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, 2009o
              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.)
 
 520
Maryville Centre Drive, Suite 400
 Saint
Louis, Missouri 63141
 (Address
of principal executive offices)
 
 (314)
529-3600
 (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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  Yes þ   Noo
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) 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.   o
 
 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 $195.5 million based on the last reported sale price of
the Company's common stock on The Nasdaq Global Select Market on June 30,
2009.
 
 As of
February 26, 2010, there were ­­­­­­­30,155,617
shares of Common Stock outstanding.
 
 Portions
of the definitive proxy statement in connection with the 2010 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than April 30, 2010, are incorporated by reference in Part III of this
Form 10-K.
 
 
 
 
 
 TABLE
OF CONTENTS
 
 
 PART
      IItem
      1.
              Business.
              
              
              1Item
      1A.
              Risk
      Factors.
              
              
              9Item
      1B.
              Unresolved
      Staff Comments.
              
              
              17Item
      2.
              Properties.
              
              
              17Item
      3.
              Legal
      Proceedings.
              
              
              17Item
      4.
              Reserved.
              
              
              17PART
      IIItem
      5.
              Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
              
              
              18Item
      6.
              Selected
      Financial Data.
              
              
              19Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              
              
              20Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              
              
              30Item
      8.
              Financial
      Statements and Supplementary Data.
              
              
              31Item
      9.
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure.
              
              
              52Item
      9A.
              Controls
      and Procedures.
              
              
              52Item
      9B.
              Other
      Information.
              
              
              52PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance.
              
              
              53Item
      11.
              Executive
      Compensation.
              
              
              54Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
              
              
              54Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
              
              
              54Item
      14.
              Principal
      Accounting Fees and Services.
              
              
              54PART
      IVItem
      15.
              Exhibits,
      Financial Statement Schedules.
              
              
              55
 
  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 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 and through the resumption of our disciplined acquisition
strategy.  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 economic conditions during 2008 and 2009, we
suspended acquisition activity, pending improved visibility into the health of
the economy.
 
 We serve
our customers from locations in 17 markets throughout North America. In
addition, as of December 31, 2009, we had 423 colleagues (defined as billable
employees and subcontractors) who are part of “national” business units and
travel extensively to serve clients throughout North America and Europe. Our
future growth plan includes expanding our business both organically and through
acquisitions, with a primary focus on the United States. We also intend to
further leverage our existing offshore capabilities to support our future growth
and provide our clients flexible options for project delivery.  In
2009, 96% of our revenues were derived from clients in the United States while
4% of our revenues were derived from clients in Canada and Europe.  In
2008 and 2007, 97% and 99%, respectively, of our revenues were derived from
clients in the United States while 3% and 1%, respectively, of our revenues were
derived from clients in Canada and Europe. Over 97% and 98% of our total assets
were located in the United States in 2009 and 2008, respectively, 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, 2009, an average of 86% of revenues were derived
from clients who continued to utilize our services from the prior year,
excluding any 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:
 
 United States Economy. In
2008 and 2009, the United States economy experienced a slowdown in
growth.  It is clear that the slowdown had an effect on the
information technology consulting industry in general and on demand for our
services in particular in 2009.  We are expecting a return to organic
growth in 2010. According to the most recent forecast from independent market
research firm Forrester Research, the United States information technology
market will grow by 6.6% in 2010, with computer equipment and software leading
the way, and information technology consulting services following.  We
have provided services revenue guidance for 2010 of $190 million to $210 million
which would represent an increase from 2009 services revenue, including
reimbursable expenses, of 9% to 20%.
  1
 
 
 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.
 
 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 fourth
quarter is impacted by fewer billable days as a result of professional staff
vacation and holidays. 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 canceled 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 fourth quarter as procurement policies of our clients may result in
higher technology spending towards the end of budget cycles. These and other
seasonal factors may contribute to fluctuations in our operating results from
quarter-to-quarter.
 
 Competitive
Strengths
  We believe
our competitive strengths include:
 
 ·
              Domain Expertise. We
      have acquired significant domain expertise in a core set of technology
      solutions and software platforms. These solutions include, among others,
      custom applications, portals and collaboration, eCommerce, CRM, 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, 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 methodology includes a proven execution process map we developed,
      which allows for repeatable, high quality services delivery. The
      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.
 
 
 2
 
 
 
 ·
              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, 2009, an average of 86% of revenues were derived
      from clients who continued to utilize our services from the prior year,
      excluding 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, we were named
      IBM's 2009 Information Agenda Partner of the Year. The honor marked the
      fourth consecutive year that we have received a major business partner
      award from IBM.  Also in 2009, we ranked #11 on Healthcare Informatics
      magazine's 2009 list of the largest healthcare consulting firms and were
      selected by the readership of CGT Magazine as one of
      the Top 10 Consulting Partners for consumer goods companies in North
      America.
 
 ·
              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 17 markets throughout North America. In addition, as of
      December 31, 2009, we had 423 colleagues who are part of “national”
      business units and travel extensively to serve clients primarily in North
      America and Europe. Our future growth plan includes expanding our business
      both organically and through acquisitions, with a primary focus on the
      United States.
 
 ·
              Offshore Capability. We
      own and operate a CMMI Level 5 certified global development center in
      Hangzhou, China. This facility is staffed with 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 these facilities 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.  We also maintain a recruiting facility in Chennai,
      India, to continue to grow our base of H1-B foreign national
      colleagues.  As of December 31, 2009, we had 136 colleagues at
      the Hangzhou, China facility and 198 colleagues with H1-B
      visas.  We intend to continue to leverage our existing offshore
      capabilities to support our growth and provide our clients flexible
      options for project delivery.
 
 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:
 
 ·
              Business Analysis.We
      design, develop and implement business strategy solutions, technology
      roadmaps, competitor benchmarks, and current-state assessments. Our
      business consultants analyze existing initiatives, infrastructure and
      investments, and counsel our clients on how to leverage technology to
      achieve maximum return-on-investment and business
  impact.
 
 
 3
  
 ·
              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,
      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. Our 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, requirement 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 (ESB). We design, develop and
      implement SOA and ESB 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.
 
 ·
              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. Our expertise with wireless technologies such as SIP, MMS,
      WAP, and GPRS is coupled with our extensive knowledge in mobile content
      delivery. Our secure and scalable solutions can include mobile content
      delivery systems, wireless value-added services, custom developed
      applications to pervasive devices, and customer care
      solutions.
 
 ·
              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. Our substantial experience with
      platforms including J2EE, .Net and Open-source 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.
 
 
 4
  
 In
addition to our 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 a customized
and established curriculum of courses and other education services. 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:
 
 ·
              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.
 
 Our
methodology allows for repeatable, high quality services delivery through a
unique and proven execution process map. It is grounded in a thorough
understanding of our clients' overall business strategy and competitive
environment. Our methodology leverages the thought leadership of our senior
strategists and practitioners and focuses on transforming our clients' business
processes, applications and technology infrastructure. It 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 in North America. To
achieve our goal, our strategy is to:
 
 ·
              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.
 
 ·
              Resume Making Disciplined
      Acquisitions. Given the economic conditions during 2008 and 2009,
      we suspended acquisition activity, pending improved visibility into the
      health of the economy.  With the expected return to growth in
      2010, we plan to resume our disciplined acquisition
      strategy.  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.
 
 ·
              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 locations in 17 markets throughout North America. In addition, as of
      December 31, 2009, we had 423 colleagues who are part of “national”
      business units and travel extensively to serve clients primarily in North
      America and Europe. Our future growth plan includes expanding our business
      both organically and through acquisitions, with a primary focus on the
      United States.
 
 ·
              Continue Repurchasing Our
      Equity Securities.  In an ongoing effort to provide the
      most value to our stockholders, the Board of Directors authorized the
      repurchase of up to $40.0 million of our common stock as part of a program
      that expires at the end of June 2011.  As of December 31, 2009,
      we had repurchased approximately $27.5 million, or 4.5 million shares, of
      our outstanding common stock.  We believe, at certain price
      levels, our stock is undervalued and the repurchase program provides the
      best way to return the value to our stockholders.  We will
      continually re-evaluate the position of our stock price and will seek
      additional authorization to repurchase our common stock as
      necessary.
 
 ·
              Enhance Brand
      Visibility. Our focus on a core set of technology solutions,
      applications and software platforms, and a targeted customer and
      geographic market has given us brand visibility. In addition, we believe
      we have achieved the size necessary to enhance our visibility among
      prospective clients, employees and software vendors. As we continue to
      grow our business, we intend to highlight to current and prospective
      customers our leadership in technology solutions and infrastructure
      software technology platforms.
 
 
 5
  
 ·
              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 colleagues who provide offshore
      custom application development, quality assurance and testing services and
      we have a relationship with an offshore development facility in Bitola,
      Macedonia. In addition to our offshore capabilities, we employ a
      substantial number of H1-B foreign nationals in the United
      States.  We also maintain a recruiting facility in Chennai,
      India, to continue to grow our base of H1-B foreign national
      colleagues.  As of December 31, 2009 we had 136 colleagues at
      the Hangzhou, China facility and 198 colleagues with H1-B
      visas.  We intend to continue to leverage our existing offshore
      capabilities to support our growth and provide our clients flexible
      options for project delivery.
 
 ·
              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, their clients or clients using IBM
      platforms, utilizing us as the services firm of
  choice.
 
 ·
              Expand and Enhance Our
      Industry Vertical Focus.  We have industry focused
      practices such as healthcare, communications and consumer
      products.  The goal of these industry verticals is to recruit
      and retain consultants with specific industry expertise and to ‘mine’ and
      leverage the intellectual property we have as we serve clients within
      these industries.  Expanding these verticals will help us in
      terms of revenue generation as well as market expansion beyond our
      geographic and solution focused business
  units.
 
 Sales
and Marketing
 
 As of
December 31, 2009, we had a 46 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 86% of our sales are
executed by our direct sales force.  In addition to our direct sales
team, we also have 19 dedicated sales support employees, 15 general managers and
three vice-presidents 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, Oracle,
TIBCO, Microsoft, and Documentum. 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.
 
 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, trade shows,
and social media.
 
 
 6
 
 Clients
 
 During
the year ended December 31, 2009, we provided services to 423 customers. No
one customer provided more than 10% of our total revenues in 2009, 2008 or
2007.
 
 Competition
 
 The
market for the 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 Prolifics and MSI Systems
      Integrators;
 ·
              national
      consulting firms, such as Accenture, 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.
 
 Employees
 
 As of
December 31, 2009, we had 1,015 employees, 857 of which were billable
professionals (excludes 168 billable subcontractors) and 158 were involved in
sales, 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, and the Internet. After initially identifying qualified
candidates, we conduct an extensive screening and interview
process.
 
 Retention. We believe that
our 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 makes 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, 2009, our voluntary attrition rate was approximately 15%.
 
 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.
 
 
 7
 
 Compensation. Our employees
have a compensation model that includes 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 are eligible to receive restricted
stock awards, which generally vest ratably 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 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.
 
 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.
 
 
 8
 
 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
(“U.S.”) and worldwide.  During periods of economic downturns, our
clients may decrease their demand for information technology services. In 2008
and 2009, general worldwide economic conditions 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.  If these conditions continue, they 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
offshore 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.
 
 
 9
 
 
 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.
 
 We
maintain a global development center in Hangzhou, China and a technology
consulting recruiting facility in Chennai, India. Because of our limited
experience with facilities outside of the U.S., 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.
 
 
 10
  
 Immigration
restrictions related to H1-B visas could hinder our growth and adversely affect
our business, financial condition and results of operations.
 
 Approximately
23% of our billable workforce is comprised of skilled foreign nationals 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.
 
 We
may not be able to attract and retain information technology consulting
professionals, which could affect our ability to compete
effectively.
 
 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 grow
our business, our need for senior experienced management and implementation
personnel increases. If a significant number of these individuals resign, 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.
 
 
 11
  
 We
could have liability or our reputation could be damaged if we do not protect
client data or information systems or if our information systems are
breached.
 
 We are
dependent on information technology networks and systems to process, transmit
and store electronic information and to communicate among our locations and with
our partners and clients. Security breaches of this infrastructure could lead to
shutdowns or disruptions of our systems and potential unauthorized disclosure of
confidential information. We are also required at times to manage, utilize and
store sensitive or confidential client or employee data. As a result, we are
subject to numerous U.S. and foreign jurisdiction laws and regulations designed
to protect this information, such as various U.S. federal and state laws
governing the protection of individually identifiable information. If any
person, including any of our employees, negligently disregards or intentionally
breaches our established controls with respect to such data or otherwise
mismanages or misappropriates that data, we could be subject to monetary
damages, fines and/or criminal prosecution. Unauthorized disclosure of sensitive
or confidential client or employee data, whether through systems failure,
employee negligence, fraud or misappropriation, could damage our reputation and
cause us to lose clients. Similarly, unauthorized access to or through our
information systems or those we develop for our clients, whether by our
employees or third parties, could result in negative publicity, legal liability
and damage to our reputation.
 
 We
may face potential liability to customers if our customers' systems
fail.
 
 Our
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. 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.
 
 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.
 
 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, including time and materials and fixed fee contracts. 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 involve the coordination of operations
and workforces in multiple locations and/or 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.
 
 
 12
 
 
 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.
 
 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.
 
 The
loss of one or more of our significant software 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 expected future 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 expected future growth. In order to create the
additional capacity necessary to accommodate an increase in 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.
 
 
 13
 
 
 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.
 
 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
as there are fewer billable days as a result of vacations and holidays. In
addition, we generally perform services on a project basis. While we seek to
counterbalance periodic declines in services revenues when a project or
engagement is completed or canceled by entering into arrangements to provide
additional services to the same or other clients, we may not be able to avoid
declines in services revenues when projects are completed. Our inability to
obtain sufficient new projects to counterbalance any decreases in work may
materially affect our quarter-to-quarter revenues, margins and operating
results.
 
 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
services gross margins are subject to fluctuations as a result of variances in
utilization 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 salary, 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 2009,
approximately 11% of our services revenues were earned from engagements
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 accurately
estimate 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 we will
price these contracts appropriately in the future, which may result in
losses.
 
 We
may not be able to maintain profitability.
 
 Although
we have been profitable for the past six 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.
 
 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.
 
 
 14
 
 
 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.
 
 We may
acquire or make strategic investments in complementary businesses, technologies,
services or products, or enter into strategic alliances with third parties in
the future in order to expand our business. We may be unable to identify
suitable acquisition and vendor opportunities, or if we do identify a suitable
opportunity, 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 opportunities. 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, and 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 also 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. can adversely impact the
trading prices of securities of many companies, including ours, due to concerns
regarding recessionary economic conditions, a lending and financial crisis, a
substantial slowdown in economic activity, decreased consumer confidence and
other factors.  Our stock price has fluctuated in the past and could
continue to fluctuate in the future in response to these factors.  If
the trading price of our common stock were 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.
 
 
 15
   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 26% 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 had
unrestricted cash, cash equivalents, and investments totaling $28 million and a
borrowing capacity of $50 million at December 31, 2009.  We intend to
continue to make investments to support our business growth and may require
additional funds if our capital is insufficient 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.
 
 
 16
  
 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, Inc. 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, Inc. or any persons acting on our behalf may issue.
 
 Item 2.
              Properties.
 
 Our
principal executive operations are located in St. Louis, Missouri where we have
leased approximately 5,100 square feet for these functions. We lease 22 offices
in major cities across North America, China and India. 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
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.
              Reserved.
 
 
 
 17
 
 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, 2008.
 
 High
              
              
              LowYear
      Ending December 31, 2009:First
      Quarter
              
              $
              5.71
              
              
              $
              3.10Second
      Quarter
              
              
              7.44
              
              
              
              5.12Third
      Quarter
              
              
              8.64
              
              
              
              6.31Fourth
      Quarter
              
              
              9.50
              
              
              
              7.73Year
      Ending December 31, 2008:First
      Quarter
              
              $
              17.08
              
              
              $
              6.43Second
      Quarter
              
              
              11.91
              
              
              
              7.82Third
      Quarter
              
              
              10.94
              
              
              
              6.04Fourth
      Quarter
              
              
              6.80
              
              
              
              2.31
 
 On
February 26, 2010, the last reported sale price of our common stock on The
Nasdaq Global Select Market, a tier of The NASDAQ Stock Market LLC, was $11.09
per share. There were approximately 345 stockholders of record of our common
stock as of February 26, 2010, including 228 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 2008,
our Board of Directors approved a share repurchase authority of up to $20.0
million.  In 2009, our Board of Directors approved an additional share
repurchase authority of up to $20.0 million for a total repurchase program of
$40.0 million.  The repurchase program expires June 30,
2011.  While it is not our 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 our management based on its evaluation of market conditions, share
price and other factors.
 
 Since the
program’s inception in 2008, we have repurchased approximately $27.5 million
of our outstanding common stock through December 31,
2009.
 
 
 18
 
   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, 2009
                
                3,872,730
                
                
                $
                5.66
                
                
                3,872,730
                
                
                $
                8,079,423October
      1-31, 2009
                
                
                245,790
                
                
                
                8.42
                
                
                
                245,790
                
                
                $
                6,018,392November
      1-30, 2009
                
                
                260,000
                
                
                
                8.48
                
                
                
                260,000
                
                
                $
                13,813,900December
      1-31, 2009
                
                
                160,000
                
                
                
                8.39
                
                
                
                160,000
                
                
                $
                12,471,648Ending
      Balance as of December 31, 2009
                
                
                4,538,520
                
                
                $
                6.07
                
                
                
                4,538,520
  (1)
              Average
      price paid per share includes
commission.
 (2)
              The
      additional program to repurchase up to $10.0 million of our outstanding
      common stock was approved by our Board of Directors on November 3,
      2009.   The repurchase program expires June 30,
      2011.
 
 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, 2009, has been prepared in accordance
with accounting principles generally accepted in the United States. The
financial data presented is not directly comparable between periods as a result
of the adoption of Financial Accounting Standards Board Accounting Standards
Codification (“ASC”) Topic 718 (Statement of Financial Accounting Standards
No. 123R (As Amended),Share Based Payment) in 2006, and four acquisitions in 2007, three
acquisitions in 2006, and two acquisitions in 2005.
 
 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 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Income Statement
      Data:
              
              
              
              
              
              
              
              (In
      thousands)Revenues
              
              $
              188,150
              
              
              $
              231,488
              
              
              $
              218,148
              
              
              $
              160,926
              
              
              $
              96,997Gross
      margin
              
              $
              48,333
              
              
              $
              73,502
              
              
              $
              75,690
              
              
              $
              53,756
              
              
              $
              32,418Selling,
      general and administrative
              
              $
              40,042
              
              
              $
              47,242
              
              
              $
              41,963
              
              
              $
              32,268
              
              
              $
              17,917Depreciation and
      amortization
              
              $
              5,750
              
              
              $
              6,949
              
              
              $
              6,265
              
              
              $
              4,406
              
              
              $
              2,226Impairment
      of intangible assets
              
              $
              --
              
              
              $
              1,633
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --Income
      from operations
              
              $
              2,541
              
              
              $
              17,678
              
              
              $
              27,462
              
              
              $
              17,082
              
              
              $
              12,275Net
      interest income (expense)
              
              $
              209
              
              
              $
              528
              
              
              $
              172
              
              
              $
              (407
              )
              
              $
              (643
              )Net
      other income (expense)
              
              $
              260
              
              
              $
              (915
              )
              
              $
              20
              
              
              $
              174
              
              
              $
              43Income
      before income taxes
              
              $
              3,010
              
              
              $
              17,291
              
              
              $
              27,654
              
              
              $
              16,849
              
              
              $
              11,675Net
      income
              
              $
              1,463
              
              
              $
              10,000
              
              
              $
              16,230
              
              
              $
              9,567
              
              
              $
              7,177
 
 As
      of December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Balance
      Sheet Data:
              
              (In
      thousands)Cash,
      cash equivalents and short-term investments
              
              $
              24,302
              
              
              $
              22,909
              
              
              $
              8,070
              
              
              $
              4,549
              
              
              $
              5,096Working
      capital
              
              $
              50,205
              
              
              $
              56,176
              
              
              $
              41,368
              
              
              $
              24,859
              
              
              $
              17,078Long-term
      investments
              
              $
              3,652
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --Property
      and equipment, net
              
              $
              1,278
              
              
              $
              2,345
              
              
              $
              3,226
              
              
              $
              1,806
              
              
              $
              960Goodwill
      and intangible assets, net
              
              $
              111,773
              
              
              $
              115,634
              
              
              $
              121,339
              
              
              $
              81,056
              
              
              $
              52,031Total
      assets
              
              $
              184,810
              
              
              $
              194,247
              
              
              $
              189,992
              
              
              $
              131,000
              
              
              $
              84,935Current
      portion of long term debt and line of credit
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              1,201
              
              
              $
              1,581Long-term
      debt and line of credit, less current portion
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              137
              
              
              $
              5,338Total
      stockholders' equity
              
              $
              168,348
              
              
              $
              174,818
              
              
              $
              165,562
              
              
              $
              107,352
              
              
              $
              65,911
 
 
 19
 
 
 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. 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 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.
 
 Services
Revenues
 
 Services
revenues are derived from professional services that include 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, while a smaller portion of our revenues
are derived from projects performed on a fixed fee basis. Fixed fee engagements
represented approximately 11% of our services revenues for the year ended
December 31, 2009 compared to 13% for the year 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 input method based on the ratio of hours expended to total
estimated hours. Amounts invoiced and collected 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. On rare occasions, we do not meet the requirements to be
considered a principal in the transaction and act as an agent.  In these
cases, revenues are recorded on a net basis. Software and hardware revenues
are expected to fluctuate depending on our customers’ demand for these
products.
 
 If we
enter into contracts for the sale of services and software or hardware,
management evaluates whether the services are essential to the functionality of
the software or hardware and whether objective fair value evidence exists 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 exists 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.
 
 
 20
 
 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, 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”) are primarily composed of sales
related costs, general and administrative salaries, office costs, stock
compensation expense, bad debts, and other miscellaneous expenses.  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, Oracle and Microsoft, 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 and through the resumption of our disciplined acquisition
strategy.  Our future growth plan includes expanding our business with
a primary focus on the United States, both organically and through
acquisitions.  Given the economic conditions during 2008 and 2009, we
suspended acquisition activity pending improved visibility into the health of
the economy.  With the expected return to growth in 2010, we plan to
resume our disciplined acquisition strategy.  We also intend to
further leverage our existing offshore capabilities to support our future growth
and provide our clients flexible options for project delivery.
 
 Results
of Operations
 
 The
following table summarizes our results of operations as a percentage of total
revenues:
  Revenues:
              
              2009
              
              
              2008
              
              
              2007Services
      revenues
              
              
              88.4
              %
              
              
              89.6
              %
              
              
              87.8
              %Software
      and hardware revenues
              
              
              6.9
              
              
              
              4.6
              
              
              
              6.5Reimbursable
      expenses
              
              
              4.7
              
              
              
              5.8
              
              
              
              5.7Total
      revenues
              
              
              100.0
              
              
              
              100.0
              
              
              
              100.0Cost
      of revenues (depreciation and amortization, shown separately
      below):Project
      personnel costs
              
              
              61.0
              
              
              
              56.6
              
              
              
              52.6Software
      and hardware costs
              
              
              6.2
              
              
              
              3.7
              
              
              
              5.5Reimbursable
      expenses
              
              
              4.7
              
              
              
              5.7
              
              
              
              5.7Other
      project related expenses
              
              
              2.4
              
              
              
              2.2
              
              
              
              1.5Total
      cost of revenues
              
              
              74.3
              
              
              
              68.2
              
              
              
              65.3Services
      gross margin
              
              
              28.2
              
              
              
              34.4
              
              
              
              38.4Software
      and hardware gross margin
              
              
              10.2
              
              
              
              19.4
              
              
              
              15.9Total
      gross margin
              
              
              25.7
              
              
              
              31.8
              
              
              
              34.7Selling,
      general and administrative
              
              
              21.3
              
              
              
              20.4
              
              
              
              19.2Depreciation
      and amortization
              
              
              3.0
              
              
              
              3.0
              
              
              
              2.9Impairment
      of intangible assets
              
              
              0.0
              
              
              
              0.7
              
              
              
              0.0Income
      from operations
              
              
              1.4
              
              
              
              7.7
              
              
              
              12.6Net
      interest income
              
              
              0.1
              
              
              
              0.2
              
              
              
              0.1Net
      other income (expense)
              
              
              0.1
              
              
              
              (0.4
              )
              
              
              0.0Income
      before income taxes
              
              
              1.6
              
              
              
              7.5
              
              
              
              12.7Provision
      for income taxes
              
              
              0.8
              
              
              
              3.2
              
              
              
              5.2Net
      income
              
              
              0.8
              %
              
              
              4.3
              %
              
              
              7.5
              %
 
 
 21
 
 Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
 
 Revenues. Total revenues
decreased 19% to $188.2 million for the year ended December 31, 2009 from
$231.5 million for the year ended December 31, 2008.  Services
revenues decreased 20% to $166.4 million for the year ended December 31,
2009 from $207.5 million for the year ended December 31,
2008.  Revenue contraction during the year is due to the decreased
demand for information technology services market wide and delays in information
technology spending by customers, which we believe is related to the general
economic slowdown.
 
 Software
and hardware revenues increased 21% to $13.0 million for the year ended
December 31, 2009 from $10.7 million for the year ended December 31, 2008
due mainly to the renewal of several larger software licenses and an overall
increase in software sales during the first and third quarters of 2009.
Reimbursable expenses decreased 34% to $8.8 million for the year ended
December 31, 2009 from $13.3 million for the year ended December 31, 2008 as a
result of the decline in services revenue. We do not realize any profit on
reimbursable expenses.
 
 Cost of Revenues. Cost of
revenues decreased 12% to $139.8 million for the year ended December 31,
2009 from $158.0 million for the year ended December 31, 2008.  The
decrease in cost of revenues is directly related to the decrease in revenues and
management’s efforts in managing costs, primarily headcount. The average number
of professionals performing services, including subcontractors, decreased to
1,028 for the year ended December 31, 2009 from 1,165 for the year ended
December 31, 2008.  Management will continue to manage the cost
structure to match demand.
 
 Gross Margin. Gross
margin decreased 34% to $48.3 million for the year ended December 31, 2009
from $73.5 million for the year ended December 31, 2008. Gross margin as a
percentage of revenues decreased to 25.7% for the year ended December 31, 2009
from 31.8% for the year ended December 31, 2008 primarily due to a decrease in
services gross margin. Services gross margin, excluding reimbursable
expenses, decreased to 28.2% or $47.0 million for the year ended December
31, 2009 from 34.4% or $71.4 million for the year ended December 31,
2008.  The decrease in services gross margin is primarily a result of
lower utilization due to the decreased demand for information technology
services.  The average utilization rate of our professionals,
excluding subcontractors, decreased to 75% for the year ended December 31, 2009
compared to 79% for the year ended December 31, 2008. The average bill rate for
our professionals, excluding subcontractors, decreased to $106 per hour for the
year ended December 31, 2009 from $109 per hour for the year ended December 31,
2008, primarily due to competition in the marketplace and increased usage of
China offshore resources.   Software and hardware gross margin
decreased to 10.2% or $1.3 million for the year ended December 31, 2009 from
19.4% or $2.1 million for the year ended December 31, 2008.  Software
revenues have increased while margin is down primarily due to the competition in
the marketplace causing lower margin software sales.
 
 Selling, General and
Administrative. SG&A expenses decreased 15% to $40.0 million for
the year ended December 31, 2009 from $47.2 million for the year ended December
31, 2008 due primarily to fluctuations in expenses as detailed in the following
table:
 
 Increase
      / (Decrease)Selling,
      General and Administrative Expense
              
              (in
      millions)Stock
      compensation expense
              
              $
              0.7Bonus
      expense
              
              
              (0.1
              )Office
      and technology-related costs
              
              
              (0.5
              )Salary
      expense
              
              
              (0.6
              )Sales-related
      costs
              
              
              (1.7
              )Bad
      debt expense
              
              
              (3.1
              )Other
              
              
              (1.9
              )Net
      decrease
              
              $
              (7.2
              )
 
 SG&A expenses,
as a percentage of revenues, increased to 21.3% for the year ended December 31,
2009 from 20.4% for the year ended December 31, 2008.  Stock
compensation expense, salary expense, office and technology-related costs, and
sales-related costs all increased as a percentage of revenues compared to the
prior year period.  Stock compensation expense, as a percentage of
revenues, increased due to lower revenues and the restricted stock awards
granted in 2008 and 2009.  The increase in salary expense, as a
percentage of revenues, was primarily the result of lower revenues and the
addition of new marketing roles during 2009.  Office and
technology-related costs, as a percentage of revenues, increased primarily
due to the costs associated with the abandonment of office space and lower
revenues during 2009.  These increases were offset by a decrease in
bad debt expense.  During 2008, the allowance for doubtful accounts
increased due to additional uncertainties regarding collectibility as a result
of the overall economic downturn and its impact on certain outstanding
receivables.  The reserve has decreased in 2009 due to either the
collection of previously reserved for balances or write-off of such
amounts.
 
 
 22
 
 Depreciation. Depreciation
expense decreased 31% to $1.5 million for the year ended December 31, 2009 from
$2.1 million for the year ended December 31, 2008. The decrease in depreciation
expense is mainly attributable to various assets becoming fully depreciated
during 2008 and 2009 and lower spending on capital assets during
2009.  Depreciation expense as a percentage of services revenue,
excluding reimbursable expenses, was 0.9% and 1.0% for the year ended December
31, 2009 and 2008, respectively.
 
 Amortization. Amortization
expense decreased 11% to $4.3 million for the year ended December 31, 2009
from $4.8 million for the year ended December 31, 2008. The decrease in
amortization expense reflects the completion of the amortization of certain
acquired intangible assets and the impact of the impairment charge recorded in
the fourth quarter of 2008.  The impairment charge will also result in
lower amortization expense in future periods.
 
 Impairment of Intangible
Assets. During the fourth quarter of 2008, we performed an impairment
test as of December 31, 2008.  As a result of the test performed, we
recorded a $1.6 million impairment charge 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 from E Tech, which caused cash flows from the asset group to
be lower than originally projected.
 
 Net Interest Income. We had
interest income of $0.2 million, net of interest expense, for the year ended
December 31, 2009, compared to interest income of $0.5 million, net of interest
expense, for the year ended December 31, 2008.  The decrease in
interest income in 2009 resulted from a decrease in the interest earned on the
note receivable and the money market account.  The note receivable was
fully repaid in October 2009 and while our average cash and investments balances
increased during 2009, the average interest rates on our accounts decreased
compared to the same prior year period.
 
 Net Other Income or Expense.
We had other income of $0.3 million, net of other expense, for the year ended
December 31, 2009 compared to other expense of $0.9 million, net of other
income, for the year ended December 31, 2008.  Other income for the
year ended December 31, 2009 is primarily related to government incentives
received by our China operations.  Additionally, during the third
quarter 2008, we expensed $0.9 million of previously capitalized deferred
offering costs related to our shelf registration statement.
 
 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 51.4% for the year ended December 31, 2009 from 42.2% for the year
ended December 31, 2008. The increase in the effective rate is due
primarily to the magnified effect of certain state taxes, which are generally
based on gross receipts instead of income, permanent items such as meals and
entertainment, and non-deductible executive compensation under Section 162(m) of
the Internal Revenue Code (the “Code”), relative to a smaller income
base.
 
 
 23
 
 
 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.
 
 
 24
  
 Selling, General and
Administrative. SG&A 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
 
 SG&A
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 not achieving
the company-wide 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.
 
 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 ASC Topic 350 (Statement of Financial Accounting Standards
(“SFAS”) No. 142,Goodwill and
Other Intangible Assets), and ASC Section 360-10-05 (SFAS No. 144,Accounting for the
Impairment or Disposal of Long-Lived Assets), 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.  The value of these
relationships was affected primarily by the loss of a key customer acquired from
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.
 
 
 25
  
 Liquidity
and Capital Resources
 
 Selected
measures of liquidity and capital resources are as follows (in
millions):
  As
      of December 31,2009
              
              
              2008
              
              
              2007Cash,
      cash equivalents and investments
              
              $
              28.0
              
              
              $
              22.9
              
              
              $
              8.1Working
      capital (including cash and cash equivalents)
              
              $
              50.2
              
              
              $
              56.2
              
              
              $
              41.5Amounts
      available under credit facilities
              
              $
              50.0
              
              
              $
              49.9
              
              
              $
              49.8
 
 Net
Cash Provided By Operating Activities
 
 Net cash
provided by operating activities for the year ended December 31, 2009 was $22.6
million compared to $25.1 million and $23.0 million for the years ended December
31, 2008 and 2007, respectively. For the year ended December 31, 2009, the
components of operating cash flows were net income of $1.5 million plus non-cash
charges of $15.0 million and net working capital reductions of $6.1
million.  The primary components of operating cash flows for the year ended
December 31, 2008 were net income of $10.0 million plus non-cash charges of
$15.0 million and net working capital reductions of $0.1 million.  The
primary components of operating cash flows for the year ended December 31, 2007
were net income of $16.2 million plus non-cash charges of $5.1 million and net
working capital reductions of $1.7 million.  Our days sales
outstanding as of December 31, 2009 increased to 73 days from 71 days at
December 31, 2008 and were flat compared to December 31, 2007.
 
 Net
Cash Used in Investing Activities
 
 For the
year ended December 31, 2009, we used $10.0 million in cash to purchase
investments and $0.7 million in cash to purchase equipment and develop software.
 For the year ended December 31, 2008, we used $0.8 million in cash to pay
certain acquisition-related costs and $1.5 million in cash to purchase equipment
and develop software.  For the year ended December 31, 2007, we used
approximately $26.8 million in cash, net of cash acquired, for
acquisitions.  In addition, we used approximately $2.2 million during
2007 to purchase equipment and develop software.
 
 Net
Cash Provided By Financing Activities
 
 During
the year ended December 31, 2009, we received proceeds of $1.0 million from
exercises of stock options and sales of stock through our Employee Stock
Purchase Plan and we realized a tax benefit of $0.6 million related to vesting
of stock awards and stock option exercises.  We used $18.4 million to
repurchase shares of our common stock through the stock repurchase program.
 For the year ended December 31, 2008, we made payments of $0.4 million in
fees to establish our new credit facility.  We received proceeds of
$0.9 million from exercises of stock options and sales of stock through our
Employee Stock Purchase Plan and we realized a tax benefit of $0.7 million
related to vesting of stock awards and stock option exercises.  We
used $9.2 million to repurchase shares of our common stock through the stock
repurchase program.  During the year ended December 31, 2007, we made
payments of $1.3 million on our long-term debt.  We received proceeds
of $3.9 million from exercises of stock options and sales of stock through
our Employee Stock Purchase Plan and we realized a tax benefit of $6.9 million
related to vesting of stock awards and stock option exercises.
 
 Availability
of Funds from Bank Line of Credit Facilities
 
 In May
2008, we entered into a Credit Agreement (the “Credit Agreement”) with Silicon
Valley Bank (“SVB”) and KeyBank National Association (“KeyBank”).  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.  Substantially all of our assets are pledged to secure
the credit facility.  In July 2009, U.S. Bank National Association
(“U.S. Bank”) assumed $10 million of KeyBank’s commitment.
 
 All
outstanding amounts borrowed 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 our option at SVB’s prime rate (4.00%
on December 31, 2009) plus a margin ranging from 0.00% to 0.50% or one-month
LIBOR (0.23% on December 31, 2009) 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, 2009, we had $50 million of
maximum borrowing capacity.  We will incur an annual commitment fee of
0.30% on the unused portion of the line of credit.
  As of
December 31, 2009, we were in compliance with all covenants under our credit
facility and we expect to be in compliance during the next twelve
months.
 26
  
  Stock
Repurchase Program
 
 In 2008,
our Board of Directors authorized the repurchase of up to $20.0 million of our
common stock.  In 2009, the Board of Directors authorized the
repurchase of up to an additional $20.0 million of the Company’s common stock
for a total repurchase program of $40.0 million.  The program expires
on June 30, 2011.
 
 We
established a written trading plan in accordance with Rule 10b5-1 of the
Securities Exchange Act of 1934 (the “Exchange Act”), under which we made a
portion of our 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.
 
 Since the
program’s inception in 2008, we have repurchased approximately 4.5 million
shares of our outstanding common stock through December 31, 2009 for a total
cost of approximately $27.5 million.
 
 Lease
Obligations
 
 During
the third quarter of 2009, we vacated certain office space as part of ongoing
cost reduction initiatives in response to our 2009 revenue
contraction.  We subleased some of the vacated office space during the
fourth quarter of 2009.  The accounting for costs associated with the
abandonment of office space was calculated using the guidance in ASC Subtopic
420-10 (SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities).  A liability of approximately
$0.3 million for lease abandonment costs was recorded in the third quarter of
2009.  The lease abandonment costs were classified as “Selling,
general and administrative” expense in our Consolidated Statement of Operations
for the year ended December 31, 2009.
 
 There
were no other material changes outside the ordinary course of business in lease
obligations or other contractual obligations in 2009 as disclosed in Note
11,Commitments and
Contingencies,in the Notes to Consolidated Financial Statements.
 
 Shelf
Registration Statement
 
 In July
2008, we filed a shelf registration statement with the U.S. Securities and
Exchange Commission (“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.  The shelf registration
will expire in July 2011.
 
 Contractual
Obligations
 
 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, 2009 (in thousands):
  Payments
      Due by PeriodContractual
      Obligations
              
              Total
              
              
              Less
      Than
                1
      Year
              
              
              1-3
                Years
              
              
              3-5
                Years
              
              
              More
                Than
      5
                YearsOperating
      lease obligations
              
              $
              6,255
              
              
              $
              2,303
              
              
              $
              2,852
              
              
              $
              1,078
              
              
              $
              22Total
              
              $
              6,255
              
              
              $
              2,303
              
              
              $
              2,852
              
              
              $
              1,078
              
              
              $
              22
 
 See Note
10, Income Taxes,
in the Notes to Consolidated Financial Statements for information related to our
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 currently 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.
 
 
 27
  
 Critical
Accounting Policies
 
 Our
accounting policies are described in Note 2,Summary of Significant Accounting
Policies, in the Notes to Consolidated Financial Statements. We believe
our 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 and collected in
excess of revenues recognized are classified as deferred revenues. On many
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. Revenues from software and hardware sales are generally recorded on
a gross basis based on our role as a principal in the transaction.  On
rare occasions, we enter into a transaction where we are not the
principal.  In these cases, revenue is recorded on a net
basis.
 
 Unbilled
revenues represent the project time and expenses that have been incurred, but
not yet billed to the client, prior to the end of the fiscal
period.  For time and materials projects, the client is invoiced for
the amount of hours worked times the billing rates as stated in the contract.
For fixed fee arrangements, the client is invoiced according to the agreed-upon
schedule detailing amount and timing of payments in the
contract.  Clients are typically billed monthly for services provided
during that month, but can be billed on a more or less frequent basis as
determined by the contract.  If the time and expenses are
worked/incurred and approved at the end of a fiscal period and the invoice has
not yet been sent to the client, the amount is recorded as unbilled revenue once
we verify all other revenue recognition criteria have been met.
 
 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. Our policy for revenue recognition in instances where multiple
deliverables are sold contemporaneously to the same counterparty is in
accordance with ASC Subtopic 985-605 (American Institute of Certified Public
Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue
Recognition),
ASC Subtopic 605-25(Emerging Issues Task
Force (“EITF”) Issue No. 00-21,Revenue Arrangements with Multiple
Deliverables), and ASC Section 605-10-S99 (Staff Accounting Bulletin
(“SAB”) No. 104,Revenue
Recognition). Specifically, if we enter into contracts for the sale of
services and software or hardware, we evaluate whether the services are
essential to the functionality of the software or hardware and whether there is
objective fair value evidence for each deliverable in the transaction. If we
conclude the services to be provided are not essential to the functionality of
the software or hardware and we 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
criteria. We may provide multiple services under the terms of an arrangement and
are required to assess whether one or more units of accounting are
present.  Service fees are typically accounted for as one unit of
accounting as fair value evidence for individual tasks or milestones is not
available.  We follow 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.
 
 Allowance
for doubtful accounts is based upon specific identification of likely and
probable losses. Each accounting period, accounts receivable is evaluated 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. Considerable judgment is used 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 the evaluation of service delivery
issues or a client's ability to pay is incorrect, future reductions to revenue
or bad debt expense may be incurred.
 
 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 ASC
Topic 350, we perform an annual impairment test of goodwill. We evaluate
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 ASC
Topic 350, 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.
 
 
 28
 
 
 Our
annual goodwill impairment test was performed as of October 1,
2009.  Our fair value as of the annual testing date exceeded our book
value and consequently, no impairment was indicated.
 
 Our fair
value was determined by weighting the results of two valuation methods: 1)
market capitalization based on the average price of our common stock, including
a control premium, for a reasonable period of time prior to the evaluation date
(generally 15 days) and 2) a discounted cash flow model.  The fair
value calculated using our 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 our determination of our overall fair
value.  While the use of our average common stock price, plus a
control premium, may be considered the best evidence of fair value in ASC Topic
350, we believe the declines in our stock price over the past two years, and in
the market overall, are not consistently aligned with our financial results or
outlook.  The discounted cash flow approach allows us to calculate our
fair value based on operating performance and meaningful financial
metrics.
 
 A key
assumption used in the calculation of our fair value using our average common
stock price was the consideration of a control premium.  We reviewed
industry premium data and determined an appropriate control premium for the
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 our 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 our industry. The
terminal business value was determined by applying a growth factor to the latest
year for which a forecast exists.
 
 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 is considered an
operating expense and is included in “Amortization” in the
accompanying Consolidated Statements of Operations. We periodically review
the estimated useful lives of our 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 2009, our stock price continued trading above its book
value.  Based on the continued upward trend of our stock price and
positive business and market outlook for the information technology services
industry, we did not experience a significant adverse change in our business
climate and therefore do not believe a triggering event occurred that would
require a detailed test of goodwill for impairment as of December 31,
2009.   We will continue to monitor the trend of our stock price and
other market indicators to determine whether there is a triggering event that
may require us to perform an interim impairment test in the future and
record impairment charges to earnings, which could adversely affect our
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 our estimate and an independent valuation. We finalize the
purchase price allocation within twelve months of the acquisition date as
certain initial accounting estimates are resolved.
 
 Accounting
for Stock-Based Compensation
 
 We
estimate 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 our stock option
awards. Option valuation models require the input of somewhat subjective
assumptions including expected stock price volatility and expected term. We
believe 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.
 
 
 29
 
 
 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.
 
 Recent
Accounting Pronouncements
 
 Our
recent accounting pronouncements are fully described in Note 2,Summary of Significant Accounting
Policies, in the Notes to Consolidated Financial Statements.
 
 Off-Balance
Sheet Arrangements
 
 We have
no off-balance sheet arrangements, except operating lease commitments as
disclosed in Note 11,Commitments and Contingencies, in the Notes to Consolidated Financial
Statements.
 
 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
 
 We are
exposed to market risks associated with changes in foreign currency exchange
rates because we generate a portion of our revenues and incur a portion of our
expenses in currencies other than the U.S. dollar.  As of December 31,
2009, we were exposed to changes in exchange rates between the U.S. dollar and
the Canadian dollar, between the U.S. dollar and the Chinese Yuan, and between
the U.S. dollar and the Indian Rupee.  We have not hedged foreign
currency exposures related to transactions denominated in currencies other than
U.S. dollars. Our exposure to foreign currency risk is not
significant.
 
 Interest
Rate Sensitivity
 
 We had
unrestricted cash, cash equivalents and investments totaling $28.0 million
and $22.9 million at December 31, 2009 and December 31, 2008,
respectively.  The cash equivalents consist of money market funds and
the investments consist of corporate bonds, commercial paper, certificates of
deposit, U.S. treasury bills and U.S. agency bonds, which are subject to market
risk due to changes in interest rates.  Fixed interest rate securities
may have their market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall.  We believe that we do not have any material exposure to
changes in the market value of our investment portfolio as a result of changes
in interest rates. Declines in interest rates, however, will reduce future
interest income.
 
 
 30
 
 Item
      8.
              Financial
      Statements and Supplementary Data.
 
 PERFICIENT,
INC.
 CONSOLIDATED
BALANCE SHEETS
 AS
OF DECEMBER 31, 2009 AND 2008
 
 December
      31,2009
              
              
              2008ASSETS
              
              (In
      thousands, except share information)Current
      assets:Cash
      and cash equivalents
              
              $
              17,975
              
              
              $
              22,909Short-term
      investments
              
              
              6,327
              
              
              
              --Total
      cash, cash equivalents and short-term investments
              
              
              24,302
              
              
              
              22,909Accounts
      and note receivable, net of allowance for doubtful accounts of $315 in
      2009 and $1,497 in 2008
              
              
              38,244
              
              
              
              47,584Prepaid
      expenses
              
              
              1,258
              
              
              
              1,374Other
      current assets
              
              
              1,534
              
              
              
              3,157Total
      current assets
              
              
              65,338
              
              
              
              75,024Long-term
      investments
              
              
              3,652
              
              
              
              --Property
      and equipment, net
              
              
              1,278
              
              
              
              2,345Goodwill
              
              
              104,168
              
              
              
              104,178Intangible
      assets, net
              
              
              7,605
              
              
              
              11,456Other
      non-current assets
              
              
              2,769
              
              
              
              1,244Total
      assets
              
              $
              184,810
              
              
              $
              194,247LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              3,657
              
              
              $
              4,509Other
      current liabilities
              
              
              11,476
              
              
              
              14,339Total
      current liabilities
              
              
              15,133
              
              
              
              18,848Other
      non-current liabilities
              
              
              1,329
              
              
              
              581Total
      liabilities
              
              $
              16,462
              
              
              $
              19,429Commitments
      and contingencies (see Note 11)
              
              
              --
              
              
              
              --Stockholders'
      equity:Common
      stock ($0.001 par value per share; 50,000,000 shares authorized and
      31,621,089 shares issued and 27,082,569 shares outstanding as of December
      31, 2009; 30,350,700 shares issued and 28,502,400 shares outstanding as of
      December 31, 2008)
              
              $
              32
              
              
              $
              30Additional
      paid-in capital
              
              
              208,003
              
              
              
              197,653Accumulated
      other comprehensive loss
              
              
              (273
              )
              
              
              (338
              )Treasury
      stock, at cost (4,538,520 shares as of December 31, 2009; 1,848,300 shares
      as of December 31, 2008)
              
              
              (27,529
              )
              
              
              (9,179
              )Accumulated
      deficit
              
              
              (11,885
              )
              
              
              (13,348
              )Total
      stockholders' equity
              
              
              168,348
              
              
              
              174,818Total
      liabilities and stockholders' equity
              
              $
              184,810
              
              
              $
              194,247
 
 See
accompanying notes to consolidated financial statements.
 
 
 31
 
 PERFICIENT, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Revenues:
              
              (In
      thousands, except share and per share information)Services
              
              $
              166,397
              
              
              $
              207,480
              
              
              $
              191,395Software
      and hardware
              
              
              12,968
              
              
              
              10,713
              
              
              
              14,243Reimbursable
      expenses
              
              
              8,785
              
              
              
              13,295
              
              
              
              12,510Total
      revenues
              
              
              188,150
              
              
              
              231,488
              
              
              
              218,148Cost
      of revenues (exclusive of depreciation and amortization, shown separately
      below):Project
      personnel costs
              
              
              114,877
              
              
              
              131,019
              
              
              
              114,692Software
      and hardware costs
              
              
              11,641
              
              
              
              8,639
              
              
              
              11,982Reimbursable
      expenses
              
              
              8,785
              
              
              
              13,295
              
              
              
              12,510Other
      project related expenses
              
              
              4,514
              
              
              
              5,033
              
              
              
              3,274Total
      cost of revenues
              
              
              139,817
              
              
              
              157,986
              
              
              
              142,458Gross
      margin
              
              
              48,333
              
              
              
              73,502
              
              
              
              75,690Selling,
      general and administrative
              
              
              40,042
              
              
              
              47,242
              
              
              
              41,963Depreciation
              
              
              1,483
              
              
              
              2,139
              
              
              
              1,553Amortization
              
              
              4,267
              
              
              
              4,810
              
              
              
              4,712Impairment
      of intangible assets
              
              
              --
              
              
              
              1,633
              
              
              
              --Income
      from operations
              
              
              2,541
              
              
              
              17,678
              
              
              
              27,462Net
      interest income
              
              
              209
              
              
              
              528
              
              
              
              172Net
      other income (expense)
              
              
              260
              
              
              
              (915
              )
              
              
              20Income
      before income taxes
              
              
              3,010
              
              
              
              17,291
              
              
              
              27,654Provision
      for income taxes
              
              
              1,547
              
              
              
              7,291
              
              
              
              11,424Net
      income
              
              $
              1,463
              
              
              $
              10,000
              
              
              $
              16,230Basic
      net income per share
              
              $
              0.05
              
              
              $
              0.34
              
              
              $
              0.58Diluted
      net income per share
              
              $
              0.05
              
              
              $
              0.33
              
              
              $
              0.54Shares
      used in computing basic net income per share
              
              
              27,538,300
              
              
              
              29,412,329
              
              
              
              27,998,093Shares
      used in computing diluted net income per share
              
              
              28,558,160
              
              
              
              30,350,616
              
              
              
              30,121,962
 
 See
accompanying notes to consolidated financial statements.
 
 
 32
 
 PERFICIENT, INC.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 (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, 2006
              
              
              26,700
              
              
              $
              27
              
              
              $
              147,028
              
              
              $
              (125
              )
              
              $
              --
              
              
              $
              (39,578
              )
              
              $
              107,352Acquisition
      purchase accounting adjustments
              
              
              1,250
              
              
              
              1
              
              
              
              24,975
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              24,976Proceeds
      from the exercise of stock options and sales of stock through the Employee
      Stock Purchase Plan
              
              
              1,171
              
              
              
              1
              
              
              
              3,902
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              3,903Tax
      benefit of stock option exercises and restricted stock
    vesting
              
              
              --
              
              
              
              --
              
              
              
              6,889
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              6,889Stock
      compensation related to restricted stock vesting
              
              
              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
              )
              
              $
              165,562Acquisition purchase
      accounting adjustments
              
              
              (19
              )
              
              
              --
              
              
              
              (290
              )
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (290
              )Proceeds
      from the exercise of stock options and sales of stock through the Employee
      Stock Purchase Plan
              
              
              367
              
              
              
              1
              
              
              
              922
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              923Net
      tax shortfall from stock option exercises and restricted stock
      vesting
              
              
              --
              
              
              
              --
              
              
              
              (922
              )
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (922
              )Stock
      compensation related to restricted stock vesting 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
              )
              
              $
              174,818Proceeds
      from the exercise of stock options and sales of stock through the Employee
      Stock Purchase Plan
              
              
              298
              
              
              
              1
              
              
              
              974
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              975Net
      tax shortfall from stock option exercises and restricted stock
      vesting
              
              
              --
              
              
              
              --
              
              
              
              (459
              )
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (459
              )Stock
      compensation related to restricted stock vesting and retirement
      savings plan contributions
              
              
              973
              
              
              
              1
              
              
              
              9,835
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              9,836Purchases
      of treasury stock
              
              
              (2,690
              )
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (18,350
              )
              
              
              --
              
              
              
              (18,350
              )Net
      unrealized loss on investments
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              (5
              )
              
              
              --
              
              
              
              --
              
              
              
              (5
              )Foreign
      currency translation adjustment
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              70
              
              
              
              --
              
              
              
              --
              
              
              
              70Net
      income
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              1,463
              
              
              
              1,463Total
      comprehensive income
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              1,528Balance
      at December 31, 2009
              
              
              27,083
              
              
              $
              32
              
              
              $
              208,003
              
              
              $
              (273
              )
              
              $
              (27,529
              )
              
              $
              (11,885
              )
              
              $
              168,348
 
 See accompanying notes to
consolidated financial statements.
 
 
 33
 
 
 PERFICIENT, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007OPERATING
      ACTIVITIES
              
              
              
              
              (In
      thousands)Net
      income
              
              $
              1,463
              
              
              $
              10,000
              
              
              $
              16,230Adjustments
      to reconcile net income to net cash provided by
operations:Depreciation
              
              
              1,483
              
              
              
              2,139
              
              
              
              1,553Amortization
              
              
              4,267
              
              
              
              4,810
              
              
              
              4,712Impairment
      of intangible assets
              
              
              --
              
              
              
              1,633
              
              
              
              --Deferred
      income taxes
              
              
              (18
              )
              
              
              (1,769
              )
              
              
              (495
              )Non-cash
      stock compensation and retirement savings plan
      contributions
              
              
              9,836
              
              
              
              8,945
              
              
              
              6,204Tax
      benefit from stock option exercises and restricted stock
      vesting
              
              
              (583
              )
              
              
              (700
              )
              
              
              (6,889
              )Changes
      in operating assets and liabilities, net of acquisitions:Accounts
      and note receivable
              
              
              9,427
              
              
              
              3,081
              
              
              
              (1,589
              )Other
      assets
              
              
              (342
              )
              
              
              (568
              )
              
              
              10,145Accounts
      payable
              
              
              (884
              )
              
              
              399
              
              
              
              (1,694
              )Other
      liabilities
              
              
              (2,086
              )
              
              
              (2,824
              )
              
              
              (5,126
              )Net
      cash provided by operating activities
              
              
              22,563
              
              
              
              25,146
              
              
              
              23,051INVESTING
      ACTIVITIESPurchase
      of investments
              
              
              (9,984
              )
              
              
              --
              
              
              
              --Purchase
      of property and equipment
              
              
              (415
              )
              
              
              (1,320
              )
              
              
              (2,035
              )Capitalization
      of software developed for internal use
              
              
              (311
              )
              
              
              (185
              )
              
              
              (181
              )Cash
      paid for acquisitions and related costs
              
              
              --
              
              
              
              (836
              )
              
              
              (26,774
              )Net
      cash used in investing activities
              
              
              (10,710
              )
              
              
              (2,341
              )
              
              
              (28,990
              )FINANCING
      ACTIVITIESProceeds
      from short-term borrowings
              
              
              --
              
              
              
              --
              
              
              
              11,900Payments
      on short-term borrowings
              
              
              --
              
              
              
              --
              
              
              
              (11,900
              )Payments
      on long-term debt
              
              
              --
              
              
              
              --
              
              
              
              (1,338
              )Payments
      for credit facility financing fees
              
              
              --
              
              
              
              (420
              )
              
              
              --Tax
      benefit from stock option exercises and restricted stock
      vesting
              
              
              583
              
              
              
              700
              
              
              
              6,889Proceeds
      from the exercise of stock options and sales of stock through the
      Employee Stock Purchase Plan
              
              
              975
              
              
              
              923
              
              
              
              3,903Purchases
      of treasury stock
              
              
              (18,350
              )
              
              
              (9,179
              )
              
              
              --Net
      cash provided by (used in) financing activities
              
              
              (16,792
              )
              
              
              (7,976
              )
              
              
              9,454Effect
      of exchange rate on cash and cash equivalents
              
              
              5
              
              
              
              10
              
              
              
              6Change
      in cash and cash equivalents
              
              
              (4,934
              )
              
              
              14,839
              
              
              
              3,521Cash
      and cash equivalents at beginning of period
              
              
              22,909
              
              
              
              8,070
              
              
              
              4,549Cash
      and cash equivalents at end of period
              
              $
              17,975
              
              
              $
              22,909
              
              
              $
              8,070Supplemental
      disclosures:Cash
      paid for interest
              
              $
              50
              
              
              $
              15
              
              
              $
              40Cash
      paid for income taxes
              
              $
              1,831
              
              
              $
              10,206
              
              
              $
              3,680Non-cash
      activities:Stock
      issued for purchase of businesses (stock reacquired for escrow
      claim)
              
              $
              --
              
              
              $
              (290
              )
              
              $
              24,976
 
 
 See
accompanying notes to consolidated financial statements.
 
 
 34
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 
 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.
 
 Changes
in Accounting Policy
 
 In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 168,The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (“SFAS 168”).  This statement modifies the Generally
Accepted Accounting Principles (“GAAP”) hierarchy by establishing only two
levels of GAAP, authoritative and non-authoritative. Effective July 1, 2009, the
FASB Accounting Standards Codification (“ASC”), also known collectively as the
“Codification,” is considered the single source of authoritative U.S. accounting
and reporting standards, except for additional authoritative rules and
interpretive releases issued by the U.S Securities Exchange and Commission
(“SEC”).  The Codification was developed to organize GAAP
pronouncements by topic so users can more easily access authoritative accounting
guidance.  It is organized by topic, subtopic, section, and paragraph,
each of which is identified by a numerical designation.  This
statement applied beginning in the third quarter of 2009.  All
accounting references herein have been updated with ASC references, however, the
SFAS references have been included in parenthesis for the reader’s
reference.
 
 Revision
of Previously Issued Financial Statements
 
 During
the third quarter of 2009, the Company identified a cash flow presentation
adjustment related to the reversal of a deferred tax asset resulting from the
exercise of stock options or vesting of stock awards.  The Company has
determined the impact of the adjustment is not considered material to the
consolidated results of operations, financial position or cash flows for the
year ended December 31, 2008.  The Company revised the previously
issued Consolidated Statement of Cash Flows for the year ended December 31,
2008, as presented in this Form 10-K.
 
 The
revision decreased the “Net cash provided by operating activities” and decreased
the “Net cash used in financing activities” in the Consolidated Statement of
Cash Flows for the year ended December 31, 2008 by approximately $1.6
million.  There was no impact on “Net cash provided by operating
activities” or “Net cash used in financing activities” for the year ended
December 31, 2007.  The adjustment had no impact on the Consolidated
Balance Sheet or the Consolidated Statement of Operations for the year ended
December 31, 2008 or on the Consolidated Statement of Operations for the year
ended December 31, 2007.
 
 
 35
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 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 and collected 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 a 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.
 
 Unbilled
revenues represent the project time and expenses that have been incurred, but
not yet billed to the client, prior to the end of the fiscal
period.  For time and materials projects, the client is invoiced for
the amount of hours worked times the billing rates as stated in the contract.
For fixed fee arrangements, the client is invoiced according to the agreed-upon
schedule detailing the amount and timing of payments in the
contract.  Clients are typically billed monthly for services provided
during that month, but can be billed on a more or less frequent basis as
determined by the contract.  If the time and expenses are
worked/incurred and approved at the end of a fiscal period and the invoice has
not yet been sent to the client, the amount is recorded as unbilled revenue once
the Company verifies all other revenue recognition criteria have been
met.
 
 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 ASC Subtopic 985-605 (American Institute of Certified Public
Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue
Recognition),
ASC Subtopic 605-25(Emerging Issues Task
Force (“EITF”) Issue No. 00-21,Revenue Arrangements with Multiple
Deliverables), and ASC Section 605-10-S99 (Staff Accounting Bulletin
(“SAB”) 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 exists 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
is required to assess whether one or more units of accounting are
present.  Service 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.
 
 Allowance
for doubtful accounts is based upon specific identification of likely and
probable losses. Each accounting period, accounts receivable is evaluated for
risk associated with a client's inability to make contractual payments,
historical experience and other currently available information.
 
 Cash
and Cash Equivalents
 
 Cash
equivalents consist primarily of cash deposits and investments with original
maturities of 90 days or less when purchased.
 
 Investments
 
 The Company invests a portion of its
excess cash in short-term and long-term investments.  The short-term
investments consist of corporate bonds, commercial paper and certificates of
deposit with original maturities greater than three months and remaining
maturities of less than one year.  The long-term investments consist
of U.S. treasury bills and U.S. agency bonds with original maturities of greater
than one year.  At December 31, 2009, all of the Company’s investments
were classified as available-for-sale and were valued in accordance with the
fair value hierarchy specified in ASC Subtopic 820-10 (SFAS No. 157,Fair Value
Measurements).
 
 
 36
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 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 ASC
Topic 350 (SFAS No. 142,Goodwill and Other Intangible Assets), 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 ASC Topic 350, 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.
 
 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 is considered an
operating expense and is 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 will continue to monitor the trend of its stock price, other market
indicators and its operating results to determine whether there is a triggering
event that may require the Company to perform an interim impairment test in the
future and record impairment charges to earnings, which could adversely
affect the Company’s financial results.
 
 Income
Taxes
 
 The
Company accounts for income taxes in accordance with ASC Subtopic 740-10 (SFAS
No. 109,Accounting for Income
Taxes,and ASC Section 740-10-25 (Financial Accounting Standards
Interpretation No. 48,Accounting for Uncertainty in Income Taxes – an interpretation of SFAS
109). ASC Subtopic 740-10 prescribes the use of the asset and 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.  ASC Subtopic 740-10-25 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. ASC
Subtopic 740-10-25 also provides guidance on derecognition, classification,
treatment of interest and penalties, and disclosure of such positions. The
Company adopted the provisions of ASC Subtopic 740-10-25 on January 1, 2007 as
required and such adoption did not have a material impact to the consolidated
financial statements.
 
 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
 
 Stock-based
compensation is accounted for in accordance with ASC Topic 718 (SFAS
No. 123R (As Amended),Share Based Payment). Under this method, the Company recognizes
share-based compensation ratably using the straight-line attribution method over
the requisite service period. In addition, pursuant to ASC Topic 718, 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 ASC Topic
718.
 
 
 37
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 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.  Investments are stated at amounts
which approximate fair value based on quoted market prices or other observable
inputs.
 
 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 ASC Topic 280
(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 goodwill impairment analysis discussed above.
 
 Recently
Accounting Pronouncements
 
 Effective
January 1, 2009, the Company adopted ASC Paragraph 350-30-50-2 (Financial
Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. 142-3,Determination of the Useful Life of
Intangible Assets).  ASC Paragraph 350-30-50-2 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 ASC Topic 350’s entity-specific factors. The adoption of ASC
Paragraph 350-30-50-2 did not have a material impact on the Company’s
consolidated financial statements.
 
 Effective
January 1, 2009, the Company adopted ASC Topic 805 (SFAS No. 141 (revised
2007),Business
Combinations).  ASC Topic 805 establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
non-controlling 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 requires, among other things, that
transaction costs be expensed instead of recognized as purchase price. ASC Topic
805 applies prospectively to business combinations for which the acquisition
date is on or after January 1, 2009.
 
 Effective
January 1, 2009, the Company adopted ASC Subtopic 805-20 (FSP No. SFAS
141(R)-1,Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies), to amend and clarify the initial recognition and
measurement, subsequent measurement and accounting, and related disclosures
arising from contingencies in a business combination under ASC Topic 805. Under
the new guidance, assets acquired and liabilities assumed in a business
combination that arise from contingencies should be recognized at fair value on
the acquisition date if fair value can be determined during the measurement
period.  If fair value can not be determined, acquired contingencies should
be accounted for using existing guidance.  ASC Subtopic 805-20 applies
to business combinations for which the acquisition date is on or after January
1, 2009.
 
 Effective
September 30, 2009, the Company adopted ASC Subtopic 855-10 (SFAS No. 165,Subsequent Events), which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued.  ASC Subtopic 855-10 sets forth
the period after the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date.  The Company adopted ASC Subtopic 855-10 as required; adoption
did not have a material impact on the Company’s consolidated financial
statements.
 
 
 38
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 In June
2009, the FASB issued SFAS 168.  This statement modifies the GAAP
hierarchy by establishing only two levels of GAAP, authoritative and
non-authoritative. Effective July 1, 2009, the ASC is considered the single
source of authoritative U.S. accounting and reporting standards, except for
additional authoritative rules and interpretive releases issued by the
SEC.  The Codification was developed to organize GAAP pronouncements
by topic so that users can more easily access authoritative accounting
guidance.  It is organized by topic, subtopic, section, and paragraph,
each of which is identified by a numerical designation.  This
statement was applied beginning in the third quarter of 2009.  All
accounting references herein have been updated with ASC references, however, the
SFAS references have been included in parenthesis for the reader’s
reference.
 
 On June
12, 2009, the FASB issued ASC Topic 810,Amendments to FASB Interpretation
No. 46(R).  This statement is a revision to FASB Interpretation No.
46(R),Consolidation of
Variable Interest Entities, and changes how a company determines when an
entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated.  The determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impacts the entity’s economic
performance.  The statement is effective at the start of a company’s
first fiscal year beginning after November 15, 2009, or January 1, 2010 for
companies reporting on a calendar year basis.  The Company is
currently evaluating the impact of ASC Topic 810 on its financial statements;
however, management does not believe that it will have a material
impact.
 
 In
October 2009, the FASB issued ASC Subtopic 605-25, Revenue Recognition –
Multiple-Element Arrangements, an amendment to the accounting standards
related to the accounting for revenue in arrangements with multiple deliverables
including how the arrangement consideration is allocated among delivered and
undelivered items of the arrangement. Among the amendments, this standard
eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to
each deliverable based on an estimated selling price of each individual
deliverable in the arrangement in the absence of having vendor-specific
objective evidence or other third party evidence of fair value of the
undelivered items. This standard also provides further guidance on how to
determine a separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the judgments made in
applying the estimated selling price method and how those judgments affect the
timing or amount of revenue recognition. This standard is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010.  The Company is
currently evaluating the impact of ASC Subtopic 605-25 on its financial
statements; however, management does not believe that it will have a material
impact.
 
 In
October 2009, the FASB issued ASC Subtopic 985-605, Software-Revenue Recognition,
an amendment to the accounting standards related to certain revenue arrangements
that include software elements. This standard clarifies the existing accounting
guidance such that tangible products that contain both software and non-software
components that function together to deliver the product’s essential
functionality, shall be excluded from the scope of the software revenue
recognition accounting standards. Accordingly, sales of these products may fall
within the scope of other revenue recognition accounting standards or may now be
within the scope of this standard and may require an allocation of the
arrangement consideration for each element of the arrangement. This standard is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010.  The
Company is currently evaluating the impact of ASC Subtopic 983-605 on its
financial statements; however, management does not believe that it will have a
material impact.
 
 Effective
January 1, 2008, the Company adopted ASC Subtopic 825-10 (SFAS
No. 159,The Fair Value
Option for Financial Assets and Financial Liabilities, Including an amendment of
SFAS No. 115).  ACS Subtopic 825-10 permits companies to
choose to measure many financial instruments and certain other items at fair
value.  The adoption of ACS Subtopic 825-10 did not have a material
impact on the Company’s consolidated financial statements.
 
 Effective
January 1, 2008, the Company adopted ASC Subtopic 820-10.  In February
2008, the FASB issued ASC Paragraphs 820-10-50-8A, 55-23A, and 55-23B (FSP No.
157-2,Effective Date of FASB
Statement No. 157), which delayed the effective date of ASC Subtopic
820-10 for certain non-financial assets and liabilities, including fair value
measurements under ASC Topic 805 and ASC Topic 350 of goodwill and other
intangible assets, to fiscal years beginning after November 15,
2008.  ASC Subtopic 820-10 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 ASC Subtopic 820-10 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 ASC Subtopic 820-10 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:
 
 
 39
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 ·
              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.
 
 On
January 1, 2009, the Company implemented the previously deferred provisions
of ASC Subtopic 820-10 for non-financial assets and liabilities recorded at fair
value, as required.
 
 Refer to
Note 4, Investments and Fair
Value Measurement, for the Company’s adoption of ASC Subtopic 820-10 as
it relates to assets or liabilities that are required to be measured at fair
value on a recurring basis.  As of December 31, 2009, the Company did
not hold any non-financial assets or liabilities that were required to be
re-measured at fair value, and therefore the adoption of ASC Paragraph
820-10-50-8A, 55-23A, and 55-23B did not have a material impact on the Company’s
consolidated financial statements.  As discussed in Note 7, Goodwill and Intangible
Assets, the Company performed its annual goodwill impairment test during
the fourth quarter of 2009.
 
 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 31,2009
              
              
              2008
              
              
              2007Net
      income
              
              $
              1,463
              
              
              $
              10,000
              
              
              $
              16,230Basic:Weighted-average
      shares of common stock outstanding
              
              
              27,538
              
              
              
              29,338
              
              
              
              27,442Weighted-average
      shares of common stock subject to contingency (i.e. restricted
      stock)
              
              
              --
              
              
              
              74
              
              
              
              556Shares
      used in computing basic net income per share
              
              
              27,538
              
              
              
              29,412
              
              
              
              27,998Effect
      of dilutive securities:Stock
      options
              
              
              610
              
              
              
              835
              
              
              
              1,707Warrants
              
              
              6
              
              
              
              6
              
              
              
              8Restricted
      stock subject to vesting
              
              
              404
              
              
              
              98
              
              
              
              409Shares
      used in computing diluted net income per share (1)
              
              
              28,558
              
              
              
              30,351
              
              
              
              30,122Basic
      net income per share
              
              $
              0.05
              
              
              $
              0.34
              
              
              $
              0.58Diluted
      net income per share
              
              $
              0.05
              
              
              $
              0.33
              
              
              $
              0.54
 
 (1)
              As
      of December 31, 2009, approximately 0.5 million options for shares and 1.8
      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.   Investments
and Fair Value Measurement
 
 During 2009, the Company began
investing a portion of its excess cash in short-term and long-term
investments.  The short-term investments consist of corporate bonds,
commercial paper and certificates of deposit with original maturities greater
than three months and remaining maturities of less than one year.  The
long-term investments consist of U.S. treasury bills and U.S. agency bonds with
original maturities of greater than one year.  At December 31, 2009,
all of the Company’s investments were classified as available-for-sale and were
valued in accordance with the fair value hierarchy specified in ASC Subtopic
820-10.  As of December 31, 2009, gross unrealized gains and losses
for these investments were immaterial.
 
 
 40
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 ASC
Subtopic 820-10 includes a fair value hierarchy that is intended to increase
consistency and comparability in fair value measurements and related
disclosures.  The fair value hierarchy is based on inputs to valuation
techniques that are used to measure fair value that are either observable or
unobservable.  Observable inputs reflect assumptions market
participants would use in pricing an asset or liability based on market data
obtained from independent sources while unobservable inputs reflect a reporting
entity’s pricing based upon their own market assumptions.  The fair
value hierarchy consists of the following three levels:
 
 ·
              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.
 
 Cash,
cash equivalents and investments were classified as the following (in
thousands):
 
 As
      of December 31, 2009
              
              
              Quoted
      Prices in Active Markets (Level 1)
              
              
              Observable
      Inputs
                (Level
      2)
              
              
              Unobservable
      Inputs (Level 3)Cash
      Equivalents:Money
      Market Funds
              
              $
              17,327
              
              
              $
              17,327
              
              
              $
              -
              
              
              $
              -Short-term
      Investments:Corporate
      Bonds
              
              
              3,974
              
              
              
              -
              
              
              
              3,974
              
              
              
              -Commercial
      Paper
              
              
              449
              
              
              
              -
              
              
              
              449
              
              
              
              -Certificates
      of Deposit
              
              
              1,904
              
              
              
              -
              
              
              
              1,904
              
              
              
              -Long-term
      Investments:U.S.
      Treasury Bills
              
              
              1,609
              
              
              
              1,609
              
              
              
              -
              
              
              
              -U.S.
      Agency Bonds
              
              
              2,043
              
              
              
              -
              
              
              
              2,043
              
              
              
              -Total
      Cash Equivalents & Investments
              
              $
              27,306
              
              
              $
              18,936
              
              
              $
              8,370
              
              
              $
              -Cash
              
              
              648Total
      Cash, Cash Equivalents, & Investments
              
              $
              27,954
 
 Investments
are generally classified as Level 1 or Level 2 because they are valued using
quoted market prices in active markets, quoted prices in less active markets,
broker or dealer quotations, or alternative pricing sources with reasonable
levels of price transparency.  Money market funds and U.S. treasury
bills are valued based on unadjusted quoted prices in active markets for
identical securities.  The Company uses consensus pricing, which is
based on multiple pricing sources, to value its investment in corporate bonds,
certificates of deposit, and U.S. agency bonds.
 
 5.  
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. During 2009, a substantial portion of the services the Company
provided were built on IBM, Oracle, TIBCO, and Microsoft platforms, among
others, and a significant number of its clients are identified through joint
selling opportunities conducted with and through sales leads obtained from the
relationships with these vendors.  Due to the Company's significant
fixed operating expenses, the loss of sales to 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.  However, the Company has
remained relatively diversified, with no one customer providing more than 10% of
our total revenues during 2009, 2008 or 2007.
 
 
 41
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 6.  
Employee Benefit Plans
 
 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 of 1986 (the “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 2009 and 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.  The Company recognized $1.9 million and
$2.0 million of expense for the matching cash and Company stock contribution in
2009 and 2008, respectively.  The Company made matching contributions
equal to 25% (in cash) of the first 6% of employee contributions totaling
approximately $0.8 million during 2007.  All matching contributions
vest over a three year period of service.
 
 The
Company has 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, 2009, the deferred
compensation liability balance was $1.1 million compared to $0.6 million as of
December 31, 2008.
 
 7.  
Goodwill and Intangible Assets
 
 The
Company performed its annual impairment test of goodwill as of October 1,
2009.  As required by ASC Topic 350, 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 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 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 ASC Topic 350 (Statement of Financial
Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible
Assets), and ASC Section 360-10-05 (SFAS No. 144,Accounting for the
Impairment or Disposal of Long-Lived Assets), 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 e tech solutions, Inc. (“E
Tech”).  The value of these relationships was affected primarily by
the loss of a key customer acquired from 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.
 
 Goodwill
 
 Activity
related to goodwill consisted of the following (in
thousands):
  2009
              
              
              2008Balance,
      beginning of year
              
              $
              104,178
              
              
              $
              103,686Adjustments
      to preliminary purchase price allocations for acquisitions
              
              
              (10
              )
              
              
              1,088Adjustment
      to E Tech purchase price allocation for escrow claim
              
              
              --
              
              
              
              (378
              )Utilization
      of net operating loss carryforwards associated with
      acquisitions
              
              
              --
              
              
              
              (218
              )Balance,
      end of year
              
              $
              104,168
              
              
              $
              104,178
 
 
 42
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 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 31,2009
              
              2008Gross
      Carrying
                Amount
              
              Accumulated
                Amortization
              
              Net
                Carrying
      Amount
              
              Gross
      Carrying
                Amount
              
              Accumulated
                Amortization
              
              Net
                Carrying
      AmountCustomer
      relationships
              
              $
              16,613
              
              
              $
              (9,752
              )
              
              $
              6,861
              
              
              $
              18,013
              
              
              $
              (7,693
              )
              
              $
              10,320Non-compete
      agreements
              
              
              683
              
              
              
              (483
              )
              
              
              200
              
              
              
              2,633
              
              
              
              (2,098
              )
              
              
              535Internally
      developed software
              
              
              1,669
              
              
              
              (1,125
              )
              
              
              544
              
              
              
              1,358
              
              
              
              (757
              )
              
              
              601Total
              
              $
              18,965
              
              
              $
              (11,360
              )
              
              $
              7,605
              
              
              $
              22,004
              
              
              $
              (10,548
              )
              
              $
              11,456
 
 The
estimated useful lives of 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, 2009, 2008, and 2007 was approximately $4.3
million, $4.8 million, and $4.7 million respectively.  In addition,
the Company recorded an impairment charge of $1.6 million related to customer
relationships in 2008.
 
 Estimated
annual amortization expense for the next five years ended December 31 is as
follows (in thousands):
 
 2010
              
              $
              3,4462011
              
              $
              2,8202012
              
              $
              1,0802013
              
              $
              1412014
              
              $
              109Thereafter
              
              $
              9
 
 8.  
Stock-Based Compensation
 
 Stock
Option Plans
 
 The
Company made various stock option and award grants under the 1999 Stock
Option/Stock Issuance Plan (the “1999 Plan”) prior to May 2009.  In
April 2009, the Company’s stockholders approved the 2009 Long-Term Incentive
Plan (the “Incentive Plan”), which had been previously approved by the Company’s
Board of Directors.  The Incentive Plan allows for the granting of
various types of stock awards, not to exceed a total of 1.5 million shares, to
eligible individuals.  The Compensation Committee of the Board of
Directors will administer the Incentive Plan and determine the terms of all
stock awards made under the Incentive Plan.
 
 
 43
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 A summary
of changes in common stock options during 2009, 2008 and 2007 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, 2007
              
              
              3,552
              
              
              $
              0.02
      – 16.94
              
              
              $
              4.03Options
      granted
              
              
              9
              
              
              
              3.00 –
        3.00
              
              
              
              3.00Options
      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
              
              
              $
              4.81Options
      granted
              
              
              --
              
              
              
              --
              
              
              
              --Options
      exercised
              
              
              (279
              )
              
              
              0.10
      –   7.48
              
              
              
              3.04
              
              
              $
              1,043Options
      canceled
              
              
              (47
              )
              
              
              0.03
      – 13.25
              
              
              
              5.35Options
      outstanding at December 31, 2009
              
              
              1,704
              
              
              $
              0.03
      – 16.94
              
              
              $
              5.08
              
              
              $
              6,458Options
      vested, December 31, 2007
              
              
              1,887
              
              
              $
              0.02
      – 16.94
              
              
              $
              4.03Options
      vested, December 31, 2008
              
              
              1,773
              
              
              $
              0.03
      – 16.94
              
              
              $
              4.59Options
      vested, December 31, 2009
              
              
              1,532
              
              
              $
              0.03
      – 16.94
              
              
              $
              4.95
              
              
              $
              6,094
 
 The
following is additional information related to stock options outstanding at
December 31, 2009:
 
 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
              
              
              
              475,039
              
              
              $
              1.70
              
              
              
              3.16
              
              
              
              475,039
              
              
              $
              1.70$
              2.77
      –   3.75
              
              
              
              384,443
              
              
              $
              3.57
              
              
              
              2.14
              
              
              
              384,443
              
              
              $
              3.57$
              4.40
      –   6.31
              
              
              
              608,476
              
              
              $
              6.22
              
              
              
              4.86
              
              
              
              437,047
              
              
              $
              6.18$
              7.48
      – 14.69
              
              
              
              205,561
              
              
              $
              10.68
              
              
              
              2.42
              
              
              
              205,561
              
              
              $
              10.68$
              15.50
      – 16.94
              
              
              
              30,237
              
              
              $
              16.68
              
              
              
              0.26
              
              
              
              30,237
              
              
              $
              16.68$
              0.03
      – 16.94
              
              
              
              1,703,756
              
              
              $
              5.08
              
              
              
              3.40
              
              
              
              1,532,327
              
              
              $
              4.95
 
 At
December 31, 2009, 2008 and 2007, the weighted-average remaining
contractual life of outstanding options was 3.40, 4.21, and 5.20 years,
respectively.  Generally stock option grants have a maximum
contractual term of ten years.
 
 Restricted
stock activity for the year ended December 31, 2009 was as follows (in
thousands, except fair value information):
 
 Shares
              
              
              Weighted-Average
                Grant
      Date Fair
                ValueRestricted
      stock awards outstanding at January 1, 2009
              
              
              3,510
              
              
              $
              9.65Awards
      granted
              
              
              922
              
              
              $
              6.92Awards
      vested
              
              
              (825
              )
              
              $
              9.94Awards
      canceled or forfeited
              
              
              (474
              )
              
              $
              9.48Restricted
      stock awards outstanding at December 31, 2009
              
              
              3,133
              
              
              $
              8.79
 
 
 44
 
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 The total
fair value of restricted shares vesting during the years ended December 31,
2009, 2008, and 2007 was $6.7 million, $2.3 million, and $5.2 million,
respectively.
 
 The
Company recognized $9.8 million and $8.9 million of share-based compensation
expense during 2009 and 2008, respectively, which included $0.9 million and $1.0
million of expense for retirement savings plan contributions,
respectively.  For 2007, total share-based compensation was $6.2
million. The associated current and future income tax benefit recognized during
2009, 2008, and 2007 was $3.4 million, $2.9 million, and $2.1 million,
respectively. As of December 31, 2009, there was $25.5 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 average estimated forfeiture rate for share based awards for the year
ended December 31, 2009 was 8%, which was calculated using our historical
forfeiture experience.  Generally restricted stock awards vest over a
five year requisite service period.
 
 At
December 31, 2009, 1.7 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, 2009, there were 3.1
million shares of restricted stock outstanding under the 1999 Plan.
 
 Employee
Stock Purchase Plan
 
 The
Employee Stock Purchase Plan (the “ESPP”) was initiated January 1, 2006 and 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, 2009, approximately 19,000 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.
 
 9.  
Line of Credit
 
 In May
2008, the Company entered into a Credit Agreement (the “Credit Agreement”) with
Silicon Valley Bank (“SVB”) and KeyBank National Association
(“KeyBank”).  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.  Substantially all of the Company’s
assets are pledged to secure the credit facility.  In July 2009, U.S.
Bank National Association (“U.S. Bank”) assumed $10 million of KeyBank’s
commitment.
 
 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, 2009) plus a margin ranging from 0.00% to 0.50% or
one-month LIBOR (0.23% on December 31, 2009) 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, 2009, the Company had $50 million of
maximum 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 not more than 2.75 to 1.00.  As of December
31, 2009, the Company was in compliance with all covenants under the credit
facility and the Company expects to be in compliance during the next twelve
months.
 
 45
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 10.  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, 2009, the IRS has proposed no
significant adjustments to any of the Company's tax positions.
 
 The
Company adopted the provisions of the ASC Subtopic 740-10-25 on January 1, 2007.
As a result of the implementation of ASC Subtopic 740-10-25, 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, 2009 or 2008.
 
 As of
December 31, 2009, the Company had U.S. Federal tax net operating loss
carry forwards of approximately $5.2 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 Code. 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 31,2009
              
              
              2008
              
              
              2007Current:Federal
              
              $
              1,284
              
              
              $
              7,639
              
              
              $
              4,110State
              
              
              417
              
              
              
              1,536
              
              
              
              752Foreign
              
              
              7
              
              
              
              (9
              )
              
              
              26Total
      current
              
              
              1,708
              
              
              
              9,166
              
              
              
              4,888Tax
      benefit on acquired net operating loss carryforward
              
              
              316
              
              
              
              488
              
              
              
              385Tax
      benefit (expense) from stock option exercises and restricted stock
      vesting
              
              
              (459
              )
              
              
              (922
              )
              
              
              6,889Deferred:Federal
              
              
              (16
              )
              
              
              (1,304
              )
              
              
              (668
              )State
              
              
              (2
              )
              
              
              (137
              )
              
              
              (70
              )Total
      deferred
              
              
              (18
              )
              
              
              (1,441
              )
              
              
              (738
              )Total
      provision for income taxes
              
              $
              1,547
              
              
              $
              7,291
              
              
              $
              11,424
 
 The
components of pretax income for the years ended December 31, 2009, 2008 and 2007
are as follows (in thousands):
 
 Year
      Ended December 31,2009
              
              2008
              
              2007Domestic
              
              $
              2,995
              
              
              $
              16,879
              
              
              $
              27,640Foreign
              
              
              15
              
              
              
              412
              
              
              
              14Total
              
              $
              3,010
              
              
              $
              17,291
              
              
              $
              27,654
 
 For the
year ended December 31, 2009, 2008 and 2007, foreign operations included Canada,
China, and India.
 
 
 
 
 46
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 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, 2009 and 2008 are as follows
(in thousands):
 
 December
      31,2009
              
              
              2008Deferred
      tax assets:Current
      deferred tax assets:Accrued
      liabilities
              
              $
              426
              
              
              $
              435Net
      operating losses
              
              
              272
              
              
              
              475Bad
      debt reserve
              
              
              118
              
              
              
              878816
              
              
              
              1,788Valuation
      allowance
              
              
              (13
              )
              
              
              (31
              )Net
      current deferred tax assets
              
              $
              803
              
              
              $
              1,757Non-current
      deferred tax assets:Net
      operating losses and capital loss
              
              $
              1,773
              
              
              $
              1,985Fixed
      assets
              
              
              599
              
              
              
              329Deferred
      compensation
              
              
              1,988
              
              
              
              1,654Intangibles
              
              
              678
              
              
              
              --Accrued
      liabilities
              
              
              222
              
              
              
              --Foreign
      tax credits
              
              
              253
              
              
              
              --5,513
              
              
              
              3,968Valuation
      allowance
              
              
              (125
              )
              
              
              (109
              )Net
      non-current deferred tax assets
              
              $
              5,388
              
              
              $
              3,859
 
 Deferred
      tax liabilities:Current
      deferred tax liabilities:Deferred
      income
              
              $
              --
              
              
              $
              302Prepaid
      expenses
              
              
              367
              
              
              
              419Net
      current deferred tax liabilities
              
              $
              367
              
              
              $
              721Non-current
      deferred tax liabilities:Deferred
      income
              
              $
              82
              
              
              $
              84Deferred
      compensation
              
              
              258
              
              
              
              244Goodwill
      and intangibles
              
              
              4,217
              
              
              
              3,510Total
      non-current deferred tax liabilities
              
              $
              4,557
              
              
              $
              3,838Net
      current deferred tax asset
              
              $
              436
              
              
              $
              1,036Net
      non-current deferred tax asset
              
              $
              831
              
              
              $
              21
 
 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.  During 2007, the
Company released approximately $1.9 million of its valuation allowance after
determining that the acquired net operating losses would be
realized.  The remaining valuation allowance as of December 31, 2009
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.  The Company’s net non-current deferred tax asset
is included in other non-current assets on the Consolidated Balance
Sheet.
 
 
 47
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 Changes
to the valuation allowance are summarized as follows for the years presented (in
thousands):
 
 Year
      ended December 31,2009
              
              
              2008
              
              
              2007Balance,
      beginning of year
              
              $
              140
              
              
              $
              130
              
              
              $
              2,056Additions
      (Reductions)
              
              
              (2
              )
              
              
              9
              
              
              
              31Additions
      (Reductions) from purchase accounting
              
              
              --
              
              
              
              1
              
              
              
              (1,957
              )Balance,
      end of year
              
              $
              138
              
              
              $
              140
              
              
              $
              130
 
 The
federal corporate statutory rate is reconciled to the Company’s effective income
tax rate as follows:
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Federal
      corporate statutory rate
              
              
              34.0
              %
              
              
              35.0
              %
              
              
              34.3
              %State
      taxes, net of federal benefit
              
              
              8.4
              
              
              
              4.5
              
              
              
              4.2Effect
      of foreign operations
              
              
              --
              
              
              
              --
              
              
              
              0.1Stock
      compensation
              
              
              7.4
              
              
              
              0.9
              
              
              
              1.9Other
              
              
              1.6
              
              
              
              1.7
              
              
              
              0.8Effective
      income tax rate
              
              
              51.4
              %
              
              
              42.1
              %
              
              
              41.3
              %
 
 The
effective income tax rate increased to 51.4% for the year ended December 31,
2009 from 42.1% for the year ended December 31, 2008 as a result of the
magnified effect of certain state taxes, which are generally based on gross
receipts instead of income, permanent items such as meals and entertainment, and
non-deductible executive compensation under Section 162(m) of the Code, relative
to a smaller income base.
 
 11.  Commitments
and Contingencies
 
 The
Company leases office space under various operating lease agreements. The
Company has the option to extend the term of certain lease agreements. Future
minimum commitments under these lease agreements as of December 31, 2009 are as
follows (in thousands):
  Operating
                Leases2010
              
              $
              2,3032011
              
              
              1,9412012
              
              
              9112013
              
              
              6492014
              
              
              429Thereafter
              
              
              22Total
      minimum lease payments
              
              $
              6,255
 
 During
the third quarter of 2009, the Company vacated certain office space as part of
ongoing cost reduction initiatives in response to the Company’s 2009 revenue
contraction.  The Company subleased some of the vacated office space
during the fourth quarter of 2009.  The accounting for costs
associated with the abandonment of office space was calculated using the
guidance in ASC Subtopic 420-10 (SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities).  A liability of approximately
$0.3 million for lease abandonment costs was recorded in the third quarter of
2009.  The lease abandonment costs were classified as “Selling,
general and administrative” expense in the Company’s Consolidated Statement of
Operations for the year ended December 31, 2009.
 
 Rent
expense for the years ended December 31, 2009, 2008 and 2007 was
approximately $2.7 million, $2.9 million, and $2.3 million,
respectively.
 
 
 48
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 12.  Balance
Sheet Components
  December
      31,2009
              
              
              2008(In
      thousands)Accounts
      and note receivable:Accounts
      receivable
              
              $
              26,632
              
              
              $
              30,565Unbilled
      revenues
              
              
              11,927
              
              
              
              16,374Note
      receivable (1)
              
              
              --
              
              
              
              2,142Allowance
      for doubtful accounts
              
              
              (315
              )
              
              
              (1,497
              )Total
              
              $
              38,244
              
              
              $
              47,584
 
 (1)
              In
      June 2008, the Company entered into a note arrangement with a
      customer.  The note was fully repaid in October
      2009.
 
 Other
      current assets:Other
      current assets
              
              $
              830
              
              
              $
              563Deferred
      tax asset, net
              
              
              436
              
              
              
              1,036Income
      tax receivable
              
              
              268
              
              
              
              1,558Total
              
              $
              1,534
              
              
              $
              3,157Other
      current liabilities:Accrued
      variable compensation
              
              $
              4,561
              
              
              $
              5,644Accrued
      subcontractor fees
              
              
              1,847
              
              
              
              1,625Payroll
      related costs
              
              
              1,375
              
              
              
              1,495Deferred
      revenues
              
              
              898
              
              
              
              1,575Accrued
      medical claims expense
              
              
              703
              
              
              
              654Accrued
      reimbursable expenses
              
              
              522
              
              
              
              671Accrued
      settlement (2)
              
              
              --
              
              
              
              800Other
      current liabilities
              
              
              1,570
              
              
              
              1,875Total
              
              $
              11,476
              
              
              $
              14,339
 
 (2)
              The
      Company negotiated the termination of an ongoing fixed fee contract.
      Management believed the negotiation would result in a
      probable loss 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.
 
 Other
      non-current liabilities:Deferred
      compensation liability
              
              $
              1,104
              
              
              
              581Other
      non-current liabilities
              
              
              225
              
              
              
              --Total
              
              $
              1,329
              
              
              $
              581
 
 Property
      and Equipment:Computer
      hardware (useful life of 2 years)
              
              $
              4,724
              
              
              $
              6,206Furniture
      and fixtures (useful life of 5 years)
              
              
              1,409
              
              
              
              1,406Leasehold
      improvements (useful life of 5 years)
              
              
              1,016
              
              
              
              969Software (useful
      life of 1 year)
              
              
              1,002
              
              
              
              1,216Less:
      Accumulated depreciation
              
              
              (6,873
              )
              
              
              (7,452
              )Total
              
              $
              1,278
              
              
              $
              2,345
 
 
 49
 
 PERFICIENT,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 DECEMBER
31, 2009
 
 13.  Allowance
for Doubtful Accounts
 
 Activity
in the allowance for doubtful accounts is summarized as follows for the years
presented (in thousands):
 
 Year
      ended December 31,2009
              
              
              2008
              
              
              2007Balance,
      beginning of year
              
              $
              1,497
              
              
              $
              1,475
              
              
              $
              707Charges
      (reductions) to expense
              
              
              (448
              )
              
              
              1,822
              
              
              
              1,060Additions
      (reductions) resulting from purchase accounting
              
              
              --
              
              
              
              (203
              )
              
              
              153Uncollected
      balances written off, net of recoveries
              
              
              (734
              )
              
              
              (1,597
              )
              
              
              (445
              )Balance,
      end of year
              
              $
              315
              
              
              $
              1,497
              
              
              $
              1,475
 
 14.  Quarterly
Financial Results (Unaudited)
 
 The
following tables set forth certain unaudited supplemental quarterly financial
information for the years ended December 31, 2009 and 2008. The quarterly
operating results are not necessarily indicative of future results of operations
(in thousands except per share data).
 
 Three
      Months Ended,March
      31,
                2009
              
              
              June
      30,
                2009
              
              
              September
      30,
                2009
              
              
              December
      31,
                2009(Unaudited)Total
      revenues
              
              $
              51,292
              
              
              $
              44,929
              
              
              $
              44,489
              
              
              $
              47,440Gross
      margin
              
              $
              13,339
              
              
              $
              11,703
              
              
              $
              10,857
              
              
              
              12,434Income
      (loss) from operations
              
              $
              1,242
              
              
              $
              56
              
              
              $
              (294
              )
              
              $
              1,537Income
      (loss) before income taxes
              
              $
              1,516
              
              
              $
              228
              
              
              $
              (282
              )
              
              $
              1,548Net
      income (loss)
              
              $
              915
              
              
              $
              (196
              )
              
              $
              115
              
              
              $
              629Basic
      net income (loss) per share
              
              $
              0.03
              
              
              $
              (0.01
              )
              
              $
              --
              
              
              $
              0.02Diluted
      net income (loss) per share
              
              $
              0.03
              
              
              $
              (0.01
              )
              
              $
              --
              
              
              $
              0.02
 
 Three
      Months Ended,March
      31,
                2008
              
              
              June
      30,
                2008
              
              
              September
      30,
                2008
              
              
              December
      31,
                2008(Unaudited)Total
      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
 
 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, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
years in the three-year period ended December 31, 2009. We also have
audited the Company’s internal control over financial reporting as of
December 31, 2009, 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.
  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 Perficient, Inc. as of
December 31, 2009 and 2008, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 2009, 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, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the COSO.
   /s/ KPMG
LLP
   St. Louis,
Missouri
 March 3,
2010
 
 
 51
  
 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 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. 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, 2009.
 
 KPMG LLP,
our independent registered public accounting firm, has audited our financial
statements for the year ended December 31, 2009 included in this Form 10-K, and
has issued its report on the effectiveness of internal control over financial
reporting as of December 31, 2009, 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, 2009, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
 
 Item
      9B.
              Other
      Information.
 
 None.
 
 
 52
 
 
 PART
III
 
 Item
      10.
              Directors,
      Executive Officers and Corporate
Governance.
 
 Executive
Officers
 
 Our
executive officers, including their ages as of the date of this filing are as
follows:
 
 Name
              
              Age
              
              PositionJeffrey
      S. Davis
              
              45
              
              President
      and Chief Executive OfficerKathryn
      J. Henely
              
              45
              
              Chief
      Operating OfficerPaul
      E. Martin
              
              49
              
              Chief
      Financial Officer, Treasurer and SecretaryRichard
      T. Kalbfleish
              
              54
              
              Controller
      and Vice President of Finance and AdministrationJohn
      T. McDonald
              
              46
              
              Chairman
      of the Board
 
 Jeffrey S. Davis became the
Chief Executive Officer September 1, 2009.  He previously served as
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
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.
 
 Kathryn J.Henely was appointed as the
Company’s Chief Operating Officer November 3, 2009.  Ms. Henely joined
the Company in 1999 as a Director in the St. Louis office.  She was
promoted to General Manager in 2001 and to Vice President of Corporate
Operations in 2006.  Ms. Henely has been the Vice President for the
Company’s largest business group including several local and national business
units along with our offshore development center in China.  She
actively participated in the due diligence and integration of several
acquisitions within her business group.  Additionally, she led the
establishment of our Company Wide Practices and Corporate Recruiting
organization.  Ms. Henely received her M.S. in Computer Science from
the University of Missouri-Rolla and her B.S. in Computer Science from the
University of Iowa.
 
 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.
 
 John T. McDonald was elected
Chairman of the Board in March 2001.  He served as the Chief Executive
Officer from April 1999, when he joined the Company, until August 2009. 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.
 
 
 53
 
 Additional
information with respect to Directors of the Company is incorporated by
reference to the Proxy Statement under the captions "Directors and Executive
Officers." The Proxy Statement will be filed pursuant to Regulation 14A within
120 days of the end of the Company's fiscal year.
 
 Codes
of Conduct and Ethics
 
 Information
on this subject is found in the Proxy Statement under the captions "Certain
Relationships and Related Transactions" 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.
 
 Audit
Committee of the Board of Directors
 
 Information
on this subject is found in the Proxy Statement under the captions "Compensation
and Meetings of the Board of Directors and Committees” 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.
 
 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.
 
 
 
 54
 
 PART
IV
 
 Item
      15.
              Exhibits,
      Financial Statement Schedules.
 
 1.
              Financial
      Statements
 
 The following
consolidated statements are included within Item 8 under the following
captions:
 
 Index
              
              PageConsolidated
      Balance Sheets
              
              
              31Consolidated
      Statements of Operations
              
              
              32Consolidated
      Statements of Changes in Stockholders' Equity
              
              
              33Consolidated
      Statements of Cash Flows
              
              
              34Notes
      to Consolidated Financial Statements
              
              
              35Report
      of Independent Registered Public Accounting Firm
              
              
              51
 
 2.
              Financial
      Statement Schedules
 
 No financial
statement schedules are required to be filed by Items 8 and 15(b) 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 57.
 
 
 55
  
 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/
      Paul E. MartinDate:
      March 4, 2010
              Paul
      E. MartinChief
      Financial Officer(Principal Financial
Officer)
 
 
 KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jeffrey S. Davis 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/
      Jeffrey S. Davis
              
              Director,
      President and Chief Executive Officer
              
              March
      4, 2010Jeffrey
      S. Davis
              
              (Principal
      Executive Officer)/s/
      Paul E. Martin
              
              Chief
      Financial Officer
              
              March
      4, 2010Paul
      E. Martin
              
              (Principal
      Financial Officer)/s/
      Richard T. Kalbfleish
              
              Vice
      President of Finance and Administration
              
              March
      4, 2010Richard
      T. Kalbfleish
              
              (Principal
      Accounting Officer)/s/
      John T. McDonald
              
              Chairman
      of the Board
              
              March
      4, 2010John
      T. McDonald/s/
      Ralph C. Derrickson
              
              Director
              
              March
      4, 2010Ralph
      C. Derrickson/s/
      John S. Hamlin
              
              Director
              
              March
      4, 2010John
      S. Hamlin/s/
      David S. Lundeen
              
              Director
              
              March
      4, 2010David
      S. Lundeen/s/
      David D. May
              
              Director
              
              March
      4, 2010David
      D. May
 
 
 56
 
 
 INDEX
TO EXHIBITS
 
 Exhibit
      Number
              Description3.1
              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 Perficient, Inc. common stock, previously filed
      with the Securities and Exchange Commission as an Exhibit to our Quarterly
      Report on Form 10-Q (File No. 001-15169) filed May 7, 2009 and
      incorporated herein by reference4.2
              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
      reference10.1†
              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†
              Perficient,
      Inc. 2009 Long-Term Incentive Plan, as amended, previously filed with the
      Securities and Exchange Commission as an Exhibit to our current report on
      Form 8-K filed February 25, 2010 and incorporated herein by
      reference10.3†
              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
      reference10.4†
              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
      reference10.5†
              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
      herein10.6†
              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
  reference
 
 10.7†
              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 reference
 
  57
   Exhibit
      Number
              Description10.8†
              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 reference10.9†
              Employment
      Agreement between Perficient, Inc. and John T. McDonald dated March 3,
      2009, and effective as of January 1, 2009, previously filed as an Exhibit
      to our Annual Report on Form 10-K for the year ended December 31, 2008 and
      incorporated herein by reference10.10†
              Employment
      Agreement between Perficient, Inc. and Jeffrey S. Davis dated March 3,
      2009, and effective as of January 1, 2009, previously filed as an Exhibit
      to our Annual Report on Form 10-K for the year ended December 31, 2008 and
      incorporated herein by reference10.11
              Credit
      Agreement by and among Silicon Valley Bank, KeyBank National Association,
      U.S. Bank National Association, and Perficient, Inc. dated effective as of
      May 30, 2008, 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 June 3, 2008 and incorporated herein by
  reference
 
 10.12
              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 herein10.13
              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 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.
 
 58