Use these links to rapidly review the documentTable of Contents Item 15. Exhibits and Financial Statement Schedules INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from            to


Commission file number: 001-34707

CONVIO, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

74-2935609(I.R.S. Employer
Identification No.)11501 Domain Drive, Suite 200, Austin, TX(Address of principal executive offices)

78758(Zip Code)


(512) 652-2600(Registrant's telephone number, including area code)

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

Title of each class

Name of exchange on which registeredCommon Stock, $0.0001 par value

The NASDAQ Stock Market LLC


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. o Yes    ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes    ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. ý Yes    o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). o Yes    o No

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 the 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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). o Yes    ý No

Based on the closing price of the registrant's common stock on the last business day of the registrant's most recently completed second fiscal quarter, which was
June 30, 2010, the aggregate market value of its shares held by non-affiliates on that date was approximately $64,442,088. Shares of common stock held by each officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status was based on
publicly filed documents and is not necessarily a conclusive determination for other purposes.

There
were 17,819,257 shares of the registrant's common stock issued and outstanding as of February 28, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the Proxy Statement for the registrant's 2011 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.



---





Table of Contents



Table of Contents



Page
NumberPart IItem 1.

Business


2Item 1A.

Risk Factors


21Item 1B.

Unresolved Staff Comments


41Item 2.

Properties


41Item 3.

Legal Proceedings


41Item 4.

(Removed and Reserved)


41Part IIItem 5.

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


42Item 6.

Selected Financial Data


45Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


47Item 7A.

Quantitative and Qualitative Disclosures about Market Risk


67Item 8.

Financial Statements and Supplementary Data


68Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


68Item 9A.

Controls and Procedures


68Item 9B.

Other Information


69Part IIIItem 10.

Directors, Executive Officers and Corporate Governance


70Item 11.

Executive Compensation


74Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


74Item 13.

Certain Relationships and Related Transactions, and Director Independence


74Item 14.

Principal Accounting Fees and Services


74Part IVItem 15.

Exhibits and Financial Statement Schedules


75


Cautionary Statement

Except for the historical financial information contained herein, the matters discussed in this report on
Form 10-K (as well as documents incorporated herein by reference) may be considered "forward-looking" statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations
of Convio, Inc. and its management and may be signified by the words "expects," "anticipates," "intends," "believes" or similar language. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements.
Factors that could cause or contribute to such differences include those discussed under "Risk Factors" and elsewhere in this report. Convio, Inc. disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Statements indicating "Convio", the "Company", "we", "our" or "us" refer to
Convio, Inc. and its wholly-owned subsidiaries.

1

---





Table of Contents

Part I

Item 1.    Business

Overview

We are a leading provider of on-demand constituent engagement solutions that enable nonprofit organizations, or NPOs, to
more effectively raise funds,
advocate for change and cultivate relationships with donors, activists, volunteers, alumni and other constituents. We serve approximately 1,400 NPOs of all sizes including 28 of the 50 largest
charities as ranked by contributions in the November 2010 Forbes article entitled "The 200 Largest U.S. Charities." During 2010, our clients used our solutions to raise over $1.3 billion online
and deliver over 4 billion emails to over 140 million email addresses to accomplish their missions. Our average deliverability rate for email was greater than 95 percent. In
addition, nonprofit organizations used Convio advocacy applications to power more than 32.5 million advocacy actions to the United States Congress, State and Local elected officials as well as
other targets of cause-related campaigns.

We
incorporated in Delaware on October 12, 1999. On April 28, 2010, we completed an initial public offering of shares of our common stock and those shares are listed on the
NASDAQ Global Market under the symbol CNVO. Our executive offices are located at 11501 Domain Drive, Suite 200, Austin, Texas 78758, and our telephone number is
(512) 652-2600.

Our
integrated solutions include our Convio Online Marketing platform, or COM, and Common Ground, our constituent relationship management application, both designed to help nonprofits
maximize the value of every relationship. COM enables NPOs to harness the full potential of the Internet and social media as new channels for constituent engagement and fundraising. Common Ground
delivers next-generation donor management capabilities, integrates marketing activities across online and offline channels and is designed to increase operational efficiency. Our software
is built on an open, configurable and flexible architecture that enables our clients and partners to customize and extend its functionality. All of our software is delivered through the
Software-as-a-Service, or SaaS, or cloud-computing model. We believe the cloud computing model is the most cost effective, efficient and scalable way for nonprofits
to use and manage technology to maximize the value of constituent relationships. Our solutions are enhanced by a portfolio of value-added services tailored to our clients' specific needs, as well as a
network of technology and services partners that enhance our solutions.

In
January of 2011, we acquired StrategicOne, LLC, a privately-owned company, to strengthen our offerings to large/enterprise-size nonprofits by adding the experience
and expertise of a proven provider of data analytics, predictive modeling and other database marketing services to the company. StrategicOne services help nonprofits discover, analyze and act on
information to more effectively attract new constituents, retain existing donors, reactivate lapsed supporters and steward each relationship to a higher level of engagement.

Our
revenue has grown in the last five years to $69.7 million in 2010 from $21.4 million in 2006. Our clients pay us recurring subscription fees with agreement terms that
typically range between one and three years. Our subscription fees grow as our clients grow their constituent bases and purchase additional modules of COM and additional seats and modules of Common
Ground. We also receive transaction fees that include a percentage of funds raised for special events such as runs, walks and rides. Our clients grew their online fundraising using our solutions by
40% in 2010 to more than $1.3 billion.

Nonprofit Industry Background

Large and Evolving Nonprofit Sector

The nonprofit sector is a large and vital part of the economy. The missions of NPOs span many aspects of our society including animal
welfare, arts and culture, disaster relief, education, environment,

2

---



Table of Contents

healthcare,
international development, professional and trade associations, public policy, religion and social and youth services.

Challenges Facing Nonprofit Organizations

NPOs face unique challenges that center upon the need to reach new constituents and to engage effectively with a large and diverse
number of existing constituents. In particular, NPOs struggle with the following challenges:



3

---



Table of Contents

NPOs
spend large amounts of money on fundraising, advocacy, donor management and the discovery of constituent behaviors, preferences and interests. Yet most organizations have not
integrated offline and online data in ways that provide the insight needed to design and implement multichannel strategies that increase constituent engagement. Many NPOs have adopted legacy donor
databases to support their offline activities but have only recently begun to leverage online marketing as a mission-critical channel to reach and cultivate constituents, while even fewer have brought
together online and offline constituent data in ways that bring greater clarity to analytics, strategy and constituent management services. The emergence of the online channel has accentuated NPOs'
struggles to integrate their online and offline communications and fundraising efforts. We believe the Internet and the increasing adoption of social media and mobile technologies are enabling NPOs to
raise funds, advocate for change and cultivate relationships with their constituents in more cost-effective and engaging ways. We believe that holistic constituent engagement software and
services that lead to the discovery of constituent preferences and the design and implementation of multichannel strategies will provide nonprofits with the opportunity to more strategically and
efficiently connect people with their cause and drive mission-focused results.

Our Solutions

We provide on-demand constituent engagement solutions to NPOs that enable them to more effectively raise funds, advocate
for change and cultivate relationships with their donors, activists, volunteers, alumni and other constituents to maximize the value of each relationship. Our integrated software solutions include our
Convio Online Marketing platform and Common Ground, our constituent relationship management application. Convio Online Marketing enables NPOs to harness the full potential of the Internet and social
media as new channels for constituent engagement and fundraising. Common Ground delivers next-generation donor management capabilities, integrates marketing activities across online and
offline channels and is designed to increase operational efficiency. All of our software is delivered through the SaaS or cloud-computing model. We believe the SaaS model is the most cost effective,
efficient and scalable way for nonprofits to use and manage technology to maximize the value of constituent relationships.
Our solutions are enhanced by a portfolio of value-added services tailored to our clients' specific needs in addition to the analytics, predictive modeling and database marketing services offered
through the acquisition of StrategicOne.

Our
solutions provide the following benefits to NPOs:



4

---



Table of Contents



Business Strengths

We pioneered the delivery of SaaS online marketing solutions to NPOs, launching the first version of our solution in 2000. We have
maintained an exclusive focus on NPOs which has enabled us to develop deep nonprofit industry expertise. We are a leading provider of
on-demand constituent engagement solutions to NPOs, and we are leading the way in providing modern constituent engagement solutions that connect people and causes in ways designed to
enhance the value of each relationship. We believe the following business strengths are key to our success:



5

---



Table of Contents



Our Strategy

Our objective is to be the leading worldwide provider of constituent engagement solutions that connect people and causes and help
nonprofits maximize the value of every relationship while continuing to lead the market in innovation, best practices and client service. Key elements of our strategy
include:



6

---



Table of Contents



Our Products

Our solutions include our Convio Online Marketing platform and Common Ground, our constituent relationship management application.
Clients can license and use COM and Common Ground independently, or they can license and use both in an integrated manner. We have purpose-built our solutions for NPOs based on our interactions with
our approximately 1,400 clients. We deliver our software on-demand, and our clients and their constituents access all of our software using a standard Internet browser. Our software
employs an open, multi-tenant architecture that allows our clients to customize and extend our software.

The
following diagram provides an overview of the core functionality of our solutions.

GRAPHIC

7

---



Table of Contents

Convio Online Marketing

Our Convio Online Marketing platform contains an email marketing engine, payment processing engines, a content management system and
modules that include fundraising, advocacy, special events, personal events and eCommerce. These modules are exclusively designed for NPOs and address the online marketing and fundraising requirements
of NPOs of all sizes.

The
foundation for our COM platform is our Constituent360 database which provides clients with a comprehensive, unified catalogue of their constituents' online interactions, interests
and preferences. It also provides a robust set of query, targeting, segmentation, importing, exporting and reporting capabilities for this data. By managing data across these multiple dimensions,
Constituent360 provides NPOs with rich and actionable intelligence that enables them to refine and optimize marketing and fundraising results. The following table provides a description of the key
functions and features of Convio Online Marketing:

Function

Key FeaturesFundraising

Enables NPOs to easily build and tailor online fundraising
campaigns and quickly create specialized websites to motivate giving in response to current events;Dynamically solicits online donations including one-time
gifts, installments, sustaining gifts, honor/memorial gifts and memberships;Provides secure, PCI-compliant payment processing with
multiple payment options, including credit card, bank account debit and PayPal; andGenerates comprehensive reporting and
analysis.Email Marketing

Provides online marketing tools that help NPOs build and
manage effective email campaigns, from creation and testing to targeted delivery and follow-up, to drive higher response and increased constituent participation;Delivers robust capabilities to generate and send branded,
 graphical email messages, online newsletters and electronic greeting cards;Manages content, workflow, delivery, storage and
subscriptions; andEnables NPOs to tailor content to individual constituent
interests to drive higher response and increased participation.Advocacy

Encourages and manages grassroots activism;Enables NPOs to publish targeted action alert forms to be
completed by constituents for delivery to legislators or media organizations; andIncludes legislator scorecards that allow NPOs to rate
legislators on issues, automatically computing numerical scores based on historical voting records.


8

---



Table of Contents

Function

Key FeaturesTeamRaiser Events

Provides tools for NPOs' constituents to create personal
or team fundraising web pages and send email donation appeals to their networks of family and friends in support of events such as a walks, runs and rides;Motivates NPOs' constituents to recruit new donors and
reach their fundraising goals; andCreates a network effect that increases NPOs' fundraising
results and grows their email list size.MultiCenter

Enables the national offices of multi-chapter NPOs to
interoperate across their chapters;Facilitates a coordinated, integrated marketing strategy
across chapters;Allows individual chapters to control their web presence
including branding and content; andAllows controlled access to shared information across
multiple chapters to house constituent data, create and launch campaigns and manage administrative settings.Content Management

Enables NPOs to create high impact websites, empowers
their content contributors to become content owners, reduces the reliance on technical staff to publish changes, and creates powerful, database-driven web pages;Provides content authoring tools, editorial workflow,
personalization, search and document management; andAddresses websites of virtually all sizes, including
multiple web properties, thousands of web pages, and multiple content contributors.Personal Fundraising

Empowers constituents to drive fundraising for NPOs as a
champion or in honor or memory of a loved one;Enables constituents to create personalized tribute web
pages and encourage friends and family to learn about NPOs' causes through easy-to-use web content and email authoring tools and templates; andProvides an innovative means for NPOs to acquire new
constituents, generate funds and create rich content and community around their websites.Events

Enables NPOs to promote and register participants in a
variety of events using a website calendar; andAccommodates a variety of events including simple
announcements with date, time, and location, more complex events that are recurring, multi-faceted or multi-day and events requiring online RSVPs, ticketing and online registration forms.Personal Events

Enables constituents to organize and host different types
of personal events such as dinners or house parties; andEnables constituents to promote events, track RSVPs and
solicit online donations.


9

---



Table of Contents

Function

Key FeatureseCommerce

Combines online store capabilities with Internet tools to
raise funds;Coordinates standard hierarchical product catalogs,
shopping carts, inventory management, tax and shipping calculations; andEnables cross-promotion to boost fundraising and
involvement.Visual Intelligence

Provides web-based turnkey reporting and analytics
solution;Enables viewing of executive level key performance
indicators through interactive dashboards to monitor changing trends and understand what creative variables drive responses in easy to consume manner.


Convio Open

We provide an open platform that allows NPOs to evolve their online marketing strategies as new media and other opportunities arise. We
offer application programming interfaces, or APIs, and extensions that meet the growing demand of NPOs to access the Internet, leverage popular social media sites and integrate with mobile services.
This approach allows NPOs,
partners and others to create external, custom-built applications that integrate with our solutions to provide a more compelling constituent experience and reach a wider audience.

Our
Donations APIs enable clients to embed our donation processing in websites, web applications or mobile applications. Additionally, our open platform supports fundraising and
communications in a mobile context through mobile ready donation forms, text messaging, and text based donations. Our Web Services APIs allow clients to extract Constituent360 data for use in
third-party systems.

Our
extensions enable clients to leverage social networking and Web 2.0 capabilities to engage constituents through these popular channels:



Convio Go!

Convio Go! is a structured program consisting of selected COM modules and specialized, cohort-based services designed for
mid-market NPOs new to online marketing and fundraising. Convio Go! includes a one-year guided program that provides a base configuration of essential Convio Online Marketing
capabilities in combination with cohort-based consulting. Our consulting specialists help Convio Go! clients build strong foundations for their online strategies by developing their proficiency in our
fundraising, email marketing, and content management modules. Through our clients' execution of their online programs, our Convio Go! clients grow their constituent bases, improve constituent
engagement and increase donations.

10

---



Table of Contents

Common Ground

Common Ground is our CRM application that builds stronger relationships with donors, volunteers, activists, alumni and other
constituents. Common Ground is designed to serve as the foundation of an NPO's fundraising operations as well as an NPO's constituent database. Common Ground tracks constituent outreach and
interactions across multiple channels including online, telephone, direct mail and in-person meetings. Since our introduction of Common Ground in September 2008, 365 NPOs, of which 78%
were new clients to us, have selected Common Ground as their CRM application as of December 31, 2010.

We
utilize the Force.com cloud computing application platform to develop, package, and deploy Common Ground. We have developed NPO-specific functionality including donation
management, event management and volunteer management to create a CRM application tailored to the needs of NPOs.

The
following table provides an overview of the key features and functionality of each module of Common Ground:

Function

Key FeaturesDonor Management

Tracks incoming gifts, builds revenue forecasts,
identifies prospective donors, and pursues major donor opportunities; andUtilizes sophisticated gift coding approaches that
facilitate effective donor stewardship and segmentation for future communications.Contact Management

Provides a high degree of flexibility in defining and
tracking relationships between NPOs and their constituents; andAllows creation of relationship types, definition of key
relationships, and set up of rules for automatic assignment of relationships based on peer-to-peer fundraising results.Campaign Management

Plans and executes a variety of outreach campaigns,
including direct marketing; andTracks participation, costs and key performance
indicators.Event Management

Plans and manages special events such as galas and golf
tournaments;Tracks detailed event information, including invitations
and sponsorships; andProvides the capability to sell multiple ticket levels
and assign various benefits associated with those ticket levels.Volunteer Management

Organizes volunteer opportunities with multiple shifts,
locations, and required volunteer qualifications;Provides a volunteer profile that tracks an individual's
availability and skills, which can then be matched against upcoming volunteer opportunities; and


11

---



Table of Contents

Function

Key FeaturesFundraising

Enables NPOS to easily create web forms to match campaign
initiatives and capture online donations to the database in real-time;Enables NPOs to publish event forms that are integrated
with Common Ground's event management tools to offer an online ticket and registration option; andEnables NPOs to acquire new constituents from their
website directly into their database for newsletters and other appeals with integrated sign up forms.Integrated Email Marketing

Provides online marketing tools that help NPOs build and
manage effective email campaigns, from creation and testing to targeted delivery and follow-up, to drive higher response and increased constituent participation.


Common
Ground distinguishes itself from many legacy on-premise donor databases in a variety of ways including:



Our Services

Our services are an integral part of our solutions. We believe the scope and quality of our services, which have been developed and
refined based on our experience with approximately 1,400 active clients, meaningfully differentiate us from our competitors.

We
deliver services to our clients through a traditional consulting model, characterized by highly customized strategic consulting services. We believe this is the best way for our
clients to achieve success in their online programs.

We
deliver services to many mid-market clients through Convio Go!, a structured one-year program designed to get clients up and running quickly with the help of a
cohort-based approach. Clients receive regular coaching sessions with our consultants who help produce campaigns with an emphasis on fundraising and email list size growth.

12

---



Table of Contents

In
addition to Convio Go!, account management, technical support and deployment services, the following table provides an overview of the types of services we offer along with a
description of the key attributes:

Service Type

Key AttributesStrategic Planning

Develops Internet marketing roadmaps outlining key metrics,
 targets, strategies, tactics and recommended resources.Campaign Management

Assists clients in executing on their Internet roadmap by
providing campaign strategy, project management, creativity and production.Web Design

Helps clients effectively design their websites by using
industry-recognized user experience methodologies combined with audience engagement strategies specifically designed for NPOs.Data Analytics

Provides robust data analytic services that highlight
useful information, suggest conclusions, and support decision making.Benchmarking

Provides benchmarking services using standard metrics
which allow clients to compare results with aggregated results from other clients.Campaign Analytics

Analyzes campaign results and identifies potential areas
of improvement based on established benchmarks.Data Integration

Utilizes data connectors to synchronize essential
constituent data; andProvides custom data integration, data de-duplication,
custom report builds and custom synchronization.Training

Provides comprehensive classroom and online training on
the features and functionality of our solutions; andProvides customized training programs at client
sites.


With
the addition of StrategicOne, we strengthened our services offering by adding the experience and expertise of a proven provider of data analytics, predictive modeling and other
database marketing services to the company. These services help nonprofits discover, analyze and act on information to more effectively attract new constituents, retain existing donors, reactivate
lapsed supporters and steward each relationship to a higher level of engagement. The following table provides an overview of the types of services we offer with the additional of StrategicOne, along
with a description of the key attributes:

Service Type

Key AttributesData Warehousing

Delivers intelligence to marketers and knowledge workers
in logical subsets with easily understood data labels.Business Intelligence

Gives executives, marketers and fundraising professionals
easy access to the data, ability to visualize data and interact with the visualizations for greater insights and improved ROI.Analytics/Modeling

Assists in identifying opportunities to create
personalized, compelling, and lifelong connections between an organization's brand and constituents.


13

---



Table of Contents

Service Type

Key AttributesStrategic Consultation

Provides strategic leadership, test design, measurement
and monitoring to better design and implement campaigns that delivery results.Provides custom data integration, data de-duplication,
custom report builds and custom synchronization.Marketing Execution

Manages campaign selection and customer solicitations
every step of the way to ensure quality, on-time delivery of data and results.


We
complement our service offerings with a network of partners serving the nonprofit market, including interactive agencies, direct marketing agencies, public affairs firms and
complementary technology companies. This partner network allows us to provide additional services and to expand our deployment capacity, including services provided by our certified Convio Solution
Providers who follow our deployment methodologies.

Our
solution providers are authorized partners whom we train, test and recommend to our clients for consultation and deployment services around our solutions, including Common Ground.
They also provide post-deployment services that include interactive strategy and web design. These partners enable us to maintain lower personnel costs and expand our deployment capacity.
Our technology partners provide technologies that complement and extend the breadth of our solutions. Their offerings typically integrate with our solutions through our open APIs and include social
networking, tools, mobile messaging platforms and web applications. Through these partners, we are able to attract clients who want the additional functionality and services that these partners
provide to our solutions. Our referral partners refer clients to us in exchange for a percentage of the value of the referred business which we close. The commission rate is negotiated between each
partner and us based on a percentage of the contract's value.

Clients

We serve approximately 1,400 NPO clients which include leading NPOs in each of the verticals we serve. We define a client as an
organization with which we have a billing relationship. In certain cases, we bill individual chapters of multi-chapter NPOs and, in other cases, we have a single billing relationship with
multi-chapter NPOs.

In
2010, 2009 and 2008, substantially all of our revenue was derived from clients in the United States and Canada and all of our long-lived assets were located in the United
States. No client accounted for more than 10% of our total revenue in 2010, 2009 and 2008.

14

---



Table of Contents

Sales and Marketing

We sell our solutions using a direct sales force. As of December 31, 2010, we employed approximately 87 sales, marketing and
business development professionals, 58 of whom comprised our direct sales force. These sales and marketing professionals focus on sales to new and existing clients and are located at our headquarters
in Austin, Texas, regional offices in Washington, D.C. and Berkeley, California and in metropolitan areas throughout the United States. Our sales force is organized by geographic territory, size of
NPO and market segment. We employ a separate sales team focused on upselling new solutions and services to our existing clients. Our sales representatives are supported by a team of sales engineers
and sales associates responsible for technical and pre-sales support.

We
complement our direct sales force with a network of partners serving the nonprofit market, including interactive agencies, direct marketing agencies, public affairs firms and
complementary technology companies. Our partner network helps us to grow our client base, enhances our implementation services capacity and enables us to provide a more complete solution for our
clients.

We
conduct a variety of marketing programs that are designed to create brand recognition and market awareness for our solutions. Our marketing efforts include membership and board-level
participation in industry associations, participation at industry conferences, search engine marketing, search engine optimization, company-sponsored seminars and webinars, white papers, media
relations, development of case studies, online marketing and sponsoring co-marketing events with our partners. We enhance our position as an NPO thought leader through industry
publications and our annual benchmarking index study designed to help NPO professionals evaluate online marketing metrics as well as the effectiveness of their organization when compared to similar
NPOs.

We
receive significant exposure from our "powered by" logo program, which allows us to place our logo on web pages and emails created and sent by our clients. To enhance client loyalty
and generate opportunities for additional sales, we maintain a client advisory board, conduct an annual client summit and host an online client community.

Research and Development

We continue to make substantial investments in research and development, primarily on new features, platform extensibility and Common
Ground. Our on-demand model provides us with the ability to quickly bring new functionality to the market. We gather feedback from clients, partners and industry thought leaders, and we
have robust processes for software development and deployment that have been adapted from industry best practices. As of December 31, 2010, we had 80 employees working on research and
development primarily in Austin and Berkeley. Our research and development expenses were $10.6 million, $10.0 million and $8.8 million in 2010, 2009 and 2008, respectively.

Competition

The nonprofit market for constituent engagement solutions is fragmented and rapidly evolving. With COM, we compete with several online
marketing suites and a variety of point solutions targeted at such tasks as email marketing, content management and fundraising event management. With Common Ground, we compete with generic database
and constituent relationship management providers, as well as industry-specific donor management solutions. Some of our competitors are focused exclusively on the nonprofit industry while others sell
to NPOs among a broader set of markets. Our primary competitors are Blackbaud, Inc., The Sage Group plc, and SofterWare, Inc. In addition, we compete with a variety of smaller,
private companies and also with web development providers which provide custom in-house applications.

15

---



Table of Contents

We
believe the principal competitive factors in our industry include the following:



We
believe we compete favorably across all of these factors. However, some of our existing and potential competitors have substantially greater name recognition, longer operating
histories, and greater resources. They may be able to devote greater resources to the development, promotion and sale of their products and services than we can to ours. Additionally, our competitors
may offer or develop products or services that are superior to ours, have lower prices or that achieve greater market acceptance.

Technology

Each of our software applications uses a single code base and employs a multi-tenant architecture and is delivered by an
on-demand model, requiring only a web browser for client access. In addition, our technology strategy was designed to meet the stringent standards of NPOs, including scalability,
performance, reliability and security.

Our
COM platform is open and extensible. We have built the platform on the Java 5 runtime environment and have developed and published more than 175 APIs. This approach allows our
clients to more easily leverage the functionality available within our solutions without requiring modifications to our source code. Customers are also able to use open source technologies to
integrate with our solutions using these APIs.

Our
technology is designed to be scalable, both in the number of clients that can be hosted and in the volume of traffic and transactions processed by our solutions. Scalability is
achieved through multiple methods:



Performance
is another key requirement for clients, particularly as it relates to email deliverability and traffic volumes and spikes associated with constituent response to current
events. We address these needs in several ways:



16

---



Table of Contents



Over
the past two years, we have achieved on average more than 99.7% system uptime, excluding scheduled maintenance and disruptions caused by third-party vendors, through the use of
industry-standard failover and redundancy technologies. We use storage technology and redundant application servers that allow individual servers to be rotated in and out of service for routine
maintenance without causing downtime.

Our
Common Ground application is built on the salesforce.com Force.com platform.

Common
Ground has a model-driven architecture and uses role-based administration to facilitate the sharing of information. Common Ground uses open API's to enable our clients
to customize their use of Common Ground to more easily integrate with other client systems.

Security
is a key requirement for our clients because of the sensitive nature of our clients' missions and their strong desire to protect constituent information. Our systems are
periodically attacked by unauthorized third parties with increasing sophistication, and we have experienced security incidents in our history. We have designed and continue to upgrade our solutions,
policies and practices to provide security for clients in several ways:



Operations

We serve our clients from two third-party hosting facilities located in Austin, Texas and Sacramento, California. These facilities
provide around-the-clock manned operations and security staff. Access is limited to authorized individuals and both sites are served by both interior and exterior video
surveillance equipment. Electrical and environmental controls are all fully redundant and Internet connectivity is maintained by multiple peering and physical access points within each facility. We
own or lease and operate all of the hardware on which our applications run in each facility. We entered into an agreement for the services provided by the Austin and Sacramento third-party hosting
facilities in
October 2001 and June 2008, respectively, and have renewed each agreement at various times thereafter. Pursuant to each agreement, we pay a monthly service fee for hosting services. The current term
of the Austin agreement ends in June 2011 at which time the agreement automatically renews for three years. During 2010, we completed the migration of our former GetActive clients to our COM platform
and we retired the GetActive platform, which was hosted at the Sacramento facility, in December 2010. Subsequently, we began removing the equipment from this facility as we do not intend to renew or
extend the agreement which expires in March 2011.

We
continuously monitor internally and externally the availability and performance of our systems using custom and commercially available tools. In order to prevent service loss from
hardware failure, we maintain redundant servers within each tier of our production environment. Web servers are operated in load-balanced server pools and databases and file servers are
replicated to standby servers

17

---



Table of Contents

which
can provide near real-time failover in the event of a failure with primary hardware. Databases and file servers are backed up daily with tapes being rotated to separate secure
offsite storage facilities.

We
have also contracted with SunGard Data Systems, Inc. to provide a disaster recovery site in the Phoenix area in the event of a complete or substantial datacenter disaster at
our Austin facility.

Government Regulation

We and our clients are subject to various laws and governmental regulations due to the nature of our business, including those
regulating email communications and the collection, use and disclosure of personal information obtained from customers and other individuals. While our solutions provide a platform for our clients'
fundraising, advocacy, email marketing, peer-to-peer communications, website content management and eCommerce activities, we do not provide any of the content of those
activities and communications nor any of the donor lists or contacts. Our clients are responsible for their compliance with all applicable privacy, direct marketing and data protection laws.

We
are subject to certain state statutes which require companies that provide fundraising consulting services to register and comply with the applicable state registration requirements.
Currently, we are registered in each of the 24 states that require registration. Since many of our clients run national fundraising campaigns, which often include solicitation activity occurring
across the country, Convio must maintain a registration in any state in which a client wishes to utilize our fundraising consulting services to conduct solicitations. The registration requirements and
enforcement process vary widely
from state to state with some states requiring a simple completed form to others compelling us to disclose each fundraising consulting contract applicable in that state. Failure to comply with these
registration requirements could result in our registration being revoked and/or the state's refusal to let Convio register and provide professional fundraising consulting to clients in that state. In
addition, a state can levy fines, penalties, and suspend service activity under a particular client contract. These registration requirements continue to change and develop and oblige us to monitor
our compliance.

We
are also covered by the Health Insurance Portability and Accountability Act, or HIPAA, which was expanded by the Health Information Technology for Economic and Clinical Health Act, or
HI-TECH Act, which Congress passed as part of the American Recovery and Reinvestment Act of 2009. The HI-TECH Act expands the reach of data privacy and security requirements of
the Health Insurance Portability and Accountability Act, or HIPAA. HIPAA and associated United States Department of Health and Human Services regulations permit our clients in the healthcare industry
to use certain protected health information for fundraising purposes, such as email addresses or other demographic information, and to disclose that protected health information to their service
providers. We may be included in this service provider group under the revised HIPAA regulations by virtue of our service provider relationship with our clients in the healthcare industry.

Although
our healthcare industry clients may upload into our systems personal information that HIPAA permits to be used for fundraising so that we may provide email software services, we
ask our healthcare industry clients not to provide us with health or medical information of individuals. In general, our agreements with our healthcare providers seek to prohibit them from storing
other forms of protected health information on our system, including any information related to diagnosis or treatment. The HI-TECH Act provides for criminal and civil penalties if we
violate the privacy and security rules applicable to us, and also requires us to notify our clients in the event of an unauthorized release, whether inadvertent or purposeful, of any protected health
information for which we are responsible.

Our
clients are subject to certain U.S. and foreign laws and regulations governing the collection, use and disclosure of personal information obtained from individuals. For instance, the
Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, and associated Federal Trade Commission regulations govern our clients'
email fundraising campaigns.

18

---



Table of Contents

These
regulations establish certain requirements for "commercial" email messages and provide penalties for transmitting email messages in a manner intended to deceive the recipient as to source or
content. Email message campaigns are generated by our clients by using our solutions. We do not create or control the content of such emails, nor do we obtain email lists from sources other than our
clients. Our clients' email campaigns are governed by the CAN-SPAM Act's prohibitions and requirements, including:



The
CAN-SPAM Act also prohibits unlawful acquisition of email addresses, such as through directory harvesting. The CAN-SPAM Act prohibits transmission of
commercial emails by unauthorized means, provides for enhanced damages or penalties if commercial messages are sent in violation of the CAN-SPAM Act to email addresses that were acquired
through certain specified methods such as through relaying messages with the intent to deceive recipients as to the origin of such messages. Violations of the CAN-SPAM Act's provisions can
result in criminal and civil penalties. In addition, although the CAN-SPAM Act preempts most state restrictions specific to email marketing, some states have adopted consumer protection
regulations that, if deemed not to be preempted by the CAN-SPAM Act, could impose liabilities and compliance burdens in addition to those imposed by the CAN-SPAM Act. Our terms
and conditions require that our clients comply with the CAN-SPAM Act and that they are liable for any breaches of its provisions. If we become aware that a client has violated the
CAN-SPAM Act, we can suspend or terminate its use of our solutions.

In
addition, due to the increasing popularity and use of the Internet, governmental authorities in the United States and abroad may continue to adopt laws and regulations to govern
Internet activities of our clients, including email messaging, collection and use of personal information, ownership of intellectual property, solicitation of charitable contributions and other
activities important to our online business practices. For instance, although we do most of our business in the United States, we have clients in Canada and the United Kingdom, who are subject to data
protection and fundraising laws in
Canada and the European Union, respectively. As an example, European Union member state laws typically prohibit sending promotional email messages outside of an established business relationship with
the recipient, unless the recipient has opted into receipt of such messages, and require honoring opt-out requests by recipients. Such laws largely prevent the use of email to obtain new
prospects in the European Union, and similar laws have been adopted in some other countries. We do not evaluate our clients' compliance with these foreign laws or domestic laws, but if we learn that
any client has violated such laws, we may suspend or terminate its use of our solutions.

Intellectual Property and Other Proprietary Rights

Our intellectual property rights are important to our business. We rely primarily on a combination of trademark, copyright, trade
secret, confidentiality procedures, contractual restrictions and other similar measures to protect our proprietary technology, processes and other intellectual property. We have pursued trademark
protection in certain international jurisdictions. We also hold trademarks and service marks identifying features of our solutions. We license our software modules directly to clients. These license
agreements, which address our technology, documentation and other proprietary

19

---



Table of Contents

information,
include restrictions intended to protect and defend our intellectual property. We also require our employees, contractors and many of those with whom we have business relationships to
sign non-disclosure and confidentiality agreements. We believe that due to the frequent improvement of our existing solutions and services, the unpatented proprietary know-how
of our personnel and our trade secrets are particularly important.

We
attempt to control access to and distribution of our software, documentation and other proprietary technology and other information. Despite our efforts to protect our proprietary
rights, third parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market or distribute our intellectual property rights or technology or otherwise develop a product
with the same functionality as our solutions. Policing unauthorized use of our solutions and intellectual property rights is difficult and nearly impossible on a worldwide basis. Therefore, we cannot
be certain that the steps we have taken or will take in the future will prevent misappropriations of our technology or intellectual property rights.

We
believe that the frequency of assertions of patent infringement is increasing as patent holders, including entities that are not in our industry and who purchase patents as an
investment or to monetize such rights by obtaining royalties, use such actions as a competitive tactic as well as a source of additional revenue. Any claim of infringement from a third party, even
those without merit, could cause us to incur substantial costs defending against such claims, and could distract our management from running our business. Furthermore, a party making such a claim, if
successful, could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or
other court order that could prevent us from selling our software. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on
commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense and may ultimately not
be successful.

Employees

As of December 31, 2010, we had 367 employees, all of whom were in the United States. Of the total employees, there were 87 in
sales, marketing, account management and business development, 80 in research and development, 175 in services, support and operations and 25 in general and administration. None of our
employees is represented by a labor union or is covered by a collective bargaining agreement. We have not experienced any work stoppages and consider our employee relations to be good.

Properties

We lease office space for our corporate headquarters located in Austin, Texas. This lease expires in September 2013. We also lease
additional office space in the San Francisco Bay Area of California and Washington, D.C. With the acquisition of StrategicOne, we acquired leases for small offices in Overland Park, Kansas and
Lincoln, Nebraska. We believe our facilities are adequate for our current needs and may add new facilities and expand our existing facilities as we add employees. We believe that suitable additional
or substitute space will be available as needed to accommodate any such expansion of our operations.

Legal Proceedings

We are not currently involved in any material legal proceedings. From time to time, we may become involved in legal proceedings arising
in the ordinary course of our business.

20

---





Table of Contents

Available Information

Our website address iswww.convio.com. Our annual report 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 are available through the investor relations page of our internet website free of charge as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K.

Item 1A.    Risk Factors

If NPOs do not adopt our solutions, our revenue and operating results will be adversely impacted.

Our ability to generate revenue and maintain profitability depends on the adoption of our solutions by NPOs of all sizes. We cannot be
certain that the demand of NPOs for solutions such as ours will continue to develop and grow at its historic rates, if at all. We also do not know to what extent NPOs will be successful utilizing our
solutions to engage constituents and generate funds. The less they are able to do so, the less revenue we will generate.

We
initially began our business with one solution and now offer multiple products and services. As we grow, we plan on offering new solutions and services in the future. We cannot be
certain that NPOs will elect to use our solutions or want or need the functionality of our new solutions and service offerings. As a result, as NPOs become more comfortable and sophisticated in their
use of technology for their constituent relationship needs, we may fail to develop and offer solutions and services that meet NPOs' needs in this area, and our revenue may not grow.

Factors
that may affect market adoption of our solutions, some of which are beyond our control, include:



While
no one client accounted for more than 10% of our revenue during the year ended December 31, 2010, our enterprise clients can contribute substantially to our revenue from
quarter to quarter. If NPOs, especially enterprise NPOs, do not continue to adopt and renew their subscriptions to our solutions, our revenues will experience volatility and our stock price could
fall.

21

---



Table of Contents

Our business depends on our clients' renewing and expanding their subscriptions for our solutions. Any decline in our client renewals and expansions would reduce our
revenue.

We sell solutions pursuant to agreements that are generally three years in length for Convio Online Marketing and one year in length
for Common Ground. Our clients have no obligation to renew their subscriptions for our solutions after the expiration of their initial subscription period. Our client renewal rates may decline or
fluctuate and our client cancellation rates may increase or fluctuate as a result of a number of factors, including the following:



If
clients do not renew their agreements, our revenue will decline and our operating results will be adversely affected.

We
seek to grow our business by expanding the products and services our clients buy from us as their needs evolve. However, if our clients fail to buy additional products and services
from us, the growth of our business will be harmed. Further, if our clients elect to subscribe to a fewer number of products upon renewal with us, our business will be harmed.

Some
of our agreements also provide that our clients may terminate their agreements for convenience after a specified period of time. Some of our agreements allow a client to cancel
during the first year of such client's initial subscription for our solutions for performance-related reasons. If our clients terminate their agreements with us, our revenue will grow more slowly than
expected or even decline, and we may not be able to maintain profitability. Further, if a client seeks to terminate its agreement with us, we may not be successful in enforcing, or we may not elect to
enforce, our agreement with the client.

We
serve a broad range of NPOs, the less established of whom may be subject to a higher rate of insolvency or may have limited durations due to the underlying causes that they support,
such as political campaigns. We are generally not able to perform financial due diligence on the creditworthiness of our prospective clients, and we may not accurately predict a client's
creditworthiness. As a result, if we are unable to collect from our clients, our revenue and cash flows could be less than what we expect.

Our financial results will fluctuate, and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline
substantially.

Our results of operations are difficult to forecast. We have experienced and expect to continue to experience fluctuations in revenue
and operating results from quarter to quarter. In particular, our usage revenue is difficult to predict because it is derived from our clients' usage of our solutions for special events such as runs,
walks and rides, and we recognize the associated revenue in the period reported and billed to the client. The growth, if any, and amount of usage revenue vary based on the number of events, the
percent of funds raised online for these events, the growth and success of events and our signing of new clients for events. These factors are very difficult to predict, and our usage revenue
fluctuates significantly as a result.

Our
usage revenue reflects the general seasonality of special events which are held more often in the spring and fall. Therefore, we recognize a majority of our usage revenue in the
second and third

22

---



Table of Contents

quarters.
We recognized 62% and 63% of our annual usage revenue in the combined second and third quarters of 2010 and 2009, respectively. Usage revenue in the second and third quarters represented
between 20% and 16% of total revenue for those periods in 2010 and 2009, respectively; whereas,
usage revenue in the first and fourth quarters represented between 13% and 10% of total revenue for those periods in 2010 and 2009, respectively. Furthermore, although we experience seasonally lower
usage revenue from special events during the first and fourth fiscal quarters, our operating expenses experience less of a reduction during those periods. In addition, we experienced seasonality in
our sales in the third quarter of 2010 and 2009, and as a result accrued lower commissions during those quarters. Such seasonality causes our quarterly operating results to fluctuate and be difficult
to predict.

Other
reasons for these fluctuations include but are not limited to:



We
believe that our results of operations, including the levels of our revenue and operating expenses, will vary in the future and that period-to-period
comparisons of our operating results may not be meaningful. If our financial results fall below the expectations of securities analysts or investors, our

23

---



Table of Contents

stock
price and the value of your investment could decline substantially. You should not rely on the results of any one quarter as an indication of future performance.

Our failure to maintain profitability could limit the growth of our business.

The first year in which we were profitable was 2010. We had operating losses in each year from our inception in October 1999 until
2010. We expect to incur additional costs and operating expenditures as we further develop and expand our operations. In addition, as a public company, we incur additional legal, accounting and other
expenses that we did not incur as a private company. While our revenue has grown in recent periods and we recently achieved profitability, this growth may not be sustainable, and we may not continue
to achieve sufficient revenues to maintain profitability in the future. Our operating expenses, which include sales and marketing, research and development and general and administrative expenses, are
based on our expectations of future revenue and are, to a large extent, fixed in the short term. In addition, we may elect to spend more to grow our business in the future without certainty of
near-term returns. Accordingly, we may not maintain profitability, and we may incur losses in the future, which could affect the market price of our common stock or harm our ability to
raise additional capital.

Many NPOs are price sensitive, and if the prices we charge for our solutions are unacceptable to NPOs, our operating results will be harmed.

Many NPOs are price sensitive. As the market for our solutions matures, or as new competitors introduce new products or services that
compete with ours, we may be unable to renew our agreements with existing clients or attract new clients at prices that sustain historical margins.

In
addition, poor general economic conditions have led to our offering sales promotions and to our clients' renegotiating their pricing and contract terms as well as requesting other
concessions, especially during their contract's renewal period. These promotions and concessions can adversely impact our operating results. These conditions can also lead our competitors to
aggressively price their product offerings, further intensifying the pricing pressure on our solutions. Furthermore, demand for our more comprehensive and higher-priced solutions may decline. As a
result, our revenue, gross margin and operating results may be adversely affected.

Because we expense commissions associated with sales of our solutions immediately upon execution of a subscription agreement with a client and generally recognize the
revenue associated with such sale over the term of the agreement, our operating income in any period may not be indicative of our financial health and future performance.

We expense commissions paid to our sales personnel in the period in which we enter into an agreement for the sale of our solutions. In
contrast, we generally recognize the revenue associated with a sale of our solutions ratably over the term of the subscription agreement, which is typically three years for COM and one year for Common
Ground. Although we believe increased sales is a positive indicator of the long-term health of our business, increased sales, particularly sales to enterprise clients, would increase our
operating expenses and decrease earnings in any particular period. Thus, we may report poor operating results due to higher sales commissions in a period in which we experience strong sales of our
solutions. Alternatively, we may report better operating results due to the reduction of sales commissions in a period in which we experience a slowdown in sales. Therefore, you should not rely on our
operating income during any one quarter as an indication of our financial health and future performance.

24

---



Table of Contents

Because we generally recognize revenue from sales of our subscription services ratably over the term of our agreements, downturns or upturns in sales may not be immediately
reflected in our operating results.

We generally recognize revenue on a subscription basis, meaning we recognize the revenue ratably over the terms of our clients'
agreements. We typically do not invoice clients the full contract amount at the time of the execution of an agreement. Rather, we invoice our clients periodically based on our arrangement with each
client. We record deferred revenue when we invoice a client and only with respect to the invoiced amount for such period, but we only recognize the corresponding revenue ratably over the term of the
agreement. As a result, deferred revenue is not an effective determinant of sales or predictor of revenue in any particular period, and much of the revenue we recognize in any quarter may be from
deferred revenue from previous quarters. A decline in new or renewed subscriptions in any one quarter may not result in a decrease in revenue in such quarter but will negatively affect our revenue in
future quarters. We may be unable to adjust our cost structure to reflect these reduced revenues. Accordingly, downturns in sales or renewals of our subscription services will adversely impact revenue
and operating results on an on-going basis in future periods.

We anticipate that our Common Ground application will help us to grow our business, but if NPOs do not adopt Common Ground, the growth in our revenue could be limited and
our business harmed.

We introduced our Common Ground application in September 2008, targeted primarily at mid-market NPOs. In December 2010, we introduced
the Common Ground online fundraising and marketing engine directly integrated with Common Ground and we intend to continue to invest significantly in Common Ground research and development and sales
and marketing, especially as we expand Common Ground into the enterprise market. As of December 31, 2010, approximately 365 NPOs had adopted Common Ground. We expect to increase our spending on
research and development and sales and marketing to expand the number of Common Ground clients and the revenue we generate from these clients.

Common
Ground is a new and evolving product, and if NPOs do not continue to adopt Common Ground, then our business will have difficulty growing and will be harmed. We believe Common
Ground's acceptance and adoption by NPOs will be dependent upon, among other things, Common Ground's functional breadth, quality, ease of use, performance, reliability, and cost effectiveness. Even if
the advantages of Common Ground over legacy solutions are established, we are unable to predict to what extent Common Ground will be adopted in the marketplace.

We
plan on releasing more functionality for our Common Ground application. The introduction of these new features may replace sales of our Convio Online Marketing solution to the
mid-market, thereby offsetting the benefit of a successful feature introduction. This
could harm our operating results by decreasing sales of our higher priced solution, exposing us to greater risk of decreased revenues.

As
we expand Common Ground into the enterprise market, there is no guarantee that the large enterprise NPOs will adopt Common Ground or that the features will prove to be technologically
feasible for this market. Failure in this regard may significantly impair our ability to compete effectively and cause us to lose existing clients or fail to sell our solutions to new clients. Any or
all of the above occurrences could harm our business and results of operations.

We do not have any control over the availability or performance of salesforce.com's Force.com platform, and if we or our clients encounter problems with it, we may be
required to replace Force.com with another platform, which would be difficult and costly.

Common Ground runs on salesforce.com's Force.com platform, and we do not have any control over the Force.com platform or the prices
salesforce.com charges our NPO clients. Salesforce.com may discontinue or modify Force.com. Salesforce.com could also increase its fees or modify its pricing incentives for NPOs. If salesforce.com
takes any of these actions, we may suffer lower sales, increased

25

---



Table of Contents

operating
costs and loss of revenue from Common Ground until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated.

In
addition, we do not control the performance of Force.com. If Force.com experiences an outage, Common Ground will not function properly, and our clients may be dissatisfied with our
Common Ground application. If salesforce.com has performance or other problems with its Force.com platform, they will reflect poorly on us and the adoption and renewal of our Common Ground application
and our business may be harmed.

We encounter long sales cycles, particularly for our largest clients, which could have an adverse effect on the size, timing and predictability of our revenue and cash
flows.

Generally, our sales cycles last between three and nine months, but in the case of enterprise NPOs our sales cycle can last longer.
Potential clients, particularly our larger clients, generally commit significant resources to an evaluation of available technologies and require us to expend substantial time, effort and money
educating them as to the value of our solutions. We may expend significant funds and management resources during a sales cycle and ultimately fail to close the
sale. The sales cycle for our solutions is subject to significant risks and delays over which we have little or no control, including:



If
we are unsuccessful in closing sales after expending significant funds and management resources or if we experience delays in our sales cycles, the size, timing and predictability of
our revenue and cash flows could be harmed.

Interruptions, delays or security breaches at third-party datacenters or by our payment processors could impair the delivery of our solutions and harm our reputation and
business.

We host our solutions and serve all of our clients from two third-party datacenters, one located in Austin, Texas and the other in
Sacramento, California. During 2010, we completed the migration of our former GetActive clients to our COM platform and we retired the GetActive platform, which was hosted at the Sacramento facility,
in December 2010. Subsequently, we began removing the equipment from this facility as we do not intend to renew or extend the agreement which expires in March 2011. Any interruptions or problems at
either datacenter would likely result in significant disruptions in our solutions hosted at such site. We do not control the operation of these datacenters, and each is vulnerable to damage or
interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. Each datacenter is also subject to break-ins, sabotage, intentional acts of
vandalism and similar misconduct. Despite precautions at each datacenter, the occurrence of a natural disaster or an act of terrorism, a decision to close a datacenter without adequate notice or other
unanticipated problems such as work stoppages at a datacenter could result in interruptions or delays in our solutions and our failure to meet our service level commitments to our clients. Neither
datacenter is currently configured to provide failover services to the other datacenter in the event services at a facility are interrupted. Each datacenter has no obligation to renew its agreement
with us on commercially reasonable terms, or at all. If we are unable to renew our agreement with a datacenter on commercially reasonable terms, we may experience costs or downtime in connection with
the transfer to a new third-party datacenter.

26

---



Table of Contents

In addition, we rely on third-party providers for payment processing of funds contributed to our clients by their constituents. Such third-party providers have
experienced significant downtime in the past due to high transaction volumes and may experience similar downtime in the future. Although substantially all of our subscription agreements do not provide
service level commitments relating to payment processing services provided by third parties, any interruptions in our solutions may cause harm to our reputation, cause clients to terminate their
subscription agreements and harm our renewal rates.

We provide service level commitments to our clients, which could cause us to issue credits for future products and services if the stated service levels are not met for a
given period and could significantly harm our reputation and operating results.

We provide service level commitments in our subscription agreements. Our transaction volumes are erratic, and our volumes spike
significantly during large special events or major occurrences such as natural disasters. High transaction volumes can cause delays in response times. If we are unable to meet stated service level
commitments, we may be contractually obligated or choose to provide clients with refunds or credits for future products and services. We may not be able to recover from our third-party datacenters any
refunds or credits that we provide to our clients. Our revenue could also be adversely affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our
clients. Any service outages could harm our reputation, decrease our revenue and increase our operating costs.

If we are not able to develop enhancements to, and new features for, our existing solutions or acceptable new products and services that keep pace with technological
developments, we may lose clients or fail to sell our solutions to new clients.

We intend to develop or license enhancements to and new features for our solutions to keep pace with rapid technological developments
and to improve our solutions. The success of such enhancements, new features and services depends on several factors, including their timely completion, the license on acceptable terms of software
from third parties and the introduction and market acceptance of such enhancements, features or services. Failure in this regard may significantly impair our ability to compete effectively and cause
us to lose existing clients or fail to sell our solutions to new clients. In addition, because the software underlying our solutions is designed to operate on a variety of network hardware and
software platforms using a standard browser, we will need to continuously modify and enhance our solutions to keep pace with changes in Internet-related hardware, software, communication, browser and
database technologies. We may not be successful in either developing these modifications and enhancements or bringing them to market in a timely manner. Furthermore, uncertainties about the timing and
nature of new network platforms or technologies, or modifications to existing platforms or technologies could increase our research and development expenses. Any failure of our solutions to operate
effectively with future network platforms and technologies could reduce the demand for our solutions.

Our solutions, and in particular our Common Ground application, may contain errors or defects, negatively affecting their adoption which may cause us to lose clients and
reimburse fees.

Our solutions are novel and complex and, accordingly, may contain undetected errors or failures when first introduced or as new
enhancements are released. This may result in the loss of, or delay in, market acceptance of our new solutions. We have in the past discovered software errors in our solutions and new solutions after
their introduction. We have experienced delays in release, lost revenues and customer frustration during the period required to correct these errors. We may in the future discover errors and
scalability limitations in new solutions after they become available or be required to compensate customers for such limitations or errors. In addition, our clients may use our

27

---



Table of Contents

solutions
in unanticipated ways that may cause a disruption in our solutions for other clients. Since our clients use our solutions for mission-critical processes, any errors, defects or disruptions
in, or other performance problems with, the software underlying our solutions could harm our reputation and may damage our clients' activities. If that occurs, clients could elect not to renew or
delay or withhold payment to us, we could lose future sales and clients may make claims against us.

If our solutions do not scale to accommodate a high volume of traffic and transactions, we may experience client dissatisfaction and fail to grow our revenue.

We seek to generate a higher volume of website traffic and other electronic transactions for our clients as part of our product and
service offerings. Our transaction volumes are erratic, and our volumes spike significantly during large special events and major occurrences such as natural disasters. In addition, high transaction
volumes can cause delays in response times. The satisfactory performance, reliability and availability of our solutions, including our network infrastructure, are critical to our reputation and our
ability to attract and retain new clients. Any system interruptions that result in the unavailability or under-performance of our solutions would reduce the volume of traffic and transactions
processed on our system for our clients and may also diminish the attractiveness of our solutions to our clients. Furthermore, our inability to add software and hardware or to develop and further
upgrade our existing technology or network infrastructure to accommodate increased traffic or increased transaction volume may cause unanticipated system disruptions, slower response times,
degradation in levels of client service and impaired quality of the users' experience. We expect to continue to upgrade our solutions, but we may be unable to upgrade and expand our solutions
effectively or to integrate efficiently any new technologies with our existing solutions. Any inability to do so would harm our reputation, ability to maintain our client relationships and growth of
our business.

In
addition, most of our subscription agreements provide for higher revenue as the volume of client traffic and transactions increase over the term of the agreement. If we are unable to
scale our solutions to effectively accommodate a higher volume of traffic and transactions, we will not be able to realize an increase in our revenue.

The market in which we operate is intensely competitive, and our failure to compete successfully would cause our revenue and market share to decline.

The market in which we operate is fragmented, competitive and rapidly evolving, and there are limited barriers to entry for some
aspects of this market. Competitive pressures can adversely impact our business by limiting the prices we can charge our clients and making the adoption and renewal of our solutions more difficult.
With Convio Online Marketing, we compete with several online marketing solutions and a variety of point applications targeted at tasks such as email marketing, content management and fundraising event
management. With Common Ground, we compete with generic database providers, as well as industry-specific donor management solutions. Some of our competitors are focused exclusively on the nonprofit
industry while others sell to NPOs among a broader set of target industries. Our primary competitors are Blackbaud, Inc., The Sage Group plc and SofterWare, Inc. In addition, we
compete with a variety of smaller, private companies, and also with custom web development providers, which provide custom in-house applications. Any of these competitors could take
actions that adversely affect our business.

Other
larger potential competitors, such as Microsoft Corporation, Oracle Corporation and salesforce.com, Inc., could make acquisitions or develop solutions to establish or expand
their presence in the nonprofit market. Smaller competitors, such as those providing open source solutions, web development services and content management, email marketing and other point tools, may
strengthen their offerings through internal development or acquisitions and enhance their respective ability to compete. Other competitors have established or strengthened cooperative relationships
with strategic

28

---



Table of Contents

partners
serving the nonprofit market, thereby limiting our ability to promote our solutions and the number of partners available to help market our products and services. These competitive pressures
could cause our revenue and market share to decline.

If we are not able to manage our anticipated growth effectively, our operating costs may increase and our operating margins may decrease.

We will need to grow our infrastructure to address potential market opportunities. Our growth has placed, and will continue to place,
to the extent that we are able to sustain such growth, a significant strain on our management, administrative, operational and financial infrastructure. We anticipate that further growth will be
required to address increases in our client base, as well as our planned expansion into new geographic areas. If we continue to grow our operations, we may not be effective in enlarging our physical
facilities and our systems and our procedures or controls may not be adequate to support such expansion or our business generally. If we are unable to manage our growth, our operating costs may
increase and our operating margins may decrease.

We depend on our direct sales force and our partner network for sales and deployments of our solutions and, if we do not attract and retain our sales personnel or maintain
our partner relationships, our revenue may not grow and our business could be harmed.

We depend primarily on our direct sales force to obtain new clients and to manage our client base. There is significant competition for
direct sales personnel with the advanced sales skills and technical knowledge that sales of our solutions require. Our ability to achieve significant revenue growth in the future will depend, in large
part, on our success in recruiting, training and retaining sufficient numbers of direct sales personnel.

We
complement our direct sales personnel with a network of partners serving the nonprofit market, including interactive agencies, direct marketing agencies, public affairs firms and
complementary technology companies. Our partner network helps us grow our client base and, we believe, enables us to provide more complete solutions for our clients. If our partners fail to increase
awareness of our
solutions or to assist us in gaining access to decision-makers at NPOs, then we may need to increase our marketing expenses, change our marketing strategy or enter into marketing relationships with
different parties, any of which could impair our ability to generate increased revenue. Our typical partner agreement is not exclusive and our partners may choose not to promote sales of our
solutions. If we do not maintain and increase our partner relationships, our revenue may not grow and could decline.

We
also rely on third-party implementation providers whom we recommend to our clients to deploy COM and Common Ground. In the case of Common Ground, to date we have relied primarily on
third-party implementation providers to provide deployment services. Any failure to perform, unprofessional conduct, delays or difficulties with the deployment on the part of such third-party
implementation providers may require us to perform these services ourselves and may reflect poorly on our reputation and the marketability of our solutions, which could harm our business and results
of operations. Our agreements with these third-party implementation providers do not obligate them to continue to deploy our solutions. Our clients either enter into agreements directly with us or
alternatively with the third-party implementation providers, so we have limited ability to seek recourse from them if deployment issues arise with clients.

We rely on third-party software in our solutions that may be difficult or costly to replace or which could cause errors or failures and harm our reputation.

We rely on software licensed from third parties in order to offer our solutions, including database software from Oracle Corporation.
The third-party software may not continue to be available on

29

---



Table of Contents

commercially
reasonable terms, or at all. Any loss of the right to use any necessary third-party software could result in delays in the provisioning of our solutions until equivalent technology is
either developed by us, or, if available, is identified, obtained and integrated, which could harm our reputation and increase our operating costs. Any errors or defects in third-party software could
result in errors or a failure of our solutions which could harm our reputation and be costly to correct. Many of our third-party providers attempt to impose limitations on their liability for errors,
defects, or failures in their hardware, software, or services, which we are required to pass through to our clients. Those limitations may or may not be enforceable, and we may have liability to our
clients or providers that could harm our reputation and increase our operating costs.

If we fail to retain key personnel or if we fail to attract additional qualified personnel or if newly hired personnel fail to reach productivity as anticipated, we may not
be able to achieve our anticipated level of growth, our revenue may decrease and our operating costs may increase.

Our future success depends upon the continued service of our officers and other key finance, sales and marketing, research and
development and professional services staff. In addition, our future success will depend in large part on our ability to attract a sufficient number of highly qualified personnel, and there can be no
assurance that we will be able to do so. Competition for qualified personnel can be intense, and we might not be successful in attracting and retaining them. The pool of qualified personnel with
experience working with or selling to NPOs is limited overall and specifically in Austin, Texas, Washington, D.C. and the San Francisco Bay Area of California, where a significant portion of our
operations are located. If we fail to retain key personnel or attract a sufficient number of highly qualified personnel, we may expend more resources in an effort to recruit qualified personnel and
our operating costs would increase. In addition, the diversion of management's attention to recruiting efforts may cause our sales and revenue to decrease.

Our
ability to maintain and expand our finance, sales and marketing, research and development and professional services teams will depend on our ability to recruit, train and retain top
quality people with advanced skills who understand sales to, and the specific needs of, NPOs. For these reasons, we have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications for our business. In addition, it takes time for our new sales and services
personnel to become productive, particularly with respect to obtaining and supporting enterprise clients. If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to
develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our solutions and provide services to our clients, and we could experience a
shortfall in revenue and may not achieve our planned growth.

Various private spam blacklists have in the past reduced, and may in the future reduce, the effectiveness of our solutions and our ability to conduct our business, which may
cause demand for our solutions to decline.

We depend on email to market to and communicate with our clients, and our clients rely on email to communicate with their constituents.
Various private entities attempt to limit the use of email for commercial solicitation. These entities often advocate standards of conduct or practice that exceed current legal requirements in the
United States and classify certain email solicitations that comply with current legal requirements as spam. Some of these entities maintain "blacklists" of companies and individuals, and the websites,
Internet service providers and Internet protocol addresses associated with those entities or individuals that do not adhere to those standards of conduct or practices for commercial email
solicitations that the blacklisting entity believes are appropriate. If a company's Internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked by
servers that receive or route email and subscribe to the blacklisting entity's service or purchase its blacklist. Any blocking of email communications generated by clients using our solutions

30

---



Table of Contents

will
reduce the effectiveness of our solutions and our ability to conduct our business, which may cause demand for our solutions to decline and increase non-renewals.

Government regulation could increase our compliance expenses, subject us to fines or penalties of non-compliance or adversely affect the marketability of our
solutions.

We are subject not only to laws and regulations applicable to businesses generally, but also to laws and regulations directly
applicable to electronic commerce and fundraising activities. In addition, our clients are subject to United States and foreign laws and regulations governing the collection, use and disclosure of
personal information obtained from individuals, which restrict how our clients use our solutions. There are many laws and regulations related to electronic commerce and online fundraising, and state,
federal and foreign governments may adopt or enforce additional laws and regulations applicable to our business and to our clients' use of our solutions. If the burdens or costs of our clients'
compliance with additional regulations increase, NPOs may decide not to use our solutions. Further, our failure to comply with any such laws or regulations could subject us to fines, penalties or
other damages that could harm our reputation and increase our operating costs.

The
promulgation, amendment or enforcement of any laws or regulations in the following areas could increase our compliance expenses:



We
are also subject to certain state registration and periodic filing requirements related to companies that provide fundraising consulting services. States' regulations vary and the
application of these regulations to our business is unclear. Our clients rely in part on our registrations in states that require registration to conduct our clients' national fundraising campaigns.
As of December 31, 2010, we were registered in each of the 24 states that require registration. If we fail to comply with any of

31

---



Table of Contents

these
regulations, our registrations could be revoked or we may be prevented from registering, and our clients could terminate their agreements with us if we do not meet their fundraising needs in
those states. In addition, we could incur fines, penalties or other damages that could harm our reputation and increase our operating costs, and we may be obligated to file client agreements that may
disclose competitively sensitive information. Furthermore, the states in which we are registered may impose new
requirements and additional states may adopt registration requirements that may increase our compliance expenses.

Evolving privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our solutions, which could reduce overall demand for our
solutions and increase operating costs.

Our clients can use our solutions to store personal or identifying information regarding their constituents. Federal, state and foreign
government bodies and agencies, however, have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers and
other individuals. For instance, as part of the American Recovery and Reinvestment Act of 2009, Congress passed the Health Information Technology for Economic and Clinical Health Act, or
HI-TECH Act. The HI-TECH Act expands the reach of data privacy and security requirements of the Health Insurance Portability and Accountability Act, or HIPAA, to service
providers. HIPAA and associated United States Department of Health and Human Services regulations permit our clients in the healthcare industry to use certain demographic protected health information
(such as name, email or physical address and dates of service) for fundraising purposes and to disclose that subset of protected health information to their service providers for fundraising. We may
be included in this service provider group under the revised HIPAA regulations by virtue of our service provider relationship with our clients in the healthcare industry. In general, we are seeking to
prohibit contractually our healthcare industry clients from uploading other types of health information of their clients into our systems because HIPAA does not permit this information to be used for
fundraising without certain permissions, but we believe that monitoring our healthcare clients' compliance with such prohibitions is not legally required of service providers and would be cost
prohibitive. The law and regulations under HI-TECH are new and still subject to change or interpretation by legal authorities who could cause additional compliance burdens.

The
costs of compliance with, and other burdens imposed by, HIPAA, the HI-TECH Act and such other laws and regulations that are applicable to the businesses of our clients
may limit the use and adoption of our solutions, reduce overall demand for our solutions and increase our operating costs, and we may be unable to pass along those costs to our clients in the form of
increased fees.

In
addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory
standards that may place additional burdens on us. If regulatory burdens related to collection and use of personal information increase, our solutions would be less effective, which may reduce demand
for our solutions and harm our business.

United States federal legislation entitled Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 imposes certain obligations on the
senders of commercial emails, which could minimize the effectiveness of our email product and establishes financial penalties for non-compliance, which could increase the costs of our
business.

In December 2003, Congress enacted Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the
CAN-SPAM Act, which establishes civil penalties for failure to meet certain requirements for commercial email messages (which may include email messages sent by NPOs that advertise a
commercial product or service) and specifies criminal and civil penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source, transmission path
or content. The CAN-SPAM Act, among other things, obligates the sender of

32

---



Table of Contents

commercial
emails to identify their recipients with the ability to opt out of receiving future emails from the sender. In addition, some states have passed laws regulating commercial email practices
that are significantly more punitive and difficult to comply with than the CAN-SPAM Act. For example, Utah and Michigan have enacted do-not-email registries listing
minors who do not wish to receive unsolicited commercial email that markets certain covered content, such as products that minors are prohibited from purchasing. Some portions of these state laws may
not be preempted by the CAN-SPAM Act. The ability of our clients' constituents to opt out of receiving commercial emails may minimize the effectiveness of our email product. Moreover,
non-compliance with the CAN-SPAM Act can involve significant financial penalties. In addition, European Union member state laws typically prohibit sending promotional email
messages outside of an established business relationship with the recipient unless the recipient has opted into receipt of such messages and require honoring opt-out requests by
recipients. Such laws largely prevent the use of email to new prospects in the European Union, and similar laws have been adopted in some countries. Although our agreements prohibit violations of
these laws, if we were found to be in violation of the CAN-SPAM Act, applicable state laws not preempted by the CAN-SPAM Act, or European Union or foreign laws regulating the
distribution of commercial email, whether as a result of violations by our clients or if we were deemed to be directly subject to and in violation of these requirements by the future interpretation of
such laws by a court of law or regulatory agency, we could be required to pay penalties or we may be required to change one or more aspects of the way we operate our business, which could impair our
ability to attract and retain clients or increase our operating costs.

We may be subject to legal costs and liabilities for content and activities of our clients and their constituents, which could harm our reputation and increase our operating
costs.

We host content provided by our clients and their constituents and provide products and services that enable them to exchange
information, conduct business and engage in various online activities. From time to time, we are requested to provide information or otherwise
become involved in legal and other matters involving our clients' online activities. While we require our clients to agree to comply with acceptable usage policies and other content restrictions,
clients and their constituents may provide content or undertake activities that could require us to conduct investigations or defend claims by private persons and entities or governmental entities
that may be with or without merit and may subject us to legal costs and liabilities to our third-party suppliers and others, which could harm our reputation and increase our operating costs.

If existing clients and prospective clients refuse to adopt or renew our solutions, or we choose not to engage a prospective client, because of conflicts over ideological
missions, our revenue will not grow at our anticipated rate.

Our clients have a wide range of ideological missions. Many NPOs focus upon and support ideological causes that may conflict with the
ideological causes of our other clients. A few prospective clients in the past have hesitated or refused to use our solutions because of our relationship with NPOs with ideologies that directly
conflict with the ideologies of such prospective clients. If the number of our clients grows, the potential for such conflict will increase. We have adopted a policy of working with NPOs supporting a
wide range of ideological missions other than those that promote violence, hatred, or racial or religious intolerance. We will exercise our judgment in determining whether an organization violates the
spirit of these client engagement principles. Based on these principles, we have and may continue in the future to choose not to engage prospective client NPOs. If our prospective clients refuse to
adopt our solutions, if we choose not to engage a prospective client, or if our existing clients do not renew or otherwise terminate their use of our solutions due to such conflicts, our revenue may
be adversely affected and our reputation may be harmed.

33

---





Table of Contents

Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and harm our operating results.

A change in accounting standards or practices could harm our operating results and may affect our reporting of transactions completed
before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the
questioning of current practices may harm our operating results or the way we conduct our business.

We may incur significant expenses to defend against or settle claims that we infringe upon third parties' intellectual property rights.

Litigation regarding intellectual property rights is common in the software industry. We expect that our solutions may be increasingly
subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products and services in different industry segments overlaps. We have
encountered and may encounter in the future disputes over rights and obligations concerning intellectual property. In the past, we have been involved in litigation with Kintera, Inc., which was
acquired by Blackbaud, Inc. Third parties may seek to bring
claims against us in the future. Such claims may be with or without merit. Any litigation to defend against claims of infringement or invalidity could result in substantial costs and diversion of
resources. Furthermore, a party making such a claim could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could
prevent us from selling our solutions. Our operating costs may increase or our revenue may decline if any of these events occurred.

In
addition, we generally indemnify our clients against certain claims that our solutions infringe upon the intellectual property rights of others. We could incur substantial costs in
defending ourselves and our clients against infringement claims and paying any resulting damage awards or settlements. In the event of a claim of infringement, we and our clients might be required to
obtain one or more licenses from third parties. We, or our clients, might be unable to obtain necessary licenses from third parties at a reasonable cost, if at all. We, or our clients, might become
subject to an injunction that prevents use of the allegedly infringing technology. Any intellectual property rights claim against us or our clients, with or without merit, could be
time-consuming, expensive to litigate or settle and could divert management attention and financial resources. An adverse determination also could prevent us from offering our solutions to
our clients and may require that we procure or develop a substitute solution that does not infringe.

For
any intellectual property rights claim against us or our clients, we may have to pay damages or stop using technology found to be in violation of a third party's rights. We may have
to seek a license for the technology, which may not be available on reasonable terms, if at all, may significantly increase our operating expenses or may require us to restrict our business activities
in one or more respects. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense. Defense of any lawsuit,
the cost of any damages or settlements, failure to obtain any such required licenses or issuance of an injunction would increase our operating costs and may reduce our revenue.

If the security of the software or systems underlying our solutions is breached, our reputation could be harmed and our operating costs could increase.

Fundamental to the use of our products and services is the secure collection, storage and transmission of constituent information.
Unauthorized third parties have periodically attempted to attack our system, and we have had security breaches in the past. We regularly upgrade our security technologies, policies and programs.
However, we expect third parties to continue to attempt to attack our system in the future with increasing sophistication. If a third party breaches our security, that of

34

---



Table of Contents

our
clients or that of our third-party datacenters and payment processing partners, our business could be harmed. It could result in misappropriation of proprietary information or interruptions in
operations. We might be liable to our clients or their constituents for damages from breaches of
security, and clients could seek to terminate their agreements with us. A breach could also harm our reputation and increase our operating costs, particularly any breach resulting in the imposition of
liability that is not covered by insurance or is in excess of insurance coverage. We might be required to expend significant capital and other resources to notify and communicate with state and
federal regulatory agencies and affected clients and their constituents, provide credit monitoring or other protections, protect further against security breaches or to rectify problems caused by any
security breach. Any of these results would be harmful to our business.

We rely upon trademark, copyright and trade secret laws to protect our proprietary rights, which might not provide us with adequate protection, and we may therefore be
unable to compete effectively.

Our success and ability to compete depend to a significant degree upon the protection of our software and other proprietary technology
rights. We might not be successful in protecting our proprietary technology, and our proprietary rights might not provide us with a meaningful competitive advantage. To protect our proprietary
technology, we rely on a combination of trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which affords only limited protection. We have no patents on our
proprietary technology and, accordingly, have no way to exclude others from practicing inventions relating to similar technologies, unless wrongfully misappropriated from us in violation of trade
secret law or any non-disclosure agreements. Any inability to protect our intellectual property rights could harm our ability to compete effectively, which would reduce our revenue. Such
harm includes but is not limited to the following:



Despite
the measures taken by us, it may be possible for a third party to copy or otherwise obtain and use our proprietary technology and information without authorization. Policing
unauthorized use of our solutions is difficult, and litigation could become necessary in the future to enforce our intellectual property rights. Any litigation could be time consuming and expensive to
prosecute or resolve and could result in substantial diversion of management attention and resources.

We use open source software in the software underlying our solutions that may subject our software to general release or require us to re-engineer such
solutions, which could reduce our revenue or increase our operating costs.

We use open source software in the software underlying our solutions and plan to use more open source software in the future. From time
to time, there have been claims against companies that distribute or use open source software in their products and services, asserting that open source software infringes the claimants' intellectual
property rights. We could be subject to suits by parties claiming infringement of intellectual property rights resulting from our use of open source software in accordance with the terms of the
license under which we received such open source software. Use and distribution of open source software can lead to greater risks than use of third-party commercial software, as open source licensors
generally do not provide warranties or other contractual protections

35

---



Table of Contents

regarding
infringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon
the open source software and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of
further use, modification and distribution. If we combine our proprietary software with open source software in a certain manner, we could, under certain of the open source licenses, be required to
release the source code of our proprietary software and license such proprietary software under the terms of the open source license for free or for a nominal fee. Open source license terms may be
ambiguous and many of the risks associated with usage of open source software cannot be eliminated and could, if not properly addressed, negatively affect our business. If we were found to have
inappropriately used open source software or failed to comply with the terms of the open source licenses, in addition to the potential that we license modifications or derivative works we create under
open source license terms, we may be subject to suits by licensors claiming infringement of intellectual property rights related to such open source software and required to re-engineer
our software underlying our solution, discontinue the sale of our solutions in the event re-engineering cannot be accomplished on a timely basis, take other remedial action that may divert
resources away from our development efforts or be subject to an injunction or damage award or settlement, any of which could reduce our revenue or increase our operating costs.

If we are not able to integrate StrategicOne or any future acquisitions successfully, our operating results and prospects could be harmed.

In January 2011, we acquired substantially all of the assets of StrategicOne and have begun to integrate its operations. In the future
we may pursue additional acquisitions of businesses to complement our existing business. We cannot assure you that our acquisition of StrategicOne, or that any acquisition we make in the future, will
provide us with the benefits we anticipated in entering into the transaction. Our acquisition of StrategicOne is, and any acquisitions we do in the future will be, accompanied by a number of risks,
including:



In
addition, acquisitions may result in the incurrence of debt, restructuring charges and write-offs, such as write-offs of acquired in-process
research and development. We also may not be able to recognize as revenue the deferred revenue of an acquired company. Acquisitions may result in goodwill and other intangible assets that are subject
to impairment tests, which could result in future impairment charges. Furthermore, if we finance future acquisitions by issuing convertible debt or equity securities our existing stockholders may be
diluted and earnings per share may decrease. To the extent we finance

36

---



Table of Contents

future
acquisitions with debt, such debt could include financial or operational covenants that restrict our business operations.

We
may enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations could result in diversion of management time and significant
out-of-pocket costs. If we fail to evaluate and execute acquisitions successfully, we may not be able to realize the benefits of these acquisitions, and our operating results
could be harmed.

If we expand our operations outside of the United States, our expansion may subject us to risks that may increase our operating costs.

An element of our growth strategy is to expand our international operations and develop a worldwide client base. To date, we have not
realized a material portion of our revenue from clients outside the United States. Operating in international markets requires significant resources and management attention and will subject us to
regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international
operations, we cannot assure you that our international expansion efforts will be successful. In addition, we will face risks in doing business internationally that could increase our operating costs,
including:



If
we decide to expand our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks associated with future
international operations. Our failure to manage any of these risks successfully could increase our operating costs.

Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy.

We intend to continue to make investments to support our growth and believe that our existing cash and cash equivalents and our cash
flow from future operating activities will be sufficient to meet our anticipated cash needs for the next twelve months. We may, however, require additional capital from equity or debt financings in
the future to fund our operations or respond to competitive pressures or strategic opportunities. In addition, we may require additional financing to fund the purchase price

37

---



Table of Contents

of
future acquisitions. Additional financing may not be available on terms favorable to us, or at all. Any additional capital raised through the sale of equity or convertible debt securities may
dilute your percentage ownership of our common stock. Furthermore, any new debt or equity securities we issue could have rights, preferences and privileges superior to our common stock. Capital raised
through debt financings could require us to make periodic interest payments and could impose potentially restrictive covenants on the conduct of our business. If we are unable to obtain adequate
financing or financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives, which will
increase our operating costs.

As a public company, we incur legal, accounting and other expenses that we did not incur as a private company. In addition, the
Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the NASDAQ Listing Rules, impose additional requirements on public companies,
including requiring changes in corporate governance practices. For example, the listing requirements of the NASDAQ Global Market require that we satisfy certain corporate governance requirements
relating to independent directors, audit committees, distribution of annual and interim reports, stockholder meetings, stockholder approvals, solicitation of proxies, conflicts of interest,
stockholder voting rights and codes of conduct. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more
expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial additional costs to maintain the same or
similar coverage. These rules and regulations also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive
officers.

In
addition, United States securities laws require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In
particular, for the year ending December 31, 2011, we will be required to perform system and process evaluation and testing of our internal control over financial reporting to allow management
and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our
testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues. Moreover, if we are
not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to potential delisting by the NASDAQ Global Market and review by the
NASDAQ Stock Market, the SEC, or other regulatory authorities which would require additional financial and management resources.

Risks Relating to Ownership of Our Common Stock

Our stock price is volatile, and the value of an investment in our common stock may decline.

An active public market for our shares may not continue to develop or be sustained. Shares of our common stock were sold in our initial
public offering on April 29, 2010 at a price of $9.00 per share, and our common stock has subsequently traded as high as $11.24 and as low as $6.90. The trading price of our common stock could
be highly volatile and could be subject to wide fluctuations in

38

---



Table of Contents

response
to various factors, some of which are beyond our control. Factors affecting the trading price of our common stock include:



In
addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons
unrelated to our business, financial condition or operating results. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if
these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies that have had volatile market prices for their
securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert
management's attention and resources.

Future sales of shares by existing stockholders could cause our stock price to decline.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the
trading price of our common stock could decline. As of February 28, 2011, we had outstanding 17,819,257 shares of common stock. Contractual lock-up restrictions on the sale of
approximately 11,467,160 million shares held by certain stockholders expired on December 1, 2010. In addition, as of February 28, 2011, 10,589 shares subject to our remaining
outstanding warrants, 2,997,164 shares that are subject to outstanding options, 215,091 shares subject to outstanding restricted stock units and 878,462 shares reserved for future issuance under our
equity plans, were eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these
additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Some
of our existing stockholders have contractual demand or piggyback rights to require us to register with the SEC up to 5,336,038 shares of our common stock. If we register these
shares of common stock, the stockholders would be able to sell those shares freely in the public market.

On
July 12, 2010, we filed a Registration Statement on Form S-8 with the SEC to register 3,471,358 shares of our common stock that we have issued or may issue
under our equity plans. These shares can be freely sold in the public market upon issuance, subject to the lock-up agreements, if applicable, described above.

39

---



Table of Contents

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could
decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the
trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes
misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand
for our stock could decrease, which could cause our stock price or trading volume to decline.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change of control of our company and may affect the
trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us,
may discourage, delay or prevent a change of control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an
interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and bylaws may discourage, delay or prevent
a change in our management or control over us that stockholders may consider favorable. Our restated certificate of incorporation and bylaws:



Our management will continue to have broad discretion over the use of the proceeds raised in our recent initial public offering and might not apply the proceeds in ways that
may enhance our operating results or the price of our common stock.

Our management will continue to have broad discretion over the use of proceeds from our recent initial public offering, and you will be
relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds of the initial public offering in ways that increase the value of
your investment. On May 12, 2010, we used $1.9 million of

40

---



Table of Contents

the
net proceeds from the initial public offering to retire all the outstanding debt under the revolving line of credit and the term loan with Comerica Bank. On January 28, 2011, we used
approximately $4.9 million of the net proceeds from the initial public offering to acquire StrategicOne. We anticipate that we will use the remaining net proceeds from the initial public
offering for general corporate purposes. We may use a portion of the proceeds to expand our business through acquisitions or investigations in other complimentary businesses, particularly those with
similar clients and adjacent products or technologies, however, we have no agreements or commitments with respect to any acquisitions at this time. Our management might not be able to yield a
significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how the net proceeds of the initial public offering are used.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

We lease office space for our corporate headquarters located in Austin, Texas. This lease expires in September 2013. We also lease
additional office space in the San Francisco Bay Area of California and Washington, D.C. With the acquisition of StrategicOne, we acquired leases for small offices in Overland Park, Kansas and
Lincoln, Nebraska. We believe our facilities are adequate for our current needs but we may add new facilities or expand our existing facilities as we
add employees. We believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.

Item 3.    Legal Proceedings

We are not currently involved in any material legal proceedings. From time to time, we may become involved in legal proceedings arising
in the ordinary course of our business.

Item 4.    (Removed and Reserved)

41

---





Table of Contents

Part II

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

Market Information and Holders

Our registration statement (Registration No. 333-164491) under the Securities Act of 1933, as amended, relating to
our initial public offering of our common stock became effective on April 28, 2010. Our initial public offering was priced at $9.00 per share on April 28, 2010. Our common stock is
quoted on the NASDAQ National Market (NASDAQ) under the symbol "CNVO". The table below shows the high and low per-share sales prices of our common stock for the periods indicated, as
reported by NASDAQ.

High

Low2010Fourth Quarter

$
9.84

$
7.01Third Quarter


9.57


7.00Second Quarter (beginning April 29, 2010)


10.99


6.90


On
March 8, 2011, the last reported sales price of our common stock on the NASDAQ was $10.89 per share and, as of February 28, 2011, there were 179 holders of record of our
common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, this number is not representative of the total number of stockholders
represented by these stockholders of record.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we do not intend to pay cash dividends in the foreseeable
future. We currently expect to retain any future earnings to fund the operation and expansion of our business.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

(a)Recent Sales of Unregistered Securities

From
January 1, 2010 to July 12, 2010, the date we filed a Registration Statement on Form S-8 with regard to our equity incentive plans, we granted
options to purchase 250,946 shares of our common stock under our 2009 Stock Incentive Plan with a weighted average exercise price of $8.77, vesting 1/4th on the one year
anniversary of the vesting commencement date and then 1/36th per month thereafter. In addition, we issued 100,730 restricted stock units under our 2009 Stock Incentive Plan with
a fair market value of $9.15 per share, which shares vest 1/4th on the one year anniversary of the May 26, 2010 vesting commencement date and then
1/3rd per year thereafter. From January 1, 2010 to July 12, 2010, certain of our employees exercised options to purchase 162,774 shares of our common stock pursuant
to options issued under the Company's 1999 Stock Option/Stock Issuance Plan (the "1999 Plan"), the 2000 Stock Option Plan of GetActive (the "GetActive 2000 Plan") and the 2006 Equity Incentive Plan of
GetActive (the "GetActive 2006 Plan") at a weighted average purchase price of $1.16 per share for an aggregate purchase price of $188,000. These issuances were exempt from registration under the
Securities Act of 1933, as amended, pursuant to the exemption provided in Rule 701 or Section 4(2) of the Securities Act of 1933, as amended.

42

---



Table of Contents

(b)Use of Proceeds from Public Offerings of Common Stock

On
April 28, 2010, our registration statement on Form S-1 (File No. 333-164491) was declared effective for our initial public offering. There
has been no material change in the planned use of proceeds from our initial public offering as described in our Prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on
April 29, 2010. On May 12, 2010, we used $1.9 million of the net proceeds from the initial public offering to retire all the outstanding debt under the revolving line of credit
and the term loan with Comerica Bank. On January 28, 2011, we used approximately $4.9 million of the net proceeds from the initial public offering to acquire StrategicOne. We anticipate that we will
use the remaining net proceeds from the initial public offering for general corporate purposes. We may also use a portion of the proceeds to expand our current business through acquisitions or
investments in other complementary businesses, particularly those with similar clients and adjacent products or technologies, however, we have no agreements or commitments with respect to any
acquisitions at this time. The amount and timing of what we actually
spend may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations as well as the other factors described in the section titled "Risk
Factors." Pending the use of the net proceeds from the initial public offering described above, we invested the funds in a registered money market account and in marketable securities.

Securities Authorized for Issuance Under Equity Compensation Plans

Plan category

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

Weighted average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))(a)

(b)

(c)Equity compensation plans approved by security holders


3,029,634

$
3.72


198,980Equity compensation plans not approved by security holders








Total


3,029,634

$
3.72


198,980


43

---



Table of Contents

Stock Performance Graph

COMPARISON OF 1 YEAR CUMULATIVE TOTAL RETURN*Among Convio, Inc., the Russell 2000 Index  and the NASDAQ Computer Index

GRAPHIC

---

Issuer Purchases of Equity Securities

None.

44

---





Table of Contents

Item 6.    Selected Financial Data

We have derived the following consolidated statements of operations data for 2010, 2009 and 2008 and consolidated balance sheet data as
of December 31, 2010 and 2009 from our audited consolidated financial statements contained in this Annual Report on Form 10-K. We have derived the following consolidated
statements of operations data for 2007 and 2006 and consolidated balance sheet data as of December 31, 2008, 2007 and 2006 from our audited consolidated financial statements not included in
this Annual Report. You should read the consolidated financial data set forth below in conjunction with our consolidated financial statements and related notes thereto and the information under
"Management's Discussion and Analysis of Financial Condition and Results of Operations." Our historical results are not necessarily indicative of our results to be expected in any future period.

Year Ended December 31,2010

2009

2008

2007

2006(in thousands, except per share amounts)Statements of Operations Data:Revenue:Subscription and services

$
58,353

$
54,900

$
50,103

$
38,754

$
18,051Usage


11,391


8,186


6,877


4,329


3,407Total revenue


69,744


63,086


56,980


43,083


21,458Cost of revenue(1)(2)


25,541


24,779


22,911


18,716


7,934Gross profit


44,203


38,307


34,069


24,367


13,524Operating expenses:Sales and marketing(2)


22,468


21,556


21,432


19,428


12,171Research and development(2)


10,552


10,041


8,754


7,189


3,488General and administrative(2)


6,552


6,034


5,883


4,456


2,351Amortization of other intangibles


857


1,400


1,452


1,271


Write off of deferred stock offering costs








1,524





Restructuring expenses











284


Total operating expenses


40,429


39,031


39,045


32,628


18,010Income (loss) from operations


3,774


(724
)

(4,976
)

(8,261
)

(4,486
)Interest income


61


6


115


279


138Interest expense


(126
)

(355
)

(691
)

(883
)

(724
)Other income (expense)


45


(803
)

1,808


(1,644
)

93Income (loss) before income taxes


3,754


(1,876
)

(3,744
)

(10,509
)

(4,979
)Provision for income taxes


299


219








Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)
$
(10,509
)
$
(4,979
)Net income (loss) attributable to common stockholders (note 2):Basic

$
3,048

$
(2,095
)
$
(3,744
)
$
(10,509
)
$
(4,978
)Diluted

$
3,455

$
(2,095
)
$
(3,744
)
$
(10,509
)
$
(4,978
)Net income (loss) per share attributable to common stockholders (note 2):Basic

$
0.22

$
(0.29
)
$
(0.52
)
$
(1.69
)
$
(7.68
)Diluted

$
0.20

$
(0.29
)
$
(0.52
)
$
(1.69
)
$
(7.68
)Weighted average shares used in computing net income (loss) per share attributable to common stockholders:Basic


14,155


7,313


7,257


6,257


648Diluted


17,517


7,313


7,257


6,257


648


45

---



Table of Contents

Year Ended December 31,2010

2009

2008

2007

2006(in thousands, except per share amounts)Other Operating Data:Adjusted EBITDA(3)(unaudited)

$
9,228

$
6,581

$
1,405

$
(3,378
)
$
(3,450
)Net cash provided by (used in) operating activities


9,122


6,791


2,862


(1,225
)

(1,211
)


The
amounts shown above in the consolidated statements of operations data include amortization of acquired technology and stock-based compensation as follows:


Year Ended December 31,2010

2009

2008

2007

2006(in thousands)(1)   Amortization of acquired technology:Cost of revenue

$
127

$
1,016

$
1,016

$
887

$
(2)   Stock-based compensation:Cost of revenue

$
469

$
583

$
383

$
164

$
13Sales and marketing


659


742


585


300


25Research and development


357


343


235


85


4General and administrative


563


834


353


142


23
 (3)We
define Adjusted EBITDA as net income (loss) less interest income and gain (loss) on preferred stock warrant revaluation plus interest expense, provision
for taxes, depreciation expense, amortization expense, stock-based compensation expense and acquisition related transaction costs. See further discussion under "Management's Discussion and Analysis of
Financial Condition and Results of OperationsUse of Non-GAAP Financial Measures" below.




As of December 31,2010

2009

2008

2007

2006(in thousands)Balance Sheet Data:Cash and cash equivalents

$
18,447

$
16,662

$
13,828

$
14,600

$
8,514Restricted cash


1,248











Marketable securities


36,774











Working capital


44,184


2,379


(1,260
)

322


(1,139
)Total assets


80,411


41,344


40,873


44,156


16,343Preferred stock warrant liability





1,375


562


2,366


705Long-term obligations, net of current portion





1,348


1,205


3,384


2,998Convertible preferred stock





33,869


33,869


33,869


37,274Total stockholders' equity (deficit)


58,414


(18,909
)

(19,357
)

(17,337
)

(38,864
)




46

---



Table of Contents

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

Overview

We are a leading provider of on-demand constituent engagement solutions that enable nonprofit organizations, or NPOs, to
more effectively raise funds, advocate for change and cultivate relationships with donors, activists, volunteers, alumni and other constituents. We serve approximately 1,400 NPOs of all sizes, and
during 2010, our clients used our solutions to raise over $1.3 billion online and deliver over 4 billion emails to over 140 million email addresses to accomplish their missions.

We
were incorporated in Delaware in October 1999, and we offered our first commercially available online marketing solution in 2000. We acquired GetActive Software, Inc. in
February 2007. Our integrated solutions now include our Convio Online Marketing platform, or COM, and Common Ground, our constituent relationship management application. COM enables NPOs to harness
the full potential of the Internet and social media as new channels for constituent engagement and fundraising. Common Ground delivers next-generation donor management capabilities,
integrates marketing activities across online and offline channels and is designed to increase operational efficiency. Our solutions are enhanced by a portfolio of value-added services tailored to our
clients' specific needs.

On
January 28, 2011, we acquired StrategicOne, a privately-owned company, to strengthen our enterprise offering by adding the experience and expertise of a proven provider of data
analytics, predictive modeling and other database marketing services to the company.

Our Business Approach

We sell our solutions through a direct sales force complemented by our partner network. Our sales force is increasing its focus on
acquiring a higher number of mid-market clients.

Our
revenue has increased to $69.7 million in 2010 from $21.5 million in 2006, and we generated net income of $3.5 million in 2010 compared to a net loss of
$5.0 million in 2006. Our net cash provided by (used in) operations has increased to $9.1 million in 2010 from $(1.2) million in 2006. We recognize subscription and services revenue
ratably over the term of our client agreements beginning on the date such products and services become available for use by the client, or the activation date. The terms of our agreements are
typically three years for COM and one to two years for Common Ground.

We
currently derive the substantial majority of our revenue from subscriptions to our COM solution. Pricing for our COM solution is based on the number of modules licensed, the email
list size and any related services. We also recognize usage revenue from our clients as a percentage of funds raised at special events, such as runs, walks and rides, and based on additional fees for
their increased use of our COM solution.

Pricing
for Common Ground is based on the number of seats licensed. We typically do not derive revenue from deployment services for Common Ground as deployment activities are generally
handled by third-party implementation providers. Common Ground is built on salesforce.com's Force.com platform. Common Ground clients enter into a license agreement with us and separately enter into a
license agreement with salesforce.com for use of its solution.

We
believe the nonprofit market for on-demand constituent engagement solutions is large and underserved, and we plan to continue to invest in our business to pursue this
opportunity. In particular, we expect to incur significant sales and marketing expenses to increase the number of clients on our COM platform and Common Ground application. We also expect to make
substantial investments in research and development, primarily on new features, platform extensibility and Common Ground. We anticipate increased operating expenses as a result of becoming a public
company and more generally as we seek to grow our business domestically and outside of the United States. We expect the percentage of revenue generated from clients outside the United States to
increase.

47

---



Table of Contents

Opportunities, Trends and Uncertainties

We have noted several opportunities, trends and uncertainties that we believe are significant to an understanding of our financial
results:



48

---



Table of Contents



Discussion of Financial Information

The following discussion of our financial information is based upon our results of operations for the periods presented.

Revenue

We derive revenue from sales of our solutions to clients and their usage of these solutions. Our subscription and services revenue is
comprised of fees from clients licensing our on-demand software modules and purchasing our consulting and other professional services. Our usage revenue is derived from agreements in which
we receive a percentage of funds raised in connection with special events and also from additional fees received for increased use of our COM solution.

No
single client accounted for more than 10% of our total revenue in 2010, 2009 or 2008. We derived approximately 19%, 22% and 22% of our total revenue from our top 10 clients in 2010,
2009 and 2008, respectively.

Subscription and Services Revenue.We derive a substantial amount of our revenue from multi-year subscription agreements with clients
for
licenses of our on-demand solutions. Substantially all of our agreements are for a fixed term. The terms of our agreements are typically three years for COM and one to two years for Common
Ground. Generally, our agreements are also noncancellable although some of our agreements provide that our clients may terminate their agreements for convenience after a specified period of time. Some
of our agreements also provide for the ability of a client to cancel its initial subscription for our solutions for performance-related reasons.

For
COM, we typically agree to fees based on the number of modules licensed, email list size and any related services. For Common Ground, we agree to fees based on the number of seats
and modules purchased by the client. Subscription and services revenue is recognized ratably over the contract term beginning on the activation date.

We
typically do not invoice clients the full contract amount at the time of signing an agreement. Rather, we invoice our clients periodically based on the terms of our agreements. We
recognize deferred revenue at the time of our invoicing a client and only with respect to the invoiced amount for such period.

We
also generate revenue from sales of our consulting and other services and recognize this revenue according to the manner of sale of the underlying services. If we sell our services
with a subscription of on-demand software, we recognize the revenue derived from such services ratably over the term of the related agreement. When sold separately, we recognize the
revenue derived from time-and-material contracts as the services are rendered, and we recognize the revenue derived from fixed price contracts as milestones are achieved and,
if applicable, accepted by the client. With the addition of StrategicOne, we now provide data analytics, predictive modeling and other database marketing services that help nonprofits discover,
analyze and act on information to more effectively attract new constituents, retain existing donors, reactivate lapsed supporters and steward each relationship to a higher level of engagement. We
expect the revenue derived from our services to continue to increase on an absolute dollar basis as we grow our client base, and continue to develop our professional services.

49

---



Table of Contents

Usage Revenue.We have agreements in which we charge a percentage of funds raised by clients from their special events such as runs,
walks and rides.
Usage revenue typically does not include a percentage of funds raised online that are unrelated to these special events. Usage revenue is determined when donations are made online and is recognized
when reported and billed to the client, which is normally done on a monthly basis. Due to the seasonality of these special events, we recognize the majority of our usage revenue in the second and
third quarters. The growth and amount of usage revenue vary based on the number of events, the percent of funds raised online for these events, the growth in the events and our signing of new clients
for events.

In
addition to revenue from special events, we also derive usage revenue from increased use of our COM solution by our clients. We typically enter into subscription agreements that
require payment of additional fees for usage of our COM solution above the levels included in the subscription fee set forth in the agreement. These fees are recognized when the usage amounts are
reported and billed to clients.

Cost of Revenue

Cost of revenue includes costs related to hosting our on-demand solutions and providing our services. These costs consist
of the salaries, incentive payments, bonuses and stock-based compensation of our consulting, deployment, client support, client education and information technology personnel and their related travel
expenses. These costs also include third-party datacenter hosting fees, outside service provider costs, depreciation expense related to the hosting of our datacenters and allocated overhead.

In
connection with our acquisition of GetActive, we recorded $3.0 million in acquired technology and we amortized this amount as cost of revenue on a straight-line
basis over three years ending in February 2010. During 2010, we completed the migration of our former GetActive clients to our COM platform and we retired the GetActive platform in December 2010.

Our
cost of revenue has generally increased in absolute dollars, and we expect that it will continue to increase as we grow our client base, sell more COM to our clients, manage
additional online activity by our clients, use more third-party service providers and grow our services business. We expect that increased sales of Common Ground will not materially increase cost of
revenue because Common Ground is hosted on the Force.com platform and deployment services are typically provided by third parties. As our client base grows, we intend to invest additional resources in
technology, infrastructure and personnel to deliver our solutions to support our clients. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars
and as a percentage of revenue, in any particular quarterly or annual period.

Cost
of revenue as a percentage of revenue will fluctuate from period to period based on the seasonality of our usage revenue, but we generally expect cost of revenue to decrease as a
percentage of revenue over time as we gain economies of scale.

Operating Expenses

Each operating expense category, including cost of revenue, reflects an overhead expense allocation. We allocate overhead such as rent,
employee benefits, insurance and information technology costs and depreciation on equipment other than our equipment at our datacenters, to all departments based on relative headcount. We expect our
aggregate overhead expense to increase in absolute dollars as we grow our business, increase headcount, occupy additional space and incur higher fees from employee benefit providers. Allocated
overhead may also fluctuate in future periods if we are required to make payments under our self-insured benefit plans.

50

---



Table of Contents

Sales and Marketing.Sales and marketing expenses consist of salaries, commissions, incentive payments, bonuses and stock-based
compensation of our
sales, marketing, account management and business development personnel. These expenses also include travel expenses, marketing programs, client events, corporate communications, partner referral fees
and allocated overhead.

We
expense commissions in the period of a sale of our solutions. As we generally recognize revenue over the terms of our agreement, we incur commission expenses prior to recognizing the
underlying revenue. As a result, our sales and marketing expenses have historically fluctuated as a percentage of revenue, and we expect such fluctuations to occur in the future.

We
expect our sales and marketing expenses to increase in absolute dollars as we sell more solutions and incur related commissions, continue to hire additional personnel in these areas
and increase the level of marketing activities to grow our business and brand. We believe that sales and marketing expenses as a percentage of revenue will generally decrease as our revenue base
grows, sales and marketing personnel become more effective and usage revenue and revenue from renewals and upsells increase.

Research and Development.Research and development expenses consist of salaries, incentive payments, bonuses and stock-based
compensation of our
software development and quality assurance personnel. We capitalize the costs to develop software for internal use (including the costs of developing our COM and Common Ground solutions) incurred
during the application development stage as well as costs to develop significant upgrades or enhancements to existing internal use software. These costs are amortized on a straight-line
basis over an estimated useful life of three years. Capitalized costs are recorded as part of property and equipment. Research and development costs that do not qualify for capitalization are expensed
as they are incurred. We expect our research and development expenses to increase in absolute dollars and as a percentage of revenue as we continue to invest in new features, platform extensibility
and Common Ground.

General and Administrative Expenses.General and administrative expenses consist of salaries, incentive payments, bonuses and
stock-based
compensation of our executive, finance and accounting, human resources and legal personnel. These expenses also include legal fees, audit and tax fees and other general corporate expenses. We expect
general and administrative expenses to increase as we continue
to add personnel and incur additional expenses as we grow our business and comply with the requirements of operating as a public company.

Amortization of Other Intangibles.Other intangible assets consist of customer relationships, tradenames and agreements not to compete
acquired in
connection with the GetActive acquisition. We recorded $9.0 million in other identifiable intangible assets in connection with the acquisition, and we amortize these amounts on a
straight-line basis over their estimated useful lives as follows:

Allocated
Amount

Estimated
Useful Life(in thousands)Customer relationships

$
7,007

9 yearsTradenames


1,850

3 yearsAgreements not to compete


110

2 years


The
agreements not to compete were fully amortized in February 2009, and the tradenames were fully amortized in February 2010.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or
GAAP. The preparation of these consolidated financial

51

---



Table of Contents

statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
financial statements and reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions management believes to
be reasonable under the circumstances. Management could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur
from period to period. Accordingly, actual results could differ significantly from those estimates. To the extent that such differences are material, our future financial statement presentation,
financial condition, results of operations and cash flows may be affected.

In
many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application, while in other cases,
management's judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We believe that our significant
accounting policies, which are described in note 2 to our audited financial statements, and the accounting policies discussed below are critical to understanding our historical and future
performance, as these policies relate to the more significant areas involving management's judgments and estimates. Our management has reviewed these critical accounting policies, our use of estimates
and the related disclosures with our audit committee.

Revenue Recognition

We derive our revenue from subscriptions, services and usage. We recognize revenue under the applicable accounting guidance, as
prescribed in ASC Topic 985, for software revenue recognition. We provide our software as a service, and our subscription agreements do not provide clients the right to take possession of the software
at any time. As an on-demand software provider, our arrangements do not contain general rights of return. We recognize revenue when all of the following conditions are
met:



Subscription
and services revenue is recognized ratably over the term of the agreement beginning on the activation date. Amounts that have been invoiced are recorded in accounts
receivable and in deferred revenue or revenue depending on whether the revenue recognition criteria have been met.

Services
revenues, when sold with a subscription of our modules, do not qualify for separate accounting as we do not have objective and reliable evidence of fair value of the undelivered
subscription service. Therefore, we recognize services revenue ratably over the term of the related subscription agreement.

When
we sell services other than with the subscription of our modules, we consider the following factors to determine the proper accounting:



52

---



Table of Contents



When
we sell services other than with the subscription of our modules, we recognize revenue under time-and-material contracts as the services are rendered, and we
recognize revenue from fixed price agreements as milestones are achieved and, if applicable, accepted by the client.

Certain
clients have agreements that provide for a percentage of donations received online through our modules to be paid to us in place of or in conjunction with the standard monthly
subscription fee. In addition, certain clients have contracts which require payment of additional fees for usage above the levels included in their agreements. These additional fees are recognized as
revenue when the usage amounts are determined and reported and billed to the client.

In
October 2009, the Financial Accounting Standards Board (FASB), released Accounting Standards Update (ASU) 2009-13,Multiple-Deliverable Revenue
Arrangements(ASU 2009-13), which amended the accounting rules addressing revenue recognition for multiple-deliverable revenue arrangements by eliminating the
currently existing criteria that objective and reliable evidence of fair value for undelivered products or services exist in order to be able to separately account for deliverables. We adopted ASU
2009-13 effective January 1, 2011 on a prospective basis for new arrangements entered into or arrangements materially modified after that date. See further discussion under "Recent
Accounting Pronouncements" below.

Marketable Securities

During 2010, we purchased $46.9 million of marketable securities. We follow authoritative guidance in determining the
classification of and accounting for its marketable securities. Our marketable securities are classified as available-for-sale and are carried at fair value with the unrealized
gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in stockholders' equity. Realized gains and losses and declines in value judged to be other than temporary
are included as a component of interest income based on the specific identification method. Fair value is determined based on quoted market prices or pricing models using current market rates.

We
review our available-for-sale investments as of the end of each reporting period for other-than-temporary declines in fair value based
on the specific identification method. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the
impairment, changes in underlying credit ratings, forecasted recovery, our intent to sell or the likelihood that we would be required to sell the investment before its anticipated recovery in market
value and the probability that the scheduled cash payments will continue to be made. When we conclude that an other-than-temporary impairment has occurred, we assess whether we
intend to sell the security or if it is more likely than not that we will be required to sell the security before recovery. If either of these two conditions is met, we recognize a charge in
earnings equal to the entire difference between the security's amortized cost basis and its fair value. If we do not intend to sell a security or it is not more likely than not that we will be
required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other
factors, which is recorded in accumulated other comprehensive loss.

Allowance for Doubtful Accounts

Based on a review of the current status of our existing accounts receivable and historical collection experience, we have established
an estimate of our allowance for doubtful accounts. We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes
doubtful. Provisions are made based on a consideration of the aging of the accounts receivable balances, historical write-off experience, current economic conditions

53

---



Table of Contents

and
client-specific information. For those invoices not specifically reviewed, provisions are provided based on our collection history and current economic trends. As a result, if our actual
collections are lower than expected, additional allowances for doubtful accounts may be needed and our future results of operations and cash flows could be negatively affected. Write-offs
of accounts receivable and recoveries were insignificant during each of 2010, 2009 and 2008. A one percent change in our allowance for doubtful accounts would not have a material effect on our
consolidated financial statements.

Research and Development

We capitalize the costs to develop software for internal use (including the costs of developing the Company's COM and Common Ground
solutions) incurred during the application development stage as well as costs to develop significant upgrades or enhancements to existing internal use software. Management performs reviews on a
quarterly basis of current internal use software projects to determine if the costs associated with these projects qualify for capitalization under the applicable accounting standards. These costs are
amortized on a straight-line basis over an estimated useful life of three years. Capitalized costs are recorded as part of property and equipment.

Valuation of Goodwill and Identifiable Intangible Assets

We apply ASC Topic 350 in accounting for the valuation of goodwill and identifiable intangible assets. In accordance with this
guidance, we replaced the ratable amortization of goodwill and other indefinite-lived intangible assets with a periodic review and analysis for possible impairment. We assess our goodwill on
October 1 of each year or more frequently if events or changes in circumstances indicate that goodwill might be impaired. The events and circumstances that we consider include deterioration in
the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a
variety of other circumstances. Because we operate in a single segment, we perform the impairment test at the consolidated entity level by comparing the estimated fair value of the company to the
carrying value of the goodwill. Our goodwill impairment test requires the use of fair-value techniques which are inherently subjective.

We
determine fair value using a combination of the income approach, which utilizes a discounted cash flow model, and the market value approach. Both of these approaches are developed
from the perspective of a market participant. Under the income approach, we calculate the fair value of the company unit based on the present value of estimated future cash flows. Under the market
approach, we estimate the fair value based on market multiples of revenue and earnings for comparable publicly-traded companies or comparable sales transactions of similar companies. The estimates and
assumptions used in our calculations include revenue growth rates, expense growth rates, expected capital expenditures to determine projected cash flows, expected tax rates, and an estimated discount
rate to determine present value of expected cash flows. These estimates are based on historical experiences, our projections of future operating activity and our weighted average cost of capital.

Both
of these approaches include inherent uncertainties. With the income approach there are uncertainties around our estimates of the future cash flows of our company; the most
significant of which include our estimates of future revenue growth, operating expense growth, and projected cash flows from operations. In making these estimates, we have considered factors important
to our business, including gross bookings, pricing, market penetration, competition, seasonality, and customer churn. With the market approach, uncertainties exist around future market valuations of
comparable publicly-traded companies. Significant changes in these estimates or their related assumptions in the future for the income and market approaches could result in an impairment charge
related to our goodwill.

54

---



Table of Contents

In
addition, we periodically review the estimated useful lives of our identifiable intangible assets, taking into consideration any events or circumstances that might result in either a
diminished fair value or
revised useful life, using a two-step approach. The first step screens for impairment and, if impairment is indicated, we will employ a second step to measure the impairment. If we
determine that an impairment has occurred, we will record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made.
Although we believe goodwill and intangible assets are appropriately stated in our consolidated financial statements, changes in strategy or market conditions could significantly impact these
judgments and require an adjustment to the recorded balance.

Stock-Based Compensation

On January 1, 2006, we adopted the provisions of the applicable guidance under ASC Topic 718 for share-based payment
transactions. Under the provision of this guidance, stock-based compensation costs for employees is measured on the grant date, based on the estimated fair value of the award on that date, and is
recognized as expense over the employee's requisite service period, which is generally over the vesting period, on a straight-line basis. We adopted this guidance using the prospective
transition method. Under this transition method, non-vested option awards outstanding at January 1, 2006, continue to be accounted for under the minimum value method, and all awards
granted, modified or settled after the date of adoption are accounted for using the measurement, recognition and attribution provisions of this guidance.

Under
the provisions of this guidance, we make a number of estimates and assumptions. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual
results differ from our estimates, such amounts will be recorded as an adjustment in the period estimates are revised. Actual results may differ substantially from these estimates. In valuing
share-based awards under this guidance, significant judgment is required in determining the expected volatility of our common stock and the expected term individuals will hold their share-based awards
prior to exercising. Expected volatility of the stock is based on our peer group in the industry in which we do business because we do not have sufficient historical volatility data for our own stock.
The expected term of options granted represents the period of time that options granted are expected to be outstanding and is calculated based on historical information. In the future, as we gain
historical data for volatility in our own stock and more data on the actual term employees hold our options, expected volatility and expected term may change which could substantially change the
grant-date fair value of future awards of stock options and ultimately the expense we record.

Provision for Income Taxes

We use the liability method of accounting for income taxes as set forth in the authoritative guidance for income taxes. Under this
method, we recognize deferred tax liabilities
and assets for the expected future tax consequences of temporary differences between the respective carrying amounts and tax bases of our assets and liabilities.

In
accordance with the guidance on accounting for uncertainty in income taxes, we are required to identify, evaluate and measure all uncertain tax positions taken or to be taken on tax
returns and to record liabilities for the amount of these positions that may not be sustained, or may only partially be sustained, upon examination by the relevant taxing authorities. Although we
believe that our estimates and judgments are reasonable, actual results may differ from these estimates. Some or all of these judgments are subject to review by the taxing authorities.

We
establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized. We evaluate the need for, and the adequacy of, valuation allowances
based on the expected realization of our deferred tax assets. The factors used to assess the likelihood of

55

---



Table of Contents

realization
include our latest forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.

We
accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2010 and 2009, there was no accrued interest or
penalties.

Use of Non-GAAP Financial Measures

We define Adjusted EBITDA as net income (loss) less interest income and gain (loss) on preferred stock warrant revaluation plus
interest expense, provision for taxes, depreciation expense, amortization expense, stock-based compensation expense and acquisition related transaction costs. We have included Adjusted EBITDA in this
prospectus because (i) we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts and other interested parties in our industry as a measure of financial
performance and (ii) our management uses Adjusted EBITDA to monitor the performance of our business.

We
also believe Adjusted EBITDA facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures
affecting interest income and expense, tax positions, such as the impact of changes in effective tax rates, the impact of depreciation and amortization expense and the impact of items not directly
resulting from our core operations.

Our
use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some
of these limitations are:



Because
of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other
GAAP

56

---



Table of Contents

results.
The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, for each of the periods indicated:

Year Ended December 31,2010

2009

2008(in thousands)Reconciliation of Adjusted EBITDA to net income (loss):Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)Interest (income) expense, net


65


349


576Depreciation and amortization


3,243


4,792


4,821Stock-based compensation


2,048


2,502


1,556(Gain) loss on warrant revaluation


15


814


(1,804
)Acquisition related transaction costs


103





Provision for income taxes


299


219


Adjusted EBITDA

$
9,228

$
6,581

$
1,405


Results of Operations

The following table sets forth our results of operations for the periods indicated:

Year Ended December 31,2010

2009

2008(in thousands)Statements of Operations Data:Revenue:Subscription and services

$
58,353

$
54,900

$
50,103Usage


11,391


8,186


6,877Total revenue


69,744


63,086


56,980Cost of revenue


25,541


24,779


22,911Gross profit


44,203


38,307


34,069Operating expenses:Sales and marketing


22,468


21,556


21,432Research and development


10,552


10,041


8,754General and administrative


6,552


6,034


5,883Amortization of other intangibles


857


1,400


1,452Write-off of deferred stock offering costs








1,524Total operating expenses


40,429


39,031


39,045Income (loss) from operations


3,774


(724
)

(4,976
)Interest income


61


6


115Interest expense


(126
)

(355
)

(691
)Other income (expense)


45


(803
)

1,808Income (loss) before income taxes


3,754


(1,876
)

(3,744
)Provision for income taxes


299


219


Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)Other Operating Data:Adjusted EBITDA(1)(unaudited)

$
9,228

$
6,581

$
1,405


(1)We
define Adjusted EBITDA as net income (loss) less interest income and gain (loss) on preferred stock warrant revaluation plus interest expense, provision
for taxes, depreciation expense, amortization expense, stock-based compensation expense and acquisition related transaction costs.


57

---



Table of Contents

The following table sets forth our results of operations expressed as a percentage of total revenue for each of the periods indicated:

Year Ended
December 31,2010

2009

2008Statements of Operations Data:Revenue:Subscription and services


84
%

87
%

88
%Usage


16


13


12Total revenue


100


100


100Cost of revenue


37


39


40Gross margin


63


61


60Operating expenses:Sales and marketing


32


34


38Research and development


15


16


15General and administrative


10


10


10Amortization of other intangibles


1


2


3Write-off of deferred stock offering costs








3Total operating expenses


58


62


69Loss from operations


5


(1
)

(9
)Interest income


0


0


0Interest expense


(0
)

(1
)

(1
)Other income (expense)


0


(1
)

3Loss before income taxes


5


(3
)

(7
)Provisions for income taxes


0


0


Net loss


5
%

(3
)%

(7
)%Other Operating Data:Adjusted EBITDA(1) (unaudited)


13
%

10
%

2
%


(1)We
define Adjusted EBITDA as net income (loss) less interest income and gain (loss) on preferred stock warrant revaluation plus interest expense, provision
for taxes, depreciation expense, amortization expense, stock-based compensation expense and acquisition related transaction costs.




The following discussion of our results of operations is based upon actual results of operations for each of the years ended
December 31, 2010, 2009 and 2008. Dollar information provided in the tables below is in thousands.

58

---



Table of Contents

Revenue

Year Ended December 31,2010

2009

2008Subscription and services

$
58,353

$
54,900

$
50,103Percent of total revenue


83.7
%

87.0
%

87.9
%Usage

$
11,391

$
8,186

$
6,877Percent of total revenue


16.3
%

13.0
%

12.1
%




2010 to 2009 Comparison.Subscription and services revenue increased $3.5 million, or 6.3%, in 2010 as
compared to 2009. The increase in our subscription and services revenue was attributable to an increase in revenue from existing clients of 8.8% and sales to new clients.

2009 to 2008 Comparison.Subscription and services revenue increased $4.8 million, or 9.6%, in 2009 as compared to 2008. The
increase in our
subscription and services revenue was attributable to an increase in revenue from existing clients of 11.3% and sales to new clients.



2010 to 2009 Comparison.Usage revenue increased $3.2 million, or 39.2%, in 2010 as compared to 2009. The increase was attributable
to a
$2.9 million increase in revenue from special events and a $274,000 increase in additional fees for client usage above the levels included in monthly subscription fees.

2009 to 2008 Comparison.Usage revenue increased $1.3 million, or 19.0%, in 2009 as compared to 2008. The increase was
attributable to a
$1.1 million increase in revenue from special events and a $189,000 increase in additional fees for client usage above the levels included in monthly subscription fees.

Cost of Revenue

Year Ended December 31,2010

2008

2009Cost of revenue

$
25,541

$
24,779

$
22,911Gross profit

$
44,203

$
38,307

$
34,069Gross margin


63.4
%

60.7
%

59.8
%


2010 to 2009 Comparison.Cost of revenue increased $762,000, or 3.1%, in 2010 as compared to 2009. The increase was due to a
$1.2 million
increase in personnel costs, a $332,000 increase in hosting and transaction costs, a $135,000 increase in equipment costs and a $120,000 increase in travel expense offset by an $889,000 decrease in
amortization of intangible assets and a $139,000 decrease in depreciation expense. The increase in personnel costs was the result of increased services personnel in addition to providing merit
increases to existing employees at the end of the first quarter of 2010. The increase in hosting and transaction fees was related to the corresponding increase in the volume of online transactions
processed by outside service providers. The increase in equipment expense was attributable to increased maintenance and support agreements on the additional equipment placed in service. Amortization
of acquired technology decreased as the related intangible assets became fully amortized in February 2010. The decrease in depreciation is due to assets purchased in 2007 to upgrade our servers
becoming fully depreciated in 2010. Gross margins for 2010 were 63.4% compared to gross margins of 60.7% for 2009. This improvement in gross margins is driven primarily by the

59

---



Table of Contents

higher
than expected increase in usage revenue, in addition to the decrease in amortization of acquired technology.

2009 to 2008 Comparison.Cost of revenue increased $1.9 million, or 8.3%, in 2009 as compared to 2008. The increase was due to an
$840,000
increase in personnel costs, a $499,000 increase in allocated overhead, a $482,000 increase in contracting expense and a $168,000 increase in transaction fees. The increase in personnel costs was
primarily attributable to a $545,000 increase in cash compensation, a $199,000 increase in stock-based compensation expense and a $165,000 increase in benefits expense as a result of increased
services personnel, primarily related to GetActive migrations. The increase in allocated overhead was due to an increase in the relative headcount of our services personnel and a corresponding
increase in aggregate overhead as a result of costs associated with our leasing additional office space in Austin, Texas, and Washington, D.C. The increase in contracting expense is primarily due to
an increase in subcontracting to third party service partners. The increase in transaction fees was related to the corresponding increase in the volume of online transactions processed by outside
service providers.

Sales and Marketing

Year Ended December 31,2010

2009

2008Sales and marketing

$
22,468

$
21,556

$
21,432Percent of total revenue


32.2
%

34.2
%

37.6
%


2010 to 2009 Comparison.Sales and marketing expenses increased $912,000, or 4.2%, in 2010 as compared to 2009. The increase was
primarily
attributable to a $496,000 increase in personnel expense, a $244,000 increase in marketing expense, a $182,000 increase in travel expense and a $50,000 increase in sponsorships, partially offset by a
$114,000 decrease in contracting expense. The increase in personnel costs was primarily due to a $316,000 increase in salaries and bonuses and a $130,000 increase in payroll taxes and benefits as a
result of increased sales and marketing headcount as well as a $132,000 increase in commission expense, partially offset by an $83,000 decrease in stock based compensation. The increase in commission
expense was driven primarily by the five large enterprise transactions that closed during 2010 compared three large enterprise transactions during 2009. The increase in marketing expense was related
to an increase in market research and marketing programs in 2010 in order to drive new client acquisitions, including an increase in our annual client conference costs, as well as marketing for Common
Ground and Convio Go!. The increase in travel expense is related to the increase in headcount. The increase in donations is related to an increase in various sponsorships during 2010.

2009 to 2008 Comparison.Sales and marketing expenses increased $124,000, or 0.7%, in 2009 as compared to 2008. The increase was
attributable to a
$379,000 increase in marketing expense and a $168,000 increase in allocated overhead offset by a $78,000 decrease in personnel costs, a $176,000 decrease in travel and entertainment expense and a
$138,000 decrease in recruiting and relocation costs. The increase in marketing expense was related to an increase in market research and marketing programs in 2009 in order to drive new client
acquisitions as well as marketing for Common Ground and Convio Go!. The increase in allocated overhead was the result of the increase in our aggregate overhead costs. The decrease in personnel costs
was attributable to a $409,000 decrease in cash compensation offset by a $158,000 increase in stock-based compensation expense, a $100,000 increase in benefits as a result of higher fees from employee
benefit providers and a $73,000 increase in payroll taxes. The decrease in cash compensation was primarily due to a decrease in commission expense resulting from a change in our commission plan
structure in 2009. The decrease in travel and entertainment expense resulted from general cost-saving initiatives implemented during 2009.

60

---



Table of Contents

Recruiting
and relocation costs were higher in 2008 as compared to 2009 due to the recruitment and relocation of our chief marketing officer in 2008.

Research and Development

Year Ended December 31,2010

2009

2008Research and development

$
10,552

$
10,041

$
8,754Percent of total revenue


15.1
%

15.9
%

15.4
%


2010 to 2009 Comparison.Research and development expenses increased $511,000, or 5.1%, in 2010 as compared to 2009. The increase was
primarily
attributable to a $1.4 million increase in personnel costs, a $122,000 increase in allocated overhead, a $35,000 increase in software licensing and maintenance fees and a $33,000 increase in
travel expense, partially offset by a $279,000 decrease in contracting expense, all of which were a result of the decrease in our India-based contractors offset by a corresponding increase in
full-time headcount. Personnel costs also increased as a result of providing merit increases to existing employees at the end of the first quarter of 2010. In addition, research and
development expenses of $937,000 that were incurred to upgrade and enhance our internal use software during 2010 were capitalized whereas there were no costs incurred during 2009 that qualified for
capitalization. The amount of capitalized software was offset by amortization of capitalized software of $96,000 during 2010.

2009 to 2008 Comparison.Research and development expenses increased $1.3 million, or 14.9%, in 2009 as compared to 2008. The
increase was
attributable to a $1.3 million increase in personnel costs and a $354,000 increase in allocated overhead offset by a $279,000 decrease in contracting expense. The increase in personnel costs
was attributable to an $875,000 increase in cash compensation, a $174,000 increase in benefits, a $118,000 increase in payroll taxes and a $108,000 increase in stock-based compensation, all of which
was due to an increase in personnel. The increase in allocated overhead was due to an increase in the relative number of research and development personnel and a corresponding
increase in aggregate overhead. The decrease in contractor fees is attributable to the termination of our offshore India-based independent contractors which we replaced with personnel in Austin.

General and Administrative

Year Ended December 31,2010

2009

2008General and administrative

$
6,552

$
6,034

$
5,883Percent of total revenue


9.4
%

9.6
%

10.3
%


2010 to 2009 Comparison.General and administrative expenses increased $518,000, or 8.6%, in 2010 as compared to 2009. The increase was
due primarily
to a $509,000 increase in contracting expense, a $78,000 increase in travel expenses, a $65,000 increase in charitable contributions, a $60,000 increase in miscellaneous administrative costs and a
$48,000 increase in non-capitalized software expense, partially offset by a $229,000 decrease in personnel costs and a $49,000 decrease in bad debt expense. The increase in contracting
expense was attributable to increased costs as a result of becoming a public company, including increased audit, tax and legal fees, an increase in Sarbanes-Oxley compliance fees, an increase in stock
transfer agent fees and an increase in fees for external executive compensation consultants. The increase in travel expenses was related to increased travel for investor meetings and financial
conferences by the executives as we transition to being a public company. The increase in charitable donations was the result of a program the Company put in place during the first quarter of 2010 to
match donations to Haitian relief efforts made by our employees as well as an expansion of our Convio Cares grant program. The increase in miscellaneous administrative costs was

61

---



Table of Contents

primarily
due to fees associated with becoming a public company, including NASDAQ listing and other investor relations fees. The increase in non-capitalized software expense is related to
an increase in our stock option administration software fees as a result of moving to a public company platform. The decrease in personnel costs was attributable to a $270,000 decrease in stock based
compensation expense partially offset by a $41,000 increase in salaries and bonuses as a result of
providing merit increases to existing employees at the end of the first quarter of 2010. The decrease in bad debt expense was the result of an improvement in our days sales outstanding.

2009 to 2008 Comparison.General and administrative expenses increased $151,000, or 2.6%, in 2009 as compared to 2008. The increase was
due primarily
to a $435,000 increase in personnel costs offset by a $235,000 decrease in bad debt expense. The increase in personnel costs was attributable to a $480,000 increase in stock-based compensation and a
$52,000 increase in benefits expense offset by an $87,000 decrease in cash compensation as a result of reduced bonuses in 2009. The decrease in bad debt expense is related to normal operations. Bad
debt expense as a percentage of revenue decreased by less than 1% to 0.4% of revenue.

Amortization of Other Intangibles

Year Ended December 31,2010

2009

2008Amortization of other intangibles

$
857

$
1,400

$
1,452Percent of total revenue


1.2
%

2.2
%

2.5
%


These
amounts represent the amortization of intangibles recorded in connection with our acquisition of GetActive in February 2007 and are being amortized on a straight-line
basis over the estimated useful lives. Amortization of other intangibles decreased by $543,000 from 2009 to 2010 as a portion of the related intangible assets became fully amortized in February 2010.

Write-off of Deferred Stock Offering Costs

Year Ended
December 31,2010

2009

2008Write-off of deferred stock offering costs

$


$


$
1,524Percent of total revenue



%


%

2.7
%


In
August 2008, we withdrew our Form S-1 Registration Statement on file with the Securities and Exchange Commission due to weak market conditions. As a result,
$1.5 million of prepaid stock offering costs were written off in August 2008. These costs consisted primarily of legal and accounting fees incurred in connection with the drafting, review and
filing of the Form S-1.

Interest Income (Expense)

Year Ended December 31,2010

2009

2008Interest income

$
61

$
6

$
115Interest expense


(126
)

(355
)

(691
)Total interest income (expense)


(65
)

(349
)
$
(576
)Percent of total revenue


(0.1
)%

(0.6
)%

(1.0
)%


2010 to 2009 Comparison.Interest income increased $55,000, or 917%, in 2010 as compared to 2009 due to the interest income earned on
the proceeds of
our initial public offering. Interest expense

62

---



Table of Contents

decreased
$229,000, or 64.5%, in 2010 as compared to 2009 due to the decrease in our average outstanding debt as a result of repaying the balance of our line of credit with Comerica with a portion of
the proceeds from our initial public offering.

2009 to 2008 Comparison.Interest income decreased $109,000, or 94.8%, in 2009 as compared to 2008 due to the decrease in interest
rates during 2009.
Interest expense decreased $336,000, or 48.6%, in 2009 as compared to 2008. The decrease was due to a decrease in our average outstanding debt.

Other Income (Expense)

Year Ended December 31,2010

2009

2008Other income (expense)

$
45

$
(803
)
$
1,808Percent of total revenue


0.1
%

(1.3
)%

3.2
%


In
2010, other income (expense) was comprised primarily of a $53,000 gain on the disposal of certain fixed assets as well as the expense incurred with respect to the change in fair value
of our convertible preferred stock warrants issued in 2005. We recorded expense of $15,000 and $814,000 in 2010 and 2009, respectively, as the liability with respect to the warrants increased, and we
recorded the corresponding increase in fair value. In 2008, we recorded income of $1.8 million as the liability with respect to the warrants decreased, and we recorded the corresponding
decrease in fair value. Upon the closing of our initial public offering on May 4, 2010, all outstanding preferred stock warrants were converted into warrants to purchase common stock and,
accordingly, the liability was reclassified to additional paid-in capital.

Income Taxes

Year Ended
December 31,2010

2009

2008Provision for income taxes

$
299

$
219

$
Percent of total revenue


0.4
%

0.3
%


%


We
recorded a provision for federal alternative minimum taxes and state income taxes totaling $299,000, $219,000 and zero for 2010, 2009 and 2008, respectively. Our effective tax rate
varies from the U.S. federal tax rate primarily due to the utilization of previously reserved deferred tax assets. We assess the likelihood that deferred tax assets will be realized, and we recognize
a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future
taxable income by tax jurisdiction. To date, we have provided a full valuation allowance against our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax
net losses outweighs the positive evidence of our pre-tax income for 2010 and forecasted future results.

Although
we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course
of business. We will continue to monitor the positive and negative evidence and we will adjust the valuation allowance as sufficient objective positive evidence becomes available.

63

---





Table of Contents

Recent Events

On January 28, 2011, we acquired StrategicOne, a privately-owned company, to strengthen our enterprise offering by adding the
experience and expertise of a proven provider of data analytics, predictive modeling and other database marketing services to the company.

StrategicOne
was acquired for approximately $4,916,000 in cash. In addition, we have agreed to deliver up to 50,000 shares of Convio and pay up to $1,300,000 in additional cash
consideration over the next three years upon the achievement by the entity of certain milestone-based objectives, the payment of which are guaranteed by Convio in the event that such milestone based
objectives are achieved.

We
will record the purchase of StrategicOne using the acquisition method of accounting and will recognize the assets acquired and liabilities assumed at their fair values as of the date
of acquisition. The results of StrategicOne's operations will be included in our consolidated results of operations beginning with the date of the acquisition. We are currently evaluating the fair
values of the consideration transferred, assets acquired and liabilities assumed and will complete the purchase price allocation in the first quarter of 2011.

Liquidity and Capital Resources

Prior to our initial public offering, we financed our operations and met our capital expenditure requirements primarily through the
private sale of equity securities and debt financings. Since we became cash flow positive in 2009, a material driver of liquidity has been cash flow from operations offset by capital expenditures. As
of December 31, 2010, we had $18.4 million of cash and cash equivalents, $36.8 million of marketable securities and $60.1 million of working capital excluding deferred
revenue. As of December 31, 2010, we had an accumulated deficit of $52.8 million. We funded this deficit from $47.4 million in net proceeds raised from the sale of our preferred
stock. We last sold shares of our preferred stock in April 2007. On May 4, 2010, we completed an initial public offering of our stock which included 3,789,527 shares sold by us. In addition,
the underwriters exercised their option to purchase an additional 769,909 shares from us to cover over-allotments. After deducting the payment of underwriters' discounts and commissions
and offering costs, the net proceeds from the sale of shares were approximately $35.9 million.

The
following table sets forth a summary of our cash flows for the periods indicated:

Year Ended December 31,2010

2009

2008(in thousands)Net cash provided by (used in) operating activities

$
9,122

$
6,791

$
2,862Net cash used in investing activities


(41,723
)

(1,749
)

(2,162
)Net cash provided by (used in) financing activities


34,386


(2,208
)

(1,472
)Cash and cash equivalents (end of period)


18,447


16,662


13,828


Net Cash Provided By (Used In) Operating Activities

In 2010, we generated $9.1 million of cash from operating activities, which consisted of our net income of $3.5 million,
adjusted for non-cash charges of $5.3 million. In addition, cash inflows of $1.9 million from changes in operating assets and liabilities included a decrease in accounts
receivable of $989,000 as a result of a nine day improvement in our days sales outstanding, a $240,000 decrease in prepaid expenses and other assets and a $630,000 increase in accounts payable and
accrued liabilities as a result of an increase in our 2010 bonus accrual as compared to 2009, our increased provision for income taxes based on our increased earnings in 2010 as compared to 2009 and
an increase in our accrual for incurred but not reported insurance claims as we transitioned from a fully insured health

64

---



Table of Contents

benefit
plan in 2009 to a partially self-insured plan in 2010. Cash outflows of $1.4 million from changes in operating liabilities included a decrease in deferred revenue of
$1.4 million as a result of the timing of transactions, a shift from annual to quarterly billings and various sales promotions offered during 2009 and 2010 which resulted in deferred payments.

In
2009, we generated $6.8 million of cash from operating activities, which consisted of our net loss of $2.1 million, offset by non-cash charges of
$8.1 million. In addition, cash outflows from changes in operating assets included an increase in accounts receivable of $263,000 from increased sales activities near the end of the year and a
$419,000 increase in prepaid expenses as a result of increased rent related to the new Washington D.C. office lease and the additional space taken effective January 1, 2009 in Austin as well as
deferred stock offering costs paid during December of 2009. Cash inflows from changes in operating liabilities included an increase in accounts payable and accrued liabilities of $921,000 due to the
overall growth in our business expenses and timing of payments and an increase in deferred revenue of $538,000 resulting from the increase in our client base and timing of transactions.

In
2008, we generated $2.9 million of cash from operating activities, which consisted of our net loss of $3.7 million, offset by non-cash charges of
$4.6 million. In addition, cash outflows from changes in operating assets included an increase in accounts receivable of $1.3 million driven by sales activities and revenue growth from
2007 to 2008. Cash inflows from changes in operating assets and liabilities included a decrease in prepaid expenses of $1.2 million, resulting primarily from the write off of deferred stock
offering costs in conjunction with the withdrawal of our Registration Statement on Form S-1 in August of 2008 and an increase in deferred revenue of $2.1 million resulting
from the increase in our client base and timing of transactions.

Net Cash Used In Investing Activities

Net cash used in investing activities increased $40.0 million from $1.7 million in 2009 to $41.7 million in 2010.
The increase is driven primarily by net purchases of marketable securities of $37.0 million and a $1.2 million increase in restricted cash related to our letters of credit that we cash
secured in July 2010 for the benefit of the landlords of our Austin, Texas and Washington D.C. offices, in addition to the capitalization of $937,000 of software development costs incurred to upgrade
and enhance our internal use software during 2010 and a $825,000 increase in capital expenditures.

Net
cash used in investing activities decreased $413,000 in 2009 compared to 2008 as a result of a $413,000 decrease in capital expenditures in 2009.

Net Cash Provided By (Used In) Financing Activities

During 2010, we generated $34.4 million of cash from financing activities which consisted primarily of the net proceeds we
received from the sale of stock in our initial public offering of $35.9 million and $695,000 in proceeds we received from the issuance of common stock upon the exercise of stock options,
partially offset by $2.2 million used to repay our line of credit with Comerica.

Net
cash used in financing activities increased $736,000 in 2009 compared to 2008 as a result of a $1.2 million decrease in proceeds received from long-term debt
partially offset by a decrease in payments made on long-term debt and capital leases of $536,000.

Capital Resources

On May 4, 2010, we closed our initial public offering raising net proceeds of approximately $35.9 million after deducting
underwriting discounts and commissions and offering costs. We generated positive cash flows from operations in 2010, 2009 and 2008 and we expect to do so in 2011. We believe that our cash flows from
operations and our current cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure requirements for at least the next

65

---



Table of Contents

twelve
months. However, we may elect to raise additional capital through the sale of additional equity or debt securities or obtain a credit facility to develop or enhance our services, to fund
expansion, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If we elect, additional financing may not be available in amounts or on terms that are
favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.

Contractual Obligations and Commitments

We generally do not enter into long-term purchase commitments. Our principal commitments, in addition to those related to
our credit facilities discussed below, consist of obligations under capital leases for equipment and furniture, operating leases for office space and fees for third-party datacenters. The following
table summarizes our commitments and contractual obligations as of December 31, 2010:

Payments Due by Period as of December 31, 2010Less than
1 year

1 - 3 years

4 - 5 years

More than
5 years

Total(in thousands)Contractual Obligations:Operating leases

$
2,104

$
3,864

$
1,579

$
3,048

$
10,595Capital leases


17











17Third-party datacenter fees


614











614Total

$
2,735

$
3,864

$
1,579

$
3,048

$
11,226


In
February 2010, we entered into an office building lease pursuant to which we will lease approximately 6,185 square feet in an office facility located in Emeryville, California. The
lease has a term of sixty-three months. The lease agreement contains escalating rent payments, which may be adjusted for component charges, taxes, insurance and maintenance related to the property. As
a result of this new lease agreement, future minimum payments under operating lease obligations will increase by $131,000 in 2011, $362,000 in 2012 to 2013, $384,000 in 2014 to 2015 and $100,000
thereafter assuming an expected rental commencement date of April 15, 2011.

Credit Facilities

On May 12, 2010, subsequent to the closing of our initial public offering, we paid approximately $1.9 million to our
principal lender, Comerica Bank, in satisfaction of the remaining balance on our line of credit. In July 2010, we cancelled the line of credit.

In
conjunction with the April 3, 2009 execution of the Washington D.C. operating lease, we were required to provide a $350,000 standby letter of credit with Comerica for the
benefit of the landlord to secure the office space per the lease agreement. In addition, we also had a standby letter of credit for the benefit of the landlord of our Austin, Texas facility, which was
reduced in accordance with the terms of the lease to approximately $898,000 in June 2010, resulting in total standby letters of credit of approximately $1,248,000. In July, upon cancellation of the
line of credit with Comerica, we entered into a pledge agreement with Comerica to cash secure the letters of credit. The pledge agreement requires that we maintain a minimum cash balance of $1,248,000
in a money market account with the bank and such amount is classified as restricted cash on the balance sheet. As of December 31, 2010 and 2009, we had outstanding letters of credit in the
amount of $1,248,000 and $2,634,000, respectively.

66

---



Table of Contents

Off-Balance Sheet Arrangements

During 2010, 2009 and 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes.

Recent Accounting Pronouncements

In October 2009, the FASB released ASU 2009-13 which amended the accounting rules addressing revenue recognition for
multiple-deliverable revenue arrangements by eliminating the currently existing criteria that objective and reliable evidence of fair value for undelivered products or services exist in order to be
able to separately account for deliverables. Additionally, ASU 2009-13 provides for elimination of the use of the residual method of allocating arrangement consideration and requires that
arrangement consideration be allocated at the inception of the arrangement to all deliverables that can be accounted for separately based on their relative selling price. A hierarchy for estimating
such selling price is included in the update.

We
adopted ASU 2009-13 effective January 1, 2011 on a prospective basis for new arrangements entered into or arrangements materially modified after that date. Under
the new revenue recognition rules, we account for services separately from subscriptions when each is sold in one arrangement. In accordance with ASU 2009-13, we will allocate revenue to
each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on vendor-specific objective evidence of selling price (VSOE), if available, third-party
evidence of selling price (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither VSOE or TPE is available. We have been unable to establish VSOE or TPE for the elements
included in our multiple-element sales arrangements. Therefore, we have established the BESP for each element primarily by considering the average price of actual sales of services when sold on a
standalone basis, the number of modules purchased and the expected usage by the client over their subscription term, as well as other factors, including but not limited to management's pricing
practices. Revenue allocated to the subscription is recognized over the subscription term and revenue allocated to services is recognized as the services are completed. We will continue to recognize
revenue on all services sold together with a subscription entered into prior to January 1, 2011 ratably over the subscription period. While we expect services revenue to increase due to the
earlier recognition of services revenue upon completion of work, instead of ratably over the subscription term, we are not able to reasonably estimate the amount of increase in revenue as the impact
will depend on the nature and the size of service arrangements entered into or materially modified after January 1, 2011.

In
January 2010, the FASB issued ASU 2010-06,Improving Disclosures about Fair Value Measurements(ASU 2010-06).
ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and more disaggregation for the different types of
financial instruments. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after
December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required. We did not have any significant transfers in
or out of Level 1 and Level 2 fair value measurements during the year ended December 31, 2010.

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We had cash and cash equivalents of $18.4 million, $16.7 million and $13.8 million at December 31, 2010,
2009 and 2008, respectively. These amounts are held primarily in cash, money market funds and commercial paper. In addition we had marketable securities of $36.8 million at

67

---



Table of Contents

December 31,
2010 which were primarily held in U.S. government agency bonds, corporate bonds and commercial paper. We do not hold any auction-rate securities. Cash and cash
equivalents are held for working capital purposes. Marketable securities are held and invested with capital preservation as the primary objective. Due to the short-term nature of these
investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Any declines in interest rates will
reduce future interest income. If overall interest rates fell by 10% in 2010, our interest income would not have been materially affected.

Our
exposure to interest rates also relates to the increase or decrease in the amount of interest paid on our outstanding debt. Outstanding borrowings under our term loan and line of
credit bore a variable rate of interest based upon the LIBOR rate adjusted monthly. On May 12, 2010, subsequent to the closing of our initial public offering, we paid approximately
$1.9 million to our principal lender, Comerica Bank, in satisfaction of the remaining balance on our line of credit. As of December 31, 2010,
we had no outstanding debt agreements. If overall interest rates had increased by 10% in 2010, our interest expense would not have been materially affected.

Foreign Currency Risk

Our results of operations and cash flows are not subject to fluctuations due to changes in foreign currency exchange rates. We bill our
clients in U.S. dollars and receive payment in U.S. dollars, and substantially all of our operating expenses are denominated in U.S. dollars. If we grow sales of our solutions outside the United
States, our contracts with foreign clients may not be denominated in dollars and we may become subject to changes in currency exchange rates.

Item 8.    Financial Statements and Supplementary Data

The Financial Statements and supplementary data required by this item are included in Part IV, Item 15 of this
Form 10-K and are presented beginning on page F-1.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with our accountants on accounting and financial disclosure matters.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures as of December 31, 2010. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2010, our Chief Executive Officer
and Chief Financial

68

---



Table of Contents

Officer
concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management's Report on Internal Control Over Financial Reporting

The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring every company that files reports with the
SEC to include a management report on such company's internal control over financial reporting in its annual report. In addition, our independent registered public accounting firm must attest to our
internal control over financial reporting. This report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an
attestation report of our independent registered public accounting firm due to a transition period established by SEC rules applicable to newly public companies. Management will be required to provide
an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2011 and an attestation report of our independent registered public accounting firm will
be required based on our market capitalization at December 31, 2010. We believe we will have adequate resources and expertise, both internal and external, in place to meet this requirement.
However, there is no guarantee that our efforts will result in management's ability to conclude, or our independent registered public accounting firm to attest, that our internal control over
financial reporting is effective as of December 31, 2011.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2010
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of
assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

Item 9B.    Other Information

None.

69

---





Table of Contents

Part III

Item 10.    Directors, Executive Officers and Corporate Governance

Our executive officers, key employees and directors and their ages and positions as of February 28, 2011 are as follows:

Name

Age

PositionGene Austin*

52

Chairman of the Board of Directors, Chief Executive Officer and PresidentJames R. Offerdahl*

54

Chief Financial Officer and Vice President of AdministrationVinay K. Bhagat*

41

Chief Strategy Officer and DirectorDavid G. Hart*

53

Chief Technology OfficerSara E. Spivey*

50

Chief Marketing OfficerRandall N. Potts*

56

Vice President of SalesMarc K. Cannon*

51

Vice President of ServicesThomas J. Krackeler*

39

Vice President of Common GroundGary G. Allison, Jr.**

45

Vice President of EngineeringB. Hayden Stewart**

52

Vice President of Information TechnologyAngela G. McDermott**

51

Vice President of Human ResourcesWilliam G. Bock(1)(3)

60

DirectorSheeraz D. Haji

38

DirectorChristopher B. Hollenbeck(1)(3)

43

DirectorM. Scott Irwin(2)

36

DirectorKristen L. Magnuson(2)(3)

54

DirectorGeorge H. Spencer III(2)(3)

47

Director


*Executive
officer**Key
employee(1)Member
of the compensation committee.(2)Member
of the audit committee.(3)Member
of the nominating and governance committee.


Each
of our executive officers serves until the earlier of their resignation, removal, replacement or their death.

Gene
Austin has served as our Chief Executive Officer and as a member of our board of directors since July 2003, as President since February 2008 and as a Chairman of the Board of
Directors since January 2010. From July 2001 to March 2003, Mr. Austin served as Vice President and General Manager of the Enterprise Data Management unit of BMC Software, Inc., a
provider of enterprise management solutions. From 1999 to 2001, Mr. Austin served as Vice President and General Manager of Internet Server Products at Dell, Inc., a computer
manufacturer. From 1996 to 1999, Mr. Austin served as Senior Vice President of Sales and Marketing at CareerBuilder, Inc., a software as a service company focused on internet based
recruiting. Mr. Austin holds a B.S. in Engineering Management from Southern Methodist University in Dallas and an M.B.A. from the Olin School of Business at Washington University in
St. Louis.

James
R. Offerdahl has served as our Chief Financial Officer and Vice President of Administration since February 2005. From August 2001 to April 2004, Mr. Offerdahl was President
and Chief Executive Officer of Traq-Wireless, Inc., a provider of on-demand mobile resource management software and services to enterprises. From 1998 to 2001,
Mr. Offerdahl served as Chief Operating

70

---



Table of Contents

Officer
and Chief Financial Officer of Pervasive Software, Inc., a developer and marketer of data management solutions for independent software vendors, and as Chief Financial Officer from 1996
to 1998. From 1993 to 1996, Mr. Offerdahl served as Chief Financial Officer and Vice President of Administration of Tivoli Systems, Inc., a developer and marketer of systems management
software, which was acquired by International Business Machines in March 1996. Mr. Offerdahl holds a B.S. in Accounting from Illinois State University and an M.B.A. in Management and Finance
from The University of Texas at Austin.

Vinay
K. Bhagat co-founded our company and served as Chairman of our board of directors from 1999 to January 2010. Since July 2003, Mr. Bhagat has served as our Chief
Strategy Officer. From October 1999 to July 2003, Mr. Bhagat served as our Chief Executive Officer. From 1998 to 1999, Mr. Bhagat was Director of E-Commerce at Trilogy
Software, Inc., an e-commerce applications company. From 1993 to 1996, Mr. Bhagat worked as a consultant at Bain & Company, a leading strategic management consulting
firm. Mr. Bhagat holds an
M.A. from Cambridge University in Electrical and Information Sciences, an M.S. in Engineering Economic Systems from Stanford University and an M.B.A. from Harvard Business School.

David
G. Hart has served as our Chief Technology Officer since February 2008. From March 2000 to February 2008, Mr. Hart served as our Vice President, Products and Operations.
From 1998 to 2000, Mr. Hart served as Consulting Engineer for Tivoli Systems, Inc. and as Development Director from 1995 to 1998. Mr. Hart holds a B.A. in Mathematics from Brown
University and an M.S. in Software Engineering from The University of Texas at Austin.

Sara
E. Spivey has served as our Chief Marketing Officer since December 2008. From August 2007 through September 2008, Ms. Spivey served as Vice President, Marketing for
rPath, Inc., a start-up in the virtualization software market, where she was responsible for product management, product marketing, marketing communications and business
development. From August 2005 to August 2007, Ms. Spivey was Vice President, Worldwide Sales, Strategic Account Alliance Development for Advanced Micro Devices, Inc., a semiconductor
company. There she was responsible for key relationships with Advanced Micro Devices, Inc.'s top five accounts and worked with both client and internal account teams to develop long term
strategic growth strategies and tactics. From January 2002 through July 2005, Ms. Spivey served as an independent marketing consultant for technology companies specializing in marketing
strategy, positioning and messaging, demand generation and business development. Prior to 2002, Ms. Spivey served twelve years in a variety of sales and marketing roles, including Vice
President of Marketing at Quantum Corporation, a storage solutions company. Ms. Spivey holds a B.A. from the University of California at Davis in Economics and an M.B.A. from the Amos Tuck
School of Business Administration at Dartmouth.

Randall
N. Potts has served as our Vice President of Sales since September 2003. From October 2002 to September 2003, Mr. Potts consulted as Vice President of Sales for
Entrieva, Inc., a provider of advertising software technology solutions. From 1999 to 2002, Mr. Potts was Vice President of Sales of CareerBuilder, Inc., an employment search
provider, and as Director of Central Region from 1997 to 1999. From 1995 to 1997, Mr. Potts was Director of North American Sales and Marketing for a division of Platinum Technology Inc.,
a provider of data management software. From 1989 to 1995, Mr. Potts served in various sales roles for Legent Corporation. From February 1987 to September 1989, Mr. Potts was an Account
Executive for International Business Machines Corporation's Science Research Associates Business Unit. Mr. Potts holds a B.B.A. in Petroleum Land Management from The University of Texas at
Austin.

Marc
K. Cannon has served as our Vice President of Services since March 2009. From August 2007 through March 2009, Mr. Cannon served as Vice President of Worldwide Services at
Adobe Systems, Inc., a multimedia and creativity software company, where he was responsible for new business and delivery of solutions leveraging Adobe's productivity, creative, and rich
internet application

71

---



Table of Contents

technologies
to Fortune 500 clients. From May 2005 through August 2007, Mr. Cannon was the Vice President of Worldwide Services at Autodesk, Inc., a design and engineering company, where
he was
responsible for selling and delivering complex design and visualization services. From August 2002 through May 2005, Mr. Cannon served as Vice President of Worldwide Services and Support at
think3, Inc., a manufacturer of computer aided design and life cycle management technology, where he was responsible for services sales, delivery, and customer care. Prior to 2002,
Mr. Cannon spent 15 years at Accenture Ltd., a consulting firm, and Cadence Design Systems Inc., a provider of services and software to the electronic design industry, in a
variety of executive services positions. Mr. Cannon holds a B.S. in Electrical Engineering from Boston University and an M.B.A. from San Diego State University.

Thomas
J. Krackeler has served as our Vice President of Common Ground since July 2008. From February 2007 to July 2008, Mr. Krackeler served as our Vice President of Product
Management. From April 2004 to February 2007, Mr. Krackeler served as Senior Vice President of Products at GetActive. Mr. Krackeler served as GetActive's Vice President of Products from
December 2001 to April 2004 and Director of Product Management from April 2000 to December 2001. From 1998 to 2000, Mr. Krackeler served as a Senior Web Developer at Environmental Defense Fund,
a nonprofit organization. From 1994 to 1996, Mr. Krackeler was a consultant with Accenture Ltd. Mr. Krackeler holds a B.A. in Political Science and Philosophy from Duke University
and an M.P.P. in Public Policy from the University of California, Berkeley.

Gary
G. Allison, Jr. has served as our Vice President of Engineering since May 2007. From February 2004 to April 2007, Mr. Allison served as Senior Vice President, Software
Development, Data Center Operations, and Customer Service at Simdesk Technologies, Inc., a provider of web-based software. He led a team and had overall responsibility for
architecture, development and delivery of Simdesk's worldwide on-demand product and Simdesk's data center. From 1997 to 2003, Mr. Allison served as Vice President of Engineering and
Customer Service at Pervasive Software Inc., a supplier of embedded database products, where he was responsible for product engineering. Mr. Allison holds a B.S. in Computer Science from
Texas A&M University and an M.S. in Software Engineering from University of Houston Clear Lake.

B.
Hayden Stewart has served as our Vice President of Information Technology Operations since January 2007. He served as our Director of Information Technology from March 2005 to
December 2006. From June 2004 to February 2005, Mr. Stewart served as Principal at Lone Star Associates, a business and technology consulting firm. From February 2003 to June 2004,
Mr. Stewart served as a Senior Director, Field Technical Services for Forgent Networks, Inc., a software manufacturer specializing in scheduling and meeting automation. From 1999 to
2002, Mr. Stewart served as Vice President of Engineering at TriActive, Inc., a systems management software manufacturer. From October 1997 to 1999, Mr. Stewart served first as
the Director, Information Systems, Purchasing, Facilities and then as Vice President of Customer Engineering for Pervasive Software, Inc. Mr. Stewart holds a B.B.A. in Computer
Information Systems from Southwest Texas State University.

Angela
G. McDermott has served as our Vice President of Human Resources since February 2006. From 2002 to February 2006, Dr. McDermott founded and was President of McDermott
Consulting, a leadership development firm specializing in executive coaching, organization development, and team building. From 1995 to 2001, Dr. McDermott served in various leadership
development roles at Dell, Inc. including management development at Dell University, executive development, and field assignments in
product development. Dr. McDermott holds a B.S., an M.A. and a Ph.D. in Industrial/Organizational Psychology from the University of Houston.

William
G. Bock has been a member of our board of directors since January 2008. Since November 2006, Mr. Bock has served as Senior Vice President and Chief Financial Officer of
Silicon Laboratories Inc., an integrated circuit technology company. Mr. Bock joined Silicon Laboratories

72

---



Table of Contents

(NASDAQ:
SLAB) as a director in March 2000, and served as Chairman of the Audit Committee until November 2006 before he resigned from the Board to serve in his current role. From April 2002 to
November 2006, Mr. Bock was a partner of CenterPoint Ventures, a venture capital firm. From April 2001 to March 2002, Mr. Bock served as a partner of Verity Ventures, a venture capital
firm. From June 1999 to March 2001, Mr. Bock served as a Vice President and General Manager at Hewlett Packard Company. Mr. Bock held the position of President and Chief Executive
Officer of DAZEL Corporation, a provider of electronic information delivery systems, from February 1997 until its acquisition by Hewlett Packard in June 1999. From October 1994 to February 1997,
Mr. Bock served as Chief Operating Officer of Tivoli Systems, Inc. Mr. Bock holds a B.S. in Computer Science from Iowa State University and an M.S. in Industrial Administration
from Carnegie Mellon University.

Sheeraz
D. Haji has been a member of our board of directors since we acquired GetActive in February 2007. Since January 2010, he has held the position of President of the Cleantech
Group. From June 2009 to January 2010, Mr. Haji has served as a Managing Partner of the Cleantech Group, a venture capital firm. From 2008 to 2009, Mr. Haji was an
Entrepreneur-in-Residence for El Dorado Ventures, a venture capital firm, and an operations executive for the investment management firm, Grantham, Mayo, Van
Otterloo & Co.'s Emerging Markets Division. In February 2008, he stepped down as our President, a position he had held from February 2007 to February 2008. From October 2001 to February
2007, Mr. Haji was the Chief Executive Officer of GetActive. From 2000 to 2001, Mr. Haji served as Co-Founder and Senior Vice President of Corporate Development at GetActive.
From 1999 to 2000, Mr. Haji was the Product Manager at Digital Impact, Inc., a provider of online direct marketing solutions for enterprises. From 1997 to 1999, Mr. Haji served as
a consultant for McKinsey & Company Inc., a management consulting firm. From 1994 to 1996, Mr. Haji was an engineer for Environ International Corporation, an international
consulting firm. Mr. Haji holds a B.S. in Civil/Environmental Engineering from Brown University and an M.S. in Civil/Environmental Engineering from Stanford University.

Christopher
B. Hollenbeck has been a member of our board of directors since March 2001. Since 1998, Mr. Hollenbeck has served as a Managing Director of Granite
Ventures, LLC (formerly known as H&Q Venture Associates LLC), a venture capital firm. Prior to joining Granite Ventures, Mr. Hollenbeck held various positions in the venture
capital, corporate finance and merger and acquisition groups at Hambrecht & Quist Group, Inc., an investment bank. Mr. Hollenbeck holds a B.A. in American Studies from Stanford
University.

M.
Scott Irwin has been a member of our board of directors since February 2007. Mr. Irwin served as a member of the board of directors of GetActive from September 2004 to February
2007. Since February 2005, Mr. Irwin has served as a General Partner of El Dorado Ventures, L.P., a venture capital firm, and was a Principal from June 2000 to January 2005. From 1997 to
1999, Mr. Irwin held software engineering and product management positions with Accenture, Ltd. Mr. Irwin holds a B.S. in Systems Engineering from the University of Virginia and
an M.B.A. from the Anderson School of Management at the University of California, Los Angeles.

Kristen
L. Magnuson has been a member of our board of directors since January 2008. Since July 2010, Ms. Magnuson has been the Chief Financial Officer and a Founding Shareholder of AZ
Digital Farm LLC, a privately held holding company for mobile technology and digital media solutions. She also serves as Interim Chief Financial Officer to Delta Mutual, Inc., an oil and gas
exploration company. From October 2009 to July 2010, Ms. Magnuson was a Partner at Tatum LLC, a financial executive services firm. From September 1997 to August 2009, Ms. Magnuson
served as Chief Financial Officer of JDA Software Group, Inc., a provider of enterprise software solutions for supply chain processes, and was promoted to Executive Vice President in March
2001. From 1990 to 1997, Ms Magnuson served as Vice President of Financial Planning for Michaels Stores Inc., an arts and crafts retailer. From March 1987 to August 1990, she served as
Senior Vice President and Controller of

73

---



Table of Contents

MeraBank
N.A., a federal savings bank. Ms. Magnuson is a C.P.A. and holds a B.B.A. in Accounting from the University of Washington.

George
H. Spencer III has been a member of our board of directors since 2004. Since January 2007, Mr. Spencer served as Senior Managing Director of Seyen Capital, a venture
capital firm. Since October 2006, Mr. Spencer served as a senior consultant with Adams Street Partners, LLC., a venture capital firm, and was a Partner with Adams Street Partners from
January 2001 to October 2006. Mr. Spencer also serves on the board of directors and compensation committee of SPS Commerce (NASDAQ:SPSC), a provider of on-demand supply chain management
solutions. Mr. Spencer holds a B.A. from Amherst College and an M.B.A. from The Amos Tuck School of Business at Dartmouth College.

The
remaining information required by this Item will be included in our Proxy Statement and is incorporated herein by reference.

Item 11.    Executive Compensation

The information required by this Item will be included in our Proxy Statement and is incorporated herein by reference.

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

The information required by this Item will be included in our Proxy Statement and is incorporated herein by reference.

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

The information required by this Item will be included in our Proxy Statement and is incorporated herein by reference.

Item 14.    Principal Accounting Fees and Services

The information required by this Item will be included in our Proxy Statement and is incorporated herein by reference.

74

---





Table of Contents

Part IV

Item 15.    Exhibits and Financial Statement Schedules

(a)   Documents
Filed with Report

(1)Financial Statements.



Report of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Stockholders' Equity (Deficit)


F-5Consolidated Statements of Cash Flows


F-6Notes to Consolidated Financial Statements


F-7


(2)Financial Statement Schedules.

Schedules
required by this item have been omitted since they are either not required or not applicable or because the information required is included in the consolidated
financial statements included elsewhere herein or the notes thereto.

(3)Exhibits.

Exhibit
Number

Exhibit Title2.1

Agreement and Plan of Merger, dated January 10, 2007, by and among Registrant, GASI Acquisition Corp., GetActive Software, Inc. and Robert Epstein, as stockholders' agent (incorporated by reference from
Exhibit 2.1 to the Registrant's registration statement on Form S-1, as amended, filed with the SEC on January 22, 2010 (File No. 333-164491)(the "Registration Statement")2.2

Asset Purchase Agreement dated January 28, 2011 by and among Convio, Inc., Jay Hawk Acquisition Co., Inc., StrategicOne, L.L.C., Michael Rogers and James Fordyce (incorporated by reference from Exhibit 2.1
to the Registrant's current report on Form 8-K filed with the SEC on February 1, 2011)3.1

Restated Certificate of Incorporation, as currently in effect (incorporated by reference from Exhibit 3.1.1 to the Registration Statement)3.2

Bylaws, as currently in effect (incorporated by reference from Exhibit 3.2.1 to the Registration Statement)4.1

Specimen certificate for shares of common stock (incorporated by reference from Exhibit 4.1 to the Registration Statement)4.2

Reference is made to 3.1 and 3.2 above4.3

Fifth Amended and Restated Investors' Rights Agreement, dated April 10, 2007, by and among Registrant and certain stockholders (incorporated by reference from Exhibit 4.3 to the Registration Statement)4.3.1

Amendment No. 1 to Fifth Amended and Restated Investors' Rights Agreement, dated January 31, 2008, by and among Registrant and certain stockholders (incorporated by reference from Exhibit 4.3.1 to the
Registration Statement)4.4

Form of Warrant issued to Comerica Ventures Incorporated (incorporated by reference from Exhibit 4.6 to the Registration Statement)4.5

Warrant issued to Entrepreneurs Foundation of Central Texas (incorporated by reference from Exhibit 4.7 to the Registration Statement)


75

---



Table of Contents

Exhibit
Number

Exhibit Title4.6

Warrant issued to Piper Jaffray & Co. (incorporated by reference from Exhibit 4.8 to the Registration Statement)10.1
*
2009 Stock Incentive Plan, as amended to date, and forms of stock option agreements (incorporated by reference from Exhibit 10.1 to the Registration Statement)10.1.1
*
Form of Nonstatutory Stock Option Notice (Double Trigger) (incorporated by reference from Exhibit 10.1 to the Registrant's current report on Form 8-K filed with the SEC on February 28, 2011)10.1.2
*
Form of Restricted Stock Unit Notice (Double Trigger) and Agreement (incorporated by reference from Exhibit 10.1 to the Registrant's current report on Form 8-K filed with the SEC on February 28, 2011)10.2
*
1999 Stock Option/Stock Issuance Plan, as amended to date, and forms of stock option agreements (incorporated by reference from Exhibit 10.2 to the Registration Statement)10.3
*
2000 Stock Option Plan, as amended to date, and form of stock option agreement (incorporated by reference from Exhibit 10.3 to the Registration Statement)10.4
*
2006 Equity Incentive Plan, as amended to date, and form of stock option agreement (incorporated by reference from Exhibit 10.4 to the Registration Statement)10.5

Reference is made to 4.3 and 4.3.1 above.10.6

Loan and Security Agreement, dated October 26, 2007, by and among Registrant, GetActive Software, Inc. and Comerica Bank (incorporated by reference from Exhibit 10.6 to the Registration Statement)10.6.1

Amendment Number One to Loan and Security Agreement, dated as of January 14, 2008, by and among Registrant, GetActive Software, Inc. and Comerica Bank (incorporated by reference from Exhibit 10.6.1 to the
Registration Statement)10.6.2

Amendment Number Two to Loan and Security Agreement, dated as of February 15, 2008, by and among Registrant, GetActive Software, Inc. and Comerica Bank (incorporated by reference from Exhibit 10.6.2 to the
Registration Statement)10.6.3

LIBOR Addendum to Loan and Security Agreement, dated as of July 31, 2008, by and among Registrant, GetActive Software, Inc. and Comerica Bank (incorporated by reference from Exhibit 10.6.3 to the
Registration Statement)10.6.4

Amendment Number Three to Loan and Security Agreement, dated as of February 9, 2009, by and among Registrant, GetActive Software, Inc. and Comerica Bank (incorporated by reference from Exhibit 10.6.4 to the
Registration Statement)10.6.5

Amendment Number Four to Loan and Security Agreement, dated as of July 31, 2009, by and among Registrant, GetActive Software, Inc. and Comerica Bank (incorporated by reference from Exhibit 10.6.5 to the
Registration Statement)10.7

Master Lease Agreement, dated as of March 15, 2006, by and between Registrant and ATEL Ventures, Inc. (incorporated by reference from Exhibit 10.7 to the Registration Statement)10.7.1

First Amendment to Master Lease Agreement, dated as of September 28, 2006, by and between Registrant and ATEL Ventures, Inc. (incorporated by reference from Exhibit 10.7.1 to the Registration
Statement)10.8

Office Lease, dated as of November 17, 2006, by and between Registrant and RREEF Domain, LP (incorporated by reference from Exhibit 10.8 to the Registration Statement)10.8.1

First Amendment to Lease, dated as of April 23, 2007, by and between Registrant and RREEF Domain, LP (incorporated by reference from Exhibit 10.8.1 to the Registration Statement)


76

---



Table of Contents

Exhibit
Number

Exhibit Title10.8.2

Second Amendment to Lease, dated January 22, 2008, by and between Registrant and RREEF Domain, LP (incorporated by reference from Exhibit 10.8.2 to the Registration Statement)10.8.3

Third Amendment to Lease, dated August 25, 2008, by and between Registrant and RREEF Domain, LP (incorporated by reference from Exhibit 10.8.3 to the Registration Statement)10.9

Office Lease, dated April 3, 2009, by and between Registrant and 1255 23rd Street, L.P. (incorporated by reference from Exhibit 10.9 to the Registration Statement)10.10
*
Form of Indemnity Agreement entered into among Registrant, its affiliates and its directors and executive officers (incorporated by reference from Exhibit 10.10 to the Registration Statement)10.11
*
Employment Offer Letter, dated June 24, 2003, by and between the Registrant and Gene Austin (incorporated by reference from Exhibit 10.11 to the Registration Statement)10.12
*
Employment Offer Letter, dated February 2, 2005, by and between the Registrant and James R. Offerdahl (incorporated by reference from Exhibit 10.12 to the Registration Statement)10.13
*
Employment Offer Letter, dated November 7, 2008, by and between the Registrant and Sara E. Spivey (incorporated by reference from Exhibit 10.13 to the Registration Statement)10.14
*
Employment Offer Letter, dated March 3, 2009, by and between the Registrant and Marc Cannon (incorporated by reference from Exhibit 10.14 to the Registration Statement)10.15
*
Employment Offer Letter, dated August 25, 2003, by and between the Registrant and Randy Potts (incorporated by reference from Exhibit 10.15 to the Registration Statement)10.16

Master Agreement for U.S. Availability Services, dated as of June 1, 2008, by and between Registrant and SunGard Availability Services, LP (incorporated by reference from Exhibit 10.16 to the Registration
Statement)10.16.1

Addendum to the Master Agreement for U.S. Availability Services, between SunGard Availability Services LP and Convio, Inc., dated June 1, 2008 (incorporated by reference from Exhibit 10.16.1 to the
Registration Statement)10.16.2

Schedule Number 29582 v. 1.0, For Recovery Services Governed by Master Agreement for U.S. Availability Services, between SunGard Availability Services LP and Convio, Inc., dated June 1, 2008
(incorporated by reference from Exhibit 10.16.2 to the Registration Statement)23.1
#
Consent of Independent Registered Public Accounting Firm31.1
#
Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 200231.2
#
Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
#
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*Constitutes
management contracts or compensatory arrangements#Filed
or furnished herewith


77

---





Table of Contents

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.

Convio, Inc.Dated: March 11, 2011

By:

/s/ GENE AUSTIN Gene Austin Chief Executive Officer (Principal Executive
Officer), President and Chairman of the
Board of Directors


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/ GENE AUSTIN Gene Austin

Chief Executive Officer (Principal Executive Officer), President and Chairman of the Board of Directors

March 11, 2011/s/ JAMES R. OFFERDAHL James R. Offerdahl

Chief Financial Officer and Vice President of Administration (Principal Financial and Accounting Officer)

March 11, 2011/s/ VINAY K. BHAGAT Vinay K. Bhagat

Director

March 11, 2011/s/ SHEERAZ D. HAJI Sheeraz D. Haji

Director

March 11, 2011/s/ WILLIAM G. BOCK William G. Bock

Director

March 11, 2011/s/ CHRISTOPHER B. HOLLENBECK Christopher B. Hollenbeck

Director

March 11, 2011/s/ M. SCOTT IRWIN M. Scott Irwin

Director

March 11, 2011


78

---



Table of Contents

Signature

Title

Date/s/ KRISTEN L. MAGNUSON Kristen L. Magnuson

Director

March 11, 2011/s/ GEORGE H. SPENCER III George H. Spencer III

Director

March 11, 2011


79

---





Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PageCONVIO, INC.Report of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets


F-3Consolidated Statements of Operations


F-4Consolidated Statements of Changes in Stockholders' Equity (Deficit)


F-5Consolidated Statements of Cash Flows


F-6Notes to Consolidated Financial Statements


F-7


F-1

---





Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders of
Convio, Inc.

We
have audited the accompanying consolidated balance sheets of Convio, Inc. (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 audit to
obtain
reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Convio, Inc. at December 31,
2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with United States generally
accepted accounting principles.

/s/
Ernst & Young LLP

Austin,
Texas
March 11, 2011

F-2

---





Table of Contents

Convio, Inc.        Consolidated Balance Sheets        (in thousands, except share and per share amounts)

December 31,
2010

December 31,
2009ASSETSCurrent assets:Cash and cash equivalents

$
18,447

$
16,662Restricted cash


1,248


Marketable securities


36,774


Accounts receivable, less allowance of $230 and $231 at December 31, 2010 and 2009, respectively


8,154


9,143Prepaid expenses and other current assets


1,558


1,610Total current assets


66,181


27,415Property and equipment, net


4,609


3,276Goodwill


5,527


5,527Intangible assets, net


3,990


4,973Other assets


104


153Total assets

$
80,411

$
41,344LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)Current liabilities:Accounts payable

$
526

$
503Accrued liabilities


2,526


2,386Accrued compensation


3,014


2,547Deferred revenue


15,917


17,362Current portion of capital lease obligations


14


90Current portion of long-term debt





773Convertible preferred stock warrant liability





1,375Total current liabilities


21,997


25,036Capital lease obligations, net of current portion





16Long-term debt, net of current portion





1,332Total liabilities


21,997


26,384Commitments and Contingencies (note 7)Convertible preferred stock (note 9)





33,869Stockholders' equity (deficit):Common stock: $0.001 par value; 40,000,000 and zero shares authorized at December 31, 2010 and 2009, respectively; 17,612,536 and zero shares issued and
outstanding at December 31, 2010 and 2009, respectively


18


Series P common stock: $0.001 par value; zero and 19,118,440 shares authorized at December 31, 2010 and 2009, respectively; zero and 5,366,076
shares issued and outstanding at December 31, 2010 and 2009, respectively





5Series Q common stock: $0.001 par value; zero and 1,337,211 shares authorized at December 31, 2010 and 2009, respectively; zero and 198,796 shares
issued and outstanding at December 31, 2010 and 2009, respectively





Series R common stock: $0.001 par value; zero and 676,055 shares authorized at December 31, 2010 and 2009, respectively; zero and 676,025 shares
issued and outstanding at December 31, 2010 and 2009, respectively





1Series S common stock: $0.001 par value; zero and 1,086,233 shares authorized at December 31, 2010 and 2009, respectively; zero and 1,086,209
shares issued and outstanding at December 31, 2010 and 2009, respectively





1Additional paid-in capital


111,218


37,340Accumulated other comprehensive loss


(21
)

Accumulated deficit


(52,801
)

(56,256
)Total stockholders' equity (deficit)


58,414


(18,909
)Total liabilities and stockholders' equity (deficit)

$
80,411

$
41,344


See accompanying notes.

F-3

---





Table of Contents

Convio, Inc.        Consolidated Statements of Operations        (in thousands, except per share amounts)

Year Ended December 31,2010

2009

2008Revenue:Subscription and services

$
58,353

$
54,900

$
50,103Usage


11,391


8,186


6,877Total revenue


69,744


63,086


56,980Cost of revenue(1)(2)


25,541


24,779


22,911Gross profit


44,203


38,307


34,069Operating expenses:Sales and marketing(2)


22,468


21,556


21,432Research and development(2)


10,552


10,041


8,754General and administrative(2)


6,552


6,034


5,883Amortization of other intangibles


857


1,400


1,452Write off of deferred stock offering costs








1,524Total operating expenses


40,429


39,031


39,045Income (loss) from operations


3,774


(724
)

(4,976
)Interest income


61


6


115Interest expense


(126
)

(355
)

(691
)Other income (expense)


45


(803
)

1,808Income (loss) before income taxes


3,754


(1,876
)

(3,744
)Provision for income taxes


299


219


Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)Net income (loss) attributable to common stockholders (note 2):Basic

$
3,048

$
(2,095
)
$
(3,744
)Diluted

$
3,455

$
(2,095
)
$
(3,744
)Net income (loss) per share attributable to common stockholders (note 2):Basic

$
0.22

$
(0.29
)
$
(0.52
)Diluted

$
0.20

$
(0.29
)
$
(0.52
)Weighted average shares used in computing net income (loss) per share attributable to common stockholders:Basic


14,155


7,313


7,257Diluted


17,517


7,313


7,257


(1)Includes
amortization of acquired technology of $127, $1,016 and $1,016 in 2010, 2009 and 2008, respectively.(2)Includes
stock-based compensation expense as follows:


Year Ended December 31,2010

2009

2008Cost of revenue

$
469

$
583

$
383Sales and marketing


659


742


585Research and development


357


343


235General and administrative


563


834


353




See
accompanying notes.

F-4

---





Table of Contents

Convio, Inc.

Consolidated Statements of Changes in Stockholders' Equity (Deficit)

(in thousands, except share amounts)

Series P
Common Stock

Series Q
Common Stock

Series R
Common Stock

Series S
Common Stock





Accumulated
Other
Comprehensive
income/
(loss)

Total
Stock-
holders'
Equity
(Deficit)Common StockAdditional
Paid-In
Capital

Accumulated
DeficitShares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Shares

AmountBalance at January 1, 2008




$



5,255,864

$
5


198,796

$



676,025

$
1


1,086,209

$
1

$
33,073

$
(50,417
)
$


$
(17,337
)Issuance of Series P common stock upon exercise of options








84,884























139








139Reclassification of liability for early exercise of stock options based on vesting of such options
































29








29Stock-based compensation
































1,556








1,556Net loss



































(3,744
)




(3,744
)Balance at December 31, 2008








5,340,748


5


198,796





676,025


1


1,086,209


1


34,797


(54,161
)




(19,357
)Issuance of Series P common stock upon exercise of options








25,328























39








39Stock-based compensation
































2,504








2,504Net loss



































(2,095
)




(2,095
)Balance at December 31, 2009








5,366,076


5


198,796





676,025


1


1,086,209


1


37,340


(56,256
)




(18,909
)Issuance of Series P common stock upon exercise of options








92,092























128








128Stock-based compensation
































2,048








2,048Conversion of Series A, B and C preferred stock into Common Stock on IPO


5,316,037


6


























33,863








33,869Conversion of Series P, Q, R and S into Common Stock on IPO


7,419,198


7


(5,458,168
)

(5
)

(198,796
)




(676,025
)

(1
)

(1,086,209
)

(1
)










Shares sold in the IPO/Proceeds received from IPO, net of issuance costs


4,559,436


5


























35,883








35,888Issuance of undesignated common stock upon exercise of options post IPO


245,065





























566








566Net exercise of preferred stock warrants


72,800






































Reclass of warrant revaluation upon closing of the IPO
































1,390








1,390Comprehensive income:Net unrealized gains/losses on marketable securities






































(21
)

(21
)Net income



































3,455





3,455Comprehensive income









































3,434Balance at December 31, 2010


17,612,536

$
18




$





$





$





$


$
111,218

$
(52,801
)
$
(21
)
$
58,414


See accompanying notes.

F-5

---





Table of Contents

Convio, Inc.        Consolidated Statements of Cash Flows        (in thousands)

Year Ended December 31,2010

2009

2008Cash flows from operating activities:Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


2,135


2,286


2,212Amortization of intangible assets


984


2,416


2,468Amortization of capitalized software development costs


96





Amortization of debt issuance costs


28


90


141Revaluation of warrants to fair value


15


814


(1,804
)Stock-based compensation


2,048


2,503


1,556Gain on sale of fixed assets


(53
)




Changes in operating assets and liabilities:Accounts receivable


989


(263
)

(1,300
)Prepaid expenses and other assets


240


(419
)

1,152Accounts payable


23


217


(197
)Accrued liabilities and accrued compensation


607


704


253Deferred revenue


(1,445
)

538


2,125Net cash provided by operating activities


9,122


6,791


2,862Cash flows from investing activities:Purchases of marketable securities


(46,864
)




Proceeds from maturities of marketable securities


9,900





Increase in restricted cash


(1,248
)




Capitalized software development costs


(937
)




Purchase of property and equipment, net


(2,574
)

(1,749
)

(2,162
)Net cash used in investing activities


(41,723
)

(1,749
)

(2,162
)Cash flows from financing activities:Proceeds from issuance of long-term debt and capital lease obligations








1,172Payments made on long-term debt and capital lease obligations


(2,197
)

(2,247
)

(2,783
)Proceeds from common stock issuance in connection with initial public offering, net of issuance costs of $5,147


35,888





Proceeds from issuance of common stock upon exercise of options


695


39


139Net cash provided by (used in) financing activities


34,386


(2,208
)

(1,472
)Net change in cash and cash equivalents


1,785


2,834


(772
)Cash and cash equivalents at beginning of year


16,662


13,828


14,600Cash and cash equivalents at end of year

$
18,447

$
16,662

$
13,828Supplemental information:Cash paid during the periods for:Interest paid

$
72

$
210

$
473Taxes paid, net of refunds

$
262

$
152

$
Noncash investing activities:Unrealized gains/(losses) on marketable securities

$
(21
)
$


$
Noncash financing activities:Conversion of convertible preferred stock to common stock upon initial public offering

$
(33,869
)
$


$
Conversion of Series P, Series Q, Series R and Series S common stock to undesignated common stock upon initial public
offering

$
(7
)
$


$
Reclassification of preferred stock warrant liability to additional paid-in capital upon initial public offering

$
(1,390
)
$


$



See accompanying notes.

F-6

---





Table of Contents

Convio, Inc.        Notes to Consolidated Financial Statements

1. The Company

Convio, Inc., together with its wholly-owned subsidiary (collectively, the "Company" or "Convio"), is a provider of on-demand constituent engagement solutions that
enable nonprofit organizations ("NPOs") to more effectively raise funds, advocate for change and cultivate relationships with donors, activists, volunteers, alumni and other constituents. The
Company's integrated solutions include its Convio Online Marketing ("COM") platform and Convio Common Ground CRM, its constituent relationship management application. The COM platform enables NPOs to
harness the full potential of the Internet and social media as new channels for constituent engagement and fundraising. Common Ground delivers next-generation donor management
capabilities, integrates marketing activities across online and offline channels and is designed to increase operational efficiency. The Company's solutions are enhanced by a portfolio of value-added
services tailored to its clients' specific needs.

The
Company was incorporated in Delaware on October 12, 1999. On February 16, 2007, the Company acquired GetActive Software, Inc. ("GetActive"), a privately owned
company based in Berkeley, California. The Company acquired GetActive, a provider of online constituent relationship management software and services and a competitor of the Company, to expand its
client base and increase its market presence in the nonprofit market. The Company currently markets its products and services throughout North America.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP). The accompanying consolidated balance sheets as of December 31, 2010 and 2009 and the accompanying consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 2010 represent our financial position, results of operations and cash flows as of and for the periods then ended.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany
accounts and transactions have been eliminated in consolidation.

Applicable Accounting Guidance

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative non-governmental
United States GAAP as found in the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC").

Segments

Our chief operating decision maker is our chief executive officer, who reviews financial information presented on a
company-wide basis. Accordingly, in accordance with ASC 280, the Company determined that it has a single reporting segment and operating unit structure.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of

F-7

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

contingent
assets and liabilities at the date of the financial statements and 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 Company's financial statements.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost and consist of cash deposits and investment securities with original maturities of three
months or less when purchased. At
December 31, 2010, the Company had deposits in financial institutions that exceeded the federally-insured limits by $7.7 million.

Accounts Receivable

In the ordinary course of business, the Company extends credit to its clients. Accounts receivable are recorded at their outstanding
principal balances, adjusted by an allowance for doubtful accounts.

In
estimating the allowance for doubtful accounts, the Company considers the length of time that receivables have been outstanding, historical write-off experience, current
economic conditions and client-specific information. When the Company ultimately concludes that a receivable is uncollectible, the balance is charged against the allowance for doubtful accounts.

The
following table summarizes the changes in allowance for doubtful accounts for receivables (in thousands):

Balance at
Beginning of
Period

Charged to
Expense, Net of
Recoveries

Deduction of
Uncollectible
Accounts

Balance at
end of
Period2008

$
270

$
467

$
(413
)
$
3242009


324


233


(326
)

2312010


231


184


(185
)

230


Concentration of Credit Risks, Significant Clients and Suppliers and Geographic Information

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents,
restricted cash, marketable securities and accounts receivable. The Company's cash and cash equivalents, restricted cash and marketable securities are placed with high credit-quality financial
institutions. The Company's accounts receivable
are derived from sales to its clients who primarily operate in the nonprofit sector. The Company generally does not require collateral. Estimated credit losses are provided for in the financial
statements and historically have been within management's expectations.

No
one client accounted for more than 10% of the Company's revenue in 2010, 2009 or 2008. Additionally, no one client balance accounted for more than 10% of the Company's accounts
receivable balance at December 31, 2010 or 2009.

As
of December 31, 2010 and 2009, all of the Company's long-lived assets were located in the United States. In 2010, 2009 and 2008, substantially all of the Company's
revenue was derived from customers in the United States.

The
Company serves its clients from two third-party datacenters, one located in Austin, Texas, which is leased from SunGard Availability Services LP and the other located in
Sacramento, California,

F-8

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

which
is leased from RagingWire Enterprise Solution, Inc. The Company does not control the operation of these facilities, which are vulnerable to damage or interruption. Although the Company
has disaster recovery capabilities, such capabilities will not provide automated off-site failover services in the event services at either datacenter are interrupted. Any interruptions or
problems at either datacenter would likely result in significant disruptions of its solutions hosted at such site.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted a new accounting standard which defines fair value, establishes a framework for
measuring fair value and expands on required disclosures regarding fair value measurements. This standard applies to reported balances that are required or permitted to be measured at fair value under
existing accounting pronouncements accordingly, but does not require any new fair value measurements of previously reported balances.

Marketable Securities

During the year ended December 31, 2010, the Company purchased $46.9 million of marketable securities. The Company
follows authoritative guidance in determining the classification of and accounting for its marketable securities. The Company's marketable securities are classified as
available-for-sale and are carried at fair value with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive loss in
stockholders' equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of interest income based on the specific identification method. Fair
value is determined based on quoted market prices or pricing models using current market rates.

The
Company views its available-for-sale securities as available for use, if needed, for current operations. Accordingly, the Company has classified all
available-for-sale securities as short-term, even though the stated maturity date may be one year or more beyond the current balance sheet date.

The
Company reviews its available-for-sale investments as of the end of each reporting period for other-than-temporary declines in fair
value based on the specific identification method. The Company considers various factors in determining whether an impairment is other-than-temporary, including the severity
and duration of the impairment, changes in underlying credit ratings, forecasted recovery, its intent to sell or the likelihood that it would be required to sell the investment before its anticipated
recovery in market value and the probability that the scheduled cash payments will continue to be made. When the Company concludes that an other-than-temporary impairment has
occurred, the Company assesses whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery. If either of these two conditions
is met, the Company recognizes a charge in earnings equal to the entire difference between the security's amortized cost basis and its fair value. If the Company does not intend to sell a security or
it is not more likely than not that it will be required to sell the security before recovery, the unrealized loss is separated into an amount representing the credit loss, which is recognized in
earnings, and the amount related to all other factors, which is recorded in accumulated other comprehensive loss.

Preferred Stock Warrants

Prior to the Company's completion of its initial public offering, freestanding warrants that were related to shares that were
redeemable were accounted for in accordance with the applicable guidance

F-9

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

in
ASC Topic 480. Under the provisions of this guidance, the freestanding warrants that were related to the Company's preferred stock were classified as liabilities in the accompanying balance sheets.
Additionally, preferred stock warrants that were converted into equivalent units to acquire shares of Series A convertible preferred stock and Series P common stock were classified as
liabilities in the accompanying balance sheets. The warrants and equivalent units were subject to re-measurement at each balance sheet date, and any change in fair value was recognized as
a component of other income (expense). Upon the closing of the Company's initial public offering on May 4, 2010, all outstanding preferred stock warrants were converted into warrants to
purchase common stock and, accordingly, the liability was reclassified to additional paid-in capital.

The
Company estimated the fair value of the preferred stock warrant liability using the Black-Scholes valuation method. The following table summarizes the weighted average fair value of
the warrants and the assumptions utilized to develop their fair value at each measurement date:

Three Months EndedMar 31
2008

Jun 30
2008

Sep 30
2008

Dec 31
2008Weighted-average fair value of warrants outstanding

$
5.03

$
3.52

$
3.72

$
2.30Risk-free interest rate


2.47
%

3.68
%

2.87
%

2.84
%Expected volatility


0.56


0.57


0.56


0.60Weighted-average expected life in years


5.56


5.31


5.06


4.81Dividend yield
















Three Months EndedMar 31
2009

Jun 30
2009

Sep 30
2009

Dec 31
2009Weighted-average fair value of warrants outstanding

$
3.01

$
3.24

$
3.64

$
5.65Risk-free interest rate


1.92
%

2.87
%

2.29
%

2.29
%Expected volatility


0.66


0.66


0.65


0.64Weighted-average expected life in years


4.56


4.31


4.28


4.02Dividend yield
















Three Months
Ended

Final
Measurement
DateMar 31
2010

Apr 29
2010Weighted-average fair value of warrants outstanding

$
7.58

$
5.71Risk-free interest rate


2.43
%

2.43
%Expected volatility


0.62


0.62Weighted-average expected life in years


3.78


3.70Dividend yield








The
Company recorded $15,000 and $814,000 of other expense and $1.8 million of other income in 2010, 2009 and 2008, respectively, to reflect the change in fair value of the
preferred stock warrants during those periods.

F-10

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Property and Equipment

Property and equipment are recorded at cost. Property and equipment are depreciated on a straight-line basis over the
following estimated useful lives of the assets:

Estimated Useful LifeComputer software

2 to 5 yearsComputer equipment

3 to 7 yearsFurniture and fixtures

3 to 7 yearsLeasehold improvements

Shorter of lease term or useful life


Amortization
of assets recorded under capital leases is included with depreciation expense. Maintenance and repairs are expensed as incurred.

Goodwill and Intangible Assets

In connection with the Company's acquisition of GetActive in 2007, the Company recorded certain intangible assets, including acquired
technology, customer relationships, trade names and noncompete agreements.

Amounts
allocated to the acquired intangible assets are being amortized on a straight-line basis over the following estimated useful lives:

Estimated Useful LifeCustomer relationships

9 yearsAcquired technology

3 yearsTradenames

3 yearsAgreements not to compete

2 years


The
Company periodically reviews the estimated useful lives and fair values of its identifiable intangible assets, taking into consideration any events or circumstances which might
result in a diminished fair value or revised useful life.

F-11

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Goodwill
and intangible assets consist of the following (in thousands):

Year Ended
December 31,2010

2009Goodwill

$
5,527

$
5,527Intangible AssetsAcquired Technology:Acquired technology

$
3,049

$
3,049Accumulated amortization


(3,049
)

(2,919
)$


$
130Other Intangibles:Customer relationships

$
7,007

$
7,007Tradenames


1,850


1,850Agreements not to compete


110


110Accumulated amortization


(4,977
)

(4,124
)$
3,990

$
4,843Total Intangible Assets, net

$
3,990

$
4,973


Future
estimated amortization expense of intangible assets as of December 31, 2010 is as follows (in thousands):

2011

$
7792012


7792013


7792014


7792015


779Thereafter


95Total

$
3,990


The
Company tests goodwill for impairment annually on October 1st, or whenever events or changes in circumstances indicate an impairment may have occurred. Because the Company
operates in a single segment, the impairment test is performed at the consolidated entity level by comparing the estimated fair value of the Company to the carrying value of the goodwill. Impairment
may result from, among other things, deterioration in the performance of the business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the
activities of the acquired business and a variety of other circumstances. If it is determined that an impairment has occurred, the Company records a write-down of the carrying value of
goodwill to its implied fair value and charges the impairment as an operating expense in the period the determination is made. Although the Company believes goodwill is appropriately stated in its
consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance. There was no impairment of
goodwill in 2010, 2009 or 2008.

F-12

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Impairment of Long-Lived Assets

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with groups of assets
used in combination over their estimated useful lives against their respective carrying amounts. If projected undiscounted future cash flows are less than the carrying value of the asset group, an
impairment is recorded for any excess of the carrying amount over the fair value of those assets in the period in which the determination is made.

Debt Issuance Costs

Costs incurred in connection with the origination of long-term debt are deferred and amortized over the life of the debt
instrument using the effective interest method. In May 2010, the Company repaid the balance of the outstanding line of credit with proceeds from the IPO and wrote-off $17,000 of debt
issuance costs. Interest expense includes the amortization and write-off of debt issuance costs.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expenses were approximately $249,000, $207,000 and $43,000 in 2010,
2009 and 2008, respectively.

Revenue Recognition

The Company derives its revenue from subscriptions, services and usage and recognizes revenue in accordance with relevant authoritative
accounting principles. The Company's subscription arrangements do not allow the client to take possession of the software application and the Company's arrangements do not contain general rights of
return. The Company recognizes revenue when all of the following conditions are met:



In
determining whether collection of the subscription and related services fee is reasonably assured, the Company considers financial and other information about clients, such as a
client's funding level, obtained as part of the Company's sales effort with the clients. As a client relationship progresses, the Company also considers the client's payment history. The Company's
experience in determination of collectibility has historically been good as bad debt expenses have not been significant to date.

In
determining whether the fee is fixed or determinable, the Company only recognizes revenue for amounts that the client is legally obligated to pay. There are no instances where the
Company is recognizing revenue prior to invoicing the client. For example, for multi-year contracts where the client has the right to cancel a portion of the contractual term, the Company
only recognizes revenue for amounts related to the noncancellable portion of the contract until the client has relinquished its right

F-13

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

to
cancel. For multi-year contracts with increasing annual payments, the Company recognizes revenue based upon the amounts actually invoiced which results in an increasing amount of
revenue recognized each year. For multi-year contracts with decreasing annual payments, the Company recognizes revenue ratably using the entire noncancellable contract value which results
in cash received in the early portion of the contract term exceeding the amount of revenue recognized. For contracts that have usage-based terms, the Company recognizes revenue when the usage amounts
are determined and reported and billed to the client.

Subscription
and services revenue is recognized ratably over the term of the agreement beginning on the activation date. Amounts that have been invoiced are recorded in accounts
receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.

Services
revenues, when sold with a subscription of the Company's modules do not qualify for separate accounting as the Company does not have objective and reliable evidence of fair
value of the undelivered subscription service. Therefore, it recognizes such services revenue ratably over the term of the related subscription agreement.

When
the Company sells services other than with the subscription of its modules, the Company considers the following factors to determine the proper
accounting:



When
the Company sells services other than with the subscription of its modules, the Company recognizes revenue under time and material contracts as the services are rendered and the
Company recognizes revenue from fixed price contracts as milestones are achieved and, if applicable, accepted by the client.

Certain
clients have contracts that provide for a percentage of donations received online through its modules to be paid to the Company in place of or in conjunction with the standard
monthly subscription fee. In addition, certain clients have contracts which require payment of additional fees for usage above the levels included in the standard monthly subscription fee. Such fees
are recognized as revenue when the usage amounts are determined and reported and billed to the client.

Deferred Revenue

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Company's subscription
service described above and is recognized as the revenue recognition criteria are met. The Company generally invoices its customers in quarterly installments. Accordingly, the deferred revenue balance
does not represent the total contract value of annual or multi-year, noncancellable subscription agreements.

F-14

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Cost of Revenue

Cost of revenue consists primarily of labor costs for the Company's hosting, consulting and professional services organizations,
third-party costs and equipment depreciation relating to the Company's hosting services as well as allocated facilities and equipment costs. These amounts are expensed as incurred.

Research and Development

The Company capitalizes the costs to develop software for internal use (including the costs of developing the Company's COM and Common
Ground solutions) incurred during the application development stage as well as costs to develop significant upgrades or enhancements to existing internal use software. These costs are amortized on a
straight-line basis over an estimated useful life of three years. During 2010, the
Company capitalized approximately $937,000 of costs incurred to upgrade and enhance existing internal use software. Costs incurred to improve or enhance the Company's products during 2009 and 2008
were expensed as incurred as these costs did not qualify as significant upgrades or enhancements. Capitalized costs are recorded as part of property and equipment.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss), as well as other changes in stockholders' equity that result from transactions
and economic events other than those with stockholders. The Company's only element of other comprehensive loss is unrealized gains and losses on available-for-sale securities.
There were no realized gains or losses recorded to net income (loss) in 2010, 2009 and 2008.

Comprehensive
income (loss) was as follows (in thousands):

Year Ended December 31,2010

2009

2008Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)Other comprehensive loss:Unrealized gains (losses) on available-for-sale securities, net


(21
)




Comprehensive income (loss)

$
3,434

$
(2,095
)
$
(3,744
)


Sales Commissions

Sales commissions are earned by the salesperson at the time of contract signing and are expensed as incurred.

Income Taxes

The Company uses the liability method of accounting for income taxes whereby deferred tax assets and liabilities are determined based
on temporary differences between the financial reporting bases and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax net operating loss carryforwards. These
deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when such amounts are expected to reverse or be utilized. The realization of

F-15

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

total
deferred tax assets is contingent upon the generation of future taxable income. Valuation allowances are provided to reduce such deferred tax assets to amounts more likely than not to be
ultimately realized.

Income
tax provision includes United States federal, state and local income taxes and is based on pre-tax income or loss. In determining the estimated annual effective income
tax rate, the Company analyzes various factors, including projections of the Company's annual earnings and taxing jurisdictions in which the earnings will be generated, the impact of state and local
income taxes and the ability of the Company to use tax credits and net operating loss carryforwards.

The
Company recognizes and measures benefits for uncertain tax positions which require significant judgment from management. The Company evaluates its uncertain tax positions on a
quarterly basis and it bases these evaluations upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of
audits and effective settlement of audit issues. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of the
tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement. Future changes in the recognition or measurement of uncertain tax
positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and
operating results.

Indemnifications

The Company recognizes a liability for the fair value for certain guarantee and indemnification arrangements issued or modified by the
Company. When the Company determines that a loss is probable, the estimable loss must be recognized as it relates to applicable guarantees and
indemnifications. Some of the software licenses granted by the Company contain provisions that indemnify clients of the Company's software from damages and costs resulting from claims alleging that
the Company's software infringes the intellectual property rights of a third party. The Company records resulting costs as incurred and historically such costs have not been significant. Accordingly,
the Company has not recorded a liability related to these indemnification provisions as the Company believes any costs are immaterial.

The
Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of
these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by the
Company, arising out of that person's services as the Company's director or officer or that person's services provided to any other company or enterprise at the Company's request. The Company
maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. No expense has been incurred to date for such indemnity
obligations.

Stock-Based Compensation

Stock-based compensation is measured at the grant date, based on the estimated fair value of the award on that date, and is recognized
as expense over the requisite service period, which is generally over the vesting period, on a straight-line basis. The Company uses the Black-Scholes option pricing model to estimate the
grant date fair value of stock based awards.

F-16

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Net Income (Loss) Per Share

The Company used the two-class method to compute net income per share for the years ended December 31, 2010, 2009
and 2008, because the Company had previously issued securities, other than common stock, that contractually entitled the holders to participate in dividends and earnings of the Company. In May 2010,
all of the Company's outstanding convertible preferred stock converted into common stock in connection with the Company's initial public offering. Prior to the conversion, the holders of the
Series C convertible preferred stock were entitled to receive dividends when, as and if declared by the board of directors, in preference to a declaration or payment of a dividend, at a rate of
$0.7114 per share. In addition, the holders of the
Series A and Series B convertible preferred stock were entitled to receive dividends, when, as and if declared by the board of directors, in preference to any common stock of the
Company. The dividends were non-cumulative and no such dividends were declared or paid. Holders of Series A, Series B and Series C convertible preferred stock did not
share in losses of the Company.

Under
the two-class method, basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the
weighted average number of common shares outstanding during the period. Net income attributable to common stockholders is determined by allocating undistributed earnings between the holders of common
stock and Series A, Series B and Series C convertible preferred stock. Diluted net income per share attributable to common stockholders is computed by using the weighted average
number of common shares outstanding, including potential dilutive shares of common stock assuming the dilutive effect of convertible preferred stock, on an if-converted basis, and
outstanding stock options and convertible preferred stock warrants using the treasury stock method.

Due
to losses incurred during the years ended December 31, 2009 and 2008, the shares associated with stock options, convertible preferred stock warrants and convertible preferred
stock are not included in diluted net loss per share because they are anti-dilutive.

In
May 2010, in conjunction with the Company's initial public offering, all of the Company's Series P, Series Q, Series R and Series S common stock converted
into undesignated common stock. Prior to the conversion, the Series P, Series Q, Series R and Series S common stock had the same dividend rights, and therefore, resulted in
basic and diluted net income (loss) per share being the same for each class of common stock. As such, net income (loss) per share for the years ended December 31, 2010, 2009 and 2008 is
presented on a combined basis.

F-17

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Basic
and diluted net income (loss) per share was calculated as follows (in thousands, except per share amounts):

Year Ended December 31,2010

2009

2008Basic net income (loss) per shareNumerator:Net income (loss)

$
3,455

$
(2,095
)
$
(3,744
)Less: Undistributed earnings allocated to participating preferred stock


(407
)




Net income (loss) attributable to common stockholders

$
3,048

$
(2,095
)
$
(3,744
)Denominator:Weighted average common shares outstanding, basic


14,155


7,313


7,263Less: Weighted average number of common shares subject to repurchase








(6
)Weighted average common shares outstanding, basic


14,155


7,313


7,257Basic net income (loss) per common share

$
0.22

$
(0.29
)
$
(0.52
)Diluted net income (loss) per shareNumerator:Net income (loss) attributable to common stockholders

$
3,455

$
(2,095
)
$
(3,744
)Denominator:Weighted average common shares outstanding, basic


14,155


7,313


7,257Add: Outstanding convertible preferred stock(1)


1,733





Add: Outstanding convertible preferred stock warrants(2)


74





Add: Restricted stock units


1





Add: Options to purchase common stock


1,554





Weighted average common shares outstanding, diluted


17,517


7,313


7,257Diluted net income (loss) per common share

$
0.20

$
(0.29
)
$
(0.52
)


(1)Immediately
prior to the closing of the Company's initial public offering, each share of the Company's outstanding preferred stock was converted into one
share of undesignated common stock.(2)Upon
the closing of the Company's initial public offering, all outstanding preferred stock warrants were converted into warrants to purchase common stock.


F-18

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)




The
following table displays the Company's other outstanding common stock equivalents that were excluded from the computation of diluted net loss per share for the three years ended
December 31, 2010, as the effect of including them would have been anti-dilutive (in thousands):

As of December 31,2010

2009

2008Convertible preferred stock





5,316


5,316Convertible preferred stock warrants


2


253


253Options to purchase common stock


250


1,153


1,315


Recent Accounting Pronouncements

In October 2009, the FASB released ASU 2009-13,Multiple-Deliverable Revenue
Arrangements(ASU 2009-13), which amended the accounting rules addressing revenue recognition for multiple-deliverable revenue arrangements by eliminating the
currently existing criteria that objective and reliable evidence of fair value for undelivered products or services exist in order to be able to separately account for deliverables. Additionally, ASU
2009-13 provides for elimination of the use of the residual method of allocating arrangement consideration and requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables that can be accounted for separately based on their relative selling price. A hierarchy for estimating such selling price is included in the update.

The
Company adopted ASU 2009-13 effective January 1, 2011 on a prospective basis for new arrangements entered into or arrangements materially modified after that date.
Under the new revenue recognition rules, the Company will account for services separately from subscriptions when each is sold in one arrangement. In accordance with ASU 2009-13, the
Company will allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on vendor-specific objective evidence of selling price
(VSOE), if available, third-party evidence of selling price (TPE), if VSOE is not available, or best estimated selling price (BESP), if neither VSOE or TPE is available. The Company has been unable to
establish VSOE or TPE for the elements included in its multiple-element sales arrangements. Therefore, the Company has established the BESP for each element primarily by considering the average price
of actual sales of services when sold on a standalone basis, the number of modules purchased and the expected usage by the client over their subscription term, as well as other factors, including but
not limited to management's pricing practices. Revenue allocated to the subscription is recognized over the subscription term and revenue allocated to services is recognized as the services are
completed. The Company will continue to recognize revenue on all services sold together with a subscription entered into prior to January 1, 2011 ratably over the subscription period. While the
Company expects services revenue to increase due to the earlier recognition of services revenue upon completion of work, instead of ratably over the subscription term, the Company is not able to
reasonably estimate the amount of increase in revenue as the impact will depend on the nature and the size of service arrangements entered into or materially modified after January 1, 2011.

In
January 2010, the FASB issued ASU 2010-06,Improving Disclosures about Fair Value Measurements(ASU 2010-06).
ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and more disaggregation for the

F-19

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

different
types of financial instruments. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods
beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required. The Company did not have any
significant transfers in or out of Level 1 and Level 2 fair value measurements during the year ended December 31, 2010.

3. Cash, Cash Equivalents and Marketable Securities

The Company's cash equivalents and marketable securities as of December 31, 2010 consisted primarily of U.S. government agency bonds, corporate bonds, commercial paper and money
market funds.

At
December 31, 2010, the Company's cash, cash equivalents and marketable securities consist of the following (in thousands):

December 31, 2010Cost

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Fair
ValueCash and Cash Equivalents:Cash on hand

$
11,464







$
11,464Cash on hand held in money market funds


740








740Restricted cash held in money market funds


1,248








1,248Available-for-sale securities:Commercial paper


6,199

$


$



6,199Money market funds


44








44Total available-for-sale securities


6,243








6,243Total cash and cash equivalents

$
19,695

$


$


$
19,695Marketable Securities:Available-for-sale securities:U.S. government agency

$
24,970

$
(18
)
$
1

$
24,953Corporate bonds


10,226


(5
)

1


10,222Commercial paper


1,599








1,599Total marketable securities

$
36,795

$
(23
)
$
2

$
36,774


The
following table summarizes the contractual underlying maturities of the Company's available-for-sale securities at December 31, 2010 (in thousands):

December 31, 2010Cost

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Fair
ValueDue in one year or less

$
33,573

$
(13
)
$
2

$
33,562Due after one year through two years


9,465


(10
)




9,455Total available-for-sale securities

$
43,038

$
(23
)
$
2

$
43,017


F-20

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

3. Cash, Cash Equivalents and Marketable Securities (Continued)

At December 31, 2010, the Company performed a review of all of the securities in its portfolio with an unrealized loss position to determine if any
other-than-temporary impairments were required to be recorded. Factors considered in the Company's assessment included but were not limited to the following: the Company's
ability and intent to hold the security until maturity, the number of months until the security's maturity, the length of time that each security has been in an unrealized loss position, ratings
assigned to each security by independent ratings agencies, the magnitude of the unrealized loss compared to the face value of the security and other market conditions. Impairments are not considered
other than temporary as the Company has the intent to hold these investments until maturity. No other-than-temporary
impairments were identified as of December 31, 2010 related to securities currently in the Company's portfolio. The Company also noted that none of the securities in the portfolio as of
December 31, 2010 have been in an unrealized loss position for greater than one year.

4. Fair Value Measurements

Financial assets and liabilities with carrying amounts approximating fair value include accounts receivable, accounts payable and accrued expenses and other current liabilities. The
carrying amount of these financial assets and liabilities approximates fair value because of their short maturities. The carrying amount of the Company's debt, preferred stock warrant liability and
other long-term liabilities approximate their fair value. The fair value of debt as of December 31, 2009, was based upon management's best estimate of interest rates that would be
available for similar debt obligations. As of December 31, 2010, the Company had no outstanding debt agreements.

Prior
to the Company's initial public offering in May 2010, the Company also measured the fair value of the preferred stock warrant liability on a recurring basis using the Black-Scholes
option valuation model. Upon the closing of the initial public offering on May 4, 2010, all outstanding preferred stock warrants were converted into warrants to purchase common stock and,
accordingly, the liability was reclassified to additional paid-in capital.

The
Company measures certain financial instruments at fair value on a recurring basis, including cash equivalents and available-for-sale marketable securities.
The fair value of these financial instruments was measured using a hierarchal disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The
three levels are described below:

Level 1



Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.Level 2



Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.Level 3



Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company's own data.


F-21

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

4. Fair Value Measurements (Continued)

The
following summarizes the valuation of the Company's financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at
historical cost or any basis other than fair value.

Fair Value Measurements
at December 31, 2010 UsingDescription

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

TotalCash Equivalents:Cash on hand held in money market funds

$
740

$


$


$
740Restricted cash held in money market funds


1,248








1,248Available-for-sale securities:Money market funds


44








44Commercial paper


6,199








6,199Total available-for-sale securities


6,243








6,243Total cash equivalents

$
8,231

$


$


$
8,231Marketable Securities:U.S. government agency

$
24,953

$


$


$
24,953Corporate bonds


10,222








10,222Commercial paper


1,599








1,599Total marketable securities

$
36,774

$


$


$
36,774Total

$
45,005

$


$


$
45,005




Fair Value Measurements
at December 31, 2009 UsingDescription

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

TotalCash and cash equivalents

$
16,662

$


$


$
16,662Convertible preferred stock warrant liability








1,375


1,375Total

$
16,662

$


$
1,375

$
18,037


F-22

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

4. Fair Value Measurements (Continued)

Changes
in Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2010 and 2009 were as follows (in thousands):

December 31, 2008, preferred stock warrant liability

$
561Unrealized gains (losses), net


814December 31, 2009, preferred stock warrant liability

$
1,375Unrealized gains (losses), net


15Reclassification of preferred stock warrant liability to additional paid-in capital


(1,390
)December 31, 2010, preferred stock warrant liability

$



5. Property and Equipment

Property and equipment, which includes software purchased or developed for internal use, is comprised of the following (in thousands):

Year Ended
December 31,2010

2009Computer software (including software under capital lease of zero and $13 in 2010 and 2009, respectively)

$
1,846

$
1,207Computer equipment (including equipment under capital lease of zero and $1,117 in 2010 and 2009, respectively)


11,500


9,609Furniture and fixtures (including furniture and fixtures under capital lease of $107 and $128 in 2010 and 2009, respectively)


1,303


1,261Leasehold improvements


644


642Capitalized software development costs


937


16,230


12,719Less: Accumulated depreciation and amortization


(11,621
)

(9,443
)$
4,609

$
3,276


F-23

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

6. Long-term Debt

Long-term debt consists of the following (in thousands):

Year Ended
December 31,2010

2009Notes entered into during 2007 and amended in 2009:Comerica Bankon July 31, 2009 the Company entered into an amended debt facility for a $10,000,000 revolving line of credit which was an
increase from the previous $6,000,000 line of credit to finance working capital requirements. $1,000,000 of the amount is non-formula based and may be borrowed without regard to any borrowing base limitations. The remaining amounts are formula-based
and capped at 80% of eligible accounts receivable. Amounts borrowed could be repaid and reborrowed at any time prior to April 26, 2011 at which time the entire principal balance outstanding was to become due and payable. On May 12, 2010,
subsequent to the closing of the Company's initial public offering, the Company paid approximately $975,000 in satisfaction of the remaining balance on this line of credit. In July 2010, the Company cancelled the line of credit. Amounts outstanding
under this revolving line of credit bore interest at the greater of the daily adjusting LIBOR (floor of 2%) plus 300 basis points or the daily adjusted LIBOR plus 325 basis points (5% at December 31, 2009)

$


$
975Comerica Bankterm loan in the amount of the outstanding balance on the previous $3,000,000 equipment line as of July 31, 2009
which financed the acquisition of property and equipment. The outstanding principal balance at March 26, 2008 became payable in equal monthly installments beginning in March 2008 and maturing in February 2011 with the remaining principal draws
outstanding at October 26, 2008 becoming payable in equal monthly installments beginning in October 2008 and maturing in September 2011. On May 12, 2010, subsequent to the closing of the Company's initial public offering, the Company paid
approximately $875,000 in satisfaction of the remaining balance on this term loan. Amounts outstanding under this term loan bore interest at the greater of the daily adjusting LIBOR (floor of 2%) plus 300 basis points or the daily adjusted LIBOR plus
325 basis points (5% at December 31, 2009)





1,130


2,105Less current portion





773Long-term portion

$


$
1,332Available for future borrowings under term loans and lines of credit

$


$
3,416


Total
interest expense incurred in 2010, 2009 and 2008 was approximately $63,000, $355,000 and $691,000, respectively.

The
Company had no outstanding debt agreements as of December 31, 2010.

In
conjunction with the April 3, 2009 execution of the Washington D.C. operating lease, the Company was required to provide a $350,000 standby letter of credit with Comerica for
the benefit of the landlord to secure the office space per the lease agreement. In addition, the Company also has a

F-24

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

6. Long-term Debt (Continued)

standby
letter of credit for the benefit of the landlord of the Company's Austin, Texas facility, which was reduced in accordance with the terms of the lease to approximately $898,000 in June 2010,
resulting in total standby letters of credit of approximately $1,248,000. In July, upon cancellation of the line of credit with Comerica, the Company entered into a pledge agreement with Comerica to
cash secure the letters of credit. The pledge agreement requires that the Company maintain a minimum cash balance of $1,248,000 in a money market account with the bank and such amount is classified as
restricted cash on the balance sheet. As of December 31, 2010 and 2009, the Company had outstanding letters of credit in the amount of $1,248,000 and $2,634,000, respectively.

7. Commitments and Contingencies

The Company leases office space for its corporate headquarters located in Austin, Texas. This lease expires in September 2013. The Company also leases additional office space in Berkley,
California and Washington, D.C.

In
January 2010, the Company entered into a sublease agreement pursuant to which Convio sublet approximately 12,000 square feet of its office facility located in Austin, Texas. The
sublease has a term of forty-four months. The total sublease payments receivable over the full forty-four month lease term will be approximately $823,000.

Consolidated
rental expense, net of sublease income, was approximately $2,232,000, $2,165,000 and $1,552,000 and for the years ended December 31, 2010, 2009 and 2008,
respectively. Rent expense is recognized on a straight-line basis over the life of the leases.

Future
minimum payments as of December 31, 2010, under operating and capital lease obligations are as follows (in thousands):

Capital
Leases

Operating
Leases2011

$
17


2,1042012





2,0472013





1,8172014





7752015





804Thereafter





3,048Total minimum lease payments


17

$
10,595Less: amount representing interest and sales tax


(3
)Present value of capital lease obligations


14Less: current portion of capital lease obligations


(14
)Long-term capital lease obligations

$



From
time to time, the Company is subject to various claims that arise in the normal course of business. In the opinion of management, the Company is unaware of any pending or unasserted
claims that would have a material adverse effect on the financial position, liquidity or results of the Company.

F-25

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

7. Commitments and Contingencies (Continued)

Certain executive officers are entitled to certain payments if they are terminated without cause or as a result of a change in control. Upon termination without cause, and not as a
result of death or disability, each of such officers is entitled to receive a payment of base salary for four to six months following termination of employment and certain officers will be entitled to
continue to receive coverage under medical and dental benefit plans for four to six months or until such officers are covered under a separate plan from another employer. Upon a termination other than
for cause or with good reason following a change in control, each of such officers will be entitled to the same benefits as upon termination without cause and will also be entitled to certain
acceleration of such officer's outstanding unvested options at the time of such termination.

8. Income Taxes

The components of the provision (benefit) for income taxes attributable to continuing operations are as follows for the years ended December 31, 2010 and 2009 (in thousands):

Year Ended
December 31,2010

2010Income tax provision:Current:Federal

$
72

$
25Foreign





State


227


194Total Current


299


219Deferred:Federal





Foreign





State





Total Deferred





Total Provision

$
299

$
219


As
of December 31, 2010, the Company had federal net operating loss carryforwards of approximately $29.2 million, a research and development credit carryforward of
approximately $1.1 million, and an AMT credit carryforward of approximately $0.2 million. The net operating loss and research and development credits will begin to expire in 2020 if not
utilized.

Utilization
of the net operating losses and tax credits may be subject to substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986.
The annual limitation may result in the expiration of net operating losses and research and development credits before utilization.

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for
income tax

F-26

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

8. Income Taxes (Continued)

purposes.
Significant components of the Company's deferred taxes as of December 31, 2010 and 2009 are as follows (in thousands):

Year Ended
December 31,2010

2009Deferred tax assets:Current deferred tax assets:Bad debt

$
83

$
83Accrued liabilities


691


430Deferred rent


249


259Gross current deferred tax assets


1,023


772Valuation allowance


(910
)

(684
)Net current deferred tax assets


113


88Noncurrent deferred tax assets:Net operating loss carryforwards


10,223


11,614Research and development credit & AMT carryforwards


1,582


1,303Deferred revenue


984


1,183State tax credits


442


453Depreciation and amortization





767Other


809


544Gross noncurrent deferred tax assets


14,040


15,864Valuation allowance


(12,484
)

(14,048
)Net noncurrent deferred tax assets


1,556


1,816Deferred tax liabilities:Current deferred tax liabilitiesPrepaid expense


(180
)

(182
)Total current deferred tax liabilities


(180
)

(182
)Noncurrent deferred tax liabilitiesDepreciation and amortization


(108
)

Intangibles


(1,381
)

(1,722
)Total noncurrent deferred tax liabilities


(1,489
)

(1,722
)Net current deferred tax liability


(67
)

(94
)Net noncurrent deferred tax asset

$
67

$
94


The
Company has established a valuation allowance equal to the net deferred tax assets due to uncertainties regarding the realization of deferred tax assets based on the Company's lack
of earnings history. During 2010, the valuation allowance decreased by $1.3 million, primarily due to taxable income from operations. During 2009, the valuation allowance decreased by
$4.4 million, primarily due to taxable income from operations and the reduction of net operating losses and research and development credits not previously benefited.

F-27

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

8. Income Taxes (Continued)

As
of December 31, 2010, the valuation allowance includes approximately $515,000 related to the acquisition of GetActive's net deferred tax assets. The initial recognition of
these acquired deferred tax asset items will result in a benefit to income taxes.

The
Company's provision (benefit) for income taxes attributable to continuing operations differs from the expected tax expense (benefit) amount computed by applying the statutory federal
income tax rate
of 34% to income from continuing operations before income taxes in 2010, 2009 and 2008, primarily as a result of the following (in thousands):

Year Ended
December 31,2010

2009

2008Federal statutory rate


34.0
%

(34.0
)%

(34.0
)%State taxes, net of federal benefit


7.5


9.4


(2.3
)Change in deferred tax valuation allowance


(43.1
)

(8.6
)

40.2Permanent items


3.0


2.8


1.6Research and development tax credits


(6.1
)

(6.3
)

2.3Warrant revaluation


0.1


14.8


(16.4
)Stock compensation


11.1


30.7


10.3Other


1.6


2.8


(1.7
)8.1
%

11.6
%


%


Effective
January 1, 2007, the Company adopted a new accounting standard relating to the accounting for uncertain tax positions. The Company recorded no additional tax liability
as a result of the adoption of this standard and no adjustments to the January 1, 2007 balance of retained earnings. The reconciliation of unrecognized tax benefits at the beginning and end of
the year is as follows (in thousands):

Balance at January 1, 2010

$
148Additions based on tax positions related to the current year


20Decreases based on tax positions related to prior years


Balance at December 31, 2010

$
168


Due
to the existence of the valuation allowance, future changes in unrecognized tax benefits will not impact the Company's effective tax rate.

The
Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During 2010, the Company did not recognize any interest or
penalties.

The
Company files consolidated and separate tax returns in the U.S. federal jurisdiction and in several state jurisdictions. The Company is no longer subject to U.S. federal income tax
examinations for years before 2007 and is no longer subject to state and local income tax examinations by tax authorities for years before 2006. The Company is not currently under audit for federal,
state or any foreign jurisdictions.

F-28

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity

Reverse Stock Split

On April 5, 2010, the board of directors approved an amended and restated certificate of incorporation that (a) increased
the authorized common stock to 40 million shares, (b) authorized 5 million shares of preferred stock and (c) effected a reverse stock split of all the outstanding shares of
preferred stock and common stock into 0.352 of a share of preferred stock or common stock, respectively. The par value of the common and convertible preferred stock was not adjusted as a result of the
reverse stock split. All issued and outstanding common stock, convertible preferred stock, warrants for common stock and convertible preferred stock, and per share amounts contained in the financial
statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effected on April 22, 2010.

Initial Public Offering

On May 4, 2010, the Company completed an initial public offering consisting of 5,132,728 shares of common stock at $9.00 per
share. The total shares sold in the offering included 1,343,201 shares sold by selling stockholders and 3,789,527 shares sold by the Company. In addition, the underwriters exercised their option to
purchase an additional 769,909 shares to cover over-allotments. After deducting the payment of underwriters' discounts and commissions and offering costs, the net proceeds to the Company
from the sale of shares in the offering were approximately $35.9 million.

Conversion of Common and Preferred Stock

Immediately prior to the closing of the Company's initial public offering, which occurred on May 4, 2010, each share of the
Company's outstanding preferred and common stock was convertible into one share of undesignated common stock. The following table presents the conversion of all classes of stock on May 4, 2010:

Prior to Conversion

Subsequent to ConversionConvertible Preferred StockSeries A


3,036,198


Series B


1,138,380


Series C


1,141,459


Common StockSeries P


5,458,168


Series Q


198,796


Series R


676,025


Series S


1,086,210


Undesignated Common Stock





12,735,236


Following
the consummation of our initial public offering in May 2010, we amended our certificate of incorporation to, among other things, set the authorized capital stock of the company
at 45,000,000 shares, par value of $0.001 per share, comprised of 40,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of December 31, 2010, there were no preferred
shares designated or issued. Each share of common stock entitles the holder thereof to one vote on each matter submitted to a vote at any meeting of stockholders.

F-29

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

Series A, B and C Convertible Preferred Stock

Convertible preferred stock as of December 31, 2010 and 2009 consisted of the following:

Year Ended
December 31,2010

2009(in thousands)Series A convertible preferred stock: $0.001 par value; zero and 3,160,608 shares authorized at December 31, 2010 and 2009, respectively; zero
and 3,036,198 shares issued and outstanding at December 31, 2010 and 2009, respectively

$


$
17,251Series B convertible preferred stock: $0.001 par value; zero and 1,138,396 shares authorized at December 31, 2010 and 2009, respectively; zero
and 1,138,380 shares issued and outstanding at December 31, 2010 and 2009, respectively





6,468Series C convertible preferred stock: $0.001 par value; zero and 1,141,470 shares authorized at December 31, 2010 and 2009, respectively; zero
and 1,141,459 shares issued and outstanding at December 31, 2010 and 2009, respectively





10,150Total convertible preferred stock

$


$
33,869


Stock Warrants

On April 29, 2010, in conjunction with the Company's initial public offering, 252,665 shares of common stock issuable upon the
exercise of outstanding warrants were converted into an equivalent number of shares of a single class of common stock. Immediately prior to the closing of the initial public offering, a portion of the
warrants were net exercised, resulting in the issuance of 72,800 shares of common stock. Subsequent to the net exercise and as of December 31, 2010, 106,725 shares of common stock were issuable
upon the exercise of the remaining warrants with a weighted average exercise price of $4.60 per share and a weighted average remaining life of 1.4 years.

Preferred Stock Warrant Liability

Prior to the Company's completion of its initial public offering, freestanding warrants that were related to the Company's preferred
stock were classified as liabilities in the accompanying balance sheets. The warrants were subject to re-measurement at each balance sheet date, and any change in fair value was recognized
as a component of other income (expense). The Company recorded $15,000 and $814,000 of other expense and $1.8 million of other income in 2010, 2009 and 2008, respectively, to reflect the change
in fair value of the preferred stock warrants during those periods. Upon the closing of the initial public offering on May 4, 2010, all outstanding preferred stock warrants were converted into
warrants to purchase common stock and, accordingly, the liability was reclassified to additional paid-in capital.

F-30

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

Stock Option Plans

The Company has in effect equity compensation plans under which it has granted incentive stock options, non-qualified stock
options and restricted stock units to employees, directors and consultants. The incentive stock options and non-qualified stock options allow the holder to purchase shares of the Company's
undesignated common stock, or Series P common stock prior to the Company's initial public offering, at a price not less than the fair market value of the stock at the date of grant except in
the event of a business combination. The restricted stock units entitle the holder to receive shares of the Company's stock after a vesting requirement is satisfied. The fair value of each restricted
stock award is estimated using the intrinsic value method which is based on the closing price on the date of grant. Compensation expense for restricted stock and restricted stock unit awards is
recognized over the vesting period on a straight-line basis net of estimated pre-vesting forfeitures.

2009 Stock Incentive Plan

During 2009, the Company's Board of Directors approved resolutions to adopt the 2009 Stock Incentive Plan (the "2009 Plan") providing
for the issuance of up to 580,096 shares of the Company's common stock to directors, employees, consultants and other independent advisors. The share reserve under the 2009 Plan contains an evergreen
provision that allows for an annual increase on January 1 of each year equal to the lesser of (a) 4% of the aggregate outstanding shares on the first day of the applicable year and
(b) any lesser amount determined by our board of directors. The 2009 Plan provides for the issuance of restricted common stock, incentive stock options or nonqualified stock options. Pursuant
to the 2009 Plan, the exercise price for incentive stock options is at least 100% of the fair market value on the date of grant, or for employees owning in excess of 10% of the voting power of all
classes of stock, 110% of the fair market value on the date of grant.

In
the event of a change in control, outstanding stock options and other awards that are payable in or convertible into common stock under the 2009 Plan will terminate upon the effective
time of the change in control unless provision is made in connection with the transaction for the continuation or assumption of such awards by, or for the substitution of the equivalent awards under a
cash incentive program. Fifty percent of the outstanding stock options and other awards that will terminate upon the effective time of the change in control shall become fully vested immediately
before the effective time of the change in control or upon involuntary termination, in the case the participant has completed at least one year of service with the company prior to the change in
control. Participants not completing at least one year of service, shall only vest in that number of outstanding stock options and other awards in which the participant would have vested upon the
participant's completion of one year of service.

As
of December 31, 2010, 251,291 options and 135,855 restricted stock units had been granted from the 2009 Plan. Additionally, as of December 31, 2010, there were 198,980
shares available for future grant under the 2009 Plan.

1999 Stock Option/Stock Issuance Plan

The 1999 Stock Option/Stock Issuance Plan (the "1999 Plan") provided for the issuance of up to 2,021,324 shares of the Company's common
stock to directors, employees, consultants and other independent advisors. During 2006, the Company's Board of Directors approved resolutions to increase the number of shares authorized for issuance
under the 1999 Plan from 2,021,324 to 2,373,324. During

F-31

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

2007,
the Company's Board of Directors approved resolutions to increase the number of shares authorized for issuance under the 1999 Plan from 2,373,324 to 2,988,268. During 2008, the Company's Board
of Directors approved resolutions to increase the number of shares authorized for issuance under the 1999 Plan from 2,988,268 to 3,528,588. During 2009, the Company's Board of Directors approved
resolutions to increase the number of shares authorized for issuance under the 1999 Plan from 3,528,588 to 3,928,812. The 1999 Plan provided for the issuance of restricted common stock, incentive
stock options or nonqualified stock options. Pursuant to the 1999 Plan, the exercise price for incentive stock options was at least 100% of the fair market value on the date of grant, or for employees
owning in excess of 10% of the voting power of all classes of stock, 110% of the fair market value on the date of grant.

Options
issued prior to August 2006 generally expire in 10 years, however, beginning in August 2006, the expiration date was changed to 7 years. Vesting periods are
determined by the Board of Directors; however, options generally vest 25% after the completion of one year of service, with the remaining balance vesting on a pro rata basis monthly for
thirty-six months. Grants issued prior to January 1, 2003 and select nonqualified grants issued subsequent to that date contain provisions that allow for exercise prior to full
vesting. In connection with the exercise of these options pursuant to the 1999 Plan, employees entered into restricted stock purchase agreements with the Company. Under the terms of these agreements,
the Company has a right to repurchase any unvested shares at the original exercise price of the shares upon the employee's termination of service to the Company. The repurchase rights lapse ratably
over the vesting term of the original grant.

In
the event of a change in control, the accelerated vesting of certain outstanding options will automatically occur unless the successor corporation assumes the options and the right to
repurchase, or the options are replaced with a cash incentive program.

The
1999 Plan expired on November 9, 2009.

2000 & 2006 GetActive Plans

In connection with the Company's acquisition of GetActive, the Company assumed GetActive's 2000 Stock Option Plan (the "2000 Plan") and
2006 Equity Incentive Plan (the "2006 Plan") (collectively, the "GetActive Plans") including all of the outstanding stock options issued under the GetActive Plans. The stock options under the
GetActive Plans that the Company assumed became options to purchase an aggregate of 449,836 shares of the Company's common stock with exercise prices ranging from $0.09 to $3.52 per share.

The
options outstanding under the GetActive Plans generally vest with respect to 25% of the shares one year after the options' vesting commencement date and the remainder ratably on a
monthly basis over the following three years. Options granted under the GetActive Plans have a maximum term of 10 years. Options could be exercised at any time, and stock issued under the
GetActive Plans could be, as determined by the Board, subject to repurchase by the Company. This right to repurchase generally lapses over four years from the original date of issuance or grant. As of
December 31, 2010, there were no outstanding shares subject to repurchase by the Company.

Stock
compensation expense recorded for all of the stock option plans in 2010, 2009 and 2008 was $2,048,000, $2,503,000 and $1,556,000, respectively.

F-32

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

Stock Options

The Company uses the Black-Scholes model to estimate the fair value of its share-based payment awards. The Black-Scholes model requires
estimates regarding the risk-free rate of return, dividend yields, expected life of the award and estimated forfeitures of awards during the service period. The calculation of expected
volatility is based on historical volatility for comparable industry peer groups over periods of time equivalent to the expected life of each stock option grant. As the Company has limited history of
trading in the public equity markets, the Company believes that comparable industry peer groups provide a more reasonable
measurement of volatility in order to calculate an accurate fair value of each stock award. The expected term is calculated based on the weighted average of the remaining vesting term and the
remaining contractual life of each award. The Company bases the estimate of risk-free rate on the U.S. Treasury yield curve in effect at the time of grant or modification. The Company has
never paid cash dividends and does not currently intend to pay cash dividends, and thus has assumed a dividend yield of zero.

The
Company estimates potential forfeitures of stock grants and adjusts compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service
period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up
adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.

The
following table summarizes the weighted average grant-date value of options and the assumptions used to develop their fair value for 2010, 2009 and 2008.

Year Ended December 31,2010

2009

2008Weighted-average grant-date fair value of options

$
4.31

$
1.22

$
3.92Risk-free interest rate


2.28
%

1.95
%

3.00
%Expected volatility


0.62


0.66


0.57Expected life in years


4.3


4.69


4.58Dividend yield











F-33

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

A
summary of the changes in common stock options issued under all of the existing stock options plans is as follows:

Shares

Range of
Exercise
Prices

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
ValueOptions outstanding, December 31, 2007


2,436,911

$0.09 - $17.05

$
1.08Granted


541,733

$5.99 - $9.20


7.90Exercised


(84,884
)
$0.09 - $5.97


1.66Forfeited


(110,174
)
$0.85 - $12.78


5.91Options outstanding, December 31, 2008


2,783,586

$0.09 - $17.05

$
3.98Granted


1,689,624

$4.57 - $6.31


4.78Exercised


(25,328
)
$0.54 - $4.57


1.46Forfeited


(1,319,260
)
$0.54 - $12.78


7.14Options outstanding, December 31, 2009


3,128,622

$0.09 - $17.05

$
3.10

$
17,691,574Granted


251,291

$7.85 - $9.15


8.77Exercised


(337,157
)
$0.09 - $5.97


2.05

$
2,187,559Forfeited


(119,847
)
$0.09 - $17.05


3.83Options outstanding, December 31, 2010


2,922,909

$0.09 - $12.78

$
3.68

$
13,589,196


The
aggregate intrinsic value of options outstanding and options exercised was calculated based on the positive differences between the estimated fair value of the Company's common stock
of $8.29 and $8.75 per share on December 31, 2010 and 2009, respectively, or at time of exercise, and the exercise price of the options.

The
following table summarizes information about options outstanding at December 31, 2010:

Options Outstanding

Options ExercisableExercise Price

Number
Outstanding

Weighted-
Average
Remaining
Contractual
Life

Weighted-
Average
Exercise
Price

Number
Exercisable
and Vested

Weighted-
Average
Exercise
Price$0.09 - $1.14


907,049


3.61

$
0.99


907,049

$
0.99$1.24 - $4.15


296,196


4.91


2.06


294,121


2.05$4.57 - $4.57


1,090,872


5.05


4.57


712,308


4.57$5.40 - $8.75


616,314


5.57


6.72


172,573


5.70$9.15 - $12.78


12,478


5.99


9.51


1,378


11.75$0.09 - $12.78


2,922,909


4.70

$
3.68


2,087,429

$
2.76


At
December 31, 2010, there was an estimated $2.9 million of total unrecognized compensation costs related to stock-based compensation arrangements. These costs will be
recognized over a weighted average period of 1.9 years.

F-34

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

Certain
stock options have been exercised prior to vesting resulting in the issuance of nonvested shares. A summary of the Company's nonvested shares as of December 31, 2010, and
changes during 2010, is presented below:

Nonvested shares

Shares

Weighted-
Average
Intrinsic ValueNonvested at December 31, 2009


163

$
1,000Issued





Vested


(163
)

(1,000
)Nonvested at December 31, 2010




$



Cash
received from option exercises during 2010 was $695,000. The Company has historically issued new shares to satisfy share option exercises.

Restricted Stock Units

A summary of restricted stock unit activity under the Company's stock incentive plans as of December 31, 2010, and changes
during 2010 are as follows:

Shares

Weighted-
Average
Fair ValueUnvested, January 1, 2010




$
Granted


135,855


9.00Vested and issued





Cancelled


(3,465
)

9.14Unvested, December 31, 2010


132,390

$
9.00


As
of December 31, 2010, there was an estimated $1.1 million of total unrecognized compensation cost related to unvested restricted stock units granted under the Company's
2009 Plan. The cost is expected to be recognized through December 2014 with a weighted average recognition period of approximately 3.2 years.

Stock Option Exchange

In February 2009, the Company's board of directors approved a proposal to offer current employees, consultants or directors the
opportunity to exchange outstanding eligible stock options for new options. Other than a reduced exercise price, the exchanged stock options had the same terms and conditions as prior to the
repricing. The offer was made to eligible option holders on February 16, 2009 and expired on March 16, 2009. Unexercised options that were granted under our 1999 Plan on or after
May 9, 2007 and which had an exercise price equal to or greater than $4.57 per share were eligible under this program. Pursuant to the exchange, the Company subsequently canceled options for
1.1 million shares of common stock and issued an equivalent number of new stock options to eligible holders on March 16, 2009 at an exercise price of $4.57 per share. The incremental
$590,000 of compensation due to the exchange was allocated between options vested at the date of issuance and unvested options at the date of issuance. The $435,000 related to vested options was
expensed on the

F-35

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

9. Stockholders' Equity (Continued)

date
of issuance and the remaining $155,000 related to unvested options will be expensed over the remaining vesting period of the options.

10. Write Off of Deferred Stock Offering Costs

In August 2008, the Company withdrew a Form S-1 Registration Statement on file with the Securities and Exchange Commission due to weak market conditions. As a result
approximately $1.5 million of prepaid stock offering costs were written off in August 2008.

11. Employee Benefit Plan

During fiscal 2001, the Company established the Convio 401(k) Plan (the "Convio Plan") for the benefit of substantially all employees. The Company is the administrator of the Convio
Plan. During 2006 and 2007, to be eligible for the Convio Plan, employees must have reached the age of 21 and three months of employment with the Company. Effective January 1, 2008, all
employees regardless of age are eligible to participate in the Convio Plan immediately upon hire and will be automatically enrolled after 30 days of employment, unless they elect not to
participate. Participants may elect to contribute up to 60% of their compensation to the Convio Plan. The Company may make discretionary matching contributions of a participant's compensation as well
as discretionary profit-sharing contributions to the Convio Plan. The Company has not contributed to the Convio Plan to date.

12. Subsequent Events

Emeryville, California Lease

On February 8, 2010, the Company entered into an office building lease with Emery Station Joint Venture, LLC pursuant to
which Convio will lease approximately 6,185 square feet in an office facility located in Emeryville, California. The lease has a term of sixty-three months, which is projected to commence on
April 15, 2011. The lease agreement contains escalating rent payments, which may be adjusted for component charges, taxes, insurance and maintenance related to the property. The total basic
rent payable over the full sixty-three month lease term will be approximately $977,000. The Company's former lease for office space in Berkley, California will expire in June 2011.

As
a result of the new lease agreement, future minimum payments under operating lease obligations will be as follows (in thousands):

Operating
Leases2011

$
2,2352012


2,2252013


2,0012014


9642015


999Thereafter


3,148Total

$
11,572


F-36

---



Table of Contents

Convio, Inc.

Notes to Consolidated Financial Statements (Continued)

12. Subsequent Events (Continued)

StrategicOne Acquisition

On January 28, 2011, the Company acquired StrategicOne, LLC ("StrategicOne"), a privately-owned company, to strengthen
its enterprise offering by adding the experience and expertise of a proven provider of data analytics, predictive modeling and other database marketing services to the Company.

StrategicOne
was acquired for approximately $4,916,000 in cash. In addition, the Company agreed to deliver up to 50,000 shares of Convio and pay up to $1,300,000 in additional cash
consideration over the next three years upon the achievement by the entity of certain milestone-based objectives, the payment of which are guaranteed by Convio in the event that such milestone based
objectives are achieved.

The
Company will record the purchase of StrategicOne using the acquisition method of accounting and will recognize the assets acquired and liabilities assumed at their fair values as of
the date of acquisition. The results of StrategicOne's operations will be included in the Company's consolidated results of operations beginning with the date of the acquisition. The Company is
currently evaluating the fair values of the consideration transferred, assets acquired and liabilities assumed and will complete its purchase price allocation in the first quarter of 2011.

Increase in 2009 Stock Incentive Plan Equity Pool

The share reserve under the 2009 Plan contains an evergreen provision that allows for an annual increase on January 1 of each
year beginning in 2011 and through 2019 equal to 4% of the aggregate outstanding shares on December 31 of each preceding calendar year or a lesser amount as determined by our board of
directors. In January 2010, the Company's Board of Directors approved an annual increase to the 2009 Plan share reserve of 4% of the 17,612,536 aggregate outstanding shares at December 31,
2010. Therefore, the total reserve was increased by 704,501 shares.

F-37

---





Table of Contents

Supplementary Financial Information (Unaudited)

The following tables set forth our unaudited quarterly condensed consolidated statements of operations data for each of the eight
quarters ended December 31, 2010. The data has been prepared on the same basis as the audited consolidated financial statements and related notes included in this Annual Report on
Form 10-K and you should read the following tables in conjunction with such financial statements. The table includes all necessary adjustments, consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of this data. The results of historical periods are not necessarily indicative of future results.

Quarterly
financial information for 2010 and 2009 is as follows (in thousands, except per share amounts):

Three Months EndedDec 31,
2010

Sep 30,
2010

Jun 30,
2010

Mar 31,
2010

Dec 31,
2009

Sep 30,
2009

Jun 30,
2009

Mar 31,
2009(in thousands)Statements of Operations Data:Total revenue

$
16,980

$
17,855

$
18,216

$
16,693

$
15,784

$
16,234

$
16,408

$
14,660Gross profit


10,638


11,360


11,809


10,396


9,548


10,043


10,252


8,464Income (loss) from operations


(154
)

1,684


1,507


737


(891
)

674


974


(1,481
)Income (loss) before income taxes


(76
)

1,700


1,924


206


(1,447
)

529


828


(1,786
)Net income (loss)


65


1,505


1,703


182


(1,562
)

475


803


(1,811
)Earnings per share:Basic

$
0.00

$
0.09

$
0.11

$
0.01

$
(0.21
)
$
0.04

$
0.06

$
(0.25
)Diluted

$
0.00

$
0.08

$
0.10

$
0.01

$
(0.21
)
$
0.03

$
0.06

$
(0.25
)


Earnings per common share are computed independently for each of the periods presented and, therefore, may not add up to the total for the year.

F-38

---