily due to lower bonus as a percent of revenues
and lower direct labor cost as a percent of revenues driven by improved billing
rates. The average utilization rate of our professionals, excluding
subcontractors, decreased slightly to 81% for the year ended December 31,
2007 from 83% for the year ended December 31, 2006. Average hourly billing
rates were $118 for 2007 and $115 for 2006. Software gross margin decreased to
15.9% in 2007 from 16.1% in 2006 primarily as a result of fluctuations in vendor
and competitive pricing based on market conditions at the time of the
sales.













25






Selling, General and
Administrative. Selling, general and administrative expenses increased
30% to $42.0 million for the year ended December 31, 2007 from $32.3 million for
the year ended December 31, 2006 due primarily to fluctuations in expenses
as detailed in the following table:


Increase
      / (Decrease)Selling,
      General, and Administrative Expense
                  
                  (in
      millions)Sales
      related costs
                  
                  $
                  3.4Stock
      compensation expense
                  
                  
                  2.5Salary
      expense
                  
                  
                  1.9Bad
      debt expense
                  
                  
                  0.8Office
      and technology-related costs
                  
                  
                  1.6Recruiting
      and training-related costs
                  
                  
                  0.8Other
                  
                  
                  0.5Bonus
      expense
                  
                  
                  (1.8
                  )Net
      increase
                  
                  $
                  9.7




Selling,
general and administrative expenses as a percentage of revenues decreased
to 19% for the year ended December 31, 2007 from 20% for the year ended December
31, 2006, primarily driven by lower bonus costs as a percent of revenue and the
Company leveraging its infrastructure. Bonus costs, as a percentage of
service revenues, excluding reimbursable expenses, decreased to 1.6% for the
year ended December 31, 2007 compared to 3.5% for the year ended December 31,
2006 due to increasingly challenging growth and profitability targets in 2007.
Stock compensation expense, as a percentage of services revenues, excluding
reimbursed expenses, increased to 2.4% for the year ended December 31, 2007
compared to 1.6% for the year ended December 31, 2006.




Depreciation.
Depreciation expense increased 64% to $1.6 million during 2007 from
approximately $0.9 million during 2006. The increase in depreciation expense is
due to the addition of software programs, servers, and other computer equipment
to enhance our technology infrastructure and support our growth, both organic
and acquisition-related. Depreciation expense as a percentage of services
revenue, excluding reimbursable expenses, was 0.8% and 0.7% for the years ended
December 31, 2007 and 2006, respectively.




Amortization.
Amortization increased 36% to $4.7 million for the year ended December 31, 2007
from approximately $3.5 million for the year ended December 31, 2006. The
increase in amortization expense reflects the acquisition of intangibles
acquired in 2006 and 2007, as well as the amortization of capitalized costs
associated with internal use software.  The valuations and estimated
useful lives of acquired identifiable intangible assets are outlined in Note
6,Goodwill and Intangible
Assets, of our consolidated financial statements.




Net Interest Income
or Expense. We had interest income, net of interest expense, of
$172,000 for the year ended December 31, 2007 compared to interest
expense, net of interest income, of $407,000 during the year ended December
31, 2006. We repaid all outstanding debt in May 2007 and incurred no debt or
interest expense during the rest of the fiscal year.




Provision for Income
Taxes. We provided for federal, state and foreign income taxes at the
applicable statutory rates adjusted for non-deductible expenses. Our effective
tax rate decreased to 41.3% for the year ended December 31, 2007 from 43.2% for
the year ended December 31, 2006. The effective income tax rate decreased
as a result of the increased tax benefit of certain dispositions of incentive
stock options by holders and a decrease in the state income taxes, net of the
federal benefit.





Liquidity
and Capital Resources




Selected
measures of liquidity and capital resources are as follows (in
millions):




As
      of December 31,2008
                
                
                2007Cash
      and cash equivalents
                
                $
                22.9
                
                
                $
                8.1Working
      capital (including cash and cash equivalents)
                
                $
                56.2
                
                
                $
                41.5Amounts
      available under credit facilities
                
                $
                49.9
                
                
                $
                49.8
















26








Net
Cash Provided By Operating Activities




Net cash
provided by operations for the year ended December 31, 2008 was $26.8 million
compared to $23.1 million for the year ended December 31, 2007. For the year
ended December 31, 2008, net cash provided by operations consisted of net income
of $10.0 million plus non-cash charges such as stock compensation, amortization,
depreciation, and impairment of intangible assets, of $15.8 million plus net
working capital reductions of $1.0 million.  The primary components of
operating cash flows for the year ended December 31, 2007 are net income of
$16.2 million plus non-cash charges of $12.0 million which were offset by
investments in working capital of $5.1 million. The Company’s days sales
outstanding as of December 31, 2008 decreased to 71 days from 73 days at
December 31, 2007.





Net
Cash Used in Investing Activities




For the year
ended December 31, 2008, we used approximately $0.8 million in cash to pay
certain acquisition-related costs and $1.5 million in cash to purchase equipment
and develop certain software.  For the year ended December 31, 2007,
we used approximately $26.8 million in cash, net of cash acquired, to acquire E
Tech, Tier1, BoldTech, and ePairs. In addition, we used approximately $2.2
million during 2007 to purchase equipment and develop certain
software.





Net
Cash Provided By Financing Activities




During the
year ended December 31, 2008, we made no borrowings under our line of credit;
however, we made payments of $0.4 million in fees related to our new credit
facility and we incurred $0.9 million in income tax expense due to the
decline in the Company’s share price of underlying stock awards that were
exercised or vested.  We used $9.2 million to repurchase shares of the
Company’s common stock through the stock repurchase program which was partially
offset by $0.9 million from exercises of stock options and sales of stock
through our Employee Stock Purchase Plan.  During the year ended
December 31, 2007, we made payments of $1.3 million on our long-term debt.
Also, we received $3.9 million from proceeds from exercises of stock
options and sales under our Employee Stock Purchase Plan and we realized
tax benefits related to stock option exercises and restricted stock vesting of
$6.9 million.




Availability
of Funds from Bank Line of Credit Facilities




On May 30,
2008, the Company entered into a Credit Agreement (the “Credit Agreement”) with
Silicon Valley Bank (“SVB”) and KeyBank National Association
(“KeyBank”).  The Agreement replaces the Company’s Amended and
Restated Loan and Security Agreement dated as of September 3, 2005 and
further amended on September 29, 2006.  The Credit Agreement provides
for revolving credit borrowings up to a maximum principal amount of $50 million,
subject to a commitment increase of $25 million.  The Credit Agreement
also allows for the issuance of letters of credit in the aggregate amount of up
to $500,000 at any one time; outstanding letters of credit reduce the credit
available for revolving credit borrowings.  The credit facility will
be used for ongoing, general corporate purposes.




All
outstanding amounts owed under the Credit Agreement become due and payable no
later than the final maturity date of May 30, 2012.  Borrowings under
the credit facility bear interest at the Company’s option at SVB’s prime rate
(4.00% on December 31, 2008) plus a margin ranging from 0.00% to 0.50% or
one-month LIBOR (0.44% on December 31, 2008) plus a margin ranging from 2.50% to
3.00%.  The additional margin amount is dependent on the amount of
outstanding borrowings. As of December 31, 2008, the Company had $49.9 million
of available borrowing capacity.  The Company will incur an annual
commitment fee of 0.30% on the unused portion of the line of
credit.




As of
December 31, 2008, we were in compliance with all covenants under our credit
facility and we expect to be in compliance during the next twelve months.
Substantially all of our assets are pledged to secure the credit
facility.





Stock
Repurchase Program




In 2008, the
Company’s Board of Directors authorized the repurchase of up to $20.0 million of
the Company’s common stock.  As of December 31, 2008, $9.2 million of
Company common stock has been repurchased under this program and $10.8 million
of Company common stock may yet be purchased under such
authorization.




The Company
has established a written trading plan in accordance with Rule 10b5-1 of the
Securities Exchange Act of 1934 (the “Exchange Act”), under which it will make a
portion of its Company stock repurchases.  Additional repurchases will
be at times and in amounts as the Company deems appropriate and will be made
through open market transactions in compliance with Rule 10b-18 of the Exchange
Act, subject to market conditions, applicable legal requirements and other
factors.  The program expires on June 30, 2010.
















27








Lease
Obligations




There were no
material changes outside the ordinary course of our business in lease
obligations or other contractual obligations in 2008.





Shelf
Registration Statement




In July 2008,
we filed a shelf registration statement with the SEC to allow for offers and
sales of our common stock from time to time.  Approximately four
million shares of common stock may be sold under this registration statement if
we choose to do so.   We determined that we currently have no
intent to use the shelf registration to complete an offering.





Contractual
Obligations




We currently
have one letter of credit for $100,000 outstanding that serves as
collateral to secure a facility lease. The letter of credit reduces the
borrowings available under our line of credit.




We have
incurred commitments to make future payments under contracts such as leases.
Maturities under these contracts are set forth in the following table as of
December 31, 2008 (in thousands):


Payments
      Due by PeriodContractual
      Obligations
                
                Total
                
                
                Less
      Than
                  1
      Year
                
                
                1-3
                  Years
                
                
                3-5
                  Years
                
                
                More
                  Than
      5
                  YearsOperating
      lease obligations
                
                $
                7,673
                
                
                $
                2,258
                
                
                $
                3,884
                
                
                $
                1,216
                
                
                $
                315Total
                
                $
                7,673
                
                
                $
                2,258
                
                
                $
                3,884
                
                
                $
                1,216
                
                
                $
                315




See Note
9, Income Taxes,
in Notes to Consolidated Financial Statements for information related to the
Company's obligations for taxes.





Conclusion




If our
capital is insufficient to fund our activities in either the short or long term,
we may need to raise additional funds. In the ordinary course of business, we
may engage in discussions with various persons in connection with additional
financing. If we raise additional funds through the issuance of equity
securities, our existing stockholders' percentage ownership will be diluted.
These equity securities may also have rights superior to our common stock.
Additional debt or equity financing may not be available when needed or on
satisfactory terms. If adequate funds are not available on acceptable terms, we
may be unable to expand our services, respond to competition, pursue acquisition
opportunities or continue our operations.




We believe
that the current available funds, access to capital from our credit facility,
and cash flows generated from operations will be sufficient to meet our working
capital requirements and other capital needs for the next twelve
months.





Critical
Accounting Policies




The Company's
accounting policies are described in Note 2,Summary of Significant Accounting
Policies, in Notes to Consolidated Financial Statements. The Company
believes its most critical accounting policies include revenue
recognition, accounting for goodwill and intangible assets, purchase
accounting, accounting for stock-based compensation, and income
taxes.





Revenue
Recognition and Allowance for Doubtful Accounts




Revenues are
primarily derived from professional services provided on a time and materials
basis. For time and material contracts, revenues are recognized and billed
by multiplying the number of hours expended in the performance of the contract
by the established billing rates. For fixed fee projects, revenues are
generally recognized using the input method based on the ratio of hours expended
to total estimated hours. Amounts invoiced to clients in excess of revenues
recognized are classified as deferred revenues. On many projects the Company is
also reimbursed for out-of-pocket expenses such as airfare, lodging and
meals.  These reimbursements are included as a component of revenues.
Revenues from software and hardware sales are generally recorded on a gross
basis based on the Company's role as principal in the transaction.  On
rare occasions, the Company enters into a transaction where it is not the
principal.  In these cases, revenue is recorded on a net
basis.
















28






Revenues are
recognized when the following criteria are met: (1) persuasive evidence of
the customer arrangement exists, (2) fees are fixed and determinable,
(3) delivery and acceptance have occurred, and (4) collectibility is
deemed probable. The Company’s policy for revenue recognition in instances where
multiple deliverables are sold contemporaneously to the same counterparty is in
accordance with American Institute of Certified Public Accountants (“AICPA”)
Statement of Position 97-2,Software Revenue Recognition, Emerging Issues Task Force (“EITF”) Issue
No. 00-21,Revenue
Arrangements with Multiple Deliverables, and SEC Staff Accounting
Bulletin No. 104,Revenue
Recognition. Specifically, if the Company enters into contracts for the
sale of services and software or hardware, then the Company evaluates whether
the services are essential to the functionality of the software or hardware and
whether it has objective fair value evidence for each deliverable in the
transaction. If the Company has concluded that the services to be provided are
not essential to the functionality of the software or hardware and it can
determine objective fair value evidence for each deliverable of the transaction,
then it accounts for each deliverable in the transaction separately, based on
the relevant revenue recognition policies. Generally, all deliverables of the
Company’s multiple element arrangements meet these criteria. The Company may
provide multiple services under the terms of an arrangement and are required to
assess whether one or more units of accounting are present.  Fees are
typically accounted for as one unit of accounting as fair value evidence for
individual tasks or milestones is not available.  The Company
follows the guidelines discussed above in determining revenues; however,
certain judgments and estimates are made and used to determine revenues
recognized in any accounting period. If estimates are revised, material
differences may result in the amount and timing of revenues recognized for a
given period.




Revenues are
presented net of taxes assessed by governmental authorities.  Sales
taxes are generally collected and subsequently remitted on all software and
hardware sales and certain services transactions as
appropriate.




Our allowance
for doubtful accounts is based upon specific identification of likely and
probable losses. Each accounting period, we evaluate accounts receivable for
risk associated with a client's inability to make contractual payments,
historical experience and other currently available information. Billed and
unbilled receivables that are specifically identified as being at risk are
provided for with a charge to revenue or bad debts as appropriate in the period
the risk is identified. We use considerable judgment in assessing the ultimate
realization of these receivables, including reviewing the financial stability of
the client, evaluating the successful mitigation of service delivery disputes,
and gauging current market conditions. If our evaluation of service delivery
issues or a client's ability to pay is incorrect, we may incur future reductions
to revenue or bad debt expense.





Goodwill,
Other Intangible Assets and Impairment of Long-Lived Assets




Goodwill
represents the excess purchase price over the fair value of net assets acquired,
or net liabilities assumed, in a business combination. In accordance with SFAS
142, the Company performs an annual impairment test of goodwill. The Company
evaluates goodwill as of October 1 each year and more frequently if events or
changes in circumstances indicate that goodwill might be impaired. As required
by SFAS 142, the impairment test is accomplished using a two-step approach.
The first step screens for impairment and, when impairment is indicated, a
second step is employed to measure the impairment. The Company also reviews
other factors to determine the likelihood of impairment.




The Company’s
fair value was determined by weighting the results of two valuation methods: 1)
market capitalization based on the average price of the Company’s common stock,
including a control premium, for a reasonable period of time prior to the
evaluation date (generally 15 to 30 days) and 2) a discounted cash flow
model.  The fair value calculated using the Company’s average common
stock price (including a control premium) was weighted 40% while the value
calculated by the discounted cash flow model was weighted 60% in the Company’s
determination of its overall fair value.  Management believes that
while the use of its average common stock price, plus a control premium, may be
considered the best evidence of fair value in SFAS 142, the declines in the
Company’s stock price, and in the market overall, are not consistently aligned
with the Company’s financial results or outlook.  The discounted cash
flow approach allows the Company to calculate its fair value based on operating
performance and meaningful financial metrics.




A key
assumption used in the calculation of the Company’s fair value using its average
common stock price was the consideration of a control premium.  The
Company reviewed industry premium data and determined an appropriate control
premium for its analysis based on the low end of any premium received in
transactions over the past several years.




Significant
estimates used in the discounted cash flow model included projections of revenue
growth, net income margins, discount rate, and terminal business value. The
forecasts of revenue growth and net income margins are based upon management’s
long-term view of the business and are used by senior management and the Board
of Directors to evaluate operating performance. The discount rate utilized was
estimated using the weighted average cost of capital for the Company’s industry.
The terminal business value was determined by applying a growth factor to the
latest year for which a forecast exists.













29






Other
intangible assets include customer relationships, non-compete arrangements and
internally developed software, which are being amortized over the assets’
estimated useful lives using the straight-line method. Estimated useful lives
range from three to eight years. Amortization of customer relationships,
non-compete arrangements and internally developed software are considered
operating expenses and are included in “Amortization” in the
accompanying Consolidated Statements of Operations. The Company
periodically reviews the estimated useful lives of its identifiable intangible
assets, taking into consideration any events or circumstances that might result
in a lack of recoverability or revised useful life.




The Company’s
annual goodwill impairment test was performed as of October 1,
2008.  The Company’s fair value as of the annual testing date exceeded
its book value and consequently, no impairment was indicated.




During the
fourth quarter of 2008, the Company determined that the continuous trading of
its common stock below book value was a possible indicator of impairment to
goodwill or long-lived assets as defined under SFAS 142 and SFAS 144, triggering
the necessity of impairment tests as of December 31, 2008. In accordance
with SFAS 142, the Company tested its long-lived assets for impairment prior to
performing an interim test of goodwill impairment.  Assets were
grouped together to test recoverability based on the lowest level of
identifiable cash flows directly attributable to those assets.  Fair
values of the identified asset groups were calculated using a discounted cash
flow model. Key assumptions used in the discounted cash flow model for
calculating the fair value of the asset groups were similar in nature to those
described above.  Based on the valuations performed, the Company
determined that the cash flows of one of the identified asset groups would not
be sufficient to recover the group’s carrying amount. Consequently, we recorded
an impairment of $1.6 million primarily related to customer relationship
intangible assets acquired from E Tech.  The value of these
relationships was affected primarily by the loss of a key customer acquired by E
Tech, which caused cash flows from the acquired relationships to be lower than
originally projected.




After
recording the impairment of the E Tech customer relationships intangible asset,
the Company performed the first step of the goodwill impairment test and based
on the weighted average of market capitalization, including a control premium,
and discounted cash flow analysis, goodwill was not impaired as of December 31,
2008. Changes in management intentions, market conditions, our stock value,
operating performance, and other similar circumstances could affect the
assumptions used in the future for the impairment tests described above. Changes
in the assumptions could result in future impairment charges that could be
material to our financial results in any given period.




Subsequent to
December 31, 2008 our stock price has declined.  Accordingly, the
Company will continue to evaluate the carrying value of the remaining goodwill
and intangible assets to determine whether the decline in stock price is an
indication that there is a triggering event that may require the Company to
perform an interim impairment test and record impairment charges to
earnings, which could adversely affect the Company’s financial
results.





Purchase
Accounting




We allocate
the purchase price of our acquisitions to the assets and liabilities acquired,
including identifiable intangible assets, based on their respective fair values
at the date of acquisition. Such fair market value assessments require
significant judgments and estimates that can change materially as additional
information becomes available. The purchase price is allocated to intangibles
based on management's estimate and an independent valuation. Management
finalizes the purchase price allocation within twelve months of the acquisition
date as certain initial accounting estimates are resolved.





Accounting
for Stock-Based Compensation




The Company
estimates the fair value of stock option awards on the date of grant utilizing a
modified Black-Scholes option pricing model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of short-term traded
options that have no vesting restrictions and are fully transferable. However,
certain assumptions used in the Black-Scholes model, such as expected term, can
be adjusted to incorporate the unique characteristics of the Company’s stock
option awards. Option valuation models require the input of somewhat subjective
assumptions including expected stock price volatility and expected term. The
Company believes it is unlikely that materially different estimates for the
assumptions used in estimating the fair value of stock options granted would be
made based on the conditions suggested by actual historical experience and other
data available at the time estimates were made. Restricted stock awards are
valued at the price of our common stock on the date of the grant.





Income
Taxes




To record
income tax expense, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. In addition, income tax expense at interim
reporting dates requires us to estimate our expected effective tax rate for the
entire year. This involves estimating our actual current tax liability together
with assessing temporary differences that result in deferred tax assets and
liabilities and expected future tax rates.
















30








Recent
Accounting Pronouncements




Effective
January 1, 2008, the Company adopted SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of SFAS
No. 115 (“SFAS 159”). SFAS 159 permits companies to choose
to measure many financial instruments and certain other items at fair value.
SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The adoption of SFAS 159 did not have a
material impact on the Company’s consolidated financial statements.




Effective
January 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements
(“SFAS 157”).  In February 2008, the FASB issued Staff Position No.
157-2, Effective Date of FASB
Statement No. 157 (“FSP 157-2”), which delayed the effective date of SFAS
157 for certain nonfinancial assets and liabilities, including fair value
measurements under SFAS No. 141,Business Combinations (“SFAS
141”) and SFAS 142, to fiscal years beginning after November 15,
2008.  Therefore, the Company has adopted the provisions of SFAS 157
with respect to its financial assets and liabilities only.  SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements.  Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date.  Valuation techniques used to measure fair value
under SFAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs.  The standard describes a fair value hierarchy
based on the following three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure
fair value:




·
            Level
      1 – Quoted prices in active markets for identical assets or
      liabilities.


·
            Level
      2 – Inputs other than Level 1 that are observable, either directly or
      indirectly, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.


·
            Level
      3 – Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.




As of
December 31, 2008, the Company did not hold any assets or liabilities that are
required to be measured at fair value on a recurring basis, and therefore the
adoption of the respective provisions of SFAS 157 did not have an impact on the
Company’s consolidated financial statements.  On January 1, 2009,
the Company will implement the previously deferred provisions of SFAS 157
for nonfinancial assets and liabilities recorded at fair value, as required.
Management does not believe that the remaining provisions will have a material
effect on the Company’s consolidated financial statements when they become
effective.




In
May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  The statement is intended
to improve financial reporting by identifying a consistent hierarchy for
selecting accounting principles to be used in preparing financial statements
that are prepared in accordance with generally accepted accounting principles.
Unlike Statement on Auditing Standards (“SAS”) No. 69,The Meaning of Present Fairly in
Conformity With GAAP, SFAS 162 is directed to the entity rather than the
auditor. The statement was effective November 15, 2008, after approval by the
SEC which occurred in September 2008.  The application of this
statement did not have a material impact on the Company’s consolidated financial
statements.




In
April 2008, the FASB issued FASB Staff Position No. 142-3,Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  FSP 142-3 requires companies
estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the
absence of historical experience, to consider assumptions that market
participants would use about renewal or extension as adjusted for SFAS 142’s
entity-specific factors. FSP 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008.  Adoption of this
statement is not expected to have a material impact on the Company’s
consolidated financial statements when it becomes effective.




In December
2007, FASB issued SFAS No. 141 (revised 2007),Business Combinations (“SFAS
141R”), which is a revision of SFAS 141.  SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The revised statement will require, among other things, that
transaction costs be expensed instead of recognized as purchase price. SFAS 141R
applies prospectively to business combinations for which the acquisition date is
on or after January 1, 2009.





Off-Balance
Sheet Arrangements




The Company
currently has no off-balance sheet arrangements, except operating lease
commitments as disclosed in Note 10,Commitments and
Contingencies.














31








Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market
Risk.





We are
exposed to market risks related to changes in foreign currency exchange rates
and interest rates.  We believe our exposure to market risks is
immaterial.





Exchange
Rate Sensitivity




During the
year ended December 31, 2008, $2.5 million and $2.7 million of our total
revenues were attributable to our Canadian operations and revenues
generated in Europe, respectively. Our exposure to changes in foreign currency
rates primarily arises from short-term intercompany transactions with our
Canadian, Chinese, and Indian subsidiaries and from client receivables
denominated in other than our functional currency.  Our foreign
subsidiaries incur a significant portion of their expenses in their applicable
currency as well, which helps minimize our risk of exchange rate
fluctuations.  Based on the amount of revenues attributed to clients
in Canada and Europe during the year ended December 31, 2008, this exchange
rate risk will not have a material impact on our financial position or results
of operations.





Interest
Rate Sensitivity




We had
unrestricted cash and cash equivalents totaling $22.9 million and
$8.1 million at December 31, 2008 and December 31, 2007,
respectively.  These amounts were invested primarily in money market
funds. The unrestricted cash and cash equivalents are held for working capital
purposes. We do not enter into investments for trading or speculative purposes.
Due to the short-term nature of these investments, we believe that we do not
have any material exposure to changes in the fair value of our investment
portfolio as a result of changes in interest rates. Declines in interest rates,
however, will reduce future investment income.
















32








Item
      8.
            Financial
      Statements and Supplementary Data.


PERFICIENT,
INC.


CONSOLIDATED
BALANCE SHEETS


AS
OF DECEMBER 31, 2008 AND 2007





December
      31,2008
                      
                      
                      2007ASSETS
                      
                      (In
      thousands, except share information)Current
      assets:Cash
      and cash equivalents
                      
                      $
                      22,909
                      
                      
                      $
                      8,070Accounts
      and note receivable, net of allowance for doubtful accounts of $1,497 in
      2008 and $1,475 in 2007
                      
                      
                      47,584
                      
                      
                      
                      50,855Prepaid
      expenses
                      
                      
                      1,374
                      
                      
                      
                      1,182Other
      current assets
                      
                      
                      3,157
                      
                      
                      
                      4,142Total
      current assets
                      
                      
                      75,024
                      
                      
                      
                      64,249Property
      and equipment, net
                      
                      
                      2,345
                      
                      
                      
                      3,226Goodwill
                      
                      
                      104,178
                      
                      
                      
                      103,686Intangible
      assets, net
                      
                      
                      11,456
                      
                      
                      
                      17,653Other
      non-current assets
                      
                      
                      1,244
                      
                      
                      
                      1,178Total
      assets
                      
                      $
                      194,247
                      
                      
                      $
                      189,992LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                      
                      $
                      4,509
                      
                      
                      $
                      4,160Other
      current liabilities
                      
                      
                      14,339
                      
                      
                      
                      18,550Total
      current liabilities
                      
                      
                      18,848
                      
                      
                      
                      22,710Deferred
      income taxes
                      
                      
                      --
                      
                      
                      
                      1,549Other
      non-current liabilities
                      
                      
                      581
                      
                      
                      
                      171Total
      liabilities
                      
                      $
                      19,429
                      
                      
                      $
                      24,430Commitments
      and contingencies (see Notes 4 and 10)Stockholders'
      equity:Common
      stock ($0.001 par value per share; 50,000,000 shares authorized and
      30,350,700 shares issued and 28,502,400 shares outstanding as of December
      31, 2008; 29,423,296 shares issued and outstanding as of December 31,
      2007)
                      
                      $
                      30
                      
                      
                      $
                      29Additional
      paid-in capital
                      
                      
                      197,653
                      
                      
                      
                      188,998Accumulated
      other comprehensive loss
                      
                      
                      (338
                      )
                      
                      
                      (117
                      )Treasury
      stock, at cost (1,848,300 shares as of December 31, 2008)
                      
                      
                      (9,179
                      )
                      
                      
                      --Accumulated
      deficit
                      
                      
                      (13,348
                      )
                      
                      
                      (23,348
                      )Total
      stockholders' equity
                      
                      
                      174,818
                      
                      
                      
                      165,562Total
      liabilities and stockholders' equity
                      
                      $
                      194,247
                      
                      
                      $
                      189,992




See
accompanying notes to consolidated financial statements.
















33








PERFICIENT, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006





Year
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Revenues:
                      
                      (In
      thousands, except per share information)Services
                      
                      $
                      207,480
                      
                      
                      $
                      191,395
                      
                      
                      $
                      137,722Software
      and hardware
                      
                      
                      10,713
                      
                      
                      
                      14,243
                      
                      
                      
                      14,435Reimbursable
      expenses
                      
                      
                      13,295
                      
                      
                      
                      12,510
                      
                      
                      
                      8,769Total
      revenues
                      
                      
                      231,488
                      
                      
                      
                      218,148
                      
                      
                      
                      160,926Cost
      of revenues (exclusive of depreciation and amortization, shown separately
      below):Project
      personnel costs
                      
                      
                      131,019
                      
                      
                      
                      114,692
                      
                      
                      
                      84,161Software
      and hardware costs
                      
                      
                      8,639
                      
                      
                      
                      11,982
                      
                      
                      
                      12,118Reimbursable
      expenses
                      
                      
                      13,295
                      
                      
                      
                      12,510
                      
                      
                      
                      8,769Other
      project related expenses
                      
                      
                      5,033
                      
                      
                      
                      3,274
                      
                      
                      
                      2,122Total
      cost of revenues
                      
                      
                      157,986
                      
                      
                      
                      142,458
                      
                      
                      
                      107,170Gross
      margin
                      
                      
                      73,502
                      
                      
                      
                      75,690
                      
                      
                      
                      53,756Selling,
      general and administrative
                      
                      
                      47,242
                      
                      
                      
                      41,963
                      
                      
                      
                      32,268Depreciation
                      
                      
                      2,139
                      
                      
                      
                      1,553
                      
                      
                      
                      948Amortization
                      
                      
                      4,810
                      
                      
                      
                      4,712
                      
                      
                      
                      3,458Impairment
      of intangible assets
                      
                      
                      1,633
                      
                      
                      
                      --
                      
                      
                      
                      --Income
      from operations
                      
                      
                      17,678
                      
                      
                      
                      27,462
                      
                      
                      
                      17,082Interest
      income
                      
                      
                      555
                      
                      
                      
                      239
                      
                      
                      
                      102Interest
      expense
                      
                      
                      (27
                      )
                      
                      
                      (67
                      )
                      
                      
                      (509
                      )Other
      income (expense)
                      
                      
                      (915
                      )
                      
                      
                      20
                      
                      
                      
                      174Income
      before income taxes
                      
                      
                      17,291
                      
                      
                      
                      27,654
                      
                      
                      
                      16,849Provision
      for income taxes
                      
                      
                      7,291
                      
                      
                      
                      11,424
                      
                      
                      
                      7,282Net
      income
                      
                      $
                      10,000
                      
                      
                      $
                      16,230
                      
                      
                      $
                      9,567Basic
      net income per share
                      
                      $
                      0.34
                      
                      
                      $
                      0.58
                      
                      
                      $
                      0.38Diluted
      net income per share
                      
                      $
                      0.33
                      
                      
                      $
                      0.54
                      
                      
                      $
                      0.35Shares
      used in computing basic net income per share
                      
                      
                      29,412,329
                      
                      
                      
                      27,998,093
                      
                      
                      
                      25,033,337Shares
      used in computing diluted net income per share
                      
                      
                      30,350,616
                      
                      
                      
                      30,121,962
                      
                      
                      
                      27,587,449





See
accompanying notes to consolidated financial statements.













34





PERFICIENT, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006


(In
thousands)





Common
                
                
                Common
                
                
                Additional
                
                
                Accumulated
                  Other
                
                
                
                
                
                
                
                
                TotalStock
                
                
                Stock
                
                
                Paid-in
                
                
                Comprehensive
                
                
                Treasury
                
                
                Accumulated
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                Capital
                
                
                Loss
                
                
                Stock
                
                
                Deficit
                
                
                EquityBalance
      at December 31, 2005
                
                
                23,295
                
                
                $
                23
                
                
                $
                115,120
                
                
                $
                (87
                )
                
                $
                --
                
                
                $
                (49,145
                )
                
                $
                65,911Bay
      Street, Insolexen, and EGG acquisition purchase accounting
      adjustments
                
                
                1,499
                
                
                
                2
                
                
                
                17,989
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                17,991Warrants
      exercised
                
                
                145
                
                
                
                --
                
                
                
                146
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                146Stock
      options exercised
                
                
                1,672
                
                
                
                2
                
                
                
                4,001
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                4,003Purchases
      of stock under the Employee Stock Purchase Plan
                
                
                6
                
                
                
                --
                
                
                
                86
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                86Tax
      benefit of stock option exercises and restricted stock
    vesting
                
                
                --
                
                
                
                --
                
                
                
                6,554
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                6,554Stock
      compensation
                
                
                83
                
                
                
                --
                
                
                
                3,132
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                3,132Foreign
      currency translation adjustment
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (38
                )
                
                
                --
                
                
                
                --
                
                
                
                (38
                )Net
      income
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                9,567
                
                
                
                9,567Total
      comprehensive income
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                9,529Balance
      at December 31, 2006
                
                
                26,700
                
                
                $
                27
                
                
                $
                147,028
                
                
                $
                (125
                )
                
                $
                --
                
                
                $
                (39,578
                )
                
                $
                107,352E
      Tech, Tier1, BoldTech, and ePairs acquisition purchase accounting
      adjustments
                
                
                1,250
                
                
                
                1
                
                
                
                24,975
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                24,976Stock
      options exercised
                
                
                1,160
                
                
                
                1
                
                
                
                3,696
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                3,697Purchases
      of stock under the Employee Stock Purchase Plan
                
                
                11
                
                
                
                --
                
                
                
                206
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                206Tax
      benefit of stock option exercises and restricted stock
    vesting
                
                
                --
                
                
                
                --
                
                
                
                6,889
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                6,889Stock
      compensation
                
                
                302
                
                
                
                --
                
                
                
                6,204
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                6,204Foreign
      currency translation adjustment
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                8
                
                
                
                --
                
                
                
                --
                
                
                
                8Net
      income
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                16,230
                
                
                
                16,230Total
      comprehensive income
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                
                
                
                
                16,238Balance
      at December 31, 2007
                
                
                29,423
                
                
                $
                29
                
                
                $
                188,998
                
                
                $
                (117
                )
                
                $
                --
                
                
                $
                (23,348
                )
                
                $
                165,562E
      Tech and ePairs acquisition purchase accounting
      adjustments
                
                
                (19
                )
                
                
                --
                
                
                
                (290
                )
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (290
                )Stock
      options exercised
                
                
                338
                
                
                
                1
                
                
                
                726
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                727Purchases
      of stock under the Employee Stock Purchase Plan
                
                
                29
                
                
                
                --
                
                
                
                196
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                196Tax expense
      of stock option exercises and restricted stock vesting
                
                
                --
                
                
                
                --
                
                
                
                (922
                )
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (922
                )Stock
      compensation and retirement savings plan
contributions
                
                
                579
                
                
                
                --
                
                
                
                8,945
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                8,945Purchases
      of treasury stock
                
                
                (1,848
                )
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (9,179
                )
                
                
                --
                
                
                
                (9,179
                )Foreign
      currency translation adjustment
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                (221
                )
                
                
                --
                
                
                
                --
                
                
                
                (221
                )Net
      income
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                10,000
                
                
                
                10,000Total
      comprehensive income
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                
                
                
                
                9,779Balance
      at December 31, 2008
                
                
                28,502
                
                
                $
                30
                
                
                $
                197,653
                
                
                $
                (338
                )
                
                $
                (9,179
                )
                
                $
                (13,348
                )
                
                $
                174,818





See accompanying notes to
consolidated financial statements.














35








PERFICIENT, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006





Year
      Ended December 31,2008
                
                
                2007
                
                
                2006OPERATING
      ACTIVITIES
                
                
                
                
                (In
      thousands)Net
      income
                
                $
                10,000
                
                
                $
                16,230
                
                
                $
                9,567Adjustments
      to reconcile net income to net cash provided by
operations:Depreciation
                
                
                2,139
                
                
                
                1,553
                
                
                
                948Amortization
                
                
                4,810
                
                
                
                4,712
                
                
                
                3,458Impairment
      of intangible assets
                
                
                1,633Deferred
      income taxes
                
                
                (1,769
                )
                
                
                (495
                )
                
                
                1,393Non-cash
      stock compensation and retirement savings plan
      contributions
                
                
                8,945
                
                
                
                6,204
                
                
                
                3,132Non-cash
      interest expense
                
                
                --
                
                
                
                --
                
                
                
                6Changes
      in operating assets and liabilities, net of acquisitions:Accounts
      and note receivable
                
                
                3,081
                
                
                
                (1,589
                )
                
                
                (5,771
                )Other
      assets
                
                
                354
                
                
                
                3,256
                
                
                
                (294
                )Accounts
      payable
                
                
                399
                
                
                
                (1,694
                )
                
                
                1,251Other
      liabilities
                
                
                (2,824
                )
                
                
                (5,126
                )
                
                
                (543
                )Net
      cash provided by operating activities
                
                
                26,768
                
                
                
                23,051
                
                
                
                13,147INVESTING
      ACTIVITIESPurchase
      of property and equipment
                
                
                (1,320
                )
                
                
                (2,035
                )
                
                
                (1,518
                )Capitalization
      of software developed for internal use
                
                
                (185
                )
                
                
                (181
                )
                
                
                (136
                )Cash
      paid for acquisitions and related costs
                
                
                (836
                )
                
                
                (26,774
                )
                
                
                (17,210
                )Payments
      on Javelin notes
                
                
                --
                
                
                
                --
                
                
                
                (250
                )Net
      cash used in investing activities
                
                
                (2,341
                )
                
                
                (28,990
                )
                
                
                (19,114
                )FINANCING
      ACTIVITIESProceeds
      from short-term borrowings
                
                
                --
                
                
                
                11,900
                
                
                
                34,900Payments
      on short-term borrowings
                
                
                --
                
                
                
                (11,900
                )
                
                
                (38,900
                )Payments
      on long-term debt
                
                
                --
                
                
                
                (1,338
                )
                
                
                (1,338
                )Payments
      for credit facility financing fees
                
                
                (420
                )
                
                
                --
                
                
                
                --Tax
      benefit (expense) of stock option exercises and restricted stock
      vesting
                
                
                (922
                )
                
                
                6,889
                
                
                
                6,554Proceeds
      from the exercise of stock options and Employee Stock Purchase
      Plan
                
                
                923
                
                
                
                3,903
                
                
                
                4,089Proceeds
      from the exercise of warrants
                
                
                --
                
                
                
                --
                
                
                
                146Purchases
      of treasury stock
                
                
                (9,179
                )
                
                
                --
                
                
                
                --Net
      cash provided by financing activities
                
                
                (9,598
                )
                
                
                9,454
                
                
                
                5,451Effect
      of exchange rate on cash and cash equivalents
                
                
                10
                
                
                
                6
                
                
                
                (31
                )Change
      in cash and cash equivalents
                
                
                14,839
                
                
                
                3,521
                
                
                
                (547
                )Cash
      and cash equivalents at beginning of period
                
                
                8,070
                
                
                
                4,549
                
                
                
                5,096Cash
      and cash equivalents at end of period
                
                $
                22,909
                
                
                $
                8,070
                
                
                $
                4,549Supplemental
      disclosures:Cash
      paid for interest
                
                $
                15
                
                
                $
                40
                
                
                $
                540Cash
      paid for income taxes
                
                $
                10,206
                
                
                $
                3,680
                
                
                $
                3,156Non-cash
      activities:Stock
      issued for purchase of businesses (stock reacquired for escrow
      claim)
                
                $
                (290
                )
                
                $
                24,976
                
                
                $
                17,991Change
      in goodwill
                
                $
                492
                
                
                $
                (1,957
                )
                
                $
                318Write-off
      of deferred offering costs
                
                $
                (943
                )
                
                $
                --
                
                
                $
                --





See
accompanying notes to consolidated financial statements.
















36








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008




1. 
Description of Business and Principles of Consolidation




Perficient, Inc.
(the “Company”) is an information technology consulting firm. The Company helps
its clients use Internet-based technologies to make their businesses more
responsive to market opportunities and threats, strengthen relationships with
customers, suppliers and partners, improve productivity and reduce information
technology costs. The Company designs, builds and delivers solutions using a
core set of middleware software products developed by third party vendors. The
Company's solutions enable its clients to meet the changing demands of an
increasingly global, Internet-driven and competitive marketplace.




The Company
is incorporated in Delaware. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.





2. 
Summary of Significant Accounting Policies




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates, and such
differences could be material to the financial statements.





Reclassification




The Company
has reclassified the presentation of certain prior period information to conform
to the current year presentation.





Revenue
Recognition




Revenues are
primarily derived from professional services provided on a time and materials
basis. For time and material contracts, revenues are recognized and billed
by multiplying the number of hours expended in the performance of the contract
by the established billing rates. For fixed fee projects, revenues are
generally recognized using the input method based on the ratio of hours expended
to total estimated hours. Amounts invoiced to clients in excess of revenues
recognized are classified as deferred revenues. On many projects the Company is
also reimbursed for out-of-pocket expenses such as airfare, lodging and
meals.  These reimbursements are included as a component of revenues.
Revenues from software and hardware sales are generally recorded on a gross
basis based on the Company's role as principal in the transaction.  On
rare occasions, the Company enters into a transaction where it is not the
principal.  In these cases, revenue is recorded on a net
basis.




Revenues are
recognized when the following criteria are met: (1) persuasive evidence of
the customer arrangement exists, (2) fees are fixed and determinable,
(3) delivery and acceptance have occurred, and (4) collectibility is
deemed probable. The Company’s policy for revenue recognition in instances where
multiple deliverables are sold contemporaneously to the same counterparty is in
accordance with American Institute of Certified Public Accountants (“AICPA”)
Statement of Position 97-2,Software Revenue Recognition, Emerging Issues Task Force (“EITF”) Issue
No. 00-21,Revenue
Arrangements with Multiple Deliverables, and SEC Staff Accounting
Bulletin No. 104,Revenue
Recognition. Specifically, if the Company enters into contracts for the
sale of services and software or hardware, then the Company evaluates whether
the services are essential to the functionality of the software or hardware and
whether it has objective fair value evidence for each deliverable in the
transaction. If the Company has concluded that the services to be provided are
not essential to the functionality of the software or hardware and it can
determine objective fair value evidence for each deliverable of the transaction,
then it accounts for each deliverable in the transaction separately, based on
the relevant revenue recognition policies. Generally, all deliverables of the
Company’s multiple element arrangements meet these criteria. The Company may
provide multiple services under the terms of an arrangement and are required to
assess whether one or more units of accounting are present.  Fees are
typically accounted for as one unit of accounting as fair value evidence for
individual tasks or milestones is not available.  The Company
follows the guidelines discussed above in determining revenues; however,
certain judgments and estimates are made and used to determine revenues
recognized in any accounting period. If estimates are revised, material
differences may result in the amount and timing of revenues recognized for a
given period.




Revenues are
presented net of taxes assessed by governmental authorities.  Sales
taxes are generally collected and subsequently remitted on all software and
hardware sales and certain services transactions as appropriate.






















37





PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008





Cash
and Cash Equivalents




Cash
equivalents consist primarily of cash deposits and investments with original
maturities of 90 days or less when purchased.




Property
and Equipment




Property and
equipment are recorded at cost. Depreciation of property and equipment is
computed using the straight-line method over the useful lives of the assets
(generally one to five years). Leasehold improvements are amortized over
the shorter of the life of the lease or the estimated useful life of the
assets.




Goodwill,
Other Intangible Assets and Impairment of Long-Lived Assets




Goodwill
represents the excess purchase price over the fair value of net assets acquired,
or net liabilities assumed, in a business combination. In accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible
Assets (“SFAS 142”), the Company performs an annual impairment test of
goodwill. The Company evaluates goodwill as of October 1 each year and more
frequently if events or changes in circumstances indicate that goodwill might be
impaired.  As required by SFAS 142, the impairment test is
accomplished using a two-step approach.  The first step of the
goodwill impairment test compares the fair value of a reporting unit with its
carrying amount, including goodwill.  If, based on the second step, it
is determined that the implied fair value of the goodwill of the reporting unit
is less than the carrying value, goodwill is considered impaired.




Other
intangible assets include customer relationships, non-compete arrangements and
internally developed software, which are being amortized over the assets’
estimated useful lives using the straight-line method. Estimated useful lives
range from three to eight years. Amortization of customer relationships,
non-compete arrangements and internally developed software are considered
operating expenses and are included in “Amortization” in the
accompanying Consolidated Statements of Operations. The Company
periodically reviews the estimated useful lives of its identifiable intangible
assets, taking into consideration any events or circumstances that might result
in a lack of recoverability or revised useful life.




During the
fourth quarter of 2008, the Company determined that the continuous trading of
its common stock below book value was a possible indicator of impairment to
goodwill or long-lived assets as defined under SFAS 142 and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS 144”), triggering the necessity of
impairment tests as of December 31, 2008. As a result of the tests
performed, the Company recorded a $1.6 million impairment primarily related to
the customer relationships we acquired from e tech solutions, Inc. (“E
Tech’).  The value of these relationships was affected primarily by
the loss of a key customer acquired by E Tech, which caused cash flows from the
acquired relationships to be lower than originally projected.




Income
Taxes




The Company
accounts for income taxes in accordance with SFAS No. 109,Accounting for Income Taxes
(“SFAS 109”), and Financial Accounting Standards Interpretation No.
48,Accounting for Uncertainty
in Income Taxes – an interpretation of SFAS 109 (“FIN 48”). SFAS 109
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Deferred tax assets are subject to tests of recoverability.
A valuation allowance is provided for such deferred tax assets to the extent
realization is not judged to be more likely than not.  FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, treatment of interest and penalties, and disclosure of such
positions. The Company adopted the provisions of FIN 48 on January 1, 2007 as
required and such adoption did not have a material impact to the consolidated
financial statements.













38








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008





Earnings Per
Share




Basic
earnings per share is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share includes the weighted average number of
common shares outstanding and the number of equivalent shares which would be
issued related to the stock options, unvested restricted stock, and warrants
using the treasury method, unless such additional equivalent shares are
anti-dilutive.





Stock-Based
Compensation




Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123R
(As Amended),Share Based
Payment (“SFAS 123R”), using the modified prospective application
transition method. Under this method, compensation cost for the portion of
awards for which the requisite service has not yet been rendered that are
outstanding as of the adoption date is recognized over the remaining service
period. The compensation cost for that portion of awards is based on the
grant-date fair value of those awards as calculated for pro-forma disclosures
under SFAS No. 123. All new awards and awards that are modified,
repurchased, or cancelled after the adoption date are accounted for under the
provisions of SFAS 123R. Prior periods are not restated under this transition
method. The Company recognizes share-based compensation ratably using the
straight-line attribution method over the requisite service period. In addition,
pursuant to SFAS 123R, the Company is required to estimate the amount of
expected forfeitures when calculating share-based compensation, instead of
accounting for forfeitures as they occur, which was the Company's practice prior
to the adoption of SFAS 123R.





Deferred
Rent




Certain of
the Company’s operating leases contain predetermined fixed escalations of
minimum rentals during the original lease terms. For these leases, the Company
recognizes the related rental expense on a straight-line basis over the life of
the lease and records the difference between the amounts charged to operations
and amounts paid as accrued rent expense.





Fair
Value of Financial Instruments




Cash
equivalents, accounts receivable, accounts payable, other accrued liabilities,
and debt are stated at amounts which approximate fair value due to the near term
maturities of these instruments.





Treasury
Stock




The Company
uses the cost method to account for repurchases of its own stock.




Segment
Information




The Company
operates as one reportable operating segment according to SFAS No. 131,
Disclosures about Segments of
an Enterprise and Related Information, which establishes standards for
the way that business enterprises report information about operating segments.
The chief operating decision maker formulates decisions about how to allocate
resources and assess performance based on consolidated financial results. The
Company also has one reporting unit for purposes of the SFAS 142 impairment
analysis discussed above.





Recently
Issued Accounting Standards




Effective
January 1, 2008, the Company adopted SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities, Including an amendment of SFAS
No. 115 (“SFAS 159”). SFAS 159 permits companies to choose
to measure many financial instruments and certain other items at fair value.
SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The adoption of SFAS 159 did not have a
material impact on the Company’s consolidated financial statements.













39








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




Effective
January 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements
(“SFAS 157”).  In February 2008, the FASB issued Staff Position No.
157-2,Effective Date of
FASB Statement No. 157 (“FSP 157-2”), which delayed the effective date of
SFAS 157 for certain nonfinancial assets and liabilities, including fair value
measurements under SFAS No. 141,Business Combinations (“SFAS
141”) and SFAS 142, to fiscal years beginning after November 15,
2008.  Therefore, the Company has adopted the provisions of SFAS 157
with respect to its financial assets and liabilities only.  SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements.  Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date.  Valuation techniques used to measure fair value
under SFAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs.  The standard describes a fair value hierarchy
based on the following three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure
fair value:




·
            Level
      1 – Quoted prices in active markets for identical assets or
      liabilities.


·
            Level
      2 – Inputs other than Level 1 that are observable, either directly or
      indirectly, such as quoted prices for similar assets or liabilities;
      quoted prices in markets that are not active; or other inputs that are
      observable or can be corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.


·
            Level
      3 – Unobservable inputs that are supported by little or no market activity
      and that are significant to the fair value of the assets or
      liabilities.




As of
December 31, 2008, the Company did not hold any assets or liabilities that are
required to be measured at fair value on a recurring basis, and therefore the
adoption of the respective provisions of SFAS 157 did not have an impact on the
Company’s consolidated financial statements.  On January 1, 2009,
the Company will implement the previously deferred provisions of SFAS 157
for nonfinancial assets and liabilities recorded at fair value, as required.
Management does not believe that the remaining provisions will have a material
effect on the Company’s consolidated financial statements when they become
effective.




In
May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  The statement is intended
to improve financial reporting by identifying a consistent hierarchy for
selecting accounting principles to be used in preparing financial statements
that are prepared in accordance with generally accepted accounting principles.
Unlike Statement on Auditing Standards (“SAS”) No. 69,The Meaning of Present Fairly in
Conformity With GAAP, SFAS 162 is directed to the entity rather than the
auditor. The statement was effective November 15, 2008, after approval by the
SEC which occurred in September 2008.  The application of this
statement did not have a material impact on the Company’s consolidated financial
statements.




In
April 2008, the FASB issued FASB Staff Position No. 142-3,Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  FSP 142-3 requires companies
estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the
absence of historical experience, to consider assumptions that market
participants would use about renewal or extension as adjusted for SFAS 142’s
entity-specific factors. FSP 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008.   Adoption of
this statement is not expected to have a material impact on the Company’s
consolidated financial statements when it becomes effective.




In December
2007, FASB issued SFAS No. 141 (revised 2007),Business Combinations (“SFAS
141R”), which is a revision of SFAS 141.  SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed
and any noncontrolling interest in the acquiree, recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The revised statement will require, among other things, that
transaction costs be expensed instead of recognized as purchase price. SFAS 141R
applies prospectively to business combinations for which the acquisition date is
on or after January 1, 2009.













40








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008





3.
Net Income Per Share




The following
table presents the calculation of basic and diluted net income per share (in
thousands, except per share information):


Year
      Ended December 31,2008
                
                
                2007
                
                
                2006Net
      income
                
                $
                10,000
                
                
                $
                16,230
                
                
                $
                9,567Basic:Weighted-average
      shares of common stock outstanding
                
                
                29,338
                
                
                
                27,442
                
                
                
                23,783Weighted-average
      shares of common stock subject to contingency (i.e., restricted
      stock)
                
                
                74
                
                
                
                556
                
                
                
                1,250Shares
      used in computing basic net income per share
                
                
                29,412
                
                
                
                27,998
                
                
                
                25,033Effect
      of dilutive securities:Stock
      options
                
                
                835
                
                
                
                1,707
                
                
                
                2,281Warrants
                
                
                6
                
                
                
                8
                
                
                
                74Restricted
      stock subject to vesting
                
                
                98
                
                
                
                409
                
                
                
                199Shares
      used in computing diluted net income per share (1)
                
                
                30,351
                
                
                
                30,122
                
                
                
                27,587Basic
      net income per share
                
                $
                0.34
                
                
                $
                0.58
                
                
                $
                0.38Diluted
      net income per share
                
                $
                0.33
                
                
                $
                0.54
                
                
                $
                0.35





(1)
            As
      of December 31, 2008 approximately 0.4 million options for shares and 1.9
      million shares of restricted stock were excluded.  These shares
      were excluded from shares used in computing diluted net income per share
      because they would have had an anti-dilutive
  effect.





4.  
Concentration of Credit Risk and Significant Customers




Cash and
accounts receivable potentially expose the Company to concentrations of credit
risk. Cash is placed with highly rated financial institutions. The Company
provides credit, in the normal course of business, to its customers. The Company
generally does not require collateral or up-front payments. The Company performs
periodic credit evaluations of its customers and maintains allowances for
potential credit losses. Customers can be denied access to services in the event
of non-payment. A substantial portion of the services the Company provides are
built on IBM WebSphere®platforms and a significant number of its clients are identified through
joint selling opportunities conducted with IBM and through sales leads obtained
from the relationship with IBM. Revenues from IBM accounted for approximately 6%
of total revenues for 2008 and 8% of total revenues for 2007 and
2006.  Accounts receivable from IBM accounted for approximately 6%,
4%, and 9% of total accounts receivable as of December 31, 2008, 2007, and
2006, respectively. While the dollar amount of revenues from IBM has remained
relatively constant over the past three years, the percentage of total revenues
from IBM has decreased as a result of the Company's growth and corresponding
customer diversification. Due to the Company's significant fixed operating
expenses, the loss of sales to IBM or any significant customer could result in
the Company's inability to generate net income or positive cash flow from
operations for some time in the future.





5.  
Employee Benefit Plan




The Company
has a qualified 401(k) profit sharing plan available to full-time employees who
meet the plan's eligibility requirements. This defined contribution plan permits
employees to make contributions up to maximum limits allowed by the Internal
Revenue Code. The Company, at its discretion, matches a portion of the
employee's contribution under a predetermined formula based on the level of
contribution and years of vesting services. In 2008, the Company made matching
contributions of 50% (25% in cash and 25% in Company stock) of the first 6% of
eligible compensation deferred by the participant, totaling $1.0
million.  The Company made matching contributions equal to 25% of the
first 6% of employee contributions totaling approximately $0.8 million and $0.5
million during 2007 and 2006, respectively.  All matching
contributions vest over a three year period of service.




In 2007, the
Company initiated a deferred compensation plan for officers, directors, and
certain sales personnel. The plan is designed to allow eligible
participants to accumulate additional income through a nonqualified
deferred compensation plan that enables them to make elective deferrals of
compensation to which they will become entitled in the future. As of December
31, 2008, the deferred compensation liability balance was $0.6 million compared
to $0.2 million as of December 31, 2007.
















41








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




6.  
Goodwill and Intangible Assets




The Company
performed its annual impairment test of goodwill as of October 1,
2008.  As required by SFAS 142, the impairment test is
accomplished using a two-step approach. The first step screens for impairment
and, when impairment is indicated, a second step is employed to measure the
impairment. The Company also reviews other factors to determine the likelihood
of impairment.  Based on the test performed, the Company’s fair value as of
the annual testing date exceeded its book value and consequently, no impairment
was indicated.




The Company’s fair value
was determined by weighting the results of two valuation methods: 1) market
capitalization based on the average price of the Company’s common stock,
including a control premium, for a reasonable period of time prior to the
evaluation date (generally 15 to 30 days) and 2) a discounted cash flow
model.  The fair value calculated using the Company’s average common
stock price (including a control premium) was weighted 40% while the value
calculated by the discounted cash flow model was weighted 60% in the Company’s
determination of its overall fair value.




During the
fourth quarter of 2008, the Company determined that the continuous trading of
its common stock below book value was a possible indicator of impairment to
goodwill or long-lived assets as defined under SFAS 142 and SFAS 144, triggering
the necessity of impairment tests as of December 31, 2008.  Fair
values for long-lived asset testing were calculated using a discounted cash flow
model for the asset group. Significant estimates used in the discounted
cash flow model included projections of revenue growth, earnings margins, and
discount rate.  The discount rate utilized was estimated using the weighted
average cost of capital for the Company’s industry.




The
discounted cash flow model yielded a fair value lower than the asset group’s
carrying amount and consequently, the Company recorded a $1.6 million impairment
of the customer relationships we acquired from etech solutions, Inc. (“E
Tech”).  The value of these relationships was affected primarily by
the loss of a key customer acquired by E Tech, which caused cash flows from the
asset group to be lower than originally projected.  After recording
the impairment of the E Tech customer relationships intangible asset, the
Company performed the first step of the goodwill impairment test and based on
the weighted average of market capitalization, including a control premium, and
discounted cash flow analysis, goodwill was not impaired as of December 31,
2008.




Subsequent to
December 31, 2008 our stock price has declined.  Accordingly, the
Company will continue to evaluate the carrying value of the remaining goodwill
and intangible assets to determine whether the decline in stock price is an
indication that there is a triggering event that may require the Company to
perform an interim impairment test and record impairment charges to
earnings, which could adversely affect the Company’s financial
results.





Goodwill




Activity
related to goodwill consisted of the following (in
thousands):


2008
                        
                        
                        2007Balance,
      beginning of year
                        
                        $
                        103,686
                        
                        
                        $
                        69,170Purchase
      price allocated to goodwill upon acquisition (Note 13)
                        
                        
                        --
                        
                        
                        
                        35,301Adjustments
      to preliminary purchase price allocations for acquisitions
                        
                        
                        1,088
                        
                        
                        
                        1,172Adjustment
      to E Tech purchase price allocation for escrow claim
                        
                        
                        (378
                        )
                        
                        
                        --Utilization
      of net operating loss carryforwards associated with
      acquisitions
                        
                        
                        (218
                        )
                        
                        
                        (1,957
                        )Balance,
      end of year
                        
                        $
                        104,178
                        
                        
                        $
                        103,686














42





PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




Intangible
Assets with Definite Lives
  Following is
a summary of the Company's intangible assets that are subject to amortization
(in thousands):
  Year
      ended December 31,2008
                  
                  2007Gross
      Carrying
                    Amount
                  
                  Accumulated
                    Amortization
                  
                  Net
                    Carrying
      Amount
                  
                  Gross
      Carrying
                    Amount
                  
                  Accumulated
                    Amortization
                  
                  Net
                    Carrying
      AmountCustomer
      relationships
                  
                  $
                  18,013
                  
                  
                  $
                  (7,693
                  )
                  
                  $
                  10,320
                  
                  
                  $
                  21,130
                  
                  
                  $
                  (5,285
                  )
                  
                  $
                  15,845Non-compete
      agreements
                  
                  
                  2,633
                  
                  
                  
                  (2,098
                  )
                  
                  
                  535
                  
                  
                  
                  2,633
                  
                  
                  
                  (1,550
                  )
                  
                  
                  1,083Internally
      developed software
                  
                  
                  1,358
                  
                  
                  
                  (757
                  )
                  
                  
                  601
                  
                  
                  
                  1,173
                  
                  
                  
                  (448
                  )
                  
                  
                  725Total
                  
                  $
                  22,004
                  
                  
                  $
                  (10,548
                  )
                  
                  $
                  11,456
                  
                  
                  $
                  24,936
                  
                  
                  $
                  (7,283
                  )
                  
                  $
                  17,653


The estimated
useful lives of acquired identifiable intangible assets are as
follows:




Customer
      relationships
            3
      - 8 yearsNon-compete
      agreements
            3
      - 5 yearsInternally
      developed software
            3
      - 5 years




The weighted
average amortization periods for customer relationships and non-compete
agreements are 6 years and 5 years, respectively. Total amortization expense for
the years ended December 31, 2008, 2007, and 2006 was approximately $4.8
million, $4.7 million, and $3.5 million respectively.  In addition,
the Company recorded an impairment charge of $1.6 million related to the loss of
a customer relationship in 2008.




Estimated
annual amortization expense for the next five years ended December 31 is as
follows (in thousands):




2009
                
                $
                4,1072010
                
                $
                3,3362011
                
                $
                2,7102012
                
                $
                9712013
                
                $
                83Thereafter
                
                $
                249




7.  
Stock-Based Compensation




Stock
Option Plans




In
May 1999, the Company's Board of Directors and stockholders approved the
1999 Stock Option/Stock Issuance Plan (the “1999 Plan”). The 1999 Plan contains
programs for (i) the discretionary granting of stock options to employees,
non-employee board members and consultants for the purchase of shares of the
Company's common stock, (ii) the discretionary issuance of common stock
directly to eligible individuals, and (iii) the automatic issuance of stock
options to non-employee board members. The Compensation Committee of the Board
of Directors administers the 1999 Plan, and determines the exercise price and
vesting period for each grant. Options granted under the 1999 Plan have a
maximum term of 10 years. In the event that the Company is acquired,
whether by merger or asset sale or board-approved sale by the stockholders of
more than 50% of the Company's voting stock, each outstanding option under the
discretionary option grant program which is not to be assumed by the successor
corporation or otherwise continued will automatically accelerate in full, and
all unvested shares under the discretionary option grant and stock issuance
programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation or otherwise continued in effect. The Compensation Committee may
grant options under the discretionary option grant program that will accelerate
in the event of an acquisition even if the options are assumed or that will
accelerate if the optionee's service is subsequently terminated.













43








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008







A summary of
changes in common stock options during 2008, 2007 and 2006 is as follows (in
thousands, except exercise price information):


Shares
                                                          
                                                          
                                                          Range
      of Exercise Prices
                                                          
                                                          
                                                          Weighted-Average
      Exercise Price
                                                          
                                                          
                                                          Aggregate
      Intrinsic ValueOptions
      outstanding at January 1, 2006
                                                          
                                                          
                                                          5,268
                                                          
                                                          
                                                          $
                                                          0.02
      - 16.94
                                                          
                                                          
                                                          $
                                                          3.53Options
      granted
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --Options
      exercised
                                                          
                                                          
                                                          (1,672
                                                          )
                                                          
                                                          $
                                                          0.02
      - 12.13
                                                          
                                                          
                                                          $
                                                          2.4
                                                          
                                                          
                                                          $
                                                          18,637Options
      canceled
                                                          
                                                          
                                                          (44
                                                          )
                                                          
                                                          $
                                                          1.01
      - 13.25
                                                          
                                                          
                                                          $
                                                          5.41Options
      outstanding at December 31, 2006
                                                          
                                                          
                                                          3,552
                                                          
                                                          
                                                          $
                                                          0.02
      - 16.94
                                                          
                                                          
                                                          $
                                                          4.03Options
      granted
                                                          
                                                          
                                                          9
                                                          
                                                          
                                                          $
                                                          3.00
      - 3.00
                                                          
                                                          
                                                          $
                                                          3Options
      exercised
                                                          
                                                          
                                                          (1,160
                                                          )
                                                          
                                                          $
                                                          0.02
      - 16.94
                                                          
                                                          
                                                          $
                                                          3.18
                                                          
                                                          
                                                          $
                                                          21,055Options
      canceled
                                                          
                                                          
                                                          (22
                                                          )
                                                          
                                                          $
                                                          2.28
      -7.48
                                                          
                                                          
                                                          $
                                                          3.36Options
      outstanding at December 31, 2007
                                                          
                                                          
                                                          2,379
                                                          
                                                          
                                                          $
                                                          0.02
      - 16.94
                                                          
                                                          
                                                          $
                                                          4.44Options
      granted
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          
                                                          --
                                                          
                                                          
                                                          $
                                                          --Options
      exercised
                                                          
                                                          
                                                          (338
                                                          )
                                                          
                                                          
                                                          0.02
      - 10.00
                                                          
                                                          
                                                          $
                                                          2.15
                                                          
                                                          
                                                          $
                                                          2,726Options
      canceled
                                                          
                                                          
                                                          (11
                                                          )
                                                          
                                                          
                                                          0.50
      - 13.25
                                                          
                                                          
                                                          $
                                                          7.57Options
      outstanding at December 31, 2008
                                                          
                                                          
                                                          2,030
                                                          
                                                          
                                                          
                                                          0.03
      - 16.94
                                                          
                                                          
                                                          $
                                                          4.81
                                                          
                                                          
                                                          $
                                                          2,560Options
      vested, December 31, 2006
                                                          
                                                          
                                                          2,347
                                                          
                                                          
                                                          $
                                                          0.02
      - 16.94
                                                          
                                                          
                                                          $
                                                          3.62Options
      vested, December 31, 2007
                                                          
                                                          
                                                          1,887
                                                          
                                                          
                                                          $
                                                          0.02
      - 16.94
                                                          
                                                          
                                                          $
                                                          4.03Options
      vested, December 31, 2008
                                                          
                                                          
                                                          1,773
                                                          
                                                          
                                                          $
                                                          0.03
      - 16.94
                                                          
                                                          
                                                          $
                                                          4.59
                                                          
                                                          
                                                          $
                                                          2,560
  Restricted stock
activity for the year ended December 31, 2008 was as follows (in thousands,
except fair value information):




Shares
                
                Weighted-Average
                  Grant
      Date Fair
                  ValueRestricted
      stock awards outstanding at January 1, 2008
                2,053
                
                $
                14.33Awards
      granted
                2,024
                
                $
                6.12Awards
      vested
                (452
                )
                $
                14.07Awards
      canceled or forfeited
                (115
                )
                $
                13.82Restricted
      stock awards outstanding at December 31, 2008
                3,510
                
                $
                9.65




The total
fair value of restricted shares vesting during the years ended December 31,
2008, 2007, and 2006 was $2.3 million, $5.2 million, and $1.4 million,
respectively.










44








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




The
following is additional information related to stock options outstanding at
December 31, 2008:


Options
      Outstanding
                  
                  
                  Options
      ExercisableRange
      of Exercise
                    Prices
                  
                  
                  Options
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price
                  
                  
                  Weighted
                    Average
                    Remaining
                    Contractual
                    Life
      (Years)
                  
                  
                  Options
                  
                  
                  Weighted
                    Average
                    Exercise
                    Price$
                  0.03
      – 2.28
                  
                  
                  
                  632,782
                  
                  
                  $
                  1.71
                  
                  
                  
                  3.86
                  
                  
                  
                  632,782
                  
                  
                  $
                  1.71$
                  2.77
      – 3.75
                  
                  
                  
                  481,335
                  
                  
                  $
                  3.52
                  
                  
                  
                  3.02
                  
                  
                  
                  481,335
                  
                  
                  $
                  3.52$
                  4.40
      – 6.24
                  
                  
                  
                  76,689
                  
                  
                  $
                  5.02
                  
                  
                  
                  4.19
                  
                  
                  
                  76,689
                  
                  
                  $
                  5.02$
                  6.31
      – 6.31
                  
                  
                  
                  555,000
                  
                  
                  $
                  6.31
                  
                  
                  
                  5.96
                  
                  
                  
                  297,857
                  
                  
                  $
                  6.31$
                  7.48
      – 16.94
                  
                  
                  
                  284,039
                  
                  
                  $
                  10.91
                  
                  
                  
                  3.62
                  
                  
                  
                  284,039
                  
                  
                  $
                  10.91$
                  0.03
      – 16.94
                  
                  
                  
                  2,029,845
                  
                  
                  $
                  4.81
                  
                  
                  
                  4.21
                  
                  
                  
                  1,772,702
                  
                  
                  $
                  4.59
   At December 31, 2008,
2007 and 2006, the weighted-average remaining contractual life of outstanding
options was 4.21, 5.20, and 6.27 years, respectively.




The
Company recognized $9.0 million of share-based compensation expense during 2008,
which included $1.0 million of expense for retirement savings plan
contributions.  For 2007 and 2006, total share-based compensation was
$6.1 million and $3.1 million, respectively. The associated current and future
income tax benefit recognized during 2008, 2007, and 2006 was $2.9 million, $2.1
million and $0.8 million, respectively. As of December 31, 2008, there was $33.4
million of total unrecognized compensation cost related to non-vested
share-based awards. This cost is expected to be recognized over a
weighted-average period of 4 years. The Company’s estimated forfeiture rate for
the year ended December 31, 2008 of approximately 5% for share based awards was
calculated using our historical forfeiture experience to anticipate actual
forfeitures in the future.




At
December 31, 2008, 2.0 million shares were reserved for future issuance
upon exercise of outstanding options and 8,075 shares were reserved for future
issuance upon exercise of outstanding warrants. The majority of the outstanding
warrants expire in December 2011. At December 31, 2008, there were 3.5
million shares of restricted stock outstanding under the 1999 Plan and
classified as equity.




Employee
Stock Purchase Plan




In 2005, the
Compensation Committee approved the Employee Stock Purchase Plan (the “ESPP”) to
be available to employees starting January 1, 2006. The ESPP is a broadly-based
stock purchase plan in which any eligible employee may elect to participate by
authorizing the Company to make payroll deductions in a specific amount or
designated percentage to pay the exercise price of an option. In no event will
an employee be granted an ability under the ESPP that would permit the purchase
of Common Stock with a fair market value in excess of $25,000 in any calendar
year and the Compensation Committee of the Company has set the current annual
participation limit at $12,500. During the year ended December 31, 2008,
approximately 29,000 shares were purchased under the ESPP.




There are
four three-month offering periods in each calendar year beginning on January 1,
April 1, July 1, and October 1, respectively. The purchase price of shares
offered under the ESPP is an amount equal to 95% of the fair market value of the
Common Stock on the date of purchase (occurring on, respectively, March 31, June
30, September 30, and December 31). The ESPP is designed to comply with Section
423 of the Code and thus is eligible for the favorable tax treatment afforded by
Section 423.




8.  
Line of Credit and Long Term Debt




On May 30,
2008, the Company entered into a Credit Agreement (the “Credit Agreement”) with
Silicon Valley Bank (“SVB”) and KeyBank National Association
(“KeyBank”).  The Agreement replaces the Company’s Amended and
Restated Loan and Security Agreement dated as of June 3, 2005 and further
amended on June 29, 2006.  The Credit Agreement provides for revolving
credit borrowings up to a maximum principal amount of $50 million, subject to a
commitment increase of $25 million.  The Credit Agreement also allows
for the issuance of letters of credit in the aggregate amount of up to $500,000
at any one time; outstanding letters of credit reduce the credit available for
revolving credit borrowings.
















45








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008


All outstanding amounts
owed under the Credit Agreement become due and payable no later than the final
maturity date of May 30, 2012.  Borrowings under the credit facility
bear interest at the Company’s option of SVB’s prime rate (4.00% on December 31,
2008) plus a margin ranging from 0.00% to 0.50% or one-month LIBOR (0.44% on
December 31, 2008) plus a margin ranging from 2.50% to 3.00%.  The
additional margin amount is dependent on the amount of outstanding borrowings.
As of December 31, 2008, the Company had $49.9 million of available borrowing
capacity.  The Company will incur an annual commitment fee of 0.30% on
the unused portion of the line of credit.


The Company
is required to comply with various financial covenants under the Credit
Agreement. Specifically, the Company is required to maintain a ratio of earnings
before interest, taxes, depreciation, and amortization (“EBITDA”) plus stock
compensation and minus income taxes paid and capital expenditures to interest
expense and scheduled payments due for borrowings on a trailing three months
basis annualized of less than 2.00 to 1.00 and a ratio of current maturities of
long-term debt to EBITDA plus stock compensation and minus income taxes paid and
capital expenditures of at least 2.75 to 1.00.  As of December 31,
2008, the Company was in compliance with all covenants under the credit facility
and the Company expects to be in compliance during the next 12 months.
Substantially all of the Company’s assets are pledged to secure the credit
facility.


9.  
Income Taxes




The Company
files income tax returns in the U.S. federal jurisdiction, and various states
and foreign jurisdictions.  The Internal Revenue Service (“IRS”) has
completed examinations of the Company’s U.S. income tax returns for 2002, 2003
and 2004. As of December 31, 2008, the IRS has proposed no significant
adjustments to any of the Company's tax positions.




The Company
adopted the provisions of FIN 48 on January 1, 2007. As a result of the
implementation of FIN 48, the Company recognized no increases or decreases in
the total amount of previously unrecognized tax benefits.  The Company
had no unrecognized tax benefits as of December 31, 2008 or
2007.




As of
December 31, 2008, the Company had U.S. Federal tax net operating loss
carry forwards of approximately $6.0 million that will begin to expire in 2020
if not utilized. Utilization of net operating losses may be subject to an annual
limitation due to the “change in ownership” provisions of the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization.




Significant
components of the provision for income taxes are as follows (in
thousands):




Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006Current:Federal
                  
                  $
                  7,639
                  
                  
                  $
                  4,110
                  
                  
                  $
                  1,138State
                  
                  
                  1,536
                  
                  
                  
                  752
                  
                  
                  
                  260Foreign
                  
                  
                  (9
                  )
                  
                  
                  26
                  
                  
                  
                  102Total
      current
                  
                  
                  9,166
                  
                  
                  
                  4,888
                  
                  
                  
                  1,500Tax
      benefit on acquired net operating loss carryforward
                  
                  
                  488
                  
                  
                  
                  385
                  
                  
                  
                  246Tax
      benefit (expense) from stock option exercises and restricted stock
      vesting
                  
                  
                  (922
                  )
                  
                  
                  6,889
                  
                  
                  
                  6,554Deferred:Federal
                  
                  
                  (1,304
                  )
                  
                  
                  (668
                  )
                  
                  
                  (902
                  )State
                  
                  
                  (137
                  )
                  
                  
                  (70
                  )
                  
                  
                  (116
                  )Total
      deferred
                  
                  
                  (1,441
                  )
                  
                  
                  (738
                  )
                  
                  
                  (1,018
                  )Total
      provision for income taxes
                  
                  $
                  7,291
                  
                  
                  $
                  11,424
                  
                  
                  $
                  7,282




The
components of pretax income for the years ended December 31, 2008, 2007 and 2006
are as follows (in thousands):





Year
      Ended December 31,2008
                
                2007
                
                2006Domestic
                
                $
                16,879
                
                
                $
                27,640
                
                
                $
                16,565Foreign
                
                
                412
                
                
                
                14
                
                
                
                284Total
                
                $
                17,291
                
                
                $
                27,654
                
                
                $
                16,849
















46








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




In 2006, foreign
operations only included Canada.  For the year ended December 31, 2008
and 2007, foreign operations included Canada, China, and India.  Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred taxes as of December 31, 2008 and 2007 are as
follows:


December
      31,2008
                
                
                2007Deferred
      tax assets:
                
                (In
      thousands)Current
      deferred tax assets:Accrued
      liabilities
                
                $
                435
                
                
                $
                384Net
      operating losses
                
                
                475
                
                
                
                273Bad
      debt reserve
                
                
                878
                
                
                
                5111,788
                
                
                
                1,168Valuation
      allowance
                
                
                (31
                )
                
                
                (24
                )Net
      current deferred tax assets
                
                $
                1,757
                
                
                $
                1,144Non-current
      deferred tax assets:Net
      operating losses and capital loss
                
                $
                1,985
                
                
                $
                2,380Fixed
      assets
                
                
                329
                
                
                
                169Deferred
      compensation
                
                
                1,654
                
                
                
                1,0313,968
                
                
                
                3,580Valuation
      allowance
                
                
                (109
                )
                
                
                (106
                )Net
      non-current deferred tax assets
                
                $
                3,859
                
                
                $
                3,474




December
      31,2008
                
                
                2007Deferred
      tax liabilities:
                
                (In
      thousands)Current
      deferred tax liabilities:Deferred
      income
                
                $
                302
                
                
                $
                307Prepaid
      expenses
                
                
                419
                
                
                
                --Net
      current deferred tax liabilities
                
                $
                721
                
                
                $
                307Non-current
      deferred tax liabilities:Deferred
      income
                
                $
                84
                
                
                $
                402Deferred
      compensation
                
                
                244
                
                
                
                214Intangibles
                
                
                3,510
                
                
                
                4,407Total
      non-current deferred tax liabilities
                
                $
                3,838
                
                
                $
                5,023Net
      current deferred tax asset
                
                $
                1,036
                
                
                $
                837Net
      non-current deferred tax asset (liability)
                
                $
                21
                
                
                $
                (1,549
                )





The Company established a
valuation allowance in 2005 to offset a portion of the Company's deferred tax
assets due to uncertainties regarding the realization of deferred tax assets
based on the Company's earnings history and limitations on the utilization of
acquired net operating losses.  In 2006, the valuation allowance
decreased by approximately $0.3 million primarily due to the benefit of acquired
net operating loss carryforwards.  During 2007, the Company released
approximately $1.9 million of its valuation allowance after determining that the
acquired net operating losses would be realized. As of December 31, 2008, the
remaining valuation allowance relates mainly to a capital loss carryforward from
an acquired entity.  Management regularly assesses the likelihood that
deferred tax assets will be recovered from future taxable income.  To
the extent management believes that it is more likely than not that a deferred
tax asset will not be realized, a valuation allowance is established. 
Management believes it is more likely than not that the Company will generate
sufficient taxable income in future years to realize the benefits of its
deferred tax assets, except for those deferred tax assets for which an allowance
has been provided.



















47








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




Changes to the
valuation allowance are summarized as follows for the years presented (in
thousands): 
 Year
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006Balance,
      beginning of year
                  
                  $
                  130
                  
                  
                  $
                  2,056
                  
                  
                  $
                  2,345Additions
                  
                  
                  9
                  
                  
                  
                  31
                  
                  
                  
                  --Additions/(Reductions)
      from purchase accounting
                  
                  
                  2
                  
                  
                  
                  (1,957
                  )
                  
                  
                  (289
                  )Balance,
      end of year
                  
                  $
                  141
                  
                  
                  $
                  130
                  
                  
                  $
                  2,056


T he
federal corporate statutory rate is reconciled to the Company’s effective income
tax rate as follows:





Year
      Ended December 31,2008
                
                
                2007
                
                
                2006Federal
      corporate statutory rate
                
                
                35.0
                %
                
                
                34.3
                %
                
                
                34.3
                %State
      taxes, net of federal benefit
                
                
                4.5
                
                
                
                4.2
                
                
                
                4.6Effect
      of foreign operations
                
                
                --
                
                
                
                0.1
                
                
                
                --Stock
      compensation
                
                
                0.9
                
                
                
                1.9
                
                
                
                3.6Other
                
                
                1.7
                
                
                
                0.8
                
                
                
                0.7Effective
      income tax rate
                
                
                42.1
                %
                
                
                41.3
                %
                
                
                43.2
                %




The effective
income tax rate increased to 42.1% for the year ended December 31, 2008 from
41.3% for the year ended December 31, 2007 as a result of the decreased tax
benefit of certain dispositions of incentive stock options by
holders.





10.
Commitments and Contingencies




The Company
leases its office facilities and certain equipment under various operating lease
agreements. The Company has the option to extend the term of certain of its
office facility leases. Future minimum commitments under these lease agreements
as of December 31, 2008 are as follows (in thousands):


Operating
                  Leases2009
                
                $
                2,2582010
                
                
                2,1252011
                
                
                1,7592012
                
                
                7452013
                
                
                471Thereafter
                
                
                315Total
      minimum lease payments
                
                $
                7,673




Rent expense
for the years ended December 31, 2008, 2007 and 2006 was approximately $2.9
million, $2.3 million and $1.7 million respectively.




As of
December 31, 2008, the Company had one letter of credit outstanding for $100,000
to serve as collateral to secure an office lease.  This letter of
credit expires in October 2009 and reduces the borrowings available under the
Company’s account receivable line of credit.





11.
Balance Sheet Components


December
      31,2008
                      
                      
                      2007(In
      thousands)Accounts
      receivable:Accounts
      receivable
                      
                      $
                      30,565
                      
                      
                      $
                      36,894Unbilled
      revenues
                      
                      
                      16,374
                      
                      
                      
                      15,436Note
      receivable (1)
                      
                      
                      2,142
                      
                      
                      
                      --Allowance
      for doubtful accounts
                      
                      
                      (1,497
                      )
                      
                      
                      (1,475
                      )Total
                      
                      $
                      47,584
                      
                      
                      $
                      50,855
  (1)In June
2008, the Company entered into a note arrangement with a customer. The note
provides that the customer will pay for a portion of services performed by the
Company up to $2.5 million over a one-year term. The customer’s outstanding
balance bears an annual interest rate of
10%.











48








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008


December
      31,2008
                    
                    
                    2007(In
      thousands)Other
      current assets:Income
      tax receivable
                    
                    $
                    1,558
                    
                    
                    $
                    1,174Deferred
      tax asset
                    
                    
                    1,036
                    
                    
                    
                    837Other
      current assets
                    
                    
                    563
                    
                    
                    
                    2,131Total
                    
                    $
                    3,157
                    
                    
                    $
                    4,142Other
      current liabilities:Accrued
      bonus
                    
                    $
                    5,644
                    
                    
                    $
                    9,378Accrued
      subcontractor fees
                    
                    
                    1,625
                    
                    
                    
                    2,399Deferred
      revenues
                    
                    
                    1,575
                    
                    
                    
                    1,439Payroll
      related costs
                    
                    
                    1,495
                    
                    
                    
                    1,862Accrued
      settlement (2)
                    
                    
                    800
                    
                    
                    
                    --Accrued
      reimbursable expenses
                    
                    
                    671
                    
                    
                    
                    788Accrued
      medical claims expense
                    
                    
                    654
                    
                    
                    
                    850Other
      accrued expenses
                    
                    
                    1,875
                    
                    
                    
                    2,005Total
                    
                    $
                    14,339
                    
                    
                    $
                    18,721




(2)  The
Company negotiated the termination of an ongoing fixed fee contract. Management
believed the negotiation would result in a probable loss
that was reasonably estimatable, and accrued its best estimate of the
settlement amount as of December 31, 2008. The Company settled with the
customer in February 2009 for an amount approximating the accrual.




Property
      and Equipment:Computer
      hardware (useful life of 2 years)
                
                $
                6,206
                
                
                $
                5,805Furniture
      and fixtures (useful life of 5 years)
                
                
                1,406
                
                
                
                1,248Leasehold
      improvements (useful life of 5 years)
                
                
                969
                
                
                
                884Software (useful
      life of 1 year)
                
                
                1,216
                
                
                
                920Less:
      Accumulated depreciation
                
                
                (7,452
                )
                
                
                (5,631
                )Total
                
                $
                2,345
                
                
                $
                3,226





12.
Allowance for Doubtful Accounts




Activity in
the allowance for doubtful accounts is summarized as follows for the years
presented (in thousands):





Year
      ended December 31,2008
                
                
                2007
                
                
                2006Balance,
      beginning of year
                
                $
                1,475
                
                
                $
                707
                
                
                $
                367Charged
      to expense
                
                
                1,822
                
                
                
                1,060
                
                
                
                264Additions
      (reductions) resulting from purchase accounting
                
                
                (203
                )
                
                
                153
                
                
                
                371Uncollected
      balances written off, net of recoveries
                
                
                (1,597
                )
                
                
                (445
                )
                
                
                (295
                )Balance,
      end of year
                
                $
                1,497
                
                
                $
                1,475
                
                
                $
                707





13.
Business Combinations




The Company
did not enter into any agreements to acquire another business during the twelve
months ended December 31, 2008.





2007
Acquisitions:




On February
20, 2007, the Company acquired E Tech, a solutions-oriented IT consulting
firm, for approximately $12.3 million. The purchase price consisted of
approximately $5.9 million in cash, transaction costs of approximately
$663,000, and 306,247 shares of the Company’s common stock valued at
approximately $20.34 per share (approximately $6.2 million worth of the
Company’s common stock) less the value of those shares subject to a lapse
acceleration right of approximately $474,000, as determined by a third party
valuation firm. The results of E Tech’s operations have been included in the
Company’s consolidated financial statements since February 20,
2007.













49








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008




During the
third quarter 2008, the Company and the shareholder representative for E Tech
reached a settlement agreement related to an escrow claim.  As a
result of the settlement, the Company reacquired approximately 19,000 shares of
its common stock issued as consideration.  The settlement was recorded
as a reduction to goodwill and additional paid-in capital in the third quarter
2008.




On June 25,
2007, the Company acquired Tier1 Innovation, LLC (“Tier1”), a national customer
relationship management consulting firm, for approximately $15.1 million. The
purchase price consisted of approximately $7.1 million in cash, transaction
costs of approximately $762,500, and 355,633 shares of the Company’s common
stock valued at approximately $20.69 per share (approximately $7.4 million
worth of the Company’s common stock) less the value of those shares subject to a
lapse acceleration right of approximately $144,000 as determined by a third
party valuation firm. The results of Tier1’s operations have been included in
the Company’s consolidated financial statements since June 25,
2007.




On September
20, 2007, the Company acquired BoldTech Systems, Inc. (“BoldTech”), an
information technology consulting firm, for approximately $20.9 million. The
purchase price consisted of approximately $10.0 million in cash,
transaction costs of $1.0 million, and 449,680 shares of the Company’s common
stock valued at approximately $23.69 per share (approximately $10.6 million
worth of the Company’s common stock) less the value of those shares subject to a
lapse acceleration right of approximately $723,000 as determined by a third
party valuation firm. The results of BoldTech’s operations have been included in
the Company’s consolidated financial statements since September 20,
2007.




On November
21, 2007, the Company acquired ePairs, Inc. (“ePairs”), a California-based
consulting firm focused on Oracle-Siebel with a recruiting center in Chennai,
India, for approximately $5.1 million. The purchase price consisted of
approximately $2.5 million in cash, transaction costs of $500,000, and
138,604 shares of the Company’s common stock valued at approximately $16.25 per
share (approximately $2.2 million worth of the Company’s common stock) less
the value of those shares subject to a lapse acceleration right of approximately
$86,000 as determined by a third party valuation firm. The results of ePairs’
operations have been included in the Company’s consolidated financial statements
since November 21, 2007.




14.
Quarterly Financial Results (Unaudited)




The following
tables set forth certain unaudited supplemental quarterly financial information
for the years ended December 31, 2008 and 2007. The quarterly operating results
are not necessarily indicative of future results of operations. The financial
data presented is not directly comparable between periods as a result of the
four acquisitions in 2007 (in thousands, except per share data):





Three
      Months Ended,March
      31,
                  2008
                
                
                June
      30,
                  2008
                
                
                September
      30,
                  2008
                
                
                December
      31,
                  2008(Unaudited)Revenues:Services
                
                $
                52,100
                
                
                $
                53,632
                
                
                $
                52,510
                
                
                $
                49,238Software
      and hardware
                
                
                1,684
                
                
                
                2,098
                
                
                
                2,290
                
                
                
                4,641Reimbursable
      expenses
                
                
                3,539
                
                
                
                3,370
                
                
                
                3,506
                
                
                
                2,880Total
      revenues
                
                $
                57,323
                
                
                $
                59,100
                
                
                $
                58,306
                
                
                $
                56,759Gross
      margin
                
                $
                17,562
                
                
                $
                20,139
                
                
                $
                19,176
                
                
                
                16,625Income
      from operations
                
                $
                5,047
                
                
                $
                6,802
                
                
                $
                4,402
                
                
                $
                1,427Income
      before income taxes
                
                $
                5,203
                
                
                $
                6,793
                
                
                $
                3,677
                
                
                $
                1,618Net
      income
                
                $
                3,076
                
                
                $
                3,989
                
                
                $
                2,176
                
                
                $
                759Basic
      net income per share
                
                $
                0.10
                
                
                $
                0.13
                
                
                $
                0.07
                
                
                $
                0.03Diluted
      net income per share
                
                $
                0.10
                
                
                $
                0.13
                
                
                $
                0.07
                
                
                $
                0.03
















50








PERFICIENT,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


DECEMBER
31, 2008





Three
      Months Ended,March
      31,
                
                
                June
      30,
                
                
                September
      30,
                
                
                December
      31,2007
                
                
                2007
                
                
                2007
                
                
                2007(Unaudited)Revenues:Services
                
                $
                43,297
                
                
                $
                45,961
                
                
                $
                48,387
                
                
                $
                53,750Software
                
                
                4,192
                
                
                
                3,696
                
                
                
                1,582
                
                
                
                4,773Reimbursable
      expenses
                
                
                2,560
                
                
                
                2,938
                
                
                
                3,115
                
                
                
                3,897Total
      revenues
                
                $
                50,049
                
                
                $
                52,595
                
                
                $
                53,084
                
                
                $
                62,420Gross
      margin
                
                $
                17,052
                
                
                $
                18,185
                
                
                $
                19,046
                
                
                $
                21,407Income
      from operations
                
                $
                5,570
                
                
                $
                6,907
                
                
                $
                7,569
                
                
                $
                7,416Income
      before income taxes
                
                $
                5,575
                
                
                $
                6,958
                
                
                $
                7,649
                
                
                $
                7,472Net
      income
                
                $
                3,160
                
                
                $
                4,014
                
                
                $
                4,541
                
                
                $
                4,515Basic
      net income per share
                
                $
                0.12
                
                
                $
                0.15
                
                
                $
                0.16
                
                
                $
                0.15Diluted
      net income per share
                
                $
                0.11
                
                
                $
                0.13
                
                
                $
                0.15
                
                
                $
                0.15
















51








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







The Board
of Directors and Stockholders


Perficient,
Inc.:




We have
audited the accompanying consolidated balance sheets of Perficient, Inc. (the
Company) as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
years in the two-year period ended December 31, 2008. We also have audited
the Company’s internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control – Integrated
Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. The accompanying
consolidated financial statements of the Company as of December 31, 2006, and
for the year then ended, were audited by other auditors whose report thereon
dated March 1, 2007, except note 2 to the 2006 financial statements as to which
date is August 13, 2007, expressed an unqualified opinion on those
statements.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the
financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
December 31, 2008 and 2007, and the results of their operations
and their cash flows for each of the years in the two-year period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control – Integrated
Framework,
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.




As
discussed in note 2 to the consolidated financial statements, effective January
1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123
(Revised 2004), Shared-Based
Payment.









/s/ KPMG
LLP




St.
Louis, Missouri


March 5,
2009



















52








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










The Board
of Directors and Stockholders


Perficient,
Inc.


Austin,
Texas




We have
audited the accompanying consolidated statements of operations, stockholders’
equity and comprehensive income, and cash flows of Perficient, Inc. for the year
ended December 31, 2006.  These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Perficient, Inc. for the year ended December 31, 2006, in conformity with
accounting principles generally accepted in the United States of
America.




As
discussed in Note 1 to the consolidated financial statements, effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), Share-Based
Payment.







/s/ BDO
Seidman, LLP


Houston,
Texas


March 1,
2007, except Note 2 to the 2006 financial


statements
as to which date is August 13, 2007
















53







Item
      9.
            Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.





None.




Item
      9A.
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures




We have
established disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated subsidiaries, is
made known to the officers who certify the Company's financial reports and to
other members of senior management and the Board of Directors.




We maintain
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company's reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to management, including the principal executive officer and
principal financial officer of the Company, as appropriate, to allow timely
decisions regarding required disclosure. The Company's management, with the
participation of the Company's principal executive officer and principal
financial officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures as of the end of the fiscal year covered by this Annual
Report on Form 10-K. Based on that evaluation, the Company’s principal executive
and principal financial officers have determined that the Company’s disclosure
controls and procedures were effective.





Management's
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). In fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and related costs of
control procedures. The objectives of internal control include providing
management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition, and that
transactions are executed in accordance with management's authorization and
recorded properly to permit the preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America. Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our assessment under those criteria, management concluded
that the Company’s internal control over financial reporting was effective as of
December 31, 2008.




KPMG LLP, our
independent registered public accounting firm, has audited our financial
statements for the year ended December 31, 2008 included in this Form 10-K, and
has issued its report on the effectiveness of internal control over financial
reporting as of December 31, 2008, which is included herein.





Changes
in Internal Control Over Financial Reporting




There have
not been any changes in the Company’s internal control over financial reporting
as defined in Exchange Act Rule 13a-15(f) during the quarter ended December 31,
2008, that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.




Item
      9B.
            Other
      Information.




The Company’s
annual stockholders meeting will be held on April 17, 2009.  The
deadline for submitting shareholder proposals and the date on which such
submittals will be deemed untimely remain as set in the Company’s Proxy
Statement for its 2008 annual stockholders meeting, which was filed with the SEC
on April 30, 2008.




The Company
entered into an employment agreement with John T. McDonald, our Chairman of the
Board and Chief Executive Officer, on March 3, 2009.  The agreement is
effective as of January 1, 2009 and will expire on December 31,
2011.  Mr. McDonald’s employment agreement provides for the following
compensation:





·
            an
      annual salary of $285,000 that may be increased by the Board of Directors
      from time to time;


·
            an
      annual performance bonus of up to 200% of Mr. McDonald's annual salary in
      the event the Company achieves certain performance targets approved by the
      Board of Directors (“Mr. McDonald’s Target Bonus”), which may be increased
      up to 300% of Mr. McDonald’s annual salary pursuant to the 2009 Executive
      Bonus Plan;



















54




·
            entitlement
      to participate in such insurance, disability, health, and medical benefits
      and retirement plans or programs as are from time to time generally made
      available to executive employees of the Company, pursuant to the policies
      of the Company and subject to the conditions and terms applicable to such
      benefits, plans or programs; and·
            death,
      disability, severance, and change of control benefits upon Mr. McDonald’s
      termination of employment or change of control of the
      Company.





Under his
agreement, Mr. McDonald can choose to reduce his role as Chief Executive Officer
and Chairman of the Board to Chairman of the Board only.  If this were
to occur, Mr. McDonald would incur a reduction in salary and bonus by 50% and
would only be eligible for equity grants awarded to non-employee
directors.  Also, Mr. McDonald would be required to make himself
available to the Company for up to 20 hours per week and his responsibilities
would include presiding over the Board of Directors and committees of the Board
of Directors, providing oversight of corporate strategy, financing,
acquisitions, and investor relations, including presenting on the Company's
quarterly earnings conference calls and presenting at such investor conferences
and handling such other investor relations functions as reasonably requested by
the Company.




Mr. McDonald has
agreed to refrain from competing with the Company for a period of five years
following the termination of his employment. Mr. McDonald’s compensation is
subject to review and adjustment on an annual basis in accordance with the
Company’s compensation policies as in effect from time to time.




The Company
entered into an employment agreement with Jeffrey S. Davis, our President and
Chief Operating Officer, on March 3, 2009.  The agreement is effective
as of January 1, 2009 and will expire on December 31, 2011.  Mr.
Davis’ previous employment agreement with the Company was effective July 1, 2006
and was set to expire on June 30, 2009. Mr. Davis’s current employment agreement
provides for the following compensation:





·
            an
      annual salary of $285,000 that may be increased by the CEO from time to
      time;


·
            an
      annual performance bonus of up to 200% of Mr. Davis’s annual salary in the
      event the Company achieves certain performance targets (“Mr. Davis’s
      Target Bonus”), which may be increased up to 300% of Mr. Davis’s annual
      salary pursuant to the 2009 Executive Bonus
  Plan;


·
            entitlement
      to participate in such insurance, disability, health, and medical benefits
      and retirement plans or programs as are from time to time generally made
      available to executive employees of the Company, pursuant to the policies
      of the Company and subject to the conditions and terms applicable to such
      benefits, plans or programs; and


·
            death,
      disability, severance, and change of control benefits upon Mr. Davis’s
      termination of employment or change of control of the
    Company





Mr. Davis has
agreed to refrain from competing with the Company for a period of five years
following the termination of his employment. Mr. Davis’s compensation is subject
to review and adjustment on an annual basis in accordance with the Company’s
compensation policies as in effect from time to time.













55







PART
III





Item
      10.
            Directors,
      Executive Officers and Corporate
Governance.





Executive
Officers and Directors




Our executive
officers and directors, including their ages as of the date of this filing are
as follows:




Name
                
                Age
                
                PositionJohn
      T. McDonald
                
                
                45
                
                Chairman
      of the Board and Chief Executive OfficerJeffrey
      S. Davis
                
                
                44
                
                President
      and Chief Operating OfficerPaul
      E. Martin
                
                
                48
                
                Chief
      Financial Officer, Treasurer and SecretaryTimothy
      J. Thompson
                
                
                48
                
                Vice
      President of Client DevelopmentRichard
      T. Kalbfleish
                
                
                53
                
                Controller
      and Vice President of Finance and AdministrationRalph
      C. Derrickson
                
                
                50
                
                DirectorMax
      D. Hopper
                
                
                74
                
                DirectorKenneth
      R. Johnsen
                
                
                55
                
                DirectorDavid
      S. Lundeen
                
                
                47
                
                Director




John T.
McDonald joined the Company in April 1999 as Chief Executive Officer and
was elected Chairman of the Board in March 2001. From April 1996 to October
1998, Mr. McDonald was president of VideoSite, Inc., a multimedia software
company that was acquired by GTECH Corporation in October 1997, 18 months
after Mr. McDonald became VideoSite's president. From May 1995 to April
1996, Mr. McDonald was a Principal with Zilkha & Co., a New
York-based merchant banking firm. From June 1993 to April 1996,
Mr. McDonald served in various positions at Blockbuster Entertainment
Group, including Director of Corporate Development and Vice President, Strategic
Planning and Corporate Development of NewLeaf Entertainment Corporation, a joint
venture between Blockbuster and IBM. From 1987 to 1993, Mr. McDonald was an
attorney with Skadden, Arps, Slate, Meagher & Flom in New York,
focusing on mergers and acquisitions and corporate finance. Mr. McDonald
currently serves as a member of the board of directors of a number of privately
held companies and non-profit organizations. Mr. McDonald received a B.A.
in Economics from Fordham University and a J.D. from Fordham Law
School.




Jeffrey S.
Davis became the Chief Operating Officer of the Company upon the closing
of the acquisition of Vertecon in April 2002 and was named the Company’s
President in 2004. He previously served the same role of Chief Operating Officer
at Vertecon from October 1999 to its acquisition by Perficient. Prior to
Vertecon, Mr. Davis was a Senior Manager and member of the leadership team in
Arthur Andersen’s Business Consulting Practice starting in January 1999 where he
was responsible for defining and managing internal processes, while managing
business development and delivery of products, services and solutions to a
number of large accounts. Prior to Arthur Andersen, Mr. Davis worked at Ernst
& Young LLP for two years, Mallinckrodt, Inc. for two years, and spent five
years at McDonnell Douglas in many different technical and managerial positions.
Mr. Davis has a M.B.A. from Washington University and a B.S. degree in
Electrical Engineering from the University of Missouri.




Paul E. Martin
joined the Company in August 2006 as Chief Financial Officer, Treasurer and
Secretary. From August 2004 until February 2006, Mr. Martin was the Interim
co-Chief Financial Officer and Interim Chief Financial Officer of Charter
Communications, Inc. (“Charter”), a publicly traded multi-billion dollar in
revenue domestic cable television multi-system operator. From April 2002 through
April 2006, Mr. Martin was the Senior Vice President, Principal Accounting
Officer and Corporate Controller of Charter and was Charter’s Vice President and
Corporate Controller from March 2000 to April 2002. Prior to Charter, Mr. Martin
was Vice President and Controller for Operations and Logistics for Fort James
Corporation, a manufacturer of paper products with multi-billion dollar
revenues. From 1995 to February 1999, Mr. Martin was Chief Financial Officer of
Rawlings Sporting Goods Company, Inc., a publicly traded multi-million dollar
revenue sporting goods manufacturer and distributor. Mr. Martin received a B.S.
degree with honors in accounting from the University of Missouri – St.
Louis.  Mr. Martin is also a member of the University of Missouri –
St. Louis School of Business Leadership Council.




Richard T. Kalbfleish joined
the Company as Controller in November 2004 and became Vice President of Finance
and Administration and Assistant Treasurer in May 2005. In August 2006, Mr.
Kalbfleish became the Principal Accounting Officer of the Company. Prior to
joining the Company, Mr. Kalbfleish served as Vice President of Finance and
Administration with IntelliMark/Technisource, a national IT staffing company,
for 11 years. Mr. Kalbfleish has over 23 years of experience at the Controller
level and above in a number of service industries with an emphasis on
acquisition integration and accounting, human resources and administrative
support. Mr. Kalbfleish has a B.S.B.A. in Accountancy from the University of
Missouri - Columbia.
















56







Ralph C.
Derrickson became a member of the Board of Directors in July 2004.
Mr. Derrickson has more than 27 years of technology management
experience in a wide range of settings including start-up, interim management
and restructuring situations. Currently Mr. Derrickson is President and CEO of
Carena, Inc. Prior to joining Carena, Inc., Mr. Derrickson was managing
director of venture investments at Vulcan Inc., an investment management firm
with headquarters in Seattle, Washington from October 2001 to July 2004. Mr.
Derrickson is a founding partner of Watershed Capital, an early-stage venture
capital firm, and is the managing member of RCollins Group, LLC, a management
advisory firm. He served as a board member of Metricom, Inc., a publicly traded
company, from April 1997 to November 2001 and as Interim CEO of Metricom from
February 2001 to August 2001. He served as vice president of product development
at Starwave Corporation, one of the pioneers of the Internet. Earlier,
Mr. Derrickson held senior management positions at NeXT Computer, Inc. and
Sun Microsystems, Inc. He has served on the boards of numerous start-up
technology companies. Mr. Derrickson is on the faculty of the Michael G.
Foster School of Business at the University of Washington, and serves on the
Executive Advisory Board of the Center for Entrepreneurship and Innovation at
the University of Washington, as well as a member of the President’s Circle of
the National Academy of Sciences, The National Academy of Engineering and the
Institute of Medicine. Mr. Derrickson holds a bachelor’s degree in systems
software from the Rochester Institute of Technology.




Max D. Hopper
became a member of the Board of Directors in September 2002. Mr. Hopper
began his information systems career in 1960 at Shell Oil and served with EDS,
United Airlines and Bank of America prior to joining American Airlines. During
Mr. Hopper’s twenty-year tenure at American Airlines he served as CIO, and
as CEO of several business units. Most recently, he founded Max D. Hopper
Associates, Inc., a consulting firm that specializes in the strategic use of
information technology and business-driven technology. Mr. Hopper currently
serves on the board of directors for several companies such as Gartner Group as
well as other private corporations.




Kenneth R.
Johnsen became a member of the Board of Directors in July 2004. Mr.
Johnsen is currently the CEO and Chairman of the Board of HG Food,
LLC.  Prior to joining HG Food, LLC, Mr. Johnsen was a partner with
Aspen Advisors, LP. From January 1999 to October 2006, Mr. Johnsen served as
President, CEO and Chairman of the Board of Parago Inc., a marketing services
transaction processor. Before joining Parago Inc. in 1999, he served as
President, Chief Operating Officer and Board Member of Metamor Worldwide Inc.,
an $850 million public technology services company specializing in
information technology consulting and implementation. Metamor was later acquired
by PSINet for $1.7 billion. At Metamor, Mr. Johnsen grew the IT
Solutions Group revenues from $20 million to over $300 million within
two years. His experience also includes 22 years at IBM where he held
general management positions, including Vice President of Business Services for
IBM Global Services and General Manager of IBM China/Hong Kong Operations. He
achieved record revenues, profit and customer satisfaction levels in both
business units.




David S.
Lundeen became a member of the Board of Directors in April 1998. From
March 1999 through 2002, Mr. Lundeen was a partner with Watershed Capital, a
private equity firm based in Mountain View, California. From June 1997 to
February 1999, Mr. Lundeen was self-employed, managed his personal investments
and acted as a consultant and advisor to various businesses. From June 1995 to
June 1997, he served as the Chief Financial Officer and Chief Operating Officer
of BSG Corporation. From January 1990 until June 1995, Mr. Lundeen served as
President of Blockbuster Technology and as Vice President of Finance of
Blockbuster Entertainment Corporation. Prior to that time, Mr. Lundeen was an
investment banker with Drexel Burnham Lambert in New York City. Mr. Lundeen
currently serves as a member of the board of directors of Parago, Inc., and as
Chairman of the Board of Interstate Connections, Inc. Mr. Lundeen received a
B.S. in Engineering from the University of Michigan in 1984 and an M.B.A. from
the University of Chicago in 1988. The Board of Directors has determined that
Mr. Lundeen is an audit committee financial expert, as such term is defined in
the rules and regulations promulgated by the Securities and Exchange Commission
(“SEC”).





Codes
of Conduct and Ethics




The Company
has adopted a Corporate Code of Business Conduct and Ethics that applies to all
employees and directors of the Company while acting on the Company's behalf and
has adopted a Financial Code of Ethics applicable to the chief executive
officer, the chief financial officer, and other senior financial
officials.  Both of these codes are available for viewing on
Perficient’s website at www.Perficient.com.  Any
amendments to, or waivers from, the Financial Code of Ethics will also be posted
on Perficient’s website.
















57








Audit
Committee of the Board of Directors




The board of
directors has created an audit committee. Each committee member is independent
as defined by Nasdaq Global Select Market listing standards.




The audit
committee has the sole authority to appoint, retain and terminate our
independent accountants and is directly responsible for the compensation,
oversight and evaluation of the work of the independent accountants. The
independent accountants report directly to the audit committee. The audit
committee also has the sole authority to approve all audit engagement fees and
terms and all non-audit engagements with our independent accountants and must
pre-approve all auditing and permitted non-audit services to be performed for us
by the independent accountants, subject to certain exceptions provided by the
Securities Exchange Act of 1934. The members of the audit committee are Max D.
Hopper, David S. Lundeen and Ralph C. Derrickson. Mr. Lundeen serves as
chairman of the audit committee. The board of directors has determined that
Mr. Lundeen is qualified as our audit committee financial expert within the
meaning of Securities and Exchange Commission regulations and that he has
accounting and related financial management expertise within the meaning of the
listing standards of the Nasdaq Global Select Market. The board of directors has
affirmatively determined that Mr. Lundeen qualified as an independent
director as defined by the Nasdaq Global Select Market listing
standards.




Additional
information with respect to Directors and Executive Officers of the Company is
incorporated by reference to the Proxy Statement under the captions "Directors
and Executive Officers", "Composition and Meetings of the Board of Directors and
Committees", and "Section 16(a) Beneficial Ownership Reporting Compliance." The
Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the
end of the Company's fiscal year.




Item
      11.
            Executive
      Compensation.




Information
on this subject is found in the Proxy Statement under the captions "Compensation
of Directors and Executive Officers” and "Directors and Executive Officers" and
is incorporated herein by reference. The Proxy Statement will be filed pursuant
to Regulation 14A within 120 days of the end of the Company's fiscal
year.




Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.




Information
on this subject is found in the Proxy Statement under the captions "Security
Ownership of Certain Beneficial Owners and Management ", "Directors and
Executive Officers", and "Equity Compensation Plan Information" and is
incorporated herein by reference. The Proxy Statement will be filed pursuant to
Regulations 14A within 120 days of the end of the Company's fiscal
year.




Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence.




Information
on this subject is found in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" and incorporated herein by reference.
The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of
the end of the Company's fiscal year.




Item
      14.
            Principal
      Accounting Fees and Services.




Information
on this subject is found in the Proxy Statement under the caption "Principal
Accounting Firm Fees and Services" and incorporated herein by reference. The
Proxy Statement will be filed pursuant to Regulation 14A within 120 days of the
end of the Company's fiscal year.
















58








PART
IV




Item
      15.
            Exhibits,
      Financial Statement Schedules.




(a)
      1.
            Financial
      Statements




The following
consolidated statements are included within Item 8 under the following
captions:




Index
                  
                  Page(s)Consolidated
      Balance Sheets
                  
                  
                  33Consolidated
      Statements of Income
                  
                  
                  34Consolidated
      Statements of Changes in Stockholders' Equity
                  
                  
                  35Consolidated
      Statements of Cash Flows
                  
                  
                  36Notes
      to Consolidated Financial Statements
                  
                  
                  37Reports
      of Independent Registered Public Accounting Firms
                  
                  
                  52-53




2.
            Financial
      Statement Schedules




No financial
statement schedules are required to be filed by Items 8 and 15(d) because they
are not required or are not applicable, or the required information is set forth
in the applicable financial statements or notes thereto.




3.
            Exhibits




See Index to
Exhibits starting on page 61.
















59








SIGNATURES




Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


PERFICIENT,
      INC.By:
              /s/
      John T. McDonaldDate:
      March 5, 2009
              John
      T. McDonaldChief
      Executive Officer(Principal Executive
Officer)




By:
              /s/
      Paul E. MartinDate:
      March 5, 2009
              Paul
      E. MartinChief
      Financial Officer(Principal Financial
Officer)




By:
              /s/
      Richard T. KalbfleishDate:
      March 5, 2009
              Richard
      T. KalbfleishVice
      President of Finance and Administration(Principal Accounting
      Officer)




KNOW ALL MEN
BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints John T. McDonald and Paul E. Martin, and each of them (with full
power to each of them to act alone), his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign on
his or her behalf individually and in each capacity stated below any and all
amendments (including post-effective amendments) to this annual report, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.




Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
                      
                      Title
                      
                      Date/s/
      John T. McDonald
                      
                      Chief
      Executive Officer and
                      
                      March
      5, 2009John
      T. McDonald
                      
                      Chairman
      of the Board (Principal
      Executive Officer)/s/
      Ralph C. Derrickson
                      
                      Director
                      
                      March
      5, 2009Ralph
      C. Derrickson/s/
      Max D. Hopper
                      
                      Director
                      
                      March
      5, 2009Max
      D. Hopper/s/
      Kenneth R. Johnsen
                      
                      Director
                      
                      March
      5, 2009Kenneth
      R. Johnsen/s/
      David S. Lundeen
                      
                      Director
                      
                      March
      5, 2009David
      S. Lundeen














60







INDEX
TO EXHIBITS





Exhibit
      Number
            Description2.1
            Agreement
      and Plan of Merger, dated as of April 6, 2006, by and among Perficient,
      Inc., PFT MergeCo, Inc., Bay Street Solutions, Inc. and the other
      signatories thereto, previously filed with the Securities and Exchange
      Commission as an Exhibit to our Current Report on Form 8-K filed on April
      12, 2006 and incorporated herein by reference2.2
            Agreement
      and Plan of Merger, dated as of May 31, 2006, by and among Perficient,
      Inc., PFT MergeCo II, Inc., Insolexen, Corp., HSU Investors, LLC, Hari
      Madamalla, Steve Haglund and Uday Yallapragada, previously filed with the
      Securities and Exchange Commission as an Exhibit to our Current Report on
      Form 8-K filed on June 5, 2006 and incorporated herein by
      reference2.3
            Asset
      Purchase Agreement, dated as of July 20, 2006, by and among Perficient,
      Inc., Perficient DCSS, Inc. and Digital Consulting & Software
      Services, Inc., previously filed with the Securities and Exchange
      Commission as an Exhibit to our Current Report on Form 8-K filed on July
      26, 2006 and incorporated herein by reference2.4
            Agreement
      and Plan of Merger, dated as of February 20, 2007, by and among
      Perficient, Inc., PFT MergeCo III, Inc., e tech solutions, Inc., each of
      the Principals of e tech solutions, Inc., and Gary Rawding, as
      Representative, previously filed with the Securities and Exchange
      Commission as an Exhibit to our Current Report on Form 8-K filed on
      February 23, 2007 and incorporated herein by reference2.5
            Asset
      Purchase Agreement, dated as of June 25, 2007, by and among Perficient,
      Inc., Tier1 Innovation, LLC, and Mark Johnston and Jay Johnson, previously
      filed with the Securities and Exchange Commission as an Exhibit to our
      Current Report on Form 8-K filed on June 28, 2007 and incorporated herein
      by reference2.6
            Agreement
      and Plan of Merger, dated as of September 20, 2007, by and among
      Perficient, Inc., PFT MergeCo IV, Inc., BoldTech Systems, Inc., a Colorado
      corporation, BoldTech Systems, Inc., a Delaware corporation, each of the
      Principals (as defined therein) and the Representative (as defined
      therein), previously filed with the Securities and Exchange Commission as
      an Exhibit to our Current Report on Form 8-K filed September 21, 2007 and
      incorporated herein by reference2.7
            Asset
      Purchase Agreement, dated as of November 21, 2007, by and among
      Perficient, Inc., ePairs, Inc., the Principal (as defined therein)
      and  the Seller Shareholders (as defined therein), previously
      filed with the Securities and Exchange Commission as an Exhibit to our
      Current Report on Form 8-K filed November 27,2007 and incorporated herein
      by reference3.1
            Certificate
      of Incorporation of Perficient, Inc., previously filed with the Securities
      and Exchange Commission as an Exhibit to our Registration Statement on
      Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the
      Securities and Exchange Commission and incorporated herein by
      reference3.2
            Certificate
      of Amendment to Certificate of Incorporation of Perficient, Inc.,
      previously filed with the Securities and Exchange Commission as an Exhibit
      to our Form 8-A filed with the Securities and Exchange Commission pursuant
      to Section 12(g) of the Securities Exchange Act of 1934 on February 15,
      2005 and incorporated herein by reference3.3
            Certificate
      of Amendment to Certificate of Incorporation of Perficient, Inc.,
      previously filed with the Securities and Exchange Commission as an Exhibit
      to our Registration Statement on Form S-8 (File No. 333-130624) filed on
      December 22, 2005 and incorporated herein by reference3.4
            Bylaws
      of Perficient, Inc., previously filed with the Securities and Exchange
      Commission as an Exhibit to our Current Report on Form 8-K filed November
      9, 2007 and incorporated herein by reference4.1
            Specimen
      Certificate for shares of common stock, previously filed with the
      Securities and Exchange Commission as an Exhibit to our Registration
      Statement on Form SB-2 (File No. 333-78337) declared effective on July 28,
      1999 by the Securities and Exchange Commission and incorporated herein by
      reference4.2
            Warrant
      granted to Gilford Securities Incorporated, previously filed with the
      Securities and Exchange Commission as an Exhibit to our Registration
      Statement on Form SB-2 (File No. 333-78337) declared effective on July 28,
      1999 by the Securities and Exchange Commission and incorporated herein by
      reference
















61








Exhibit
      Number
            Description4.3
            Form
      of Common Stock Purchase Warrant, previously filed with the Securities and
      Exchange Commission as an Exhibit to our Current Report on Form 8-K (File
      No.001-15169) filed on January 17, 2002 and incorporated herein by
      reference4.4
            Form
      of Warrant, previously filed with the Securities and Exchange Commission
      as an Exhibit to our Registration Statement on Form S-3 (File No.
      333-117216) and incorporated by reference herein10.1†
            Perficient,
      Inc. Amended and Restated 1999 Stock Option/Stock Issuance Plan,
      previously filed with the Securities and Exchange Commission as an Exhibit
      to our annual report on Form 10-K for the year ended December 31, 2005 and
      incorporated by reference herein10.2†
            Form
      of Stock Option Agreement, previously filed with the Securities and
      Exchange Commission as an Exhibit to our Annual Report on Form 10-KSB for
      the fiscal year ended December 31, 2004 and incorporated herein by
      reference10.3†
            Perficient,
      Inc. Employee Stock Purchase Plan, previously filed with the Securities
      and Exchange Commission as Appendix A to the Registrant's Schedule 14A
      (File No. 001-15169) on October 13, 2005 and incorporated herein by
      reference10.4†
            Form
      of Restricted Stock Agreement, previously filed with the Securities and
      Exchange Commission as an Exhibit to our annual report on Form 10-K for
      the year ended December 31, 2005 and incorporated by reference
      herein10.5†
            Form
      of Indemnity Agreement between Perficient, Inc. and each of our directors
      and officers, previously filed with the Securities and Exchange Commission
      as an Exhibit to our Registration Statement on Form SB-2 (File No.
      333-78337) declared effective on July 28, 1999 by the Securities and
      Exchange Commission and incorporated herein by
reference10.6†
            Offer
      Letter, dated July 20, 2006, by and between Perficient, Inc. and Mr. Paul
      E. Martin, previously filed with the Securities and Exchange Commission as
      an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and
      incorporated herein by reference10.7†
            Offer
      Letter Amendment, dated August 31, 2006, by and between Perficient, Inc.
      and Mr. Paul E. Martin, previously filed with the Securities and Exchange
      Commission as an Exhibit to our Current Report on Form 8-K filed on
      September 1, 2006 and incorporated herein by reference10.8†*
            Employment
      Agreement between Perficient, Inc. and John T. McDonald dated March 3,
      2009, and effective as of January 1, 200910.9†*
            Employment
      Agreement between Perficient, Inc. and Jeffrey S. Davis dated March 3,
      2009, and effective as of January 1, 200910.10
            Amended
      and Restated Loan and Security Agreement by and among Silicon Valley Bank,
      KeyBank National Association, Perficient, Inc., Perficient Canada Corp.,
      Perficient Genisys, Inc., Perficient Meritage, Inc. and Perficient
      Zettaworks, Inc. dated effective as of June 3, 2005, previously filed with
      the Securities and Exchange Commission as an Exhibit to our annual report
      on Form 10-K for the year ended December 31, 2005 and incorporated herein
      by reference10.11
            Amendment
      to Amended and Restated Loan and Security Agreement, dated as of June 29,
      2006, by and among Silicon Valley Bank, KeyBank National Association,
      Perficient, Inc., Perficient Genisys, Inc., Perficient Canada Corp.,
      Perficient Meritage, Inc., Perficient Zettaworks, Inc., Perficient iPath,
      Inc., Perficient Vivare, Inc., Perficient Bay Street, LLC and Perficient
      Insolexen, LLC, previously filed with the Securities and Exchange
      Commission as an Exhibit to our Current Report on Form 8-K filed on July
      5, 2006 and incorporated herein by
reference

















62







Exhibit
      Number
            Description10.12
            Lease
      by and between Cornerstone Opportunity Ventures, LLC and Perficient, Inc.,
      previously filed with the Securities and Exchange Commission as an Exhibit
      to our annual report on Form 10-K for the year ended December 31, 2005 and
      incorporated by reference herein10.13
            First
      Amended and Restated Investor Rights Agreements dated as of June 26, 2002
      by and between Perficient, Inc. and the Investors listed on Exhibits A and
      B thereto, previously filed with the Securities and Exchange Commission as
      an Exhibit to our Current Report on Form 8-K (File No. 001-15169) filed on
      July 18, 2002 and incorporated by reference herein10.14
            Securities
      Purchase Agreement, dated as of June 16, 2004, by and among Perficient,
      Inc., Tate Capital Partners Fund, LLC, Pandora Select Partners, LP, and
      Sigma Opportunity Fund, LLC, previously filed with the Securities and
      Exchange Commission as an Exhibit to our Current Report on Form 8-K filed
      on June 23, 2004 and incorporated by reference herein21.1*
            Subsidiaries23.1*
            Consent
      of BDO Seidman, LLP23.2*
            Consent
      of KPMG LLP24.1
            Power
      of Attorney (included on the signature page hereto)31.1*
            Certification
      by the Chief Executive Officer of Perficient, Inc. as required by Section
      302 of the Sarbanes-Oxley Act of 200231.2*
            Certification
      by the Chief Financial Officer of Perficient, Inc. as required by Section
      302 of the Sarbanes-Oxley Act of 200232.1*
            Certification
      by the Chief Executive Officer and Chief Financial Officer of Perficient,
      Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002







†
            Identifies
      an Exhibit that consists of or includes a management contract or
      compensatory plan or arrangement.




*
            Filed
      herewith.














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